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                           Before the
               Federal Communications Commission
                     Washington, D.C. 20554
                                
                                
In re Applications of           )
                                )
AMERITECH CORP.,                )
Transferor,                     )
                                )
AND                             )
                                )
SBC COMMUNICATIONS INC.,        )            CC Docket No. 98-141
Transferee,                     )
                                )
For Consent to Transfer Control of )
Corporations Holding Commission Licenses     )
and Lines Pursuant to Sections 214 )
and 310(d) of the Communications Act    )
and Parts 5, 22, 24, 25, 63, 90, 95 and 101  )
of the Commission's Rules       )

                                
                  MEMORANDUM OPINION AND ORDER

                                Adopted:  October 6, 1999        
                                   Released:  October 8, 1999

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

                       TABLE OF CONTENTS
                                                           Page
     
     I.                                                     INTRODUCTION. . . . . . 5
     II.                                                    EXECUTIVE SUMMARY . . . . . .6
     
     III.                                                   BACKGROUND. . . . . . . 8
          A.                                                The Applicants . . . . . . . 8
               1.                                           A Changing Industry . . . . . . .11
               2.                                           State of Local Competition in SBC and Ameritech Regions . . . . . . 12
          B.                                                The Merger Transaction and Review Process. . . . . . 18
               1.                                           Department of Justice Review. . . . . 19
               2.                                           State and International Review. . . . . . .20
               3.                                           Commission Review . . . . . 22
     IV.                                                    PUBLIC INTEREST FRAMEWORK . . . . . . 25
     V.                                                     ANALYSIS OF POTENTIAL PUBLIC INTEREST HARMS . . . . .30
          A.                                                Overview . . . . .30
          B.                                                Analysis of Competitive Effects. . . . . . 32
               1.                                           Competition Between SBC and Ameritech . . . . . 32
               2.                                           Local Exchange and Exchange Access Services . . . . .34
          C.                                                Comparative Practices Analysis . . . . . . 49
               1.                                           Need for Comparative Practices Analyses . . . . . . .51
               2.                                           Effect of Reduction in Number of Benchmarks . . . . .55
               3.                                           The Value of Comparative Practices Analyses . . . . .59
               4.                                           Adverse Effects of SBC/Ameritech Merger . . . . . . .69
               5.                                           Continued Need for Major Incumbent LEC Benchmarks . . . . . . .75
               6.                                           Conclusion. . . . . . .83
          D.                                                Increased Discrimination . . . . . . .84
               1.                                           Overview. . . . . 84
               2.                                           Analysis. . . . . 88
     VI.                                                    ANALYSIS OF POTENTIAL PUBLIC INTEREST BENEFITS. . . . . .114
          A.                                                National-Local Strategy. . . . . . . 115
               1.                                           The Benefits are Not Merger-Specific. . . . . .119
               2.                                           Magnitude of the Claimed Benefits . . . . . . .131
          B.                                                Efficiencies . . . . .135
               1.                                           Cost Savings. . . . . 137
               2.                                           Revenue Enhancements. . . . . . 139
               3.                                           Long Distance . . . . . . .141
          C.                                                Other Product Markets. . . . . .141
     
     
     VII.                                                   CONDITIONS. . . . . . 143
          A.                                                Open Process . . . . .144
          B.                                                Adopted Conditions . . . . . . .145
               1.                                           Promoting Equitable and Efficient Advanced Services Deployment. . . . . 148
               2.                                           Ensuring Open Local Markets . . . . .156
               3.                                           Fostering Out-of-Territory Competition. . . . . . . 166
               4.                                           Improving Residential Phone Service . . . . . .167
               5.                                           Ensuring Compliance with and Enforcement of these Conditions. . . . . . 170
          C.                                                Benefits of Conditions . . . . .175
               1.                                           Mitigating Harm from Loss of Potential Competition. . . . . . 176
               2.                                           Mitigating Harm from Loss of Benchmarks . . . . . . 177
               3.                                           Mitigating Harm from Potential Increased Discrimination . . . . . .178
               4.                                           Additional Benefits from Conditions . . . . . .180
          D.                                                Other Requested Conditions or Modifications to Proffered Conditions. . . . . 181
               1.                                           Separate Affiliate for Advanced Services. . . . . . 182
               2.                                           Requests Regarding Other Conditions . . . . . .198
     VIII.                                                  OTHER ISSUES. . . . . 214
          A.                                                Wireless Services. . . . . 214
               1.                                           Wireless Service Offerings. . . . . .214
               2.                                           Relevant Markets. . . . . .215
               3.                                           Mobile Voice Telephone Services . . . . . 215
               4.                                           Two-way Wireless Data Services. . . . . . 217
               5.                                           Paging Services . . . . . .217
               6.                                           Other Competitive Issues. . . . . . .217
          B.                                                International Issues . . . . . .218
               1.                                           SBC Foreign Carrier Affiliations. . . . . 218
               2.                                           Ameritech Foreign Carrier Affiliations. . . . . . . 221
          C.                                                Alarm Monitoring . . . . . 223
               1.                                           Overview. . . . . . . 223
               2.                                           Analysis. . . . . . . 225
               3.                                           AICC Motion on Smith Alarm. . . . . .231
          D.                                                Cable Overbuild Issues . . . . .232
          E.                                                Service Quality Issues . . . . .234
          F.                                                Public Interest Issues Involving SBC's Acquisition of the Ameritech
          Licenses and Lines . . . . . . . . . . . . . . . . . . . 236
          G.                                                Requests for Evidentiary Hearing . . . . .239
     IX.                                                    ORDERING CLAUSES. . . . . .243
                
                
                
                APPENDIX A:  Public Record Filings
          A.                                                List of Commenters and Filings
          B.                                                List of Participants in Public Forum on Merger Conditions
                
                APPENDIX B:  Summary of Confidential Information and Conclusions
                [TEXT NOT AVAILABLE IN PUBLICLY RELEASED VERSION] 
          A.  Each Applicant's Plans to Compete Outside Its Home Region
               1.                                           Ameritech's Out-of-Region Plans
               2.                                           SBC's Out-of-Region Plans
               3.                                           Conclusion
          B.  Additional Information Pertaining to the Analysis of Potential Public Benefits
                
                APPENDIX C:  Conditions


                         I.INTRODUCTION
                                
  
 1.  In this Order, we consider the joint applications filed by SBC Communications Inc. (SBC) and
Ameritech Corporation (Ameritech) pursuant to sections 214(a) and 310(d) of the
Communications Act of 1934, as amended (Communications Act), for approval to transfer
control of licenses and lines from Ameritech to SBC in connection with their proposed merger. 
Before we can grant their applications, SBC and Ameritech (collectively, Applicants) must
demonstrate that their proposed transaction will serve the public interest, convenience, and
necessity.  After lengthy discussions with Commission staff and consideration of public
comments in this proceeding, SBC and Ameritech supplemented their initial application by
attaching to it proposed conditions representing a set of voluntary commitments.  

   1.     We conclude that approval of the applications to transfer control of Commission licenses
and lines from Ameritech to SBC is in the public interest because such approval is subject to
significant and enforceable conditions designed to mitigate the potential public interest harms of
their merger, to open up the local markets of these Regional Bell Operating Companies (RBOCs),
and to strengthen the merged firm's incentives to expand competition outside its regions.  We
believe that the proposed voluntary commitments by SBC and Ameritech substantially mitigate
the potential public interest harms while providing public interest benefits that extend beyond
those contained in the original applications.  

   2.     Specifically, we conclude in this Order that the proposed merger of these RBOCs
threatens to harm consumers of telecommunications services by:  (a) denying them the benefits of
future probable competition between the merging firms; (b) undermining the ability of regulators
and competitors to implement the pro-competitive, deregulatory framework for local
telecommunications that was adopted by Congress in the Telecommunications Act of 1996; and
(c) increasing the merged entity's incentives and ability to raise entry barriers to, and otherwise
discriminate against, entrants into the local markets of these RBOCs .  Furthermore, the asserted
benefits of the proposed merger, absent conditions, do not outweigh these significant harms, as
described herein.

   3.     The proposed conditions, however, change the public interest balance.  We expect that
with these conditions, competition in the provision of local exchange services, including advanced
services, will increase both inside and outside the merged firm's region.  Accordingly, assuming
the Applicants' ongoing compliance with the conditions described in this Order, we find that the
Applicants have demonstrated that the proposed transfer of licenses and lines from Ameritech to
SBC serves the public interest, convenience, and necessity.

                      II.EXECUTIVE SUMMARY

     
 1.  To implement the dismantling of the Bell System, seven Regional Bell Operating
Companies were created in 1984.  After the mergers of SBC with Pacific Telesis and Bell Atlantic
with NYNEX, five RBOCs remain.  The instant proceeding concerns the proposed transfer of
licenses and lines attendant upon a proposed merger of two RBOCs, SBC and Ameritech.  We
conclude that, with the conditions adopted by this Order, the Applicants have demonstrated that
the proposed transfer of licenses and lines from Ameritech to SBC will serve the public interest,
convenience, and necessity.  We also make the following determinations in support of this
conclusion:

         Harms   The proposed merger of these RBOCs threatens to harm consumers of
       telecommunications services in three distinct, but interrelated, ways.
      
            1) The merger will remove one of the most significant potential participants in
            local telecommunications mass markets both within and outside of each
            company's region.

            2) The merger will substantially reduce the Commission's ability to implement
            the market-opening requirements of the 1996 Act by comparative practice
            oversight methods.  Contrary to the deregulatory, competitive purpose of the
            1996 Act, this will, in turn, increase the duration of the entrenched firms'
            market power and raise the costs of regulating them.
          
            3) The merger will increase the incentive and ability of the merged entity to
            discriminate against its rivals, particularly with respect to the provision of
            advanced telecommunications services.  This is likely to frustrate the
            Commission's ability to foster advanced services as it is directed to do by the
            1996 Act.

         Benefits   The asserted benefits of the proposed merger do not outweigh the
       significant harms, detailed above.  Specifically:

            1) The Applicants have failed to demonstrate that the merger is necessary in
            order to obtain the benefits to local competition of the National-Local
            Strategy, a plan in which the merged firm will enter 30 out-of-region markets
            as a competitive LEC.

            2) Only a small portion of the Applicants' claimed cost-saving efficiencies,
            including procurement savings, consolidation efficiencies, implementation of
            best practices, faster and broader roll-out of new products and services, and
            benefits to employees and communities, are merger-specific, likely and
            verifiable.
          
            3) The only merger-specific benefits to product markets other than local
            wireline telecommunications markets, such as wireless services, Internet
            services, long distance and international services, and global seamless services
            for large business customers, relate to a somewhat increased pace of expansion
            and modest reductions in unit costs.  Any benefits in these regards are both
            speculative and small.

              Conditions   On July 1, 1999, the Applicants supplemented their application by
          proffering a set of voluntary commitments that they agreed to undertake as
          conditions of approval of their proposed transfer of licenses and lines.  Following a
          period of public comment regarding their proposed conditions, the Applicants
          substantially revised their commitments on August 27, 1999, and continued to
          refine those commitments in filings with the Commission on September 7, 
          September 17, and September 29, 1999.  Assuming satisfactory compliance,
          implementation of the attached final set of conditions will further the following
          goals:

               1)   promoting advanced services deployment;
               2)   ensuring that in-region local markets are more open;
               3)   fostering out-of-region competition;
               4)   improving residential phone service; and
               5)   enforcing the Merger Order.

          These commitments are sufficient to tip the scales, so that, on balance, the
          application to transfer licenses and lines should be approved.

              Wireless   SBC and Ameritech are required by the U.S. Department of Justice,
          and as a condition of this Order, to divest one of the cellular telephone licenses in
          seven Metropolitan Statistical Areas and seven Rural Service Areas where the two
          companies have overlapping cellular geographic service areas.

              International   The public interest will be served by transferring control of
          Ameritech's international section 214 authorizations to SBC, subject to the
          condition that SBC subsidiaries be classified as dominant international carriers in
          their provision of service on the U.S.-South Africa and U.S.-Denmark routes.

              Alarm  Monitoring   Section 275 of the Communications Act does not require that
          the Ameritech BOCs lose their grandfathered right to be affiliated with an entity
          that is engaged in the provision of alarm monitoring services merely because the
          Ameritech BOCs will become affiliates of the SBC BOCs, which are not
          grandfathered.  A forced divestiture of Ameritech's alarm monitoring subsidiary
          would be contrary to the intent of section 275.

              Cable   Section 652 of the Communications Act does not prohibit SBC from
          acquiring Ameritech's existing in-region cable overbuild operations.

              Service Quality   Any post-merger service quality concerns are adequately
          addressed by the Applicants' proffered commitments.

                        Character/Requests for Hearing   Petitions to deny the applications do not raise a
          substantial or material question of fact that would warrant an evidentiary hearing
          regarding whether SBC or Ameritech possesses the requisite character to engage
          in a transfer of control of Commission licenses, or regarding any other matter
          related to this transaction.
       
                        II.  BACKGROUND

1                               The Applicants

     
 1.  Ameritech Corporation.  Ameritech, one of the original seven RBOCs formed as part of
the divestiture of AT&T's local operations, is the primary incumbent local exchange carrier (LEC)
serving Illinois, Indiana, Michigan, Ohio, and Wisconsin.  Ameritech, through its operating
companies, serves more than 20 million local exchange access lines, and had 1998 operating
revenues in excess of $17.1 billion.

      1.  In addition to local exchange and exchange access services, Ameritech's operating
companies provide a wide range of other services, including cellular, personal communications
services (PCS), paging, security, cable television, Internet access, alarm monitoring and directory
publishing services.  Ameritech provides cellular services to more than 3.5 million customers in
42 cellular markets throughout its five-state region and in other markets in Missouri, Hawaii and
Kentucky, as well as PCS service in the Cleveland, Cincinnati, and Milwaukee metropolitan
areas.  Ameritech also provides paging services to more than 1.5 million customers in its five-
state region, and in two adjacent states, Missouri and Minnesota.  Through its Ameritech
Interactive Media Services, Inc. subsidiary, Ameritech provides Internet services and products to
over 66,000 customers, while its cable television subsidiary, Ameritech New Media, Inc.,
provides competitive cable service to more than 200,000 consumers in over 75 communities in the
Chicago, Cleveland, Columbus, and Detroit metropolitan areas.  Ameritech's SecurityLink by
Ameritech, Inc. subsidiary is North America's second-largest security monitoring provider with
more than one million residential and commercial accounts.  Finally, Ameritech has diverse
overseas investments, which include direct or indirect financial interests in communications
ventures in fifteen European countries, including Belgium, Denmark, Germany, Hungary, and
Norway.

      2.   Ameritech's subsidiaries hold numerous Commission licenses and operate lines
used in interstate and international communications, including domestic and international lines
authorized under section 214, and various Title III licenses necessary to operate cellular, paging,
PCS, experimental radio, business radio, mobile radio, and microwave services, as well as earth
station authorizations.  Through its subsidiaries, Ameritech is also authorized to operate
international facilities-based and/or resale services originating outside the states in which
Ameritech provides local exchange service.

      3.  SBC Communications Inc.  SBC, another of the original seven RBOCs, became
the primary incumbent LEC serving Arkansas, Kansas, Missouri, Oklahoma, and Texas following
the AT&T divestiture.  In April 1997, SBC acquired Pacific Telesis Group, another RBOC, which
was the primary incumbent LEC in California and Nevada.  In October 1998, SBC acquired
Southern New England Telecommunications Corporation (SNET), which was the primary
incumbent LEC for most of Connecticut.  Together, SBC's operating companies serve more
than 35.7 million local exchange access lines in its eight-state region.  In 1998, SBC's operating
revenues exceeded $28.7 billion.

      4.  In addition to providing local exchange and exchange access services, SBC
provides wireless, Internet access, out-of-region interLATA, cable television and directory
publishing services.  SBC's principal wireless subsidiaries provide cellular, PCS, and paging
services to more than 8.3 million subscribers throughout SBC's eight-state region and in several
out-of-region markets.  SBC's Personal Vision subsidiary (d/b/a SNET Americast) provides
cable television service in Connecticut.

      5.  SBC also provides interexchange (long distance) service to more than 900,000
customers in Connecticut through its SNET subsidiary.  In February 1999, SBC entered into an
alliance with Williams Communications, Inc., in which SBC will acquire $500 million, or
approximately ten percent, of Williams' shares, giving SBC access to Williams' nationwide fiber-
based broadband network.  Finally, SBC also holds international investments in communications
ventures in France, Israel, Switzerland, the United Kingdom, Chile, Mexico, South Korea,
Taiwan, and South Africa, as well as in two proposed trans-Pacific undersea cable systems linking
China and Japan with the United States.

          1.   A Changing Industry

     
 1.  In 1982, the United States District Court for the District of Columbia entered a consent
decree in an antitrust suit entitled United States v. AT&T Corp.  The 1982 Consent Decree, also
known as the "Modification of Final Judgment" (MFJ), when fully enforced in 1984, substantially
dismantled what had formerly been an integrated end-to-end monopoly of U.S.
telecommunications services, the Bell System.  Before the MFJ, the Bell System provided local
exchange telephone service to over 80 percent of all residential phone subscribers in the United
States, and accounted for even higher shares of long distance service, phone plant equipment
manufacture and customer premises equipment sales.  For most Americans, the Bell System
provided virtually all telecommunications needs.  By fundamentally altering that environment, the
MFJ, together with its underlying rationale, provides the central backdrop against which all
telecommunications regulation takes place in this country, and, indeed, the measure against which
we evaluate the merger before us. 

      1.  The entry of the 1982 Consent Decree created SBC and Ameritech.  The MFJ
essentially divorced the Bell System's local exchange operations from its other lines of business by
requiring the creation of seven regionally-based operating companies (i.e., the RBOCs).  These
RBOCs were created as holding companies for the local operating companies that had been
owned by AT&T and were forbidden from selling long distance services and information services,
and from manufacturing or selling telecommunications equipment.  Both SBC and Ameritech
therefore are creations of the MFJ, not an outgrowth of natural market forces.  Necessarily, then,
the rationale behind the 1982 Consent Decree frames most of the issues raised by their proposed
merger.

      2.  To put it simply, the Bell System was broken up because of two firmly held beliefs. 
One belief was that competition, rather than regulation, could best decide who would sell what
telecommunications services at what prices to whom.  The other belief was that the principal
obstacles to realizing that competitive ideal were the incentive and ability of dominant local
exchange carriers, who typically controlled virtually all local services within their regions, to wield
exclusionary power against their rivals.  The Department of Justice, the federal courts, and this
Commission concluded that a firm controlling access to virtually all local phone customers in its
region was very likely to exclude those who would directly compete with it and to discriminate
against those, such as long distance service providers and equipment manufacturers, who might
offer competitive ancillary services that the local exchange carrier also sought to offer.  Further,
decades of experimentation with various regulatory regimes had taught that regulators could not
fully monitor and control such exclusionary and discriminatory behavior.  Rather, structural
solutions   in this case the divorce of AT&T from its local operating companies   were vitally
necessary.

      3.  The other seminal event in post-World War II telecommunications regulation was
the enactment of the 1996 Act.  When Congress passed the 1996 Act, it codified the standards
and principles established by the Bell System break-up and set forth a framework that governs us
today.  Two aspects of the 1996 Act in particular drive our analysis of this license transfer
application and the companies' subsequent proposed conditions.

      4.  First, Congress not only firmly ratified the pro-competitive thrust of the MFJ and
embraced its rationale, but it extended the goals of the decree.  The MFJ principally sought to
further competition in ancillary fields, such as long distance, equipment manufacturing, and
information services.  Based in part on successful state experiments with limited introduction of
local competition, the 1996 Act determined that it would also be U.S. telecommunications policy
to foster competition nationally in the provision of local exchange and exchange access services to
all telephone subscribers, including residential units.  From the date of the enactment of the 1996
Act, this Commission, in conjunction with state public utility commissions, has been statutorily
charged with opening up local markets to competition, on the specific premise that without
regulatory oversight, the incumbent LECs would be able to discriminate against and exclude local
rivals.

      5.  Second, Congress directed this Commission and the state commissions to achieve
these competitive ends by deregulatory means.  The 1996 Act introduced into our
telecommunications law a clearly-stated duty of dominant LECs to interconnect with their
competitors   for example, to unbundle their networks and provide advance notice of changes in
their network design, to permit rivals to resell incumbent LEC services at a discount, and to allow
their competitors to collocate on their premises.  Incumbent LECs must accommodate their
rivals, not predate against them, and the process of accommodation is to be through commercial
negotiation   not regulatory fiat   where possible.  Thus, Congress instructed this Commission
and state regulators to effectuate the transition from monopoly markets to competitive markets in
a deregulatory manner.  This means that regulations enforcing interconnection on fair and
equitable terms should not impose detailed regulatory oversight on incumbents.  Our mandate is
to achieve competition, not to devise a complex regulatory regime.  We assess this transfer of
control application, and its associated conditions, against this mandate.  

          1.   State of Local Competition in SBC and Ameritech Regions

     
 1.  At the time of its merger application in July 1998, SBC served 33.4 million access lines. 
SBC provided approximately 650,000 resold lines to competitors, commonly referred to as
competitive LECs.  Most of these access lines were in California, Texas, and Kansas.  In
addition, SBC provided 60,000 unbundled loops, most of which were in the former PacTel
region -- 52,000 in California and 3,600 in Nevada, compared with only 330 in Texas.  SBC
also reported that it was providing approximately 353,000 interconnection trunks, greater than 90
percent of which were in California and Texas, and 343 unbundled switch ports.

      1.  SBC stated that there were more than 50 active competitors in its region and that
it had entered into 374 interconnection and resale agreements, 93 percent of which were adopted
without state arbitration.  SBC noted 548 collocation arrangements (490 physical/58 virtual) in
173 wire centers, plus 443 pending arrangements.  SBC stated that competitors had installed
547 switches (vs. approximately 2800 that SBC owns) and more than 6,500 route miles of fiber
in its region.

      2.  At the time of its application, Ameritech served more than 20 million access lines. 
It provided approximately 635,000 resold lines to competitors, 92 percent of which were in three
of its five states.  Only six percent of these resold lines were in Wisconsin, and two percent were
in Indiana.  Ameritech reported provisioning 94,600 unbundled loops.  Fifty-seven percent of
these unbundled loops were in a single state, Michigan.  Only 900 such lines had been unbundled
in Wisconsin and no lines had been unbundled in Indiana.  Ameritech also reported provisioning
180,000 interconnection trunks and "zero" unbundled switch ports.

      3.  Ameritech stated that there were more than 50 active competitors in its region, and
that it had entered into 175 interconnection and resale agreements with 39 carriers.  Ameritech
reported 113 physical collocations and 166 virtual collocations in Ameritech wire centers, with 77
more scheduled for activation in the third quarter of 1998.  According to Ameritech, this
represents 23 percent of Ameritech wire centers, which serve 63 percent of business lines and 50
percent of residential lines in Ameritech's service area.  Ameritech stated that competitors had
installed 120 switches (vs. approximately 1500 that Ameritech owns) and more than 5,000 route
miles of fiber in Ameritech's region.

      4.  Although Ameritech had only 60 percent as many access lines as SBC, Ameritech
and SBC had an equivalent number of resold lines, and Ameritech had approximately 50 percent
more unbundled loops, as of July 1998.  As noted, however, not a single unbundled loop was
reported in Indiana.  SBC provided proportionately more interconnection trunks, but nearly
two-thirds of those trunks were in California, and more than 90 percent were in Texas and
California.  Ameritech's provisioning of interconnection trunks was spread more evenly across its
region.

      5.  Ameritech's supply to competitors of 635,00 resold lines and 94,600 unbundled
loops represents about 3.5 percent of its 20 million access lines, whereas SBC's 650,000 resold
lines and 60,000 unbundled loops represents approximately 2 percent of SBC's 33.4 million
access lines.  SBC estimated that, as of December 1998, it had provided 800,000 lines through
resale, and facilities-based competitive LECs had self-provisioned an additional 600,000 lines. 
SBC counts the loss to facilities-based competitive LECs through a variety of means, including
directory listings, 911/E911 databases, and telephone numbers ported to competitors.

      6.  In their Joint Reply to comments regarding proposed merger conditions, SBC
and Ameritech assert that local communications markets have opened further, and competition
has intensified, in the year since they filed their initial merger application in July 1998. 
Specifically, SBC and Ameritech state that they signed an additional 250 interconnection
agreements during that year, and that competitors in Ameritech's region now serve 738,000 lines
using their own facilities, 154,000 using unbundled network elements (an increase of 63 percent
since the numbers reported in the merger application), and nearly one million lines through resale
(an increase of 57 percent).  SBC and Ameritech note industry estimates that are much more
conservative than the Applicants' original estimates concerning competitors' deployment of
switches   i.e., more than 175 in SBC's region (compared with 547 estimated by SBC in its
application) and more than 75 in Ameritech's region (compared with 120 estimated by Ameritech
in its application).  However, those sources also indicate greater fiber deployment by competitive
LECs in SBC's region as of 1999 (more than 10,000 route miles versus 6,500 estimated by
SBC).

      7.  It has been more than three and-a-half years since Congress passed the 1996 Act in
an attempt to stimulate competition in local telephone markets.  Competition has been slow to
emerge, but there have been recent signs that momentum is building.  For instance, the
Commission's Local Competition Report notes that revenues of local service competitors
increased from $2.2 billion at the end of 1997 to $3.6 billion at the end of 1998.  The report
estimates that competitive LECs are gaining market share, but that incumbent LECs retain 96
percent of local service revenues.  Moreover, the Report indicates that competitive LECs have
been most successful in the market for specialized services such as special access and local private
line services, which are provided to business customers.  Aggregate competitive LEC use of
resold incumbent LEC lines predominates over their use of unbundled loops by a factor of
approximately 10 to 1 and according to data provided by ILECs, 40 percent of the resold lines
serve residential customers.  In addition, facilities-based competitive LECs appear to have
concentrated in more urbanized areas.

      8.  For its part, in response to the 1996 Act, SBC appears to have adopted an
acquisition strategy.  Within weeks of passage of the 1996 Act, SBC announced its agreement to
merge with PacTel, one of the other six Baby Bells.  Last year, SBC merged with SNET, the
primary incumbent LEC in Connecticut.  The instant merger would add a third Baby Bell to the
original SWBT and PacTel.  Congress may or may not have contemplated such horizontal moves
when it replaced the MFJ with the 1996 Act, but Congress did signal a clear intent that the desire
of BOCs to enter the long distance markets within their existing regions would provide a powerful
incentive to open their local markets to competition.  This is embodied in the so-called "carrot-
and-stick" approach taken in section 271 of the Act, which requires satisfaction of a 14-point
checklist for determining whether local markets are open to competition before a BOC may be
allowed to originate in-region interLATA services within a particular state.
      9.  SBC and Ameritech have separately engaged in failed attempts to convince
regulators that their local markets are open to competition within the meaning of section 271. 
This Commission denied SBC's application for in-region interLATA authority in Oklahoma in
June 1997, finding that SBC had not met the threshold requirement under section 271 that SBC
be providing access and interconnection to a facilities-based competing provider of local exchange
service to residential and business subscribers (the "Track A" requirement under section 271). 
The Texas and California commissions issued orders in mid-1998 establishing collaborative
processes among SBC, competitive LECs and commission staff to resolve outstanding issues
regarding SBC's compliance with section 271 in those states.  Those processes are ongoing and
have resulted in significant progress with respect to operations support systems (OSS),
performance measurements and penalties, collocation, and provision of unbundled network
elements (UNEs).  SBC states that it expects to receive section 271 approval for Texas and
California first, and that approvals for its five remaining states would follow shortly thereafter.

      10. This Commission denied Ameritech's application for in-region interLATA
authority in Michigan in August 1997, citing deficiencies with respect to access to OSS,
interconnection, and access to 911 and E911 services.  Ameritech is not actively pursuing
section 271 approvals in any of its states at this time as evidenced by the fact that Ameritech has
not filed in any state section 271 proceedings since 1997.  On January 21, 1999, the Illinois
Commerce Commission issued an order dismissing its section 271 proceeding because of the
staleness of the record.

      11. All evidence suggests that competition has been slow to emerge in the territories of
these Baby Bells and that not all geographic areas, and not all types of customers, are receiving
the benefits of competition.  Furthermore, this merger application comes at a critical juncture
when competitive LECs may shortly be able to take advantage of more favorable market
conditions resulting from:  (1) recent court decisions; (2) final prices for interconnection, UNEs
and resale that have been determined in state cost proceedings; and (3) extensive section 271
collaborative processes supervised by state commissions.  A number of competitive LECs have
noted in ex parte discussions with Commission staff that their original interconnection agreements
with SBC and Ameritech expire this year, and that they are facing negotiation of "second-
generation" interconnection agreements that will govern their relationships with these companies
(or the combined company) over the next several years.  With this background in mind, we turn in
the following sections to discussion of the harms that are likely to result from this merger, which
is proposed at a critical time in the evolution of local competition that Congress envisioned.

1                               The Merger Transaction and Review Process

     
 1.  Proposed Transaction.  Under the Agreement and Plan of Merger (Merger Agreement),
dated May 10, 1998, Ameritech would become a first-tier, wholly-owned subsidiary of SBC in a
stock-for-stock merger.  Following the merger, SBC would own all the stock of Ameritech, and
SBC itself would be owned 57.5 percent by the pre-merger stockholders of SBC and 42.5 percent
by the pre-merger stockholders of Ameritech.  

      1.  Together, SBC and Ameritech would serve more than 55.5 million local exchange
access lines, representing approximately one-third (31.9 percent) of the nation's total access
lines.  SBC and Ameritech as a combined company would have more than 200,000 employees
and annual revenues in excess of $45 billion, based on December 1998 statistics from both
companies.  In other words, SBC and Ameritech combined would be the second largest
telecommunications company in the country behind only AT&T, as measured by revenues.  Based
on the extensive breadth of SBC's and Ameritech's operations, their proposed merger requires
the approval of several government agencies, including the DOJ, state public utility commissions,
the European Commission, and this Commission.    

          1.   Department of Justice Review

     
 1.  The DOJ reviewed the proposed transaction as part of the pre-merger review process
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.  On March 23, 1999, DOJ,
pursuant to a proposed consent decree, required the Applicants to divest cellular properties in
overlapping geographic areas.  This condition was deemed necessary to prevent a substantial
lessening of competition as a result of the merger in "markets for mobile wireless services in
Illinois, Indiana, and Missouri."  Recognizing further that Ameritech planned to provide wireline
service in St. Louis, and that "no one else is providing such service in St. Louis," DOJ required
that Ameritech's, not SBC's, cellular assets be divested in St. Louis, and that the purchaser of
these assets "has the capability of competing effectively in the provision of local exchange
telecommunications services and long distance telecommunications services in the St. Louis
area."  On April 5, 1999, Ameritech announced that it was selling twenty cellular holdings to a
joint venture of GTE Consumer Services Inc. (GCSI), a subsidiary of GTE, and Georgetown
Partners, which would eliminate all cellular overlaps. 

          1.   State and International Review

     
 1.  The proposed merger of SBC and Ameritech also requires the approval of, or notification
to, a number of state governing bodies and the European Commission.  The status of these
proceedings is summarized below.    

      1.  Ohio.  Pursuant to the laws of Ohio, the Applicants filed for approval of their
proposed transaction from the Public Utility Commission of Ohio (PUCO).  On April 8, 1999,
PUCO approved with conditions the proposed merger pursuant to a stipulated settlement
agreement negotiated among several parties.  The conditions imposed by PUCO, among other
things, require that the Applicants:  (1) freeze residential rates through January 2002; (2) compete
for residential and business customers in four markets outside of Ameritech's current service
territory; (3) improve service quality; (4) increase infrastructure investment; (5) maintain current
employment levels for two years; and (6) offer a promotional rate for unbundled loops and resold
service for a certain period of time linked to Ameritech's loss of residential access lines to
competitors.  PUCO also required the combined entity to make available in Ohio the level of
interconnection it obtains as a new entrant outside its service territory or which it provides in
another state as an incumbent.  Finally, SBC and Ameritech agreed to meet certain competitive,
operations support systems, and service quality benchmarks, or face monetary penalties.  

      2.  Illinois.  On July 24, 1998, pursuant to Illinois law, the Applicants filed a joint
application requesting approval of their proposed reorganization from the Illinois Commerce
Commission (ICC).  The ICC held numerous formal hearings on the application, and approved the
merger on September 23, 1999, subject to several conditions.  The conditions imposed by the
ICC address, among other things, performance measurements and associated penalties, enhanced
operations support systems, shared transport, most-favored nation interconnection arrangements,
residential xDSL service deployment, service outages and associated penalties, network
infrastructure investment, 911 practices, and updated cost studies and cost allocation manuals.  In
addition, for three years, the combined company is required to allocate 50 percent of the net
merger-related savings in Illinois to competitors and retail customers.  The ICC also relied on a
series of voluntarily commitments by the Applicants that, among other things, require the
combined firm to retain Ameritech's brand identity and regional employment levels, make
charitable and community contributions and establish community enrichment programs in the state
(e.g., a consumer education fund, a community technology fund, and community computer
centers).
 
      3.  Nevada.  On July 29, 1999, the Public Utilities Commission of Nevada (Nevada
PUC) ordered SBC to submit its proposed merger to the commission for review and approval. 
SBC thereafter filed a special application with the Nevada PUC seeking either authorization to
acquire Ameritech or a finding by the Nevada PUC that it lacks jurisdiction over the transaction. 
The Applicants and the Nevada PUC staff subsequently agreed to a settlement agreement that was
approved by the Nevada PUC on September 1, 1999.  Pursuant to the stipulated agreement, no
merger-related transaction costs will be passed on to Nevada ratepayers and, among other things,
the merged firm must keep the Nevada PUC apprised of its implementation of any FCC merger
conditions, retain the Nevada Bell brand identity, and buy locally where possible. 

      4.  European Commission.  In a June 1998 letter to the Applicants, the European
Commission's Merger Task Force confirmed that the proposed merger would not conflict with
applicable antitrust guidelines.
 
      5.  Others.  In addition to these governing bodies, the Applicants sought approval of
or made notification to:  (i) certain state public utilities commissions in connection with
Ameritech's authorizations to provide intrastate interexchange service in all 45 out-of-region
states and local exchange service in eight out-of-region states; (ii) certain local franchising
authorities in jurisdictions in which Ameritech has received franchises for competitive cable
systems; and (iii) certain regulatory authorities in select European countries in which SBC or
Ameritech holds investments. 

          1.   Commission Review

     
 1.  As noted above, SBC and Ameritech filed joint applications on July 24, 1998, pursuant to
sections 214(a) and 310(d) of the Communications Act, requesting Commission approval of the
transfer of control to SBC of licenses and lines owned or controlled by Ameritech or its affiliates
or subsidiaries.  Following the Commission's Public Notice of July 30, 1998, thirty-five parties
filed timely comments supporting or opposing the application, or petitions to deny the
application.  Nine parties, including the Applicants, filed reply comments.  In addition, the
Commission held a series of three public forums at which a number of parties, including (a) the
Applicants, (b) states, consumer groups, community organizations, and industry participants, and
(c) economists, could present their views on the proposed merger.  

 1.  On October 2, 1998, the Bureau adopted a protective order under which third
parties would be allowed to review confidential or proprietary documents that SBC or Ameritech
submitted.  Commission staff also requested, and obtained, the Applicants' consent to review the
documents that SBC and Ameritech had submitted to DOJ as part of its Hart-Scott-Rodino
review process. 

      2.  In January, 1999, Commission staff requested additional documentation and
information from the Applicants.  The supplemental request, among other things, sought
documents and information on the following subjects:  (1) Applicants' out-of-region entry
activities; (2) Applicants' brand name awareness; (3) perceived demand for end-to-end
telecommunications services; (4) Applicants' investment projects; (5) plans for implementing the
Applicants' National-Local Strategy; (6) the profitability of serving out-of-region residential and
small business customers; and (7) the relationship between the companies' National-Local
Strategy and section 271 authorizations.  The Applicants filed certain of the Hart-Scott-Rodino
documents, and other confidential documents, with the Commission under seal, with a redacted
version placed in the public record.  The portion of this Order that discusses confidential
documents that were used in the Commission's decision-making process has been issued under
seal as Appendix B. 

      3.  On April 1, 1999, FCC Chairman William Kennard notified the Applicants that
Commission staff had raised a number of significant issues with respect to potential public interest
harms and questions about the claimed competitive and consumer benefits of their proposed
transaction.  Accordingly, Chairman Kennard invited SBC and Ameritech and other interested
parties to explore with Commission staff, on a cooperative and public basis, whether it would be
possible to craft conditions that would address the public interest concerns raised by the
Application. 

     
 1.  Accepting the Chairman's invitation, representatives of SBC and Ameritech held a
series of discussions with Commission staff to explore the possibility of the Applicants
strengthening their application by agreeing to certain voluntary public interest commitments. 
During this time, Commission staff also met with other interested parties who expressed views on
the severity of potential public interest harms and possible mitigating conditions.  

      1.  On May 6, 1999, the Common Carrier Bureau held a public forum where
Commission staff and representatives of SBC and Ameritech reported on the progress of
discussions and received further input on the need for, and composition of, any potential
conditions.  Interested parties also expressed opinions on potential conditions through record
submissions.

      2.  Based on the input received from Commission staff and third parties, SBC and
Ameritech supplemented their initial Application by submitting on July 1, 1999 an "integrated
package of conditions" which they claimed would satisfy potential public interest concerns and
lead to Commission staff support of their Application.  More than 50 parties filed timely
comments and 14 parties filed reply comments addressing the Applicants' proposed
commitments.  SBC and Ameritech subsequently clarified their commitments on August 27,
1999, and in further ex parte filings in September.

                 II.  PUBLIC INTEREST FRAMEWORK

     
 1.  Pursuant to sections 214(a) and 310(d) of the Communications Act, the Commission must
determine whether the Applicants have demonstrated that the public interest would be served by
transferring Ameritech's numerous licenses and lines used in interstate or foreign communications
to SBC.  As discussed below, we must weigh the potential public interest harms of the
proposed transaction against the potential public interest benefits to ensure that the Applicants
have shown that, on balance, the merger serves the public interest, convenience and necessity.  

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

      2.  The public interest standard of sections 214(a) and 310(d) involves a balancing
process that weighs the potential public interest harms of the proposed transaction against its
potential public interest benefits.  The Applicants bear the burden of proving, by a
preponderance of the evidence, that the proposed transaction, on balance, serves the public
interest.  In applying this public interest test, the Commission considers four overriding
questions:  (1) whether the transaction would result in a violation of the Communications Act or
any other applicable statutory provision; (2) whether the transaction would result in a violation
of Commission rules; (3) whether the transaction would substantially frustrate or impair the
Commission's implementation or enforcement of the Communications Act, or would interfere with
the objectives of that and other statutes; and (4) whether the merger promises to yield
affirmative public interest benefits.  In summary, the Applicants must demonstrate that the
transaction will not violate or interfere with the objectives of the Communications Act or
Commission rules, and that the predominant effect of the transfer will be to advance the public
interest.

      3.  The Commission's analysis of public interest benefits and harms includes, but is not
limited to, an analysis of the potential competitive effects of the transaction, as informed by
traditional antitrust principles.  While an antitrust analysis, such as that undertaken by the DOJ
in this case, focuses solely on whether the effect of a proposed merger "may be substantially to
lessen competition," the Communications Act requires the Commission to make an independent
public interest determination, which includes evaluating public interest benefits or harms of the
merger's likely effect on future competition.  In order to find that a merger is in the public
interest, therefore, the Commission must "be convinced that it will enhance competition."  

      4.  In the AT&T/TCI Order, we explained that competition in the telecommunications
industry is shaped not only by antitrust rules, but also by regulatory policies that govern
interactions among industry participants.  For example, no industry can be effectively governed
by antitrust rules unless some other rules specify the industry participants' property rights.  In
telecommunications markets the ground rules necessary to permit competition are frequently
supplied by regulatory policy.  Accordingly, our public interest evaluation necessarily
encompasses the "broad aims of the Communications Act."  These broad aims include, among
other things, the implementation of Congress's pro-competitive, deregulatory national policy
framework designed to open all telecommunications markets to competition, the preservation and
advancement of universal service, and the acceleration of private sector deployment of advanced
services.  Our public interest analysis may also entail assessing whether the merger will affect
the quality of telecommunications services or will result in the provision of new or additional
services to consumers.  In making these assessments, the Commission considers the trends
within, and needs of, the telecommunications industry, as well as the factors that influenced
Congress to enact specific provisions of the Communications Act. 

      5.  Following passage of the 1996 Act, local telecommunications markets have been
undergoing a transition to competitive markets, so a transaction may have predictable yet
dramatic consequences for competition over time even if the immediate effect is more modest.
Therefore, when a transaction is likely to affect local telecommunications markets, our statutory
obligation requires us to assess future market conditions.  In doing so, the Commission may rely
upon its specialized judgment and expertise to render informed predictions about future market
conditions and the likelihood of success of individual market participants. 

      6.  Where necessary, the Commission can attach conditions to a transfer of lines and
licenses in order to ensure that the public interest is served by the transaction.  Section 214(c)
of the Communications Act authorizes the Commission to attach to the certificate "such terms and
conditions as in its judgment the public convenience and necessity may require."  Similarly,
section 303(r) of the Communications Act authorizes the Commission to prescribe restrictions or
conditions, not inconsistent with law, that may be necessary to carry out the provisions of the
Act.  Indeed, unlike the role of antitrust enforcement agencies, the Commission's public interest
authority enables it to rely upon its extensive telecommunications regulatory and enforcement
experience to impose and enforce certain types of conditions that tip the balance and result in a
merger yielding overall positive public interest benefits. 

      7.  In addition to its public interest authority under the Communications Act, the
Commission shares concurrent antitrust jurisdiction with DOJ under the Clayton Act to review
mergers between common carriers.  In this case, because our public interest authority under the
Communications Act is sufficient to address both the competitive issues raised by the proposed
merger and its likely effect on the public interest, we decline to exercise our Clayton Act authority
for the proposed transaction.

      8.  As noted in the AT&T-TCI Order, many transfer applications on their face show
that the merger would yield affirmative public interest benefit and would not violate the
Communications Act or Commission rules, nor frustrate or undermine policies and enforcement
of the Communications Act.  Such cases do not require extensive review and expenditure of
considerable resources by the Commission and interested parties.  This is not the case with respect
to this proposed transaction.  We analyze the potential public interest harms and benefits of this
proposed merger, absent conditions, in the next sections.      

         II.ANALYSIS OF POTENTIAL PUBLIC INTEREST HARMS

1                               Overview

     
 1.  We conclude that the proposed merger, considered without supplemental conditions,
threatens our ability to fulfill our statutory mandate in the following three ways.

      1.  First, the proposed merger between SBC and Ameritech significantly decreases the
potential for competition in local telecommunications markets by large incumbent LECs.  The
merger eliminates SBC and Ameritech as significant potential participants in the mass market for
local exchange and exchange access services in the other's regions.  Both firms have the
capabilities and incentives to be considered most significant market participants in geographic
areas adjacent to their own regions, and in out-of-region markets in which they have a cellular
presence.  This finding is based partly on our analysis of the plans of Ameritech to expand into St.
Louis (in SBC's territory) which would have occurred but for the merger, and SBC's plans to
expand into Chicago (in Ameritech's territory).  As incumbent LECs, each firm is one of only a
few potential entrants with the necessary systems, such as billing and operations support, required
to provide local exchange services to residential and small business customers on a large scale. 
They also bring particular expertise to the process of negotiating and arbitrating interconnection
agreements between incumbent and competitive LECs.  In adjacent markets, each Applicant has
an array of nearby switches that can be used to provide local exchange services in the other's
traditional operating territories.  Moreover, in out-of-region markets in which either Applicant has
a cellular affiliate, it also has a base of customers to whom it can offer wireline local exchange
services, potentially bundled with cellular and other offerings.  Finally, in both adjacent and
cellular out-of-region markets, SBC and Ameritech have brand recognition with mass market
customers that would provide a strong and often unique advantage in providing competitive
wireline services.

      2.  Second, the proposed merger frustrates the ability of the Commission (and state
regulators) to implement the local market-opening provisions of the 1996 Act.  The merger of
SBC and Ameritech   two of the six remaining major incumbent LECs (the RBOCs and GTE)  
would have an adverse impact on the ability of regulators and competitors to implement the
competitive goals of the 1996 Act by deregulatory means.  Comparing the practices of independent
firms can assist federal and state regulators in defining incumbent LEC obligations and in discovering
new approaches and solutions to open markets to competition under sections 251 and 271 and state
law.  Such comparative practice analyses (or "benchmarking") depend upon having a sufficient number
of independent sources of observation available for comparison.  Indeed, the development of the local
competition that exists today can be attributed largely to comparative practice analyses of experiments
and developments in various states and among various incumbent LECs, as indicated by examples in
the Comparative Practices Analysis section of this Order (see infra Section V.C.).

      3.  Significant differences between the major incumbent LECs and other carriers preclude
the use of other carriers as alternative benchmarks.  Large incumbent LECs differ greatly from smaller
incumbent LECs, competitive LECs and foreign LECs in regulatory treatment, structure and operation. 
Furthermore, statistical parity comparisons cannot be used as a substitute for all forms of incumbent
LEC benchmarking.  The decreased ability to employ comparative practice analysis that would result
from the proposed merger ultimately would force regulators and competitors to replace benchmarking
with more intrusive and costly methods of regulation, frustrating the goals of the 1996 Act and this
Commission of opening markets and easing regulation, to the detriment of the public interest.  We and
our state colleagues would be forced to adopt more regulations of greater complexity, while
competitors would be prevented from gaining valuable information that could help them succeed in
breaking down entry barriers.

      4.  Moreover, the merger's elimination of Ameritech as an independently-owned
RBOC is likely to reduce significantly the amount of innovation that regulators and competitors
could observe and analyze.  Ameritech frequently has taken an approach at the holding-company
level that is different from the other RBOCs, examples of which are detailed in the Comparative
Practices Analysis section (see infra Section V.C.).  These differences by Ameritech in one state
have allowed regulators and competitors to induce market-opening behavior from other
incumbent LECs in other states.  Another harm of the merger is that the larger combined entity
will have a greater incentive to unify the practices of its separate operating companies to affect the
outcome of both best practices and average practices benchmarking by regulators and
competitors, resulting in an overall loss of diversity at the operating-company level.  The
proposed merger of SBC and Ameritech would also directly increase the incentive and ability of
remaining incumbent LECs to coordinate their behavior to resist market-opening measures.  As
the number of relevant independently-owned incumbent LECs shrinks to a small few, the
probability of coordination significantly increases.   

      5.  Third, while it would diminish regulatory efficacy, the proposed merger also would
increase the incentives and ability of the larger merged entity to discriminate against rivals in retail
markets where the new SBC will be the dominant incumbent LEC.  The merger will lead the
merged entity to raise entry barriers that will adversely affect the ability of rivals to compete in the
provision of retail advanced services, interexchange services, local exchange and exchange access
services, thereby reducing competition and increasing prices for consumers of those services.  The
increase in the number of local areas controlled by SBC as a result of the merger will increase its
incentive and ability to discriminate against carriers competing in retail markets that depend on access
to SBC's inputs in order to provide services.  For example, if SBC discriminates against a competitive
LEC attempting to enter Houston, it will raise this rival's costs.  This competitive LEC will have less
capital to spend on common research, product development, and marketing costs, making the
competitive LEC a less effective competitor in other areas such as Chicago because of its overall higher
costs.  Prior to the merger, SBC would not realize the benefits in Chicago from such conduct.  After
merging with Ameritech, which is the incumbent LEC in Chicago, SBC would realize such benefits. 
Because SBC after the merger would realize more of the gains from what are presently "external"
effects, it would have a greater incentive to engage in discrimination than the combined incentives that
the two individual companies would have had in their smaller regions.

      6.  Any likelihood of increased discrimination and heightened entry barriers causes
particular concern in the retail market for advanced services, given the Commission's ongoing efforts
to encourage innovation and investment in these emerging markets.  Competitors' requests for the type
of interconnection and access arrangements necessary to provide new types of advanced services are
continually evolving and provide ample scope for incumbents to discriminate in satisfying these
requests.  The combined entity has an increased incentive to discriminate against a competitor such as
Sprint ION that is seeking to enter markets on a national basis, because the merged firm will realize the
benefits over the larger combined area in its control.  Likewise, once an incumbent LEC has authority
to provide interLATA services within its region, it has an incentive to discriminate against the
termination of its competitors' calls that originate in that region in order to induce callers at the
originating end to choose the incumbent LEC as their interexchange service provider.  SBC after the
proposed merger will have a much larger "in-region" area, and thus will terminate a greater number of
calls from in-region customers.  The larger merged firm would therefore have a greater incentive to
engage in discrimination, which is likely to be particularly acute with respect to advanced or
customized access services where such discrimination would be most difficult to detect.
     
      7.  In short, absent stringent conditions, we would be forced to conclude that this
merger does not serve the public interest, convenience or necessity because it would inevitably
retard progress in opening local telecommunications markets, thereby requiring us to engage in
more regulation.  Standing alone, without conditions, the initial application proposed a license
transfer that would have been inconsistent with the approach to telecommunications regulation
and telecommunications markets that the Congress established in the 1996 Act, ratifying the
fundamental approaches enshrined in the MFJ.  For that reason, we conclude that it would be
inconsistent with the public interest, convenience and necessity to permit this license transfer in
the absence of significant and enforceable conditions.  The remainder of Part IV explains these
conclusions in detail. 

1                               Analysis of Competitive Effects

          1.   Competition Between SBC and Ameritech

     
 1.  We begin our review of the proposed merger of SBC and Ameritech by examining the
merger's likely effects on interactions between the merging firms, which represents one prong of
our analysis of potential public interest harms. Until recently, carriers seeking to compete with
incumbent LECs in local exchange and exchange access services markets had been prevented or
deterred from entering due to legal, regulatory, economic and operational barriers.  As such, these
markets are currently undergoing a transition to competitive market conditions, as envisioned by
the 1996 Act.  Accordingly, as the 1996 Act is being implemented and local markets are opening
to competition, it is necessary to use an analysis of competitive effects that accounts for the
transitional nature of these local markets. This "transitional market" analysis is relevant to the
examination of a merger under the Communications Act because the Act requires this
Commission actively to promote the development of competition in telecommunications markets,
not merely to prevent the lessening of competition, which is the policy objective of antitrust laws.  

      1.  As explained in the WorldCom/MCI Order, our framework for analyzing these
transitional markets reflects the values of, and builds upon, but does not attempt to copy, the
"actual potential competition" doctrine established in antitrust case law. Under the actual
potential competition doctrine, a merger between an existing market participant and a firm that is
not currently a market participant, but that would have entered the market but for the merger,
violates antitrust laws if the market is concentrated and entry by the nonparticipant would have
resulted in deconcentration of the market or other pro-competitive effects.  As the case law
indicates, one obstacle facing parties bringing an actual potential competition case is to
demonstrate that the acquired firm would have entered the relevant market absent the merger.
The transitional markets framework set forth in the Bell Atlantic/NYNEX Order, which is well-
tailored to the Commission's unique role as an expert agency and its statutory obligation to
promote competition and to open local markets, identifies as "most significant market
participants" not only firms that already dominate transitional markets, but also those that are
most likely to enter soon, effectively, and on a large scale once a more competitive environment is
established.  The Commission seeks to determine whether either or both of the merging parties
are among a small number of these most significant market participants, in which case its
absorption by the merger will, in most cases, if not offset by countervailing positive effects, harm
the public interest in violation of the Communications Act.  

      2.  In this portion of the Order, we focus on the probable effects of SBC's acquisition
of Ameritech on the provision of local exchange and exchange access services.  In analyzing the
competitive effects of the instant merger, we take into account that SBC and Ameritech, until
recently, have been effectively precluded from competing in each other's local markets. We
therefore examine the ability and incentive of both SBC and Ameritech to enter each other's
previously closed market.  We conclude therefore that it is appropriate to utilize the "transitional
markets" analytical framework of the Bell Atlantic/NYNEX Order to determine whether this
merger would result in a potential harm to the public interest in the provision of local exchange
and exchange access services in SBC's or Ameritech's regions.

          1.   Local Exchange and Exchange Access Services

               a)   Summary

     
 1.  We conclude that the merger causes a public interest harm by eliminating SBC and
Ameritech as among the most significant potential participants in the mass market for local
exchange and exchange access services in each other's regions.  In the mass market for local
exchange services, we conclude that both firms are most significant market participants in
geographic areas adjacent to their own regions, and in out-of-region markets in which they have a
cellular presence.  We base this finding partly on our analysis of the plans of Ameritech to expand
into St. Louis, and SBC's plans to expand into Chicago.  In the larger business market for local
exchange and exchange access services, SBC and Ameritech are only two of a larger number of
actual and potential competitors in each other's regions.  The merger would thus be less likely to
have competitive effects leading to public interest harms in these markets.  The exposition of our
analysis of these competitive effects issues is necessarily truncated.  Because much of the
information concerning the parties' business plans has been submitted under a blanket of
confidentiality, accordingly, a good deal of the information on which we rely here is explained
only in Appendix B, to which access must be restricted.


               a)   Relevant Markets

               
 1.            As the Commission explained in the BELL ATLANTIC-NYNEX Order, we begin our analysis
of the proposed merger by defining the relevant product and geographic markets.  We then
consider whether the merger frustrates the Communications Act's goal of encouraging greater
competition in relevant local markets. 

                1.  Product Markets.  We analyze the competitive effects of this merger on the provision of
local exchange and exchange access services.  As we explained in the WorldCom/MCI Order,
to define relevant product markets we can identify and aggregate consumers with similar demand
patterns.  For purposes of analyzing the competitive effects of this merger on these services we
identify two distinct relevant product markets: (1) residential consumers and small business (mass
market); and (2) medium-sized and large business customers (larger business market).  We
distinguish mass market consumers from larger business customers because the services offered to
one group may not be adequate or feasible substitutes for services offered to the other group, and
because firms need different assets and capabilities to target these two markets successfully.   

 1.            Geographic Markets.  As we explained in the WorldCom/MCI Order, we
aggregate into a relevant geographic market those customers facing similar choices regarding a
particular relevant product or service in the same geographic area.  In the instant merger
proceeding, we focus on competition within metropolitan areas because all out-of-region
expansion plans contemplated or undertaken by either Applicant targeted customers in
metropolitan areas, as discussed in Appendix B.  Indeed, at present and for the next few years,
any local exchange and exchange access competition in both relevant product markets is likely to
be confined to metropolitan areas.  Any loss of potential competition by merger is therefore likely
to affect primarily specific metropolitan areas.  We focus on individual metropolitan areas because
each may attract different levels of competition, and certain competitors, including the Applicants,
may have particular strengths or unique assets in one metropolitan area compared with another. 
For instance, in St. Louis, Ameritech has advantages as a competitive LEC based on its cellular
presence and as an incumbent LEC in an adjacent area.  These considerations are relevant as we
analyze the potential public interest harms below.

                2.  We reject arguments that we should modify or limit our geographic market definition.  For
example, the Applicants assert St. Louis and Chicago are the only geographic areas where they
arguably would compete against each other.  Although we agree with Applicants that the
geographic areas of St. Louis and Chicago raise competitive concerns for local exchange and
exchange access services, as discussed below, other metropolitan areas warrant examination. 
Some commenters contend that the relevant geographic market is everywhere SBC and
Ameritech could have competed had they pursued their competitive LEC business independently
of each other.  Similarly, the Texas Office of Public Utility Counsel maintains the relevant
market is the combined serving areas of SBC and Ameritech, rather than St. Louis and Chicago. 
The Texas Office of Public Utility Counsel further argues that, if telecommunications customers
have locations nationwide, marketing managers will eventually consider the relevant market as a
national market.  We find that using our above stated approach, our analysis will include, but
not be limited to, examination of these areas.  We, therefore, find there is no need to modify our
market definition, as the results of our analysis would be identical using any of these geographic
market definitions.

               a)   Market Participants

     
 1.  To analyze the probable effects of this merger on the relevant product and geographic
markets, we first identify significant market participants.  We note that incumbent LECs are still
dominant within their regions, and therefore are included in the list of most significant market
participants within their respective in-region markets.  Next we consider, among other things,
whether, but for the merger, either of the merging parties would be a significant potential
competing provider of local exchange and exchange access services in the other's markets.  We
examine each of the merging firm's capabilities and incentives to provide local exchange and
exchange access services outside the region in which it is an incumbent LEC, with particular
emphasis on analyzing existing plans and any past attempts to do so.  We then turn to an analysis
of other firms that may be considered most significant market participants in the relevant markets
to determine the competitive impact of the loss by merger of one of the Applicants as an
independent entity.  

      1.  As described in the Bell Atlantic/NYNEX Order, we identify the most significant
market participants from the universe of actual and precluded competitors based on an analysis of
the firms' capabilities and incentives to compete effectively in the relevant market.  Of particular
interest are those market participants that are likely to be at least as significant a competitive force
as either of the merging parties.  In determining the most significant market participants from
the universe of actual and precluded competitors, we identify the market participants that have, or
are most likely to gain speedily, the greatest capabilities and incentives to compete most
effectively and quickly in the relevant market. 

      2.  In prior merger orders, the Commission set out the various capabilities it considers
in identifying the most significant potential competitors in local exchange and exchange access
markets.   Those capabilities include whether the firm: (1) has the operational ability to provide
local telephone service (i.e., know how, and operational infrastructure, including sales, marketing,
customer service, billing and network management); (2) could quickly acquire a critical mass of
customers; (3) has brand name recognition, a reputation for providing high quality and reliable
service, an existing customer base, or the financial resources to get these assets; and (4) possesses
some significant unique advantages, such as a cellular presence in the relevant market.

 3.  In order to determine the likelihood that a firm that is not currently serving a
relevant market nevertheless will enter this market in the future, we consider industry trends that
may lead a firm currently serving one product, customer, or geographic segment to expand to
other relevant markets.  For instance, in a number of recent merger applications before the
Commission, prior applicants have pointed to consumers' demand for "one-stop-shopping,"
and/or end-to-end-service that is in part justifying these Applicants' merger plans.  In order to
meet these demands, firms providing one service may choose to expand their offering to provide a
whole range of products or expand to other geographic regions.  

      4.  We consider all available evidence demonstrating that precluded competitors
would likely have entered relevant markets.   For instance, Applicants' plans or attempts to
enter the relevant markets represent probative evidence of each Applicant's own perception that it
possesses the capabilities and incentives necessary to be a significant participant in the market. We
likewise look at unsuccessful plans to enter a relevant market in the past.  Although a "failed"
attempt might suggest that a firm is not a significant market participant, we would consider all
relevant circumstances, including changes in market conditions that might facilitate successful
subsequent entry and the strategic business consequences to a firm of failing to enter into a
relevant market.  Finally, the lack of entry plans does not eliminate a firm from being considered
a significant market participant; rather, we consider whether the firm has the capabilities, and is
likely to have the incentive, to become a significant market participant soon.

      5.  Applying this analysis to the instant merger, we find that eliminating Ameritech and
SBC as actual or potential participants in the mass market for local exchange and exchange access
services in each other's regions results in a substantial public interest harm by frustrating the
achievement of the Communications Act's objective of fostering greater competition in these
markets.   This harm must be outweighed by compensating benefits if the license transfer is to be
approved.  

                    (1)           Mass Market
     
 1.  We find that, with respect to the mass market for local exchange and exchange access
services, SBC and Ameritech have the capabilities and incentives to make each firm a most
significant market participant in particular markets in each other's regions.  First, as described in
Appendix B, prior to the announcement of the proposed merger, SBC and Ameritech had plans to
enter other incumbent LECs' regions, including each other's.  Second, as incumbent LECs, SBC
and Ameritech have certain advantages when expanding out-of-region that other potential local
service market entrants lack.

      1.  Ameritech's Out-of-Region Plans.  We find that Ameritech is not only a most
significant market participant in SBC's territory but also, as described in Appendix B, had both
the incentives and capabilities to become a significant market participant in the St. Louis mass
market for local exchange and exchange access service.  The fact that Ameritech, prior to merger
negotiations, had not begun offering commercial local wireline services out-of-region to the
general public does not establish that Ameritech lacked the capabilities and incentives to expand. 
As described in greater detail in Appendix B, we find that, but for the merger, Ameritech would
have implemented Project Gateway and entered the St. Louis residential market.  In project
Gateway, Ameritech's cellular company in St. Louis planned to offer local service as part of a
bundle first to residential, and then to small business customers.  Applicants concede that
uncertainties created by the planned merger were among the reasons for placing Project Gateway
on hold.  In addition, in testimony before the Illinois Commerce Commission, Ameritech
admitted that it would have proceeded with the launch of Project Gateway had it not been for the
merger.  Specifically, Ameritech's internal documents show that the firm had already announced
its intention to enter SBC's St. Louis market, and was actively implementing those entry plans at
the time the merger was announced.  Once the proposed merger was announced, Ameritech
suddenly abandoned these plans. 

      2.  Ameritech offers conceivable reasons for canceling Project Gateway besides the
merger, but many or all of them had existed for a long time without causing it to be cancelled. 
Also, whatever the merits of these reasons, none of them is described in contemporaneous
documents as the reason, or even a reason, for the cancellation.  Indeed, there is no stated reason
for the cancellation and no statement of a simultaneous event provoking cancellation in the
documents Ameritech has provided to us.  What did, in fact, occur simultaneously with the
cancellation of Project Gateway was the agreement of Ameritech and SBC to merge.  We
conclude that Project Gateway was cancelled because SBC and Ameritech preferred to merge
rather than compete in the mass market for local exchange and exchange access services in St.
Louis and perhaps elsewhere.

      3.  Although Ameritech minimizes the competitive significance of its own independent
entry absent the merger, the preponderance of the evidence demonstrates that Ameritech's
portrayal is self-serving.  Ameritech argues Project Gateway was resale-based, producing less
competition than facilities-based entry.  Next, Ameritech claims it lacked strong brand name
recognition in St. Louis.  Ameritech also argues it had problems implementing and launching the
service in St. Louis because of difficulties interfacing with SBC's operations support systems
(OSS).  Lastly, Ameritech states it had difficulty pricing a bundle of services that would attract
customers in St. Louis. 

      4.  We disagree with Ameritech that its entry into St. Louis would have had a limited
impact on that market.  We find that absent the merger, it is highly likely that Ameritech
ultimately would have made Project Gateway facilities-based.  Although Ameritech initially
relied on resale, this is typical of initial entry moves by competitive LECs.  A competitive LEC's
entry by resale may be a necessary first step to facilities-based competition.  It is not per se a
disavowal of it.  In fact, Ameritech's documents indicate that it was considering facilities-based
competition when it achieved sufficient scale to justify the related expenditure in capital, and
that it began several steps that, if completed, would have made it a facilities-based competitor in
St. Louis.  Furthermore, we find that Ameritech's assertion that it lacks brand name recognition
in St. Louis has no credibility.  Ameritech had been aggressively promoting and providing its
cellular service in St. Louis, under the Ameritech brand name, for many years.  Ameritech's own
documents show that it believed it had a strong brand name in St. Louis and that its brand name
would enable it to compete effectively in the local service market there.  Finally, it is significant
to our analysis that SBC considered Ameritech to be a potential facilities-based provider of local
service to the Missouri consumer market with strong brand name recognition.  Therefore, we
conclude that Ameritech is a significant market participant in the mass market for local exchange
and exchange access services in St. Louis. 

      5.  SBC's Out-of-Region Plans.  The evidence indicates that SBC is a potential
entrant for mass market local exchange and exchange access service in Ameritech's region. 
The evidence in the record indicates that SBC had plans to enter the mass market in Chicago,
building off its cellular base in that city, and could thus be viewed as a potential entrant into this
market.  Support for this argument comes from SBC's own statements.  For instance, in
October 1996, SBC's James S. Kahan testified in the California SBC/PacTel merger proceeding
that SBC had certain entry advantages in the Chicago market and therefore it "would make sense
to enter the local exchange market in Chicago but not in Los Angeles."  Kahan stated:

          In Chicago, we have an extensive wireless network consisting of 10
          switches and over 600 cell sites.  That network also includes
          extensive backbone network of microwave, leased facilities, and
          connections to a SONET ring.  This network is supported by a
          sophisticated billing system, a responsive care unit, as well as sales
          and distribution marketing, accounting, finance, installation and
          maintenance and other personnel who reside in and understand the
          Chicago market.  In addition, we have a well recognized brand
          name since we operate under the Cellular One name in Chicago. 
          We also have a large existing customer base to which we send bills
          every month and to whom we could market services.
     
 6.  We conclude that SBC was a significant potential entrant into Ameritech's region;
SBC disagrees.  SBC argues that Rochester, New York, was a first experiment in out-of-region
competition in local services, and that the experiment failed, ending out-of-region planning. 
Nevertheless, we base our conclusion in part on our analysis of the ability of SBC to pursue out-
of-region opportunities using, in this instance, its out-of-region cellular assets.  In addition,
although it had no existing plans to enter out-of-region territories at the time of the merger,
SBC's internal documents indicate the company contemplated such entry when the competitive
landscape became clear, as discussed in Appendix B.  Therefore, we conclude that SBC had the
incentives to make it a significant potential market participant in the mass market for local
services in out-of-region markets such as Chicago.  Significantly, Ameritech also perceived SBC's
potential entry into Chicago as a competitive threat to Ameritech.

 7.  Capabilities and Incentives.  The Applicants' own plans, as well as the
Commission's independent analysis, indicate that SBC and Ameritech each have the operational
capabilities necessary to enter out-of-region markets.  In general, each has the requisite access to
the necessary facilities, "know how," and operational infrastructure such as customer care, billing,
and related systems that are essential to the provision of local exchange services to a broad base
of residential and business customers.  These systems are required whether entry occurs
through resale, use of UNEs, or some other form of facilities-based entry.  SBC and Ameritech
also possess special expertise as incumbent LECs that each could bring to the interconnection
negotiation and arbitration process when entering out-of-region markets because of their intimate
knowledge of local telephone operations and experience negotiating interconnection agreements
with new entrants.   

      8.  Moreover, in a number of areas, Ameritech and SBC have the additional advantage
of adjacency, or a cellular presence, or both.  Each company has an array of switches and
switching locations that have capacity (or can be readily upgraded) to provide switching to
contiguous territories.  Thus, where they are contiguous, SBC or Ameritech can lease or build
transport from their existing switches to a newly entered market more readily than other potential
local service providers because of proximity to the newly entered market and their understanding
of the requirements for local exchange services.  Finally, both Ameritech and SBC have brand
recognition in contiguous regions because of extensive advertising in media markets that cross
these regions.  Ameritech's research, for example, shows its brand recognition in St. Louis is so
high that it essentially proves Ameritech is one of the "top two" telecommunications brand names
among consumers in the market.  The cellular assets that Ameritech and SBC possess in each
other's regions also provide unique advantages for out-of-region entry.  For instance, a cellular
presence provides a ready customer base for expanding into wireline local telephony.

      9.  We therefore reject Applicants' claim that they should not be considered most
significant market participants in out-of-region markets.  Given the depth and breadth of
Ameritech's expansion plans, we find it likely that Ameritech would have expanded into other
SBC markets, in addition to St. Louis, but for the merger.  We find it significant that Ameritech
viewed Project Gateway as a "testbed" in which it could learn about competing with incumbent
LECs in local service and long distance service, customer demand for bundles, and how to
implement local and other services in a new area.  Project Gateway, had it not been cancelled by
Ameritech so that it could merge with SBC, would have given Ameritech insights and experience
for later use about how best to enter additional out-of-region markets.  One potential means for
entry for Ameritech was to build on its larger business expansion plans, as described below.  We
also find that SBC may have expanded into Ameritech markets, such as Chicago, using its cellular
bases spread throughout Ameritech's region.
  
      10. As for other significant market participants, the dominance of each incumbent LEC
in its own region makes it a most significant competitor in its own region.  We also reaffirm our
finding in prior decisions that the three largest interexchange carriers, AT&T, MCI (now MCI
WorldCom), and Sprint are among the most significant participants in the mass market for local
exchange and exchange access services.  We find that these firms each have the capabilities,
incentives, and stated intentions to serve the mass market for local exchange services.  All three
firms already have a substantial base of residential customers of their long distance services and
established brand names resulting from their marketing of these services. Thus, these firms are
among the best positioned to provide local services to residential customers.  Further, their stated
intentions to begin serving the mass market for local services underscores their position as being
among the most significant competitors.  Nevertheless, in certain regions, such as adjacent
territories or cellular markets, where incumbent LECs have brand name and/or customer base
advantages similar to those enjoyed by the interexchange carriers with their customers, incumbent
LECs have the additional advantage of their experience in providing local services to mass market
customers as incumbent LECs. 

      11. Other firms, currently serving or planning to serve the mass market for local
exchange and exchange access services out-of-region, are not yet included in the list of most
significant market participants.  Competitive LECs have begun serving residential markets but do
not yet have the existing customer base and brand name that enable AT&T, MCI, and Sprint, as
well as certain incumbent LECs, to become most significant competitors. 

                    (1)           Larger Business Market
     
 1.  We find that the larger business local exchange market has a number of market
participants with similar incentives and capabilities as an incumbent LEC expanding out-of-region. 
As the Commission found in earlier orders, incumbent LECs still dominate the market for local
exchange and exchange access services sold to larger business customers in their regions and are
therefore most significant market participants.  We recognize, as we observed in the
WorldCom/MCI Order, that in contrast to the relative lack of competition incumbent LECs face
in the market for local services sold to mass market customers, incumbent LECs face increasing
competition from numerous new facilities-based carriers in serving the larger business market. 
We note that this competition lessens the potential public interest benefits of SBC or Ameritech
expanding out-of-region in the larger business market for local exchange and exchange access
services.  

      1.  As with the mass market, incumbent LECs have significant capabilities and
incentives to expand into the market for larger business customers out-of-region.  Prior to the
merger Ameritech was offering out-of-region services to its larger business customers, and had
already entered several metropolitan areas in SBC's territory as part of its Managed Local Access
(MLA) Program.  In its MLA program, Ameritech offered local service in a number of out-of-
region states to its largest business customers.  Ameritech began to implement MLA in 1997.  As
of February 2, 1999, Ameritech had negotiated interconnection agreements and was certificated
to provide local service as a reseller and/or facilities-based carrier in three SBC states   California,
Missouri, and Texas.  Ameritech asserts that it cancelled the program in June 1998 because it
was unable to win customers.  The Commission nevertheless agrees with the commenters that
argue that Ameritech is a significant potential entrant in the larger business markets in California,
Missouri, and Texas.  We base this conclusion on our analysis of the ability and incentive of
Ameritech to expand out-of-region to serve larger business.  The MLA program provides
evidence of the incentives of Ameritech to expand out-of-region, if not the ability to do so.

      2.  Although both SBC and Ameritech are significant market participants in the larger
business market for local exchange and exchange access services, unlike in the mass market for
local exchange and exchange access services, a large number of other firms may have similar
capabilities and incentives expanding out-of-region to serve larger business customers.  As we
have noted, the larger business market for local exchange and exchange access services differs
from the mass market.  Larger business customers in general tend to be more sophisticated and
knowledgeable purchasers of telecommunications services than mass market customers.  A
significant difference between the mass market for local services and the larger business market
for local services is that larger business customer purchases are not limited to a single local
metropolitan geographic area; rather, they purchase simultaneously in numerous local markets. 
Ameritech's MLA program and the Applicants' National-Local Strategy are examples of how
larger business customers' purchasing patterns are targeted by following larger business
customers out-of-region.  Finally, broad-based brand name recognition and mass advertising are
less important in attracting larger business customers.  As a result, many more firms are
entering the larger business market successfully than are entering the mass market for local
exchange services, and the merger is therefore less likely to have adverse public interest effects in
the larger business market for local services.    
                                                            
     
               a)   Analysis of Merger's Effects

     
 1.  We seek to determine whether the merger of Ameritech and SBC is likely to cause a
public interest harm by reducing the level of competition in any relevant local market.  One of the
major purposes of the Act, that we seek here to further, is to lower the entry barriers that gave
incumbent LECs monopoly control over the local services offered to customers in their regions. 
The Act's goal was to introduce competition in these markets to the ultimate benefit of
customers, both as entrants attempted to win consumers' business with lower prices and improved
services, and as incumbents were forced in turn to respond to the entrants or lose customers.  The
realization of this goal is jeopardized if the incumbent and one of the most significant competitors
in its region choose to merge instead of compete.  This is true even if this competitor has not yet
entered during the transitional period while entry barriers are being eliminated, as the merger will
eliminate future entry and any corresponding competitive restraint this would place on the
incumbent.  

      1.  In the instant merger analysis, we conclude above that both SBC and Ameritech
have the capabilities and incentives to expand into the mass market for local exchange and
exchange access services in geographic markets adjacent to their own regions or ones in which
they have a cellular presence.  SBC and Ameritech are thus among the most significant potential
competitors in these markets in each other's regions.  Therefore, the merger of SBC and
Ameritech would lessen competition in these markets, resulting in a potential public interest harm. 
In the larger business market for local exchange and exchange access services, we conclude above
that SBC and Ameritech are among a significant number of actual and potential competitors in
each other's regions.  Therefore, the merger would be unlikely to lessen competition in these
markets and we find little corresponding public interest harm.   
                    
                    (1)           Competitive Effects on Mass Market Local Services
 1.  St. Louis.  In our analysis of the ability and incentives of incumbent LECs to
expand out-of-region, we focus on the advantages that incumbent LECs have when expanding
into adjacent regions or regions in which they already have a cellular presence.  In St. Louis,
Ameritech enjoys both advantages.  Indeed, as discussed above, Ameritech did have plans to enter
the St. Louis market.  We therefore focus our discussion first on the St. Louis market, before
turning to other general regions.

 2.  We find that the merger will result in the elimination of Ameritech as a significant
market participant in the mass market for local services in St. Louis.  Consequently, the proposed
merger will reduce the level of competition in this market, and thereby result in a significant 
public interest harm.  As discussed above, we base this conclusion on the following.  First, until
the merger was negotiated, Ameritech was entering the mass market for local services in St.
Louis.  Second, we find that Ameritech was among the most significant competitors to SBC in St.
Louis. We base this finding on our conclusion that Ameritech, as an incumbent LEC, has the
operational experience to be able to offer local exchange services on a large-scale in out-of-region
markets.  In addition, Ameritech had a number of advantages for entering St. Louis, including its
St. Louis wireless customer base and brand reputation, and its adjacency to St. Louis.  The only
other most significant potential market participants in the mass market for local services in St.
Louis are the major interexchange carriers, with their ability to capitalize on their brand name and
existing customer base.  We conclude, therefore, that the merger will eliminate Ameritech as
one of a very limited number of most significant market participants in the mass market for local
services in St. Louis, and thereby will result in a public interest harm.  

 3.  We therefore concur with DOJ's conclusions that Ameritech planned to begin
offering wireline local exchange services to mass market customers in St. Louis prior to the
merger announcement, as well as the absence of other firms with similar intentions. 
Nevertheless, we conclude that the divestiture of Ameritech's cellular assets required by DOJ,
standing alone, does not mitigate the public interest harms outlined in this section.  As discussed
above, the public interest standard that governs the Commission's review is broader than the
antitrust analysis undertaken by the DOJ.  In particular, we find that the merger may delay the
future development of competition or lessen its eventual impact, contrary to the intention of the
1996 Act.  Specifically, we find that the merger will result in a significant public interest harm in
the provision of local exchange services to the mass market in St. Louis and elsewhere, despite
the divestiture of Ameritech's cellular assets.

      4.  We reach this conclusion based on our analysis of the capabilities, incentives, and
intentions of Ameritech to expand into St. Louis, and our corresponding finding that GTE
Consumer Services Incorporated (GCSI), the purchaser of Ameritech's St. Louis cellular assets
is not likely to be as significant a competitor to SBC's residential wireline services as was
Ameritech.  First, we note that GCSI meets the requirement specified in DOJ's Proposed  Final
Judgment, if it "has the capability of competing effectively in the provision of local exchange
telecommunications services and long distance telecommunications service in the St Louis
Area."  This specific language clearly indicates that DOJ only wishes to require that GCSI
demonstrate the capability to use these assets to provide local services in St. Louis, but not the
specific intention to so use them. We note that although GCSI has the capability of providing
local services in the St Louis Area, based on the record before us, it lacks the adjacency, incentive
and stated intention to provide wireline local exchange services in St. Louis that in combination
with its brand name recognition gave Ameritech its advantages in entering the St. Louis market. 
It is therefore unlikely that GCSI could demonstrate the same incentive, and intention to provide
wireline local exchange services for mass market customers in St. Louis as Ameritech.  We
therefore conclude that the merger leads to a public interest harm in the St. Louis market despite
the divestiture of Ameritech's cellular assets, although divestiture to a firm with the ability to
extend the wireless business to a genuine wireline threat does mitigate the significance of the
harm.

      5.  Other Regions.  We further find that, as elaborated in Appendix B, the fact that
SBC had no current plans to enter any mass market for local exchange and exchange access
services out-of-region, and the fact that Ameritech's plans focused on St. Louis, do not preclude a
finding that each was a significant potential mass market participant in other regions.  We base
this finding on the transitional market analysis articulated in the Bell Atlantic/NYNEX Order,
stating that in transitional markets such as the local markets examined here, the Commission may
consider future entry in its analysis of the competitive effects of a merger.  As discussed in
Appendix B, Ameritech was expanding elsewhere into SBC's region as part of its MLA program.
Combining the MLA foothold in the larger business market in these regions with the benefits of
Ameritech's experience as an incumbent LEC, along with additional experience that it would have
accrued as a competitive LEC in St. Louis, we find that Ameritech had the capabilities and
incentives to further expand into the mass market for local services in SBC's region.  The
divestiture of Ameritech's cellular assets in St. Louis does not provide any assurance that the
purchaser will expand beyond St. Louis as Ameritech was likely to have done. Although SBC
would not have adjacency benefits in most of Ameritech's region, combining its experience as an
incumbent LEC with its cellular assets, notably in Chicago, but also elsewhere in Ameritech's
region, we find that SBC had the capabilities and incentives to expand into the mass market for
local services in Ameritech's region.  

      6.  Therefore, we find that the merger of SBC and Ameritech results in the loss of a
most significant potential competitor in the provision of mass market local exchange services in
portions of each other's regions, resulting in a potential public interest harm.  The harm is
significant because both firms are among a very few that are poised on the edge of an entrenched
monopolist, with genuine abilities to challenge that monopolist.  These harms, although real and
substantial, nevertheless may not be enough, in and of themselves, to justify prohibiting the
merger.  Neither firm was likely to enter most of the other's territory.  Throughout both
territories, at least three interexchange carriers are also significant actual or potential entrants. 
The divestiture of Ameritech's wireless St. Louis operation to GTE somewhat mitigates the
merger's effects in that city.  Were the loss of each firm's entry into the other's territory the only
public interest harm produced by this merger, the overall balance would be much closer.  

                    (1)         Effects on Larger Business Market
     
 1.  With respect to the provision of local exchange access services to larger business
customers, we find that, absent the merger, Ameritech is likely to have followed a number of its
large business customers in a number of out-of-region states in SBC's territory, as documented by
Ameritech's plans to offer local exchange services via its MLA program, and that SBC had the
capabilities and incentives to expand out-of-region in a similar fashion, despite the absence of
concrete plans.  We also find that there are a number of significant competitors equally
competitive with SBC and Ameritech in these markets.  Therefore, although SBC and Ameritech
are significant market participants, we do not find that their elimination, as a result of the merger,
would substantially frustrate the goals of the Act and harm the public interest in the provision of
local exchange and exchange access services sold to larger business customers. 

1                               Comparative Practices Analysis

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

      1.  The Commission's public interest test considers, among other things, "whether the
merger . . . would otherwise frustrate our implementation or enforcement of the Communications
Act and federal communications policy."  In past incumbent LEC mergers, the Commission has
recognized that the declining number of independently-owned major incumbent LECs limits the
effectiveness of benchmarking for regulators in carrying out the goals of the Communications
Act.  In the Bell Atlantic/NYNEX Order in particular, the Commission observed that, as the
number of independent large incumbent LECs declines, regulators and competitors lose the ability
to compare policies and performance among major incumbents that have made divergent
management or strategic choices.  Consequently, in allowing the Bell Atlantic/NYNEX merger,
the Commission expressly cautioned that "further reductions in the number of Bell Companies or
comparable incumbent LECs would present serious public interest concerns."  The Commission
went on to warn that "future applicants bear an additional burden in establishing that a proposed
merger will, on balance, be pro-competitive and therefore serve the public interest, convenience
and necessity."  The Applicants have not overcome that burden.   

      2.  Following the concerns expressed in the Bell Atlantic/NYNEX Order, and SBC's
prior acquisitions of Pacific Telesis and SNET, we must consider the effect that a further
reduction in the number of large incumbent LECs would have on the ability of regulators and
competitors to use comparative practices analyses as a deregulatory means to advance the pro-
competitive goals of the Communications Act.  We find, as the Commission concluded in the Bell
Atlantic/NYNEX Order, that the major incumbent LECs (RBOCs and GTE), because they are
of similar size and face similar statutory obligations and market conditions, remain uniquely
valuable benchmarks for assessing each other's performance.  It follows that a reduction in the
few remaining major incumbent LECs would restrict the flow of information to regulators and
competitors that otherwise could be used to promote innovative market-opening solutions or to
identify and curtail unreasonable and discriminatory behavior.

      3.   As discussed in greater detail below, we find that the proposed merger's
elimination of Ameritech as an independent major incumbent LEC will significantly impede the
ability of this Commission, state regulators and competitors to use comparative practices analyses
to discover beneficial, pro-competitive approaches to open telecommunications markets to
competition and to promote rapid deployment of advanced services.  More specifically, the loss of
Ameritech as an independent source of strategic decisions and experimentation, and the increased
incentive for the merged entity to reduce autonomy at the local operating company level as a
result of the merger, would severely restrict the diversity that regulators and competitors
otherwise could observe and, where pro-competitive, endorse.  By further reducing the number of
major incumbent LECs, the merger also increases the risk that the remaining firms will collude,
either explicitly or tacitly, to conceal information and thereby hinder regulators' and competitors'
benchmarking efforts.  We therefore conclude that the proposed merger of SBC and Ameritech
would impede the ability of regulators and competitors to make effective benchmark comparisons,
which would force more intrusive, more costly, and less effective regulatory measures contrary to
the 1996 Act's deregulatory aims and the interests of both the regulated firms and taxpayers.  The
loss of this more efficient method of oversight can only serve to further entrench the large
incumbent LEC's substantial market power.  

      4.  Our analysis of the effect on comparative practices analysis of SBC's acquisition of
Ameritech discusses:  (1) the need for comparative practices analyses to offset the informational
disadvantage of regulators and competitors; (2) the impact of a reduction in the number of
comparable firms on benchmarking's effectiveness; (3) examples of the use of comparative
practices analysis by regulators and competitors to evaluate practices of the large incumbent
LECs both prior to and following the 1996 Act; (4) the adverse impact of the proposed
SBC/Ameritech merger on the effectiveness of comparative practices analyses; and (5) the present
inadequacy of other alternatives to large incumbent LEC benchmarks.  

          1.   Need for Comparative Practices Analyses

 1.  For regulators and competitors, comparative analyses of the practices and
approaches of a variety of similarly situated incumbent LECs can render valuable information
regarding network features, capabilities and costs.  The 1996 Act requires regulators to oversee
the opening of local telecommunications markets to competition and to promote rapid deployment
of advanced services under circumstances in which regulators possess far less accurate and less
complete information than incumbent LECs about the capabilities and constraints of existing
networks.  Without such information, regulators and competitors may not be able to make
informed decisions regarding the feasibility and costs of certain interconnection or access
arrangements, particularly when disputes arise over the introduction of new, unproven
technologies or services.  The incumbent LEC's superior knowledge also gives it a decided
advantage over competitors in negotiating prices, terms and conditions for interconnection or
network access.

 2.  In addition, incumbent LECs, which are both competitors and suppliers to new
entrants, have strong economic incentive to preserve their traditional monopolies over local
telephone service and to resist the introduction of competition that is required by the 1996 Act. 
More specifically, an incumbent LEC has an incentive to:  (1) delay interconnection negotiations
and resolution of interconnection disputes; (2) limit both the methods and points of
interconnection and the facilities and services to which entrants are provided access; (3) raise
entrants' costs by charging high prices for interconnection, network elements and services, and by
delaying the provisioning of, and degrading the quality of, the interconnection, services, and
elements it provides.  An incumbent LEC has similar, and probably greater, incentive to deny
special accommodations required by competitive LECs seeking to offer innovative advanced
services that the incumbent may not even offer.  As noted at the outset, this view of the
incumbent LECs' incentives and abilities is the fundamental postulate of the basic cornerstones of
modern telecommunications law   the MFJ and the 1996 Act.  

 3.  Given these incentives to resist competitive entry, independent incumbent LECs,
absent collusion, are likely to adopt different defensive strategies to forestall competitive entry,
and each particular strategy will reveal information to regulators and competitors.  One incumbent
LEC may claim, for example, that a particular form of interconnection is infeasible, while a second
may resist the unbundling of a particular network element, and a third may oppose the collocation
of specific types of equipment within its central offices.  In such situations, the behavior of other
major incumbent LECs can be used as benchmarks to evaluate the outlying incumbent's claims. 
Competitors, in negotiating and implementing access and interconnection arrangements, could
point to the conduct of one incumbent to rebut another incumbent's assertion that a particular
service is not feasible or must be structured or priced in a particular manner.  Comparative
practices analysis does not require this Commission to assume the more expensive and intrusive
posture of imposing arduous reporting requirements and dictating how networks should be
organized and operated.  Comparing the practices of a large number of similarly-situated
incumbents provides a minimally-intrusive means for regulators and competitors to
counterbalance the incumbents' superior knowledge of the possible technical arrangements for
collocation, unbundled access, and interconnection, as well as the costs associated with such
arrangements. 

   1.     The ability to analyze a wide variety of approaches among the major incumbent LECs is
especially crucial for regulators and competitors in implementing the provisions of the 1996 Act
that mandate competitive access to facilities and services.  As regulators seek to open local
telecommunications markets and promote advanced services deployment using deregulatory
means, they benefit greatly from observing diverse strategic decisions and experimentation among
the incumbents.  The Applicants themselves acknowledge that the introduction of local
competition has "both accelerated and been accompanied by rapid technological
developments."  Comparative practices analyses are perhaps the regulators' and competitors'
best means of staying abreast of such rapid technological advances, particularly in assessing the
technical feasibility of novel access and interconnection configurations vital for the provision of
new services and technologies.  

   2.     In analyzing comparative practices, regulators and competitors generally use two broad
methods of comparison   "best-practices" and "average-practices" benchmarking.  It is not
unusual, however, for comparative practices analyses to involve a combination of these
approaches.

   3.     Best-Practices.  Under "best-practices" benchmarking, a regulator compares behavior
across a group of similarly situated, independent firms in order to identify the best practice
employed by a firm, or subset of firms.  When individual incumbent LECs adopt a variety of
techniques or technologies to provide a particular service, regulators and competitors can
compare the costs and benefits of each technique to arrive at a "best practice," which
presumptively could be promoted or required of all incumbents.  If one or two incumbent LECs,
for example, offered requesting carriers cageless collocation, this would call into question the
claims of other incumbent LECs that cageless collocation threatened the reliability of the
network.  Alternatively, if several similarly-situated incumbent LECs provide widely varying
estimates of the cost of providing a certain service, then the low cost estimate would call into
question the accuracy of the higher cost estimates.  

   4.     Average-Practices.  Under "average-practices" benchmarking, a regulator gathers data
from a number of firms in order to identify the prevailing standard or to calculate the average,
which then could be used as a benchmark against which to evaluate an individual LEC's
performance.  Substantial deviation from the benchmark average can assist regulators and
competitors in detecting substandard, and potentially unreasonable, behavior, such as poor service
quality or unreasonable costs.  Variations of this form of comparative practices analysis also can
be used to monitor service quality or to detect unreasonable or discriminatory costs or practices.
The Commission's calculation of the X-factor based on industry-wide increases in productivity,
which was then applied to all "Price Cap LECs," is another use of average-practices
benchmarking.  To be effective, however, average-practices benchmarking requires data from a
large number of independent, similarly situated incumbent LECs, none of which is large enough to
dominate, or skew, the aggregate data.  In such a situation, an individual LEC's action would
have little impact on the average benchmark, and an incumbent LEC would have no incentive to
deviate from its individually optimal behavior in order to affect that average benchmark. 

   5.     Absent the ability to benchmark among major independent incumbent LECs, this
Commission and state regulators would have no choice but to engage in highly intrusive
regulatory practices, such as investigating the challenged conduct directly and at substantial cost
to make an assessment regarding its feasibility or reasonableness.  The increased need for such
direct regulation would not only be more costly, but it would clash with the deregulatory goals of
the 1996 Act.  Furthermore, these more intrusive and costly regulatory alternatives are unlikely
to be as effective as comparative practices analysis in implementing the pro-competitive mandates
of the 1996 Act, given the rapid evolution of technology, the incumbent LECs' informational
advantage and their incentive to conceal such information.

          1.   Effect of Reduction in Number of Benchmarks

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

               a)   Effect at Holding Company Level

     
 1.  A merger of two large incumbent LECs obviously eliminates an independent source of
observation at the holding company level.  The combined entity is unlikely to continue with two
sets of policies and practices where the dual policies conflict with one another.  Instead, it is likely
to eliminate any divergent approaches in favor of a standard policy (which may represent a choice
between the two firms' positions or a compromise).  The acquiring firm has a particularly strong
incentive to eliminate conflicting policies of the acquired firm that would jeopardize its chosen
strategy to resist competitive entry.  Consequently, as the Commission explained in the Bell
Atlantic/NYNEX Order, the result of the merger may be a reduction in the level of
experimentation and variety of approaches observable to regulators and competitors. 

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

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

               a)   Effect at Operating Company Level 

     
 1.  A merger of two holding companies also is likely to reduce the relative autonomy of their
local operating companies and hence the overall level of experimentation and diversity for
decisions that were made at the operating company level.  Holding companies typically impose
certain constraints on their operating companies.  Accordingly, when two holding companies with
distinct policies merge and adopt one common set of policies, the decisions made by the operating
companies of the acquired holding company will become more closely correlated with the
decisions made by the operating companies of the acquiring holding company.  Furthermore, the
expansion in the combined entity's service region results in a greater incentive to shift more
decisions from the operating company level to the holding company level.  

 1.  As a holding company's size increases, the cost it incurs when one of its operating
companies' practices is used as a benchmark against the rest of the company also increases.  For
example, if each of the merging firms previously had five local operating companies, then each of
these holding companies would have been concerned only with the cost of adopting a benchmark
practice for its four other operating companies.  Following the merger, however, the holding
company would have to consider the cost of adopting this benchmark practice for a total of nine
other operating companies.  Accordingly, as a holding company acquires more operating
companies and its service region expands, it has an increased incentive to ensure that its operating
companies' policies are consistent with those of the holding company.

      2.  Where a merger creates an incumbent LEC of sufficient size to dominate the
setting of industry averages and standard practices, which are based on data from operating
companies, the merged firm acquires an incentive to impose uniform practices in order to
influence or set the de facto average benchmark.  An incumbent LEC with few operating
companies, for example, may allow its local operating companies to set the non-recurring charge
(NRC) associated with cutting over a loop, because the data from its operating companies will
have negligible impact on the industry average.  If, however, as a result of a merger, the holding
company controlled a large percentage of the nation's local loops, then it would have a strong
incentive to establish a uniform NRC in order to influence the industry average.  Alternatively, a
holding company that knew that a maverick operating company outside its territory was
developing a new billing and collection arrangement that would likely become a best-practice
benchmark would have limited incentive to prevent its own operating companies from employing
a variety of billing and collection arrangements, for the differing arrangements would have little
effect on the ultimate benchmark.  If, however, a merger brought the maverick operating company
under the holding company's control, the holding company would be able to influence the
benchmark by requiring all its operating companies (including the maverick) to adopt the billing
and collection arrangement that it deemed most advantageous.  The result, again, would be a loss
of independent sources of observation for regulators and competitors seeking to use comparative
practices analyses to promote competition and rapid deployment of advanced services. 

               a)   Effect at Industry Level 

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

      1.  The Horizontal Merger Guidelines indicate concern that firms may be able to
coordinate with respect to price or other product attributes when six equally sized firms compete
in an industry.  Nonetheless, the ability of firms to coordinate on price is partially mitigated by
the fact that, by its very nature, an agreement to maintain price above the competitive level creates
an incentive for each of the firms to cheat on the agreement and lower price.  By undercutting the
agreed-upon price, a firm could earn a higher profit than it would earn if it (along with the others)
maintained the agreement.  We note that, as the major incumbent LECs do not directly compete
on price in the same geographic markets (and, as noted above, would be less likely to do so after
the merger), they do not have this incentive to lower price.  

      2.  In the context of comparative practices analysis, we expect that, with respect to
coordinating divergent incentives, having fewer benchmark firms would also result in the
remaining firms being better able to coordinate their behavior.  In this situation, the coordination
of behavior could be designed not to raise price, but, rather, to conceal information from
regulators and thereby impede regulatory functioning.  Unlike competing firms, each of which has
a unilateral incentive to cheat on the agreement in order to raise its profits, no such incentive to
cheat exists with respect to an agreement, tacit or explicit, to behave in a uniform way to conceal
information from a regulator.  

      3.  By reducing the number of benchmark firms, and thereby simplifying coordination
of agreements, a merger between major incumbent LECs facilitates agreement among the
remaining firms to conceal information to thwart the effectiveness of benchmarking.  The
remaining firms will find it easier to coordinate the withholding of certain types of information and
the elimination of divergent practices that regulators and competitors could use in comparative
practices analyses.  Tacit coordination among fewer major incumbent LECs makes it easier for the
remaining firms to agree not to provide a certain type of interconnection or access arrangement in
order to prevent regulators and competitors from concluding that such arrangement is feasible
because another major incumbent is providing it.  Likewise, the remaining firms could agree not
to charge a non-recurring charge less than a certain price so as to avoid a regulator's use of a
lower threshold to assess reasonableness.  In this way, further consolidation among the major
incumbent LECs would severely curtail regulators' abilities to constrain any tacit or explicit
coordination by these incumbents to impede comparative practices analyses, especially as
regulators seek to open the incumbents' markets to competition.

          1.   The Value of Comparative Practices Analyses

     
 1.  As illustrated by the examples that follow, courts, federal and state regulators, and
competitors have consistently recognized comparative practices analysis as a crucial tool, and
have employed such analyses, to set industry standards and policy, detect discriminatory behavior,
and promote competition.  In the Bell Atlantic/NYNEX Order, the Commission noted that federal
and state regulators have long recognized benchmarking as a relatively non-intrusive means of
implementing pro-competitive policies and rules and of evaluating incumbents' compliance with
such requirements. 

               a)   Comparative Practices Analyses under the Modified Final
               Judgment

     
 1.  Prior to their recent merger efforts, the RBOCs had been among the most fervent
proponents of the use of benchmarking to supplant other more-intrusive forms of regulation. 
For example, when the RBOCs petitioned for removal of the MFJ's line-of-business restrictions in
1987, each of the then-seven RBOCs argued that lifting the line-of-business restrictions was
justified because the performance of one RBOC could be measured against that of the six
others.  Ameritech, for example, asserted that the "division of the local exchange networks
among seven independent companies has greatly enhanced the detectability of any monopoly
abuse and the effectiveness of regulation."  In a subsequent filing, Ameritech, citing
"overwhelming evidence that divestiture-created benchmarks are being used effectively by
regulators, the DOJ and the industry as safeguards against any potential anticompetitive conduct
or regulation abuse," asserted that "[n]o amount of sophistry can suppress the importance of
benchmarks."  Similarly, SBC contended that, with the creation of seven regional companies as
a result of the divestiture, "[t]he FCC can now monitor the rates, performances, and business
practices of the seven [RBOCs] to detect potential anticompetitive activities."  SBC further
asserted that the seven RBOC benchmarks provide "an effective deterrent against even subtle
attempts to abuse any advantages that might arise from the ownership of local exchange
telecommunications facilities."

      1.  Federal courts, agreeing with the RBOCs' affirmations of the importance of
benchmarking, have also recognized the value of comparative practices analyses among the major
incumbent LECs.  For example, in considering the information services line-of-business
restriction, the D.C. Circuit explained: 

          [T]he existence of seven [R]BOCs increases the number of benchmarks that can be used
     by regulators to detect discriminatory pricing.  Indeed, federal and state regulators have in
     fact used such benchmarks in evaluating compliance with equal access requirements . . .
     and in comparing installation and maintenance practices for customer premises
     equipment.

      2.  In another case, the court relied in part on benchmarking in rejecting a DOJ
proposal to restrict RBOC marketing of customer premises equipment (CPE) to residential and
single-line business customers.  Specifically, the court noted that, "with seven different [RBOCs]
involved in installation and maintenance, claims of one Operating Company that it had particular
difficulties or problems with the equipment of manufacturers it did not sell could be readily
undermined by a comparison with the practices of the other six companies." 

      3.  In addition to recognizing the value of benchmarking, federal courts regularly
employed benchmarking by comparing practices among the RBOCs.  For example, in ordering
Pacific Bell to provide access lines for AT&T's coinless public telephones, the district court twice
noted that Pacific Bell appeared to be the only RBOC not providing the required access. 
Ruling on a separate motion, the court noted that no other RBOC had attempted, as Bell Atlantic
had, to sell embedded CPE to the General Services Administration prior to the divestiture-related
assignment of CPE accounts, assets and employees to AT&T.  

               a)   The Commission's Use of Comparative Practices Analyses

     
 1.  The Commission has long used various forms of comparative practices analyses in
carrying out the objectives of the Communications Act.  Broadly speaking, comparing the
practices of several major incumbent LECs has enabled the Commission to determine whether an
individual incumbent's claim concerning technical feasibility is warranted, or to monitor service
quality with minimal regulatory intervention.  Below are a sample of the examples of the
Commission's use of such comparisons to implement the Communications Act and, most notably,
the pro-competitive mandates of the 1996 Act.

      1.  The Commission employed "best-practices" benchmarking in implementing the
local competition provisions of the 1996 Act.  In interpreting the requirement that incumbent
LECs provide interconnection and access to UNEs at any "technically feasible point," for
example, the Commission concluded that successful interconnection or access to a UNE at a
particular point in one incumbent LEC's network is substantial evidence that interconnection or
access is technically feasible at that point in other networks employing substantially similar
facilities.  Similarly, the Commission found that successful interconnection at a particular level
of quality in one LEC's network is substantial evidence of the feasibility of interconnection at the
same level of quality in another LEC's network.  

 2.  This Commission also adopted a "best-practices" approach in addressing
collocation issues in its recent Advanced Services Further Notice.  Specifically, we concluded that
any collocation method used by one incumbent LEC is presumptively technically feasible for all
other incumbents.  We stated that "[t]he incumbent LEC refusing to provide such a collocation
arrangement, or an equally cost-effective arrangement, may only do so if it rebuts the presumption
before the state commission that the particular premises in question cannot support the
arrangement because of either technical reasons or lack of space."  We emphasized that "[w]e
believe this 'best practices' approach will promote competition."  The Commission therefore
considered the use of comparative practices analyses to be an efficient, pro-competitive method of
evaluating the parameters of incumbents' interconnection or access arrangements. 

      3.  The Advanced Services proceeding also illustrates that an incumbent LEC's unique
approach can set the industry standard.  In that proceeding, we addressed the issue of how to
allocate the "up-front" costs incurred in preparing collocation space.  Relying on an approach
developed by Bell Atlantic in its New York section 271-pre-filing statement, under which each
competitor was responsible only for its pro-rata share of the cost of conditioning the collocation
space, we adopted Bell Atlantic's approach as a national standard and required incumbent LECs
to allocate space preparation and other collocation charges on a pro-rated basis.  The
Commission's explicit reliance on benchmarking in our recent orders implementing the advanced
services provisions of the 1996 Act highlights the continued vitality of benchmarking as a market-
opening tool for the future.

      4.   Just as best-practices benchmarking forms the foundation for the Commission's
analysis of technical feasibility and collocation issues, average-practices benchmarking is the
Commission's primary tool for monitoring service quality and detecting unreasonable or
discriminatory costs or practices.  In creating the Automated Reporting Management Information
System (ARMIS) to monitor the effect of price cap regulation on large incumbent LECs' service
quality and infrastructure development, the Commission directed the Common Carrier Bureau to
promote uniformity in reporting factors so that the data collected would "be similar enough to
permit ready benchmarking."  In response to a request by various incumbent LECs asking the
Commission to reverse a Bureau decision to use ARMIS reports as the benchmark for comparing
service quality among incumbent LECs, the Commission, affirming the Bureau's decision, stated
that uniform ARMIS reporting allows for "useful comparisons on incumbent LEC
performance."  Reaffirming the importance of benchmarking in identifying instances where an
incumbent LEC has allowed its service quality to degrade in order to extract greater profits from
its capped rates, the Commission emphasized that "[f]rom the inception of the monitoring
program, benchmarking has been a primary goal."  

      5.  As a final example highlighting the Commission's continued use of comparative
practices analyses in the post-1996 Act era, the Commission has employed average-practice
benchmarking in reviewing the cost support filed by incumbent LECs in connection with new
services.  For example, in investigating physical collocation tariffs, the Commission, recognizing
that most incumbent LECs had little or no relevant operating experience or historical data,
concluded that it was reasonable to pool all incumbent LECs' direct cost estimates in order to
calculate an industry-wide average.  Then, if any individual incumbent LEC's cost estimate
substantially deviated from the benchmark average, the Commission could set that LEC's tariff
for further investigation into reasonableness.  The Commission has used a similar average-practice
methodology in other tariff review proceedings, including evaluating non-primary residential line
counts for presubscribed interexchange carrier charges and number portability cost
components.  

               a)   State Regulators' Use of Comparative Practices Analyses

     
 1.  State regulators likewise have relied on various forms of comparative practices analysis in
carrying out their roles in monitoring carrier activity in their state and opening local markets to
competition.  State regulators periodically compare the practices of incumbent LECs operating
within their state.  For example, an Illinois Commerce Commission (ICC) arbitration decision
between AT&T and GTE included numerous examples in which the ICC directed GTE to adopt
terms for AT&T that Ameritech had agreed to with other parties.  Likewise, when Ameritech
recently objected to the Ohio Public Utilities Commission's requirement that it allow customers
with past-due toll balances to switch to a new interexchange carrier, the commission observed
that "every LEC except Ameritech has implemented our existing toll blocking policy," and thus
found no basis to exempt Ameritech "from the requirements which every one of the other LECs is
following."   

      1.  State regulators at times also compare the practices of the major incumbent LECs
operating in other regions to the conduct of incumbents in their state.  For example, as AT&T
points out, in rejecting the claims of Ameritech that it could not provide competitors using
unbundled local switching with the billing information necessary to bill for terminating access or
for originating toll free access, the ICC found "it quite instructive that many other RBOCs have
voluntarily agreed to or have been ordered by state commissions to provide such information." 
Likewise, in the New York section 271 collaborative hearings, after Covad indicated that no
security problems arose in its cageless collocation arrangements with U S WEST in Washington
state, Bell Atlantic retreated from its claims that security concerns and network risks prevented it
from providing cageless collocation.  Similarly, in reviewing Ameritech Indiana's central office
floor space charge, the Indiana Utility Regulatory Commission found "no reason to believe that
Ameritech's central offices are constructed at a level of quality different than any other RBOC's
central offices."

      2.  As an example of a state regulators' use of RBOC average-practice benchmarking,
the Public Utility Commission of Texas (Texas PUC), in arbitrating Southwestern Bell Telephone
Company's interconnection agreements with five competitive LECs, found insufficient record
evidence for collocation costs and therefore deemed "it reasonable to base interim rates on the
average rates set in collocation agreements entered into by a sample of other RBOCs." 
Similarly, the Texas PUC adopted an aggregate methodology for assessing avoided cost discounts
when it found, inter alia, that SWBT's service-specific avoided cost estimates, "on their face, are
so inconsistent with the experiences of the FCC and other states."    

      3.  As a final form of state regulators' use of comparative practices analyses,
occasionally states compare divergent approaches among different local operating companies
owned by the same holding company.  For example, the Michigan PUC's requirement that
Ameritech implement number portability in Michigan uses Ameritech's progress in Illinois as a
benchmark.  Because such comparisons would be impossible if the local operating companies
initially were to act in lock-step fashion (i.e., before a best practice is identified), this form of
comparison depends upon the local operating companies retaining independence to adopt
innovative practices, notwithstanding their common ownership by one regional holding
company.  As this sample of benchmarking examples illustrates, the ability to make benchmark
comparisons, across independent, or at least semi-autonomous, operating companies constitutes
an effective, and minimally intrusive, tool for state regulators.   

               a)   Competitors' Use of Comparative Practices Analyses

     
 1.  Comparative practices analyses are also crucial for the incumbents' competitors which
must rely on incumbent LECs for interconnection, access and unbundled elements.  This explicit
need to rely on the incumbents' facilities and services distinguishes the section 251 negotiation
process from commercial negotiations in other competitive markets.  Consistent with the
analysis above, competitive LECs commenting in this proceeding assert that in their
interconnection negotiations with incumbent LECs, and in various state or federal proceedings
implementing the Communications Act, they compare the incumbent LEC's price structure,
provisioning, or claims about the feasibility of a particular service against their experiences with
other incumbents. 

      1.  Both MCI WorldCom and AT&T, as well as other competitive LECs, provide
examples of their use of benchmarking among the major incumbent LECs.  When Bell Atlantic
faced problems with premature switch translations and re-use of customer facilities, for example,
MCI WorldCom urged Bell Atlantic to use BellSouth's process for local number portability
cutovers (i.e., deploying a direct interface from the Number Portability Administration Center to
its provisioning systems).  Similarly, after NYNEX developed a special "VETS" testing vehicle
for ensuring that competitors' NXXs are opened and dated correctly, MCI WorldCom suggested
to other incumbents, such as Pacific Bell, that they adopt this improved internal NXX activation
and testing process.  MCI WorldCom also objected to certain proposed collocation
requirements of one RBOC (BellSouth) by pointing out that other RBOCs did not require those
practices.  Finally, in appealing an interconnection agreement, MCI WorldCom argued against
Bell Atlantic-Massachusetts's assumption that feeder facilities constructed of fiber-optic cable,
rather than copper, were most cost-efficient for all loops, regardless of length, by showing that no
other incumbent LEC had cost-justified the use of fiber-optic cable in loops with lengths less than
9,000 feet.  As these examples illustrate, MCI WorldCom's ability to compare the practices of a
large number of independent major incumbent LECs has enabled it to refer certain incumbent
LECs to proven alternate, and more pro-competitive, practices.

      2.  AT&T also cites several instances in which it used the practice of one RBOC as
leverage to defeat claims by another RBOC regarding technical feasibility.  AT&T's examples
include the following:

    Selective Routing of Operator and Directory Assistance Services.  When SBC claimed that
  selective routing of a competitive LEC's operator and directory assistance traffic to the
  competitive LEC's own operator centers was not technically feasible, AT&T introduced
  evidence that Bell Atlantic had agreed to perform such selective routing in Pennsylvania.  SBC
  subsequently committed to develop the capability to perform the same function.    

    Mechanized Loop Testing.  AT&T, challenging SBC's contention in state arbitrations that it
  was technically infeasible to provide mechanized loop testing (MLT) to competitive LECs
  using unbundled local switching, pointed out that Bell Atlantic and BellSouth, which use the
  same switch technology as SBC, were able to provide competitive LECs with such MLT
  capability.  As a result, at least two states, Texas and Missouri, have required SBC to provide
  MLT.

    Collocation of Remote Switching Module.  When Bell Atlantic claimed that collocation of
  remote switching modules (RSMs) was not feasible because it would exhaust central office
  space and require extensive central office modifications for its unique grounding
  requirements, AT&T demonstrated that SBC had stipulated in its Texas arbitration that it
  would allow competitive LECs to collocate RSMs for access to unbundled elements without
  any restrictions on equipment.  Ultimately, AT&T won the right to conduct RSM
  collocation in every Bell Atlantic state except Virginia.

    Interim Number Portability.  When Bell Atlantic resisted AT&T's requests that it provide two
  particular methods of implementing interim number portability, namely Route Indexing-
  Portability Hub (RIPH) and Directory Number Route Indexing (DNRI), AT&T pointed out
  that other RBOCs had agreed or been ordered to provide the methods and arranged for a
  representative from BellSouth to provide Bell Atlantic technical guidance on performing the
  translations required by RIPH or DNRI.  After speaking with the BellSouth representative,
  Bell Atlantic agreed to provide DNRI, subject to joint technical and operational testing.  

    Advanced Intelligent Network (AIN) Triggers.  In an arbitration with New York Telephone,
  AT&T responded to New York Telephone's concerns that AT&T's requested AIN access
  would raise security and network reliability issues by stating that the technology had been
  satisfactorily tested in a trial conducted by AT&T and BellSouth.  

   
 1.     The Applicants themselves confirm the existence of this type of benchmarking.  For example,
John Starkey, Vice President of Sales for SBC, explains that competitive LECs often bring to
SBC's attention the practice of one SBC operating company, or of another RBOC.  He further
acknowledges that SBC has been compelled to adopt such practices throughout SBC's region to
ensure a good flow-through rate.  One of Ameritech's affiants, Wharton B. Rivers, also cites an
example where AT&T successfully argued for a modification in Ameritech's policy regarding the
purchase of high capacity transport (services with DS1 or greater capacity) by comparing the
methods used by all the major carriers and requesting that Ameritech implement SBC's
procedures.  "Because of AT&T's request," Mr. Rivers explains, "many of [SBC's] procedures
that were superior to those we were previously using have become standard with [Ameritech]." 
Thus, the examples provided by competitors of SBC and Ameritech, as well as the Applicants
themselves, confirm the importance of benchmarking to competitors seeking to offset incumbent
LECs' informational and bargaining advantages.

          1.   Adverse Effects of SBC/Ameritech Merger 

     
 1.  We now examine the potential effect of the proposed merger on the effectiveness of
comparative practices analyses as a minimally-intrusive market-opening tool.  More specifically,
we consider in turn the merger's likely impact upon the diversity of approaches among major
incumbent LECs to comply with the Communications Act and adopt market-opening measures (a)
at the holding company level, (b) at the local operating company level, and (c) at the industry
level.  We conclude that the merger of SBC and Ameritech would have a significant adverse
impact on the ability of regulators and competitors to employ comparative practices analyses,
which ultimately would force regulators to substitute more intrusive, more costly, and less
effective methods of regulation to the detriment of the public interest.

               a)   Loss of Ameritech as Independent Holding Company

     
 1.  We find that, with only six major incumbent LECs remaining today (the RBOCs and
GTE), the elimination of Ameritech as an independent source of observation would seriously
impair the ability of regulators and competitors to use comparative practices analyses to facilitate
implementation of the Communications Act, particularly sections 251 and 271, the core
provisions for promoting and assuring competition in local telephony.  Moreover, by reducing the
number of major incumbent LECs, the merger makes it less likely that deviations from the average
benchmark will be identified confidently as unreasonable and punishable.  Finally, if prior
experience is any indication, the loss of Ameritech would severely affect the likelihood that a
maverick would emerge to present a different approach or, at a minimum, to assist regulators and
competitors in evaluating the claims of other incumbents.

      1.  As with the Bell Atlantic/NYNEX merger, which the Commission concluded
would reduce experimentation and diversity of viewpoints in the process of opening markets,
the proposed merger removes another independent source of experimentation and diversity.  By
admitting that each company, pre-merger, has different practices, the Applicants essentially
acknowledge that there is diversity in the manner in which these companies market and provision
services, deploy new technologies and respond to competitors.  As a result of the merger,
regulators and competitors will lose the problem-solving opportunities that flow from this
diversity of approaches. 

      2.  The record from prior RBOC mergers shows that, after both mergers, the
acquiring firm quickly eliminated certain policies of the acquired company that were in conflict
with those of the acquiring company.  For example, following their respective mergers,
NYNEX and PacTel each altered their prior support of a three-category approach for delineating
the scope of services for which carriers can use customer proprietary network information to
conform with the favored approach of their merger partner.  As KMC notes, following its
merger with SBC, Pacific Bell rescinded its pre-merger market trial of a "Calling Party Pays"
billing and collection arrangement with a cellular provider.  Similarly, Sprint points out that Bell
Atlantic, following its acquisition of NYNEX, reversed NYNEX's pre-merger practice of
allowing assignment of existing customer contracts to resellers without treating the assignments
as contract terminations triggering termination penalties.

      3.  In particular, the proposed merger's elimination of Ameritech as an RBOC
benchmark would acutely affect regulators and competitors seeking to ensure compliance with
section 271.  Retaining a significant number of independent RBOCs is particularly important as
regulators consider whether, under section 271, an RBOC has opened its local market sufficiently
to qualify to provide in-region, interLATA services in a given state.  Indeed, benchmarking
among the RBOCs may become even more important after they have received section 271
authorization, as regulators and competitors seek to prevent possible backsliding by the RBOCs. 

      4.  The loss of Ameritech's independence would be especially severe because
Ameritech frequently has taken an approach that differs from the position taken collectively by the
other RBOCs.  The Commission has emphasized that, by proposing a framework to eliminate
legal, economic and technical barriers to local competition, Ameritech's Customers First Plan,
announced in 1993, constituted a major advance in telecommunications policy.  Ameritech also
exhibited a willingness to adopt a flexible approach to competition by entering into a cooperative
venture with Northpoint Communications, Inc., a data competitive LEC.  This venture led to
Ameritech's general support of the Commission's proposal for a separate subsidiary approach to
advanced services, in contrast to the strong opposition from the other RBOCs.  

      5.  Ameritech also departed from the position taken by the other RBOCs and GTE in
the Number Portability proceeding where the other major incumbents urged the Commission to
allow incumbents to use the Query on Release (QOR) method rather than the Location Routing
Number (LRN) method.  In concluding, contrary to the other RBOCs' assertions, that QOR
offered no long-term cost savings relative to LRN, the Commission specifically noted Ameritech's
support of LRN by emphasizing that "at least one incumbent LEC, Ameritech, has already
decided that it is beneficial to deploy LRN from the outset."  Accordingly, the proposed
acquisition of Ameritech by SBC would eliminate an important source of innovation and a major
independent voice that has assisted regulators and competitors in implementing the 1996 Act's
market-opening provisions.  

               a)   Loss of Independence of Operating Companies

     
 1.  We find that, although the actual number of operating companies may not diminish
following the merger of SBC and Ameritech, the combined entity will have greater incentive to
unify the practices of these companies, resulting in an overall loss of independence at the
operating-company level.  Although we agree with the Applicants that, by requiring data to be
provided on an operating-company or study-area level, this Commission and state authorities
could retain the same number of data points and limit the Applicants' abilities to aggregate data
following the merger, we find that collection of operating-company specific or study-area
specific data would be useless for benchmarking purposes if all the local companies follow a
uniform policy set by the holding company.  In that case, the result would be a reduction in the
number of independent approaches, this time at the operating company level. 

      1.  The operating companies involved in the instant merger are aligned with two
distinct holding companies, each having a distinct top-level management philosophy.  Each
holding company also has adopted, or required of its operating companies, different policies and
practices, particularly in negotiating interconnection agreements, which represent a certain level of
autonomy.  Accordingly, in order to accept the Applicants' argument that the merger would not
reduce the number of independent points of observation, we also would have to assume that the
merger would have no effect on the likelihood that the local operating companies would adopt
independent approaches that differ from one another.  Logic and evidence both point to the
contrary.  Post-merger, because of its larger size, the merged firm would be affected more than
either company standing alone if regulators and/or competitors use best-practices benchmarking
to force the firm to adopt throughout its region a market-opening measure adopted independently
by one of its operating companies.  Accordingly, following its acquisition of Ameritech's five
operating companies, SBC will have a greater incentive to ensure that all thirteen of its local
operating companies' policies are consistent.  

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

      3.  SBC effectively admits that it will impose greater uniformity in policies toward
competitive LECs following consummation of its merger with Ameritech.  For example, Sandy
Kinney, President of SBC's wholesale operations and John Starkey, Vice President of Sales for
SBC, stated that SBC's policy is to adopt its "best practices" company-wide.  Ms. Kinney and
Mr. Starkey also confirmed that, although SBC must file separate interconnection contracts in
each state, SBC generally negotiates with competitive LECs on a region-wide basis, unless
competitive LECs request state-by-state negotiation, and then modifies the standard agreement
for specific states only as necessary to comply with any differing state rules.  SBC's
representatives also stated that the performance measures that it will adhere to as a result of the
section 271 collaborative process in California are a subset of those to which it is bound in the
Texas section 271 process.  The Applicants' statements that the merger will eliminate
overlapping functions and spread the adoption of best practices throughout the holding company,
detailed below in our analysis of the merger's claimed public benefits, provide further evidence
that the various operating units' policies and operations will become more uniform post-merger. 


      4.  Even if the merged firm were to continue reporting data at the operating company
level, therefore, indications from SBC, as well as logic and experience, suggest that a merger of
SBC and Ameritech would likely lead to more uniform policies being adopted at the operating
company level throughout the combined entity's region, again resulting in fewer independent
points of observation for regulators and competitors.

               a)   Increased Risk of Coordination Among Remaining Major
               Incumbent LECs

     
 1.  The proposed merger, by reducing to five the number of major incumbent LECs, also
would increase the incentive and ability of the remaining incumbents to coordinate their behavior,
either explicitly or implicitly, to impede benchmarking and resist market-opening measures.  As an
initial matter, by merging Ameritech into SBC, the merger reduces by one the number of
independent holding companies whose behavior must be coordinated, which simplifies the process
of coordination.  Coordination requires that the incentives of all parties are aligned, and reducing
the number of companies reduces the number of incentives that must be aligned. 

      1.  Reducing the number of firms also increases each firm's incentive to coordinate its
behavior to undermine regulatory processes.  As we have mentioned, SBC will grow larger as a
result of the merger, and therefore stands to sustain a larger loss as the result of any comparative
practices analysis that constrains its behavior.  This gives the merged firm greater incentive to
enter into tacit agreement with the remaining firms to convey minimal information to regulators
and/or competitors and to eliminate outlying policies and practices that could become industry
benchmarks.  Moreover, the merger will create a demonstrably large incumbent LEC that can act
as an industry leader for collusive purposes.  

      2.  As a result of Ameritech's merger with SBC, the other major incumbent LECs also
will have more incentive to cooperate in attempts to impede comparative practices analysis. 
Cooperative ventures, either explicit or implicit, involve the risk that one or more parties will
deviate from the cooperative behavior, thereby spoiling the venture.  With the cooperation of
fewer firms necessary, the merger reduces the risk that a venture will fail, which translates into a
lower risk for each firm from participating in the venture.  This reduction in risk increases a firm's
incentive to cooperate.  By reducing the number of major incumbent LEC benchmark firms to
five, with each firm facing more incentive to cooperate and little unilateral incentive to break an
agreement to impede benchmarking, the proposed merger will facilitate any attempts, especially
implicit attempts, to coordinate behavior to conceal forms of competitive deterrence from
regulators and competitors.  The merger of SBC and Ameritech therefore increases the incentive
and abilities of the merged firm and other incumbent LECs to cooperate in becoming less effective
benchmarks for regulators and competitors seeking to promote competitive entry and rapid
deployment of advanced services. 

          1.   Continued Need for Major Incumbent LEC Benchmarks

     
 1.  We reject the Applicants' arguments that smaller incumbent LECs and competitive LECs
provide adequate benchmark alternatives to the major incumbent LECs, and that parity
requirements make the incumbent LEC's dealings with itself the only relevant benchmarks in a
post-1996 Act era.  As discussed below, we find, to the contrary, that benchmarking among the
large incumbent LECs will continue to be a crucial market-opening tool as regulators and
competitors carry out the objectives of the 1996 Act. 

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

      2.  We agree with the broad principle that the methods of comparison may evolve
over the course of the transition to full competition in local markets.  For instance, it may turn
out, as Applicants assert, that the importance of benchmarking access charge rates will decline as
interexchange carriers reach customers through more competitive LECs rather than incumbent
LECs.   Nonetheless, as explained above, we find an acute present need for benchmarking to,
among other tasks, facilitate implementation of the market-opening measures of the 1996 Act and
promote the rapid deployment of advanced services.  For these types of comparisons, we predict
that the high percentage of access lines nationwide controlled by the RBOCs and GTE will keep
them at the forefront in establishing benchmark rates, terms and conditions for an extended future
period. 
          
               a)   Inadequacy of Other Firms As Benchmarks Against Major
               Incumbent LECs

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

                    (1)         Differences in Regulatory Treatment
     
 1.  We conclude that the distinct obligations imposed on major incumbent LECs, as compared
with other LECs, under the 1996 Act undermines the abilities of regulators and competitors to
draw useful comparisons between the conduct of the major incumbent LECs and these other
carriers.  In short, small incumbent LECs and competitive LECs cannot qualify as adequate
alternatives to the RBOCs and GTE as benchmarks for implementation of sections 251(c) and
271, the core market-opening provisions of the 1996 Act.

      1.  The Applicants fail to explain how smaller incumbent LECs or competitive LECs
could substitute for other RBOCs in assessing compliance with certain prominent provisions of
the 1996 Act that apply solely to the RBOCs.  The ability to compare the RBOCs' policies and
practices in areas such as OSS performance, unbundling, and interconnection arrangements, for
example, is a practical tool for regulators, competitors and DOJ in determining a BOC's
compliance with section 271, or in monitoring to prevent potential backsliding.  Similarly,
analyzing the structure of other LECs not subject to a statutory separate affiliate requirement for
manufacturing activities, or for the provision of in-region interLATA telecommunications services
and interLATA information services, will not aid regulators or competitors in assessing an
RBOC's compliance with section 272.  At a minimum, therefore, both regulators and competitors
have a strong continuing need for separate comparative practices analyses among several RBOCs
in order to ensure compliance with RBOC-specific provisions of the 1996 Act.  

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

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

                    (1)         Differences in Structure and Operation
     
 1.  We also find that crucial distinctions in structure and operation undermine the value of
using smaller incumbents and competitors as benchmarks for the RBOCs and GTE. 

      1.  Small Incumbent LECs.  We find that, because their service areas include fewer
large metropolitan areas and thus tend to be subject to less competitive entry and less demand for
budding advanced services, smaller incumbent LECs are not likely to provide useful benchmarks
for measuring the market-opening performance of major incumbent LECs.  In contrast to the
smaller incumbents, the major incumbents tend to operate in markets characterized by high
population density or a large number of business lines, which generally are more attractive to new
entrants.  The level of competitive activity in a given area can implicate the network architecture
or capability required of certain incumbent facilities such as OSS and physical collocation.  A
small incumbent facing little demand for interconnection, collocation or facilities for advanced
services is less likely to have traffic levels or performance measurements that would render
meaningful comparisons with a large incumbent who must employ more sophisticated
management systems to meet greater demand.  Moreover, different market structures may result
in different network configurations that limit the usefulness of comparisons.  For example, the loop
costs of an RBOC may not be comparable to those of a small rural incumbent LEC with longer
average loops or less densely concentrated customers.  

      2.  Furthermore, by arguing that large size enables an incumbent LEC to achieve
economies of scale, upgrade its network and provide more advanced services than smaller
incumbent LECs, the Applicants imply that the less developed networks and higher costs of
smaller incumbent LECs would make them inappropriate benchmarks for the large incumbent
LECs.  As detailed in Section V.D. (Increased Discrimination) below, the large footprints of the
major incumbent LECs may offer these carriers greater opportunities to engage in anticompetitive
behavior that would be difficult to detect using comparisons to smaller incumbents.  Finally, in
average-practices benchmarking, no small incumbent LEC could provide an adequate
counterpoint to the combined entity's control of one-third of the nation's access lines.  

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

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

      5.  We also reject the Applicants' assertion that sections 251 and 252 of the 1996 Act
increase the information flow to competitors sufficiently to eliminate the need for comparative
practices analyses.  By asserting that the publication of interconnection agreements supplants
the need for benchmarking, the Applicants brush past the complementary nature of the
publication requirement and comparative practices analyses.  The publication of interconnection
agreements assists competitive LECs in making benchmark comparisons, not only as between
what one particular incumbent LEC offers to different competitors but also as among the general
practices of several different incumbents.  By increasing the flow of information to competitors
and regulators, sections 252(h) and 252(i) facilitate the ability of competitors and regulators to
engage in active benchmarking among the incumbents.  Thus, the entire section 251 process
benefits from having more rather than fewer large incumbent LECs to provide a diversity of
approaches in negotiating interconnection agreements. 

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

     
 1.  We are also unpersuaded by the Applicants' argument that maintaining a large number of
major incumbent LECs as benchmarks is no longer necessary because, as they assert, rather than
comparisons among major incumbent LECs, the relevant benchmarks during the transition to
competitive local markets are parity comparisons focusing on how an incumbent LEC treats
competitive LECs vis--vis itself.  According to the Applicants, "performance measures
designed to compare the access and interconnection the Bell Operating Companies provide to
CLECs on a state-by-state basis with that provided to their own retail operations have become the
new 'benchmarks.'"  

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

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

      3.  For innovative entrants, in particular, parity rules will not always suffice.  As
Sprint notes, if the innovation requires a new form of interconnection or access, "[t]he incumbent
can slow-roll the innovator, declining to provide the new kind of input, until the incumbent has a
similar or leapfrogging innovation available."  As discussed further in Section V.D.2.a)
(Advanced Services) below, if a competitive LEC seeks the provision of properly conditioned
loops in order to provide xDSL service, an incumbent LEC which is not ready to provide xDSL
service itself would have the incentive to deny this competitor the properly conditioned loops.  In
this circumstance, parity rules would provide no remedy for the competitive LEC, for the
incumbent LEC would not be providing to its retail arm anything that it was denying its
competitor.  Exclusive reliance on parity rules, therefore, could slow the provision of innovative
services to the public. 

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

               a)   Sufficiency of Remaining RBOC Benchmarks

     
 1.  Finally, we reject the Applicants' argument that because benchmarking requires only one
firm to "break ranks" with others, the proposed merger will not impair benchmarking by
eliminating the only remaining benchmark.  In other words, the Applicants have stated that the
"benchmarking issue thus has been narrowed . . . to the question of whether the 'loss' of
Ameritech as an independently owned RBOC would so affect the Commissions ability to
determine whether a proposed practice is technically feasible as to outweigh the benefits presented
by the merger."  They go on to argue that there are no examples of this Commission using only
a single RBOC-to-RBOC comparison as a benchmark.   Thus, according to the Applicants, the
loss of one RBOC would not have changed the outcome of any benchmarking analysis because
other firms, or the BOCs, could still be used as benchmarks for assessing technical feasibility.  We
disagree and find, to the contrary, that the merger would result in dangerously few RBOC and
major incumbent LEC benchmarks.  

      1.  The Applicants' assertion that the Commission's analysis has never turned solely
on RBOC-to-RBOC comparisons, or on an RBOC outlier, disregards not only the examples of
the Commission's use of comparative practices analysis cited above, but also SBC's and
Ameritech's prior recognition and support of Commission benchmarking among the RBOCs. 
More importantly, we reject the Applicants' implied presumption that reducing the number of
independently-owned RBOCs could be harmful only if the Commission in its decision relies solely
on an RBOC-to-RBOC comparison.  Analyzing the practices of the large incumbent LECs, the
RBOCs included, may reveal trends within the industry or other qualitative factors that, although
not determinative, may heavily influence the Commission's reasoning.  The Commission's
regulatory processes are cumulative, and rarely rely solely upon any one rationale for action.

      2.  With technical feasibility concerns, in particular, the loss of one source of
observation could in fact eliminate the single observation that would have proven a particular
arrangement feasible.  This is especially true in making assessments regarding advanced
services, where the major incumbent LEC benchmark firms have taken different strategies, or are
in different stages, in terms of their own deployment or cooperation with others.  Furthermore, as
shown above, there are examples in which a single firm used as a benchmark.  Thus, reducing
the number of potential benchmark firms increases the chance that regulators and competitors will
lose the ability to observe the decisive benchmark.
 
      3.  More importantly, we disagree with the Applicants' assertion that the issue has
been narrowed to the question of whether a proposed practice is technically feasible.  As we
have stated above, aside from determining the simple feasibility of a proposed activity,
benchmarking can be used to help determine the cost of a specific service, estimate the future cost
of providing new services, or decide which out of a number of services is the most cost effective. 
In each of these cases, more independent observations will yield more useful information and
improve the decisions of the regulator.  To the extent that the mergers reduces the level of
observation, this process is impaired.  For example, finding that several major incumbent LECs
can provide a service at a particular cost and level of quality will be more valuable than finding
that only one major incumbent LEC can do so.  With new services and technologies, reaching
appropriate decisions will likely involve making predictive judgments regarding the costs and
future demand for the innovative service or technology.  Although it is impossible for regulators
to predict the value of these variables with certainty, having more rather than fewer independent
estimates of such values will yield more useful information.     

      4.  Although we do not view the instant merger's reduction of the number of major
incumbent LECs (the RBOCs and GTE) from six to five to be an automatic trigger of
benchmarking harms, we cautioned in the Bell Atlantic/NYNEX Order that these harms increase
disproportionately with each additional decline in the number of major incumbent LECs.  As
explained above, along with further restricting diversity, each successive reduction in benchmark
firms materially increases the risk that the remaining firms could successfully coordinate behavior,
implicitly or explicitly, to reduce the effectiveness of comparative practices analyses.  With only
five remaining benchmark firms, this risk is far greater than with six.   

          1.   Conclusion

     
 1.  We conclude that, by further reducing the number of separately-owned large incumbent
LECs, the proposed merger of SBC and Ameritech would significantly harm the ability of
regulators and competitors to rely on comparative practices analyses to carry out their obligations
under the Communications Act.  In particular, the proposed merger of SBC and Ameritech poses
a significant potential harm to the public interest by:  (1) removing a source of potential diversity
from independent major incumbent LECs during the transition to competition; (2) creating an
incentive for the combined firm to coordinate behavior at the operating company level, thereby
reducing other potential sources of innovation; and (3) increasing the incentive and opportunity
for collusion and concealment of information among the few remaining major incumbent LECs. 
All of these occurrences lead to an overall reduction in diverse policies, practices and approaches
that otherwise could have been used to implement the Communications Act most effectively,
particularly in overseeing the transition to competitive local markets.  As a result, the Commission
would have to substitute more intrusive regulation to enforce the Communications Act,
representing a less effective and more costly solution for both the regulated firms and the public. 
Only firms comfortable with a monopolistic environment would welcome such results.  

      1.  As noted above, in allowing the Bell Atlantic/NYNEX merger, we expressly
cautioned that further consolidation among the RBOCs or comparable incumbent LECs would
present serious public interest concerns.  Because the harm to regulators' and competitors'
ability to use benchmarking to implement and enforce the Communications Act is greater as the
number of independent large incumbent LECs decreases, the Applicants must prove
countervailing public interest benefits of this merger significantly exceeding those from previous
incumbent LEC mergers in order to demonstrate that this merger, on balance, serves the public
interest.  Alternatively, we need to fashion very substantial market-opening, benchmarking
conditions to alleviate the grave harms this merger poses to the regulatory processes and the
operation of the 1996 Act's interconnection requirements.   

1                               Increased Discrimination

          1.   Overview

 1.  In the preceding section, we explained why this merger, as initially proposed,
would seriously weaken oversight of the Applicants' behavior toward competitors.  In this
section, we explain why we also believe that this merger will increase predation while weakening
our ability to combat it.  We conclude that incumbent LECs, such as SBC and Ameritech, have
the incentive and ability to discriminate against competitors in the provision of advanced
services, interexchange services, and circuit-switched local exchange services, and that such
incentive and ability will increase as a result of the merger.  This increased incentive to
discriminate will result in a public interest harm, because it will adversely affect national
competitors' provision of services in the new, combined region, and, as a further result, will harm
consumers who ultimately will be forced to pay more for retail services, with reduced quality and
choice.

 2.  We believe the merger is likely to have particularly harmful, discriminatory effects
on competition in the provision of new types of advanced services.   Telecommunications markets
today exhibit a continuing shift from a circuit-switched to a packet-switched environment capable
of allowing the provision of a variety of new, advanced services.  Any discrimination against
non-incumbent competitors who use these advanced packet-switched technologies likely will
cause a significant setback to current and future efforts to encourage competition and innovation
in the provision of new types of advanced services. For example, Sprint is particularly concerned
that, post-merger, the larger, combined entity will have both greater incentive and ability to stifle
Sprint's ION rollout.  Advanced services markets are still emerging and developing, so we must
continue to ensure competition in the provision of advanced services by multiple providers. 
Therefore, we scrutinize carefully the possibility of an increase in incentive and ability to
discriminate against competitive providers of such services.  Protecting against an increased
incentive and ability for incumbents to discriminate against competing advanced services providers
not only furthers the Commission's ongoing efforts to encourage innovation and investment in
advanced services, but also comports with the Commission's obligations under section 706 to
"encourage the deployment on a reasonable and timely basis of advanced telecommunications
capability to all Americans."

 3.  We also are concerned with the effects of discrimination on competition in the
provision of interexchange services and local exchange services.  Specifically, we conclude that
the combined entity likely will discriminate to a greater extent against termination of
interexchange calls by competing providers in the combined region, as well as against competitive
LECs seeking to provide local exchange services in the combined region.  With respect to local
exchange competition, we believe that the likelihood of increased harmful discrimination is
particularly acute with respect to competitive providers of local exchange services to mass market
customers (smaller businesses and residential customers).
 
      4.  In explaining our conclusions about the harms to competition in the provision of
advanced services, interexchange services, and local exchange services, we describe why the
increase in the number of local areas controlled by the combined entity will increase its incentive
and ability to discriminate against its rivals seeking to provide retail services within the combined
region.  As discussed in detail below, this increased incentive and ability to discriminate will, at
times, harm a competitor's activities not only within the combined region but also in other
regions.  According to Sprint, as a result of the merger, the combined entity, in order to
preserve or gain business for its own retail services, will have increased incentives to discriminate
against competing carriers that depend on access to the incumbent LECs' monopoly inputs to
provide retail services (specifically, local exchange services, interexchange services, and
bundled/new technology services).  Examples of such necessary inputs are: (1) for local exchange
services   interconnection and UNEs; (2) for interexchange services -- originating and terminating
exchange access services (or UNEs used to obtain them); and (3) for new/bundled services, all of
the above.  

 5.  Incumbent LECs in general have both the incentive and ability to discriminate
against competitors in incumbent LECs' retail markets.  This observation is the fundamental
postulate underlying modern U.S. telecommunications law. The divestiture of AT&T rested
principally on this observation.  Two key sections of the 1996 Act -- sections 251 and 271 -- rest
entirely on this point.  Incumbent LECs have an incentive to discriminate against rivals to gain the
business that these rivals lose as a result of such discrimination.  This incentive exists in all retail
markets in which they participate.  Incumbent LECs' ability to discriminate against retail rivals
stems from their monopoly control over key inputs that rivals need in order to offer retail services. 
Depending on the particular retail service, an incumbent LEC may exercise its ability to
discriminate using different means, as described below.  For instance, an incumbent LEC may
discriminate against an interexchange carrier by delaying access to the trunk capacity needed to
terminate calls.

 6.  In spite of the existing incentive to discriminate against rivals providing retail
services, both theoretical and empirical evidence suggests that incumbent LECs may not be
discriminating to the full extent of their ability.  For example, the benefits of increased levels of
discrimination may not justify the increased financial costs and corresponding risks of detection
and punishment.  The fact that competing firms are able to enter retail markets is amply
represented in the record before us, and confirms that any current discrimination is not at a level
that would totally preclude competition.  As discussed below, the merger, by increasing the
incentive to discriminate, probably will result in the merged entity further exploiting its ability to
discriminate against retail rivals.

      7.  In many cases, discriminatory conduct by an incumbent LEC in its region affects a
competitor in areas both inside and outside the incumbent's region. Effects outside the region
(externalities or "spillover" effects) can directly or indirectly harm customers, whose business
the incumbent LEC is seeking to gain.  Spillover effects directly harm customers when the
incumbent LEC's discrimination in one region negatively affects a customer's communications
between that region and another region.  For instance, if SBC discriminates against the
termination of long distance calls by an interexchange carrier in one city such as Houston,
customers of this interexchange carrier in Chicago are directly affected, and may switch long
distance providers as a result.  Spillover effects indirectly affect customers when an incumbent
LEC's discrimination in one region increases a national rival's general costs, thereby indirectly
impairing the ability of this rival to provide service to customers in other regions.  For instance, a
competitive LEC's entry into various areas usually entails fixed costs such as research, product
development, and marketing costs that must be covered by the sum of the competitive LEC's
area-specific profits.  If SBC raises this competitive LEC's costs in Houston, less money is
available to cover those fixed costs, and it is likely to become a less effective competitor in other
areas such as Chicago, or it may forego entry into the Chicago market altogether.  Regardless
of the nature of the spillover effects, the intended result of discrimination is to reduce the ability of
competitors to acquire and/or keep customers, that is, to increase the barriers to entry that
competitors of incumbent LECs face. 

      8.  Because after the merger the larger combined entity would realize more of the
gains from such external effects, the marginal benefit and corresponding incentive to discriminate
in each area would increase.  As a result, the level of discrimination engaged in by the combined
entity in each region within the combined territory would be greater than the sum of the level of
discrimination engaged in by the two individual companies in their own, separate regions, absent
the merger.  Building on the example in the preceding paragraph, before the merger, we must
assume that SBC discriminates against retail rivals in Houston based on the benefits reaped in its
region and that Ameritech does likewise in Chicago.  After the merger, SBC will have more
incentive to discriminate in Houston because the benefits of this discrimination to SBC would
extend further, all the way to Chicago.  SBC will increase the level of discrimination in Houston in
spite of the fact that Ameritech was already discriminating in Chicago; the level of discrimination
in Chicago was set by Ameritech based only on the smaller benefits of keeping competitors out of
Ameritech's region.  Taking this theory to the extreme, to demonstrate its effect on competition,
we consider a situation where all incumbents have merged, leaving only one incumbent LEC. 
Under such a scenario, the remaining incumbent LEC's incentive to discriminate against rivals
would be increased to the maximum, because the incumbent LEC could reap the benefit of
discrimination in an extremely large area.  The level of discrimination can be increased partly
because, as discussed below, the combined entity will have an increased ability to discriminate.  

      9.  In addition to increasing the incentives to discriminate, we find that the merger will
enhance the ability of the combined entity to engage in an increased level of discrimination. The
combined entity will be better able to discriminate against competitors by coordinating its
formerly separate local exchange operations and controlling both ends of a higher percentage of
calls (which is relevant to the provision of interexchange services).  As described above,
regulators will have greater difficulty monitoring and detecting this misconduct because of the
reduction in the number of benchmarks.  Therefore, the combined company not only will have
more incentive to discriminate against rivals, but also will have a heightened ability to inhibit
competitors' provision of services within the combined region compared with the ability of each
company currently to discriminate within its region.

          1.   Analysis

     
 1.  In the paragraphs that follow, we analyze the incentive and ability to discriminate, both
before and after the merger, with respect to competitors providing advanced services,
interexchange services, and local exchange services in the SBC and Ameritech regions.  Although
we do not separately analyze the incentive and ability to discriminate against competitors
providing bundled interexchange and local exchange services in these regions, we note that our
analyses in sections b) and c) below apply equally to them as well.

 1.  We find that the combined entity is likely to increase the level of discrimination
that rivals must overcome to provide retail advanced services, interexchange services, and local
exchange services.  In the retail market for advanced services, incumbent LECs can engage in
discriminatory conduct with respect to competitors' provision of services such as xDSL by
refusing to cooperate with competitors' requests for the evolving type of interconnection and
access arrangements necessary to provide new types of advanced services.  The combined entity,
controlling a larger area, will engage in more such discrimination against a competitor such as
NorthPoint Communications that is seeking to enter on a national basis, as it will realize more of
the benefits.  In the retail market for interexchange services, incumbent LECs with section 271
authority to offer interexchange services to in-region customers will have an incentive to
discriminate against the termination of calls in its region by independent IXCs in order to induce
callers at the originating end to choose the incumbent LEC as the interexchange provider.  The
combined entity, controlling a larger area, terminates calls from a greater number of in-region
customers and therefore has more incentive to engage in such discrimination.  This discrimination
is likely to be particularly acute with regards to advanced or customized access services for which
detection of discrimination is most difficult.  Finally, in the retail market for local exchange
services, the merger gives the combined entity an increased incentive to engage in discrimination
against competitive LECs engaging in a national entry strategy, as it will realize the benefits over
a larger area.  This discrimination is likely to be particularly acute with respect to the provision of
local exchange services to mass market customers, for which there are few benchmarks of
incumbent LECs' best practices that could be used to detect such discrimination.  For the
provision of all three types of services, the merger is likely to cause public interest harms by
reducing the amount of competition faced by the merged entity.

               a)   Advanced Services

 1.  We find that the combined entity will have an increased incentive and ability to
discriminate against competitors providing retail services that rely on new technology, particularly
advanced services like Sprint ION.  The record reflects that competitive service providers
frequently run into difficulty the first time they seek to provide a new service such as xDSL that is
dependent on incumbent LEC inputs, thus giving the incumbent LECs the ability to control the
pace of innovation.  Examples of the types of things to which providers of xDSL services have
needed access include, but are not limited to: (1) detailed loop information (such as information
on loop qualification); (2) conditioned loops; (3) remote terminals; (4) the incumbent LEC's
central office to collocate new technology; or (5) portions of interconnection agreements that are
tailored to the needs of xDSL.  These difficulties motivated the Commission's continuing
efforts to promote and ensure competitive provision of advanced services in the Advanced
Services rulemaking proceeding.  Incumbent LEC discrimination against competitive providers
of xDSL services has delayed competitive provision of these services and necessitated regulatory
intervention.  As newer services come along, competitors will continually need novel and
unforeseeable forms of access from the incumbent LEC.  We conclude that the merger of SBC
and Ameritech will increase the incentive and ability of the merged entity to discriminate in the
provision of these forms of access to competitors.

      2.  A number of telecommunications providers, ranging in size from new entrants to
the largest firms in the industry, are beginning to offer nationwide services based on advanced
services.  For instance, Sprint's describes its ION offering as "an innovative new service that
promises to bring an integrated package of advanced telecommunications services to millions of
subscribers."  Sprint asserts that it has plans to offer ION in metropolitan areas containing over
65 percent of the population of the United States.  Sprint describes this service as a combined
service that "integrates traditional voice traffic, Internet traffic, frame relay traffic, and other data
traffic on one customer access facility and carries the traffic in the Asynchronous Transfer Mode
data format through the Sprint network."  Another carrier offering a competitive advanced
service is Covad.  Covad recently announced a nationwide, high-speed access service, called
TeleSpeed Remote, that enables remote branch offices and workers to be connected to the main
corporate network.  Covad has plans to make this service available in a total of 58 cities by the
end of 1999.  In this section, we show that SBC and Ameritech's incentive to discriminate will
increase as a result of the merger, because, for example, discriminating against Covad's TeleSpeed
Remote service in one city such as Los Angeles can affect the provision of TeleSpeed Remote in
Chicago.
     
      3.  We disagree with Applicants that the economies of scale in developing,
negotiating, and implementing the interfaces, protocols, and other access services Sprint asserts it
needs to launch its services on a nationwide basis would, instead, benefit from dealing with fewer,
larger, local exchange companies.  Although administratively it might be easier to deal with one
incumbent LEC instead of two, the harms resulting from the merger of the two incumbents would
be greater than the benefits of fewer negotiations.  Indeed, the existence of multiple incumbents
enables competitors to bring to the bargaining table with one incumbent lessons it has learned
from negotiations with another incumbent.  This is particularly true for advanced services for
which some experimentation and innovation are required from the incumbent LEC.  

                    (1)         Background
     
 1.  One of the fundamental goals of the 1996 Act is to promote innovation and investment by
all participants in the telecommunications marketplace, in order to stimulate competition for all
services, including advanced services.  Today, both incumbent LECs and new entrants are at
the early stages of developing and deploying innovative new technologies to meet the ever-
increasing demand for high-speed, high-capacity advanced services.  For the advanced services
market to develop in a robust fashion, it is critical that the marketplace for these services be
conducive to investment, innovation, and meeting the needs of consumers.

      1.  Given the importance to the public interest of continuing to ensure competition in
the provision of advanced services, we are required by section 706 to be particularly vigilant
that a merger between two incumbent LECs such as SBC and Ameritech will not harm the
development of competition for such advanced services. In a recent report to Congress, the
Commission found that advanced telecommunications capability apparently are being deployed in
a reasonable and timely fashion.  Nevertheless, this report captures the advanced services market
in its infancy, and the Commission must continue to facilitate the development of advanced
services competition by reducing barriers to infrastructure investment so that companies in all
segments of the communications industry have the incentive to innovate and invest in broadband
technologies and facilities, bringing the benefits of this competition to consumers.  We find that
incumbent LECs such as SBC and Ameritech already have ample ability and incentive to
discriminate against advanced services providers; absent conditions, the increase in the incentive
and ability to discriminate caused by the instant merger may frustrate substantially the realization
of the 1996 Act's and the Commission's goals with respect to advanced services.

                    (1)         Incentive and Ability to Discriminate
     
 1.  Because incumbent LECs either currently do, or in the future will, compete with other
providers of advanced services, they have an incentive to discriminate against companies that
depend on them for evolving types of interconnection and access arrangements necessary to
provide new services to consumers.  They also have the incentive to limit or control the
development of new services to the extent new services compete with their current offerings.  In
addition, competitors often are totally dependent on incumbent LECs for last mile wireline access
to end users.  We show below that the incentive to discriminate against advanced service
providers is increased substantially by this merger. 

 1.  We conclude that there is sufficient record evidence, described below, to
demonstrate that evolving types of interconnection and access arrangements with incumbent
LECs may be, or are likely to be, necessary for competitors to provide new, innovative services to
consumers.  We agree with Sprint that BOCs' "near monopoly in access to local customers is
the key to their continuing ability to impact local competition by failing to provide quality access
to those monopoly facilities to companies such as Sprint." According to Sprint, in order to offer
its advanced Sprint ION service, it will need modifications to standard access and interconnection
arrangements.  For larger customers, Sprint asserts that its ION service will use dedicated
access lines purchased from the incumbent LEC, and for smaller customers, the services will use
an xDSL capable loop and collocation space rented from the incumbent LEC, or resold incumbent
LEC xDSL service.  Sprint asserts that, in the case of xDSL collocation, the RBOC also
controls the central office space where xDSL equipment must be located to connect with the
copper loops of the RBOC in order to function.

 2.  Applicants respond that Sprint is "unable to point to a single 'innovative' access or
interconnection arrangement that it has requested in connection with a new service offering that
SBC or Ameritech has said is not available."  Moreover, Applicants refer to a June 1998 Sprint
press release in which Sprint announced that it had reached "'key network access arrangements'"
with Southwestern Bell and Ameritech enabling it to launch its ION service in SBC and
Ameritech states.   This announcement does not preclude future difficulties for Sprint and other
providers of advanced services, because these access arrangements only enable the provision of
ION service to larger business customers using infrastructure already being used by Sprint; these
access arrangements will not enable Sprint to provide ION service to smaller customers, or
customers that do not have access to this infrastructure.  In addition, Sprint contends that three
sorts of problems have arisen in its effort to obtain innovative access arrangements from
incumbent LECs: (1) Operations Support Systems (OSS)-related problems; (2) problems with
access to incumbent LEC central offices and other facilities to enable collocation of equipment;
and (3) the availability of suitably conditioned incumbent LEC facilities provided on an unbundled
basis.  Sprint is concerned not only by incumbent LECs' ability to discriminate against
competitors or potential competitors by denying access to necessary inputs, but also by slow-
rolling competitors in negotiations for such inputs.

      3.  We also note that the incumbent's control over the loop gives it the ability to tailor
the loop to any collocated or attached electronics, thereby forcing competitors to provide service
identical to the incumbent's.  Specifically, by choosing electronics that meet the incumbent's
market need, without regard to that of its competitors, the incumbent may stifle competitors'
ability to innovate.  Discrimination against competitors wishing to innovate and deploy technology
different than that deployed by the incumbent LEC often is not easily detected by regulators.  For
example, for a competitor already providing advanced services using the incumbent's loop, the
incumbent LEC has the ability to degrade the quality of the competitor's service by beginning to
deploy technologies that would interfere with competitors' technologies. We also note that
incumbent LECs will have the capability of offering new services on an end-to-end basis, but
because the incumbent LEC controls end-to-end signaling, the incumbent LEC may make it
difficult for others to offer similar new services.    

      4.  Although the Commission issues rules to prevent discrimination, and will continue
to do so, it is impossible for the Commission to foresee every possible type of discrimination,
especially with evolving technologies.  In this regard, we note that Applicants' reliance on existing
regulatory safeguards is misplaced.  They contend that in other contexts, carriers competing with
incumbents in retail markets have been dependent on the incumbent LECs for interconnection or
other network service, and have not faced discrimination and have been successful despite this
dependency.  As examples, Applicants refer to cellular service, personal communications
service (PCS), paging service, voice messaging service, provision of customer premises
equipment, and intraLATA toll service.  With respect to the intraLATA toll market, Applicants
argue that, despite SBC and Ameritech each having terminated "virtually every call they have
originated for the past decade," competition has grown.  According to Applicants, the success
of intraLATA toll competition "is strong evidence that the theoretical problems of discriminatory
treatment of BOC affiliates and their competitors are adequately addressed by existing regulatory
safeguards."  Sprint responds, however, that incumbent LECs instead sought to delay
intraLATA competition, "us[ing] the courts and regulatory processes to delay competitive entry
into intraLATA markets."  Even if Applicants are correct in their assertion that discrimination is
not a problem with respect to the intraLATA toll market, it does not necessary follow that they
do not have the incentive and ability to discriminate against competitors providing advanced
services, nor does it follow that the merger will not increase this incentive or ability.  Indeed, the
record here is replete with assertions of discrimination against competing xDSL providers, and, as
noted above, discrimination against such providers has led to the Commission's actions in the
Advanced Services Rulemaking Proceeding. 

                    (1)         Post-Merger Incentive and Ability to Discriminate
     
 1.  The merger increases, from pre-existing substantial levels, the ability and incentive of the
merged entity to discriminate against the providers of advanced services.  We agree with Sprint
that there are spillover effects to discrimination against national providers of advanced services,
and that, post-merger, the combined entity would internalize external effects to some extent, thus
increasing its incentive to act in one area in a manner that produces these effects in another. 
Economies of scale and scope, and network effects, imply that when incumbent LECs weaken a
competitive service in one region, this weakens it in other regions as well.     We also are
concerned that the harm to competitive advanced services providers resulting from an increased
incentive to discriminate will be particularly acute for those services that exhibit network effects. 
For services such as Covad's TeleSpeed Remote and Sprint's ION with "multi-market
dependence," discrimination in one market "will ripple throughout other markets."  In addition,
advanced services such as Sprint ION may rely on third-party suppliers to provide equipment and
applications that make the service more attractive to customers.  The supply of such third-party
applications is dependent on the number of consumers of the underlying service such as Sprint
ION; again, discriminatory conduct reducing the number of subscribers in one area reduces the
value of the service in other regions, as there will be fewer applications available.  We conclude
that the merger's big footprint will create more incentives for the merged entity to discriminate
against competitors whose networks become more attractive with more "on-net" customers.

      1.  After the merger, the combined company will be able internalize these external
effects of discriminatory conduct in one area in the combined region on another area in that
region.  By capitalizing on its monopoly control over loops, for instance, the combined entity can
discriminate against an advanced services provider entering an area in the combined region.  This
will reduce the customer base and revenues of the advanced services provider, thereby reducing
its ability to enter another region.  Because of the possibility of internalizing such spillover effects,
the incentive for the combined entity to discriminate against competitors providing retail advanced
services in particular areas within the combined region will be greater than the sum of the
incentives for the companies operating alone.  For example, pre-merger, discrimination against
Sprint's ION service in Los Angeles will only benefit SBC outside Los Angeles to the extent that
it impedes the ability of Sprint to provide service in the rest of SBC's region.  The effect of such
discrimination on the provision of ION in Ameritech's region does not benefit SBC, and is,
therefore, ignored by SBC in deciding whether, and how much, to discriminate against Sprint. 
Post-merger, however, the marginal benefit of discrimination in Los Angeles increases as the
combined entity receives the benefits of such discrimination in Chicago.  Similarly, the combined
entity receives more benefits from discriminating against Sprint in Chicago.  As a result, the
combined entity will increase the level of discrimination against Sprint in both Los Angeles and
Chicago, which will reduce the competitiveness of Sprint ION. 

      2.  The increased ability of the combined entity to discriminate, at least in the absence
of stringent conditions, will result from:  (1) the reduction in the number of benchmarks, making it
more difficult for regulators to monitor and detect misconduct; (2) the ability of the combined
entity to coordinate and rationalize the discriminatory conduct of the two companies (sharing
"worst practices"), making detection and proof of discrimination more difficult; and 3) the
efficiencies (economies of scope) that result from being able to share strategies and arguments
while fighting similar regulatory battles in multiple state forums.  For example, with fewer
benchmarks, there are fewer remaining incumbent LECs likely to "break rank" at industry
standards setting meetings if the combined entity is seeking to delay discussion about new
technologies competitors are seeking to deploy using the local loop. 

      3.  We reiterate that, given the formative stage of the advanced services market and
the importance of ensuring the development of competition in the provision of advanced services
by multiple providers, we scrutinize carefully the possibility of an increase in incentive and ability
to discriminate against competitive providers of such services.  We acknowledge that, in some
circumstances, the increase in incentive and ability might be de miminis, such that there would be
no resulting public interest harm.  In this situation, however, the increased incentive and ability for
incumbents to discriminate against competing advanced services providers is such that a finding
that there is no significant harm to competitors and consumers not only would undercut the
Commission's ongoing efforts to encourage innovation and investment in advanced services, but
runs afoul of the Commission's obligations under section 706 to "encourage the deployment on a
reasonable and timely basis of advanced telecommunications capability to all Americans." We also
reiterate that, with a continuing shift from a circuit-switched to a packet-switched environment,
combined with non-incumbent competitors, such as Covad, using advanced services technologies
to provide innovative new services, any discrimination against these competitors likely will cause
a significant setback to current and future efforts to encourage competition and innovation. 
Finally, we note that, with an increased incentive and ability to discriminate come increased costs
of enforcement, which ultimately are borne by competitors and taxpayers.

      4.  Absent carefully tailored conditions, this risk of increased discrimination against
competitive LECs offering advanced services might well be sufficient, standing alone, to force us
to conclude that this merger is impermissible. This is a key reason why SBC has proposed   and
we will accept   several conditions protecting the advanced services market.  SBC's offer to
establish a separate subsidiary for advanced services is directly responsive to our concerns that we
reduce the risk of discrimination while not engaging in detailed regulatory oversight.

               a)        Long Distance Services

     
 1.  In this section we examine potential effects of the merger on the provision of
interexchange services. Commenters allege that discrimination may take two forms: price and
non-price.  We examine these cases separately and conclude that the merged firm's increased
incentive and ability to engage in non-price discrimination will harm competition in the provision
of interexchange services, and, therefore, consumers of such services.  With respect to price
discrimination, specifically discrimination through a price squeeze, we conclude that there are
adequate safeguards in place to guard against such conduct, both with and without the merger.
 
                    (1)         Non-Price Discrimination
     
 1.  On this issue, we are reminded initially of the complaints against AT&T's discrimination
towards nascent competitive long distance carriers that led to the breakup of the Bell System. 
The old vertically integrated Bell system, with its large footprint, made it difficult for
interexchange rivals to obtain access to necessary inputs, thus prompting its ultimate breakup. 
As described by Judge Greene, the government's case "alleged that AT&T used its control over
its local monopoly to preclude competition in the intercity market."  Judge Greene explained: 
"[w]ith the divestiture of the Operating Companies AT&T will not be able to discriminate against
intercity competitors, either by subsidizing it own intercity services with revenues from the
monopoly local exchange services, or by obstructing its competitors' access to the local exchange
network.  The local operating companies will not be providing interexchange services, and they
will therefore have no incentive to discriminate."  The success of the divestiture can be seen in
the strength of competition in the interexchange market, leading to lower rates for all consumers.

      1.  Once SBC and Ameritech have met the requirements of section 271, they will be
permitted to enter the long distance market.  They will view interexchange carriers as retail
competitors, not only as access customers.  This will give these firms incentives, like those AT&T
used to possess, to deny, delay, or degrade access service to interexchange carrier competitors. 
Because the merger of SBC and Ameritech will reconstitute about one-third of the Bell system's
local network, we must examine carefully the claim that the merged firm will gain an increased
ability to harm its interexchange rivals.

      2.  We find that the merged entity will have an increased incentive to discriminate
against interexchange carriers after the merger.  To illustrate with an example, an interexchange
carrier may have a customer wishing to have a dedicated long distance connection between its
headquarters in Cleveland and a subsidiary in Los Angeles.  Before the merger, SBC has no
incentive to discriminate in the provision of access at the Los Angeles end, because such
discrimination may simply create business for Ameritech if the company in Cleveland decides to
switch carriers.  After the merger, however, discrimination by the combined entity in Los Angeles
may result in more business for the combined entity in Cleveland.  Of course, SBC may not know
that the customer originating the call is in Cleveland.  Nevertheless, as its region grows the chance
of the originating customer being in its region correspondingly grows, increasing the incentive to
discriminate at the terminating end of such calls.

                         (a)    Incentive and Ability to Discriminate

     
 1.  For the reasons discussed below, we conclude that, once BOCs such as SBC and
Ameritech receive authority to provide in-region, interexchange services, they will have the
incentive and ability to discriminate against competing interexchange carriers that depend on the
BOCs' exchange access services to provide interexchange services to consumers. A BOC, by
eliminating efficient interconnection, may gain market share in the interexchange market using
discriminatory tactics.  We find that, regardless of the merger, after receiving section 271
authority, there will be an incentive for a BOC to discriminate against origination of
interexchange calls. This is true because, for calls originating in-region, a BOC will be able to
benefit from discrimination by securing more customers on the originating side.  A BOC has the
incentive to discriminate against termination of a particular call only to the extent that the call
originated in the same incumbent's region.  If an incumbent LEC providing terminating access to
an interexchange carrier denies or degrades that access, then the incumbent LEC competing with
the interexchange carrier at the originating end also may benefit.  We focus on terminating
access discrimination here because we find that SBC and Ameritech's incentive for this type of
discrimination will increase significantly as a result of the merger. 

      1.  The record reflects that incumbent LECs, such as SBC and Ameritech, given their
monopoly control over exchange access services, currently have the ability to discriminate against
rivals providing interexchange services, in favor of their own interexchange operations, by
denying, degrading, or delaying access on the originating and terminating ends, just as in the pre-
divestiture situation.  The pre-divestiture situation described above demonstrates not only an
incentive to discriminate against interexchange carriers once they become competitors, but also
the ability to do so.

      2.  Moreover, we agree with Sprint and MCI that recent developments in local
networks have enhanced incumbents' ability to engage in technical discrimination in favor of their
long distance affiliates, in particular with respect to larger business customers.  The
interexchange competitors we must consider here are not those "of the early days of
interexchange competition . . . [that] were largely satisfied if they could obtain the basic forms of
interconnection required to achieve equal access and to offer 'plain vanilla' long distance
services."  Rather, we must take into account that long distance carriers, due to "changing
customer requirements . . . by necessity, have increased their use of network-based intelligence  . .
. [to offer] differentiated, software-based services [which] depend[] upon the cooperation of the
local exchange carrier."

      3.  The specific developments in the local network that have enhanced incumbents'
ability to technically discriminate against rival interexchange providers that need different and
generally more complex forms of network interconnection are: (1) the deployment of common
channel signaling systems; (2) the development of advanced intelligent networks (AIN), or
software driven networks; and (3) further developments in multi-media applications (such as
applications involving combinations of voice, data, image, and video traffic).  BOCs will be able
to "fine tune" their networks to favor their own interexchange operations and their own end user
customers, by, for example, discriminating in negotiating and agreeing to make necessary changes
in local switches.  BOCs also may discriminate by, among other things, (1) refusing to provide
interconnection at critical points in their intelligent network based on alleged harm to the network
or refusing to convey certain types of control messages across the AIN; or (2) "slow rolling" their
competitors who make requests for interconnection or technical information.

      4.  We conclude, therefore, that the ability for SBC and Ameritech to discriminate,
once they receive authority to provide in-region, interexchange services, will be greatest for
customized or advanced interexchange access services for which detection of discrimination is
most difficult.  With the increased network complexity, and the possibility for new types of
discrimination, comes also an increased difficulty in detecting discrimination.  In such a situation,
past experience with the interconnection of plain vanilla, or POTS service, becomes increasingly
less useful as a regulatory tool for preventing, detecting, and remedying discrimination. 

      5.  We finally note that typically, such new advanced features are developed initially
for business consumers, and later offered to residential consumers. Therefore, discrimination that
adversely affects the competitive availability of advanced services to businesses also affects the
timing, cost, and even availability of such services for residential consumers.

      6.  Applicants respond that "the increasing deployment of modern signaling systems
(Signaling System 7 [SS7]), AIN capabilities and ATM network components permitting
multimedia telecommunications does not increase the risk of discrimination."  Applicants assert
that there is nothing inherent in technological advances that facilitates discrimination, and that
RBOCs do not have a monopoly on new technologies. We disagree.  We find that the technical
advances described by Sprint and MCI do facilitate discrimination by making detection more
difficult.  To the extent that an interexchange competitor asks for an access arrangement that is
customized or innovative, it may be difficult to show that the incumbent LEC is discriminating in
the provision of a similar access service being provided to its own affiliate, if the affiliate is not
actually requesting a similar service.
 
      7.  In addition, Applicants assert that selective call degradation is often not possible
and that efforts to degrade competitors' calls likely would degrade calls of the incumbent's
customers as well, particularly when the incumbent is reselling a competitor's interexchange
service.  Any attempt at degradation, according to Applicants, also would be readily noticeable
both to competitors and regulators.  Applicants miss the point.  Selective call degradation (the
question of how SBC and Ameritech could know which calls to degrade) is not the issue.  Rather,
we focus on the ability of a BOC such as SBC or Ameritech to discriminate against competitors'
on the terminating end by denying competitors access to inputs necessary to terminate
interexchange calls in the incumbent's region, or by delaying access to such inputs.  For example,
the BOC may fail to provision enough equipment for a competing interexchange carrier so that a
higher percentage of the competitor's calls are blocked from terminating in the incumbent's
region.  When a competitor orders trunks in the incumbent's end office, the incumbent may fail to
make available the number of trunks requested by the competitor, or it may delay installing the
trunks in the end office.  This type of discrimination is more subtle and less detectable than blatant
selective call degradation. Also the discrimination need not involve call degradation of an existing
service, rather it may involve slow rolling the provisioning or upgrading of that service.

      8.  Applicants also contend that incumbents may not find it in their interest to
discriminate, because by doing so the incumbent easily could alienate large customers such as
AT&T who may turn to competitive access providers.  Although it is true that competitive
access providers offer an alternative to incumbent LECs for some such customers, it is not true
for all such customers.  Therefore, incumbent LECs have an incentive to engage in
discrimination against termination of interexchange calls where such alternatives are less available.

                         (a)    Post-Merger Incentive and Ability to Discriminate

     
 1.  But for the merger, SBC would have no incentive to discriminate against termination of
interexchange calls originating in Ameritech's region.  This is true because SBC would not benefit
at the originating end (by gaining more customers) from such discrimination on the terminating
end. After the merger, however, calls that had originated in Ameritech's region will now
originate in the combined region, and the combined entity could therefore realize the benefits of
discrimination on the terminating end, making it more likely that a customer on the originating
end would choose the combined entity for interexchange service.  The same is true for Ameritech
with respect to calls originating in SBC's region.  Therefore, we agree with Sprint that, as a result
of the merger, the combined entity will have an incentive to discriminate against termination of
certain calls that neither individual company would have absent the merger.  The issue here is
that end users will be less likely to choose a competing carrier at the originating end whose
service does not appear as good as the incumbent's service that is free from terminating problems. 
The issue is not, as Applicants assert, the effect on choice of interexchange carrier by the
terminating customer. 

      1.  We agree with parties arguing that, with respect to interexchange calls, the merged
firm (after receiving section 271 authority) will have an increased incentive to discriminate in
terminating the calls of competing interexchange carriers, stemming from the fact that benefits will
flow from controlling both ends of a higher percentage of interexchange calls.  According to
Sprint, the combined entity would terminate 45 percent of minutes that the combined entity
controls on the originating end, a 50 percent increase from the 30 percent of minutes for which
Ameritech currently controls both the originating and terminating ends.  Applicants respond
that the merger will increase the percentage of interLATA traffic originating and terminating in-
region by only 2.8 percentage points for SBC (41.3 percent to 44.1 percent) and 6.9 percentage
points for the combined company (37.2 percent to 44.1 percent).  Applicants assert that this
increase "is no greater an increase than in the SBC/[Pacific] Telesis merger, where the
Commission found that an increase of 'only six to seven percentage points' did not pose any
anticompetitive risk."  We disagree with the Commission's conclusion in the SBC/Pacific
Telesis Order, that there was no anticompetitive risk from the increase in the percentage of
minutes for which the combined entity would control both the originating and terminating end,
and we therefore reverse that conclusion.  Here, the harm would be significant because of the
substantial number of customers that will be affected by the discrimination made possible by the
increase in the percentage of interLATA traffic originating and terminating in the combined
SBC/Pacific Telesis/Ameritech region.  We therefore agree with MCI WorldCom that, because
interexchange carriers would be more dependent on a single entity for exchange access than they
would absent the merger, hard-to-detect methods of non-price discrimination would be even more
crippling to competing long distance companies.

      2.  We agree with MCI WorldCom that the ability to engage in less detectable and
more significant non-price discrimination would be greatly enhanced by the merger.  For the same
reasons discussed above with respect to advanced services, we conclude that, as a result of the
merger, the ability to discriminate against rivals in the origination and termination of
interexchange calls will be enhanced.  The reduction in the number of benchmarks, the ability to
coordinate and rationalize the discriminatory conduct of the two companies, and the economies of
scope in fighting regulatory battles in multiple state fora, all should enable the combined entity to
utilize its increased incentive to discriminate, thus reaping the benefits of such conduct in the
combined region.  At the very least these factors will make it more difficult to safeguard against
discrimination. 

      3.  We recognize that the Commission concluded in the Bell Atlantic/NYNEX Order
that given existing safeguards, the merger between Bell Atlantic and NYNEX would not result in
an increased incentive and ability to engage in non-price discrimination against long distance
competitors.  We find that the larger scale of the instant merger, however, increases the risks to
long distance competition.  Non-price discrimination is a violation of several provisions of the
Communications Act, as well as a number of rules adopted by the Commission.  Although we
believe that these safeguards should help reduce a BOC's ability to discriminate, we conclude
nevertheless that in this case, the incentive and ability to engage in such discrimination will
increase as a result of the merger between SBC and Ameritech.  As is often the case with mergers,
the increase in harm ultimately becomes big enough as the number of firms drops.  Thus, the
relative lack of harm that the Commission found in the Bell Atlantic/NYNEX Order does not
persist through all succeeding mergers.  In addition, the scale of the merged firm resulting here
will far exceed the scale of the Bell Atlantic/NYNEX combined entity.  We also note that in the
Bell Atlantic/NYNEX Order, the Commission did not specifically address the issue of
discrimination on the terminating end of long distance calls, an issue that we consider to be
significant here.

      4.  This merger would partially reverse the breakup of the Bell System prompted by
complaints against AT&T's discrimination towards nascent competitive long distance carriers.  As
noted above, the old Bell system, with its large footprint, made it difficult for rivals to obtain
access to necessary inputs, thus prompting its ultimate breakup.  This merger would result in a
large footprint that would take a big step toward recreating the Bell System whose discrimination
against interexchange carriers led to divestiture in the first place.  We find this inconsistent with
our mandate under the Act to reduce regulatory involvement in telecommunications markets.

      5.  We find that several of the conditions SBC proposes likely will stimulate
competition, and thus are consistent with our desire to avoid both increased discrimination and
increased regulation.  The market-opening conditions that we agree to today will provide the one
sure remedy for the incumbent LEC's threat of discrimination: the competitive LEC's promise of
an alternative access provider.  When local markets are open, discrimination in access cannot
succeed because others will compete to provide fair access.  Thus, these conditions are consistent
with our pro-competitive, deregulatory mandate, by substituting competition for regulation as the
means to constrain the market power of the incumbent LECs, including the merged entity.

                    (1)         Price Discrimination (Price Squeeze) 
     
 1.  In addition to non-price discrimination, opponents of the proposed merger have raised
arguments about a particular form of strategic pricing involving the Applicants' leveraging
monopoly control over bottleneck local loop facilities to inhibit competition from long distance
rivals.  AT&T, MCI, and CompTel argue that once the combined entity begins selling in-region
long distance service through an interexchange affiliate, it will take advantage of the "high" prices
for interstate exchange access services (above cost prices), over which it has monopoly power
(albeit constrained by regulation), by offering "low" prices for retail long distance services in
competition with the other long distance carriers, thereby setting up a price squeeze.  Because
interstate exchange access services are a necessary input for long distance services, opponents
argue that the relationship between the combined entity's "high" exchange access prices and its
affiliate's "low" prices for long distance services forces competing long distance carriers either to
lose money or to lose customers even if they are more efficient than the combined entity's long
distance affiliate at providing long distance services.  For the reasons discussed below, we
conclude that price squeeze tactics are likely to fail under the circumstances presented here as a
predatory tactic aimed at eliminating competition among interexchange competitors.

      1.  As discussed above with respect to non-price discrimination, we conclude that
because incumbent LECs, such as SBC and Ameritech, either currently, or, in the future will,
compete with interexchange carriers such as MCI and AT&T for the provision of interexchange
services, they have the incentive to discriminate through a price squeeze against such companies
that depend on the incumbents' exchange access services to provide interexchange services to
consumers.  Likewise, as with respect to their increased incentive to engage in non-price
discrimination as a result of the merger, we conclude that SBC and Ameritech will have an
increased incentive to discriminate against the termination of calls through a price squeeze that
neither individual company would have absent the merger.

      2.  We find, however, that, given the existing regulatory safeguards, they do not have
a significant ability to act on this incentive.  In the Bell Atlantic/NYNEX Order, the Commission
considered the combined entity's ability to engage in a price squeeze against competitors
providing retail interexchange services, and found that, "in light of the conditions we impose
today, together with the reasons set forth in the Access Charge Reform Order, we believe that
price squeeze tactics are likely to fail under the circumstances presented here as a predatory tactic
aimed at eliminating competition among interexchange competitors."  Although the
Commission did not focus on specific discrimination on the terminating end in the Bell
Atlantic/NYNEX Order, we reach the same ultimate conclusion here -- that adequate safeguards
are in place to prevent price squeezes.  

      3.  Although, as noted elsewhere, we do not wish to rely on regulatory safeguards to
prevent public interest harms, we note here that one important safeguard mitigates harms in this
case.  In the Access Charge Reform Order, the Commission addressed the contention that an
incumbent's interexchange affiliate could implement a price squeeze once the incumbent began
offering in-region, interexchange toll services, and concluded that, although an incumbent LEC's
control of exchange and exchange access facilities may give it the incentive and ability to engage
in a price squeeze, the Commission has in place adequate safeguards against such conduct.  The
Commission determined in the Access Charge Reform Order that the existence of price caps
reduces the ability to raise prices on access.  In addition, we note that, as a result of the Access
Charge Reform Order and Price Cap 4th Report and Order, access charges are being reduced. 
We also note that, because it is relatively easy to compare a BOC's access charges with its own
retail prices, price discrimination is relatively easy for the Commission and others to detect, and
therefore, is unlikely to occur.  In addition, several important non-regulatory safeguards exist. 
As the Commission noted in the AT&T/TCI Order, the presence of extensive sunk facilities in
both the local and interexchange markets suggests that the merged firm would be unable
successfully to raise prices if any competitors were driven out of the market by the price
squeeze.  The Commission stated in the Access Charge Reform Order: "[w]e take comfort in
the fact that such remedies exist should an anticompetitive price squeeze occur in spite of the
safeguards we have adopted."

      4.  Existing regulatory and non-regulatory safeguards greatly reduce the ability of
incumbent LECs, such as SBC and Ameritech, to engage in a price squeeze.  Therefore, we
conclude that there is no substantial probable public interest harm resulting from the increased
incentive that SBC and Ameritech may have to discriminate against the termination of calls
through a price squeeze as a result of the merger.
 
               a)   Circuit-Switched Local Exchange Services

     
 1.  For the reasons discussed below, we conclude that the merger will increase the combined
entity's incentive and ability to discriminate against competitive LECs seeking to provide local
exchange services in the combined region.  We believe that this increased discrimination
particularly will be aimed at, and harmful to, competitive providers of local exchange services to
mass market customers (smaller businesses and residential customers).  Competitive LECs
providing local services to larger business customers have more experience negotiating with
incumbents from which they can benefit.  Discrimination against competitive providers of local
exchange services to larger business customers is still possible, however, because competitive
local exchange carriers need access to termination from the incumbent even for such larger
customers.

      1.  We also note that the local exchange market is just that, a local market.  For the
most part, companies competing with the incumbent LEC in the provision of retail local exchange
service compete on a local basis, focusing on a particular area or region.  For such carriers,
discrimination in one region should not affect their success in other regions.  For other
competitive LECs, however, competing for local exchange service transcends local areas and
takes a more national scope.  For such national competitive LECs, reputation, scale and scope,
and technology are significant for their national strategy; a company's reputation in one region
may affect its reputation in another region, and experience it gains with a new technology in one
region may help it in another region. As an example, e.spire is a facilities based competitive LEC
with 32 fiber networks in 20 states over which it provides local exchange and exchange access
services.  Efforts by SBC to discriminate against e.spire in any of the five SBC states in which
e.spire currently operates, or to prevent its entry into new markets, by raising e.spire's costs or
harming its reputation, may limit e.spire's entry attempts into other regions, including
Ameritech's.  E.spire asserts that both SBC and Ameritech have engaged in discriminatory
conduct.  It is this group of competitors, with a national scope, with which we are concerned.
 
                    (1)         Incentive and Ability to Discriminate
     
 1.  Because incumbent LECs compete with competitive LECs for the provision of retail local
exchange services, incumbent LECs have the incentive to discriminate against competitive LECs
that depend on the incumbents' inputs (such as interconnection and UNEs) to compete.  We find
that a discriminatory interconnection policy will be profitable for an incumbent LEC insofar as its
revenue gains in the provision of retail local exchange services exceed whatever revenues it
forgoes from wholesale interconnection with rivals.

      1.  The record reflects that incumbent LECs' control over access to interconnection
and other essential inputs gives them the ability to discriminate against rivals providing local
exchange services. According to Sprint, incumbent LECs can discriminate against rival local
carriers either by raising the price of interconnection charged to rivals (price discrimination) or by
impairing their access to interconnection and other essential inputs.  We agree with Sprint that,
because interconnection prices are subject to regulatory oversight, an incumbent's ability
successfully to engage in price discrimination against competitive LECs seeking to enter its region
is significantly weaker than its ability successfully to engage in non-price discrimination by, for
example, discriminating in interconnection or refusing to negotiate with the competitor. As
evidence of incumbents' ability to engage in non-price discrimination against rival competitive
LECs, Sprint asserts, for example, that incumbents have: (1) engaged in unreasonable collocation
practices; (2) provided poor access to their last mile and collocation space facilities; (3) failed
to provide sound and capable OSS for competitive LEC uses; and
(4) failed to provide parity service regarding installation and maintenance of facilities.  In
addition, as noted above, e.spire has alleged discriminatory conduct by both SBC and
Ameritech.

      2.  Discrimination against competitive providers of local exchange
services is more likely to occur with respect to provision of such services to
mass market customers than to larger business customers.  This is true because
there are more competitors serving larger business customers, with more
experience dealing with incumbents for provision of such services.  In
addition, section 252(i), which allows a competitive LEC to opt into the
interconnection agreements of other competitive LECs, and pick and choose
portions of the agreements the competitive LEC finds attractive, is likely to
be more helpful for providers of local exchange service to larger business
customers, as the agreements were more likely to have been negotiated by
providers also using them for serving larger business customers.  Finally,
because competitive LECs have little experience in successful provision of local exchange services
to mass market customers, there exist few examples of incumbent LECs' best practices in
provisioning inputs for competitive LECs to use for serving mass market customers that could be
used as benchmarks to detect discriminatory and unreasonable behavior. 

      3.  It is important to recognize, however, that to serve mass-market customers and
larger businesses alike, competing local exchange carriers need access to inputs necessary to
terminate local calls in the incumbent's network.  Just as we determined that incumbents may
deny or delay access to such inputs for competitors' provision of interexchange services, they also
may do so for competitors' provision of local exchange services to all types of customers.  The
incumbent LEC, for example, may fail to provision enough equipment for a competing LEC so
that a higher percentage of the competitor's calls are blocked from terminating in the incumbent's
region.  When a competitor orders trunks in the incumbent's end office, the incumbent may fail to
make available the number of trunks requested by competitor, or it may delay installing the trunks
in the end office.  This type of discrimination is more subtle and less detectable than blatant
selective call degradation.

      4.  We believe, however, that, on a going forward basis, as SBC and Ameritech
receive section 271 authority, their ability to discriminate successfully against rival local service
providers should diminish.  We note that, in an En Banc hearing, Steven Carter, SBC
Operations, Inc. President-Strategic Markets, asserted that completion of the merger and launch
of the National-Local Strategy "gives [SBC] an added incentive, perhaps, to work just a little
harder to make sure that we do comply and fulfill 271 appropriately." As a result, Applicants
argue that competitive LECs will have "further assurance of non-discriminatory local access, the
ability to purchase UNEs and the ability to resell services."  This would seem to imply, as
argued by Sprint, that in the meantime, competitive LECs will not have such further assurance of
nondiscriminatory local access.   Even after receiving section 271 authority, the threat of
discrimination remains in force, however, particularly for the relatively few competitors seeking to
provide local exchange services to the mass market.
 
                    (1)         Post-Merger Incentive and Ability to Discriminate
     
 1.  As we found in the context of retail advanced services and interexchange services, we
agree with Sprint's general theory that there are external effects to discrimination against the
provision of retail local exchange services on a multi-region basis, and that, post-merger, the
combined entity, in control of a larger local region, would realize more of the gains from such
external effects, thus increasing its incentive to act in a manner in one area that produces these
effects in another.  For national competitive LECs, such as large interexchange carriers, that
plan to offer local service on a large scale in numerous major regions, entry into various areas
likely will entail common research, product development, and marketing costs that must be
covered by the sum of the competitive LEC's area-specific profits.  For such national carriers, the
discrimination practiced in one region may impair the competitor's national or multi-regional
plans.   Therefore, actions that decrease the profitability of the competitive LEC in one area
may make it forgo entry into another area, or make it a less effective competitor in another
area.   Applicants counter that "there is simply no evidence that any [competitive LEC] has
been deterred from entering one [incumbent LEC's] territory because of another [incumbent
LEC's] behaviour . . . [competitive LECs] select the markets in which they will compete and go
where they see the best opportunities."

      1.  Applicants also contend that "[e]qually plausible external effects lead to the
opposite policy conclusion   that by internalizing the externality, the merger will lead to less
discrimination rather than more."  As an example, Applicants offer an incumbent LEC that
discriminates against a competitive LEC in St. Louis, thereby preventing or raising its cost of
entry.  Applicants assert that, in such a situation, "[i]t is just as likely that such discriminatory
behavior will lower the probability of successful [competitive LEC] entry in St. Louis and raise
the probability that the [competitive LEC] will enter in Chicago. . . .  In this case, the externality
from discrimination would be positive, and internalizing that incentive through the merger would
reduce the incentive to discriminate rather than increase it."  Nonetheless, especially given the
increase in competitive LECs with national entry strategies, we conclude that, as discussed above
with respect to services such as Sprint ION, weakening a carrier's chance of providing
competitive local exchange service in one region weakens its chances of doing so in other areas as
well, due to economies of scale and scope.  Post-merger, the combined company will be able
internalize the external effects of discriminatory conduct in one area in the combined region on
another area in that region.  Because of the possibility of internalizing such spillover effects, the
incentive for the combined entity to discriminate against competitors providing retail local
exchange services in particular areas within the combined region will be greater than the incentive
for each company, as a single entity.

      2.  For the same reasons discussed above with respect to advanced services and
interexchange services, we conclude that, as a result of the merger, the ability to discriminate will
be enhanced through, for example, the reduction in the number of benchmarks.

                    (1)         Public Interest Harms
     
 1.  The increased incentive and ability for the combined entity to discriminate against rival
providers of retail local exchange services in the combined region will result in varying degrees of
harm.  Generally, we note that the harms of such discrimination are, as with the risk of
discrimination against interexchange competitors as discussed in detail above, caused in part by
recent developments in local networks which have increased the risk of technical discrimination
against rival local exchange providers, and the corresponding difficulty in detecting new types of
discrimination.  Competitive providers of local exchange services to mass market customers
currently have relatively little market success.  The harm to these carriers, and, therefore, to
consumers, is greater than the harm to competitive providers of such service to larger business
customers, given that carriers serving larger business have more experience to date in dealing with
incumbents.  Although the harms of incumbent LEC discrimination against competitors providing
local exchange services to larger businesses continues to diminish, it is still significant with respect
to discrimination against these competitors' termination of local calls in the incumbent's region
(as it is also for competitors serving mass market customers), as discussed above.

      1.  Many of the conditions proposed by SBC and adopted today directly address these
concerns.  For example, the conditions regarding performance measures, OSS reform, and
collocation should constrain substantially the merged entity's ability to engage in discrimination
against rival local exchange providers.

               a)   Other Issues

                    (1)         Internet Backbone Services
     
 1.  MCI WorldCom and CompTel argue that the combined entity will be able to exploit its
monopoly power over essential Internet inputs to harm competition in the provision of Internet
backbone services.  MCI WorldCom further argues that this threat is especially significant given
(1) the emergence of advanced services as an important means of accessing the Internet, and the
incumbent LECs' leveraging of their monopoly over such services to obtain more Internet
business, and (2) the incumbent LEC's efforts to impose "excessive access charges" to Internet
traffic. 

      1.  We disagree with MCI WorldCom that, as a result of the merger, the combined
entity will leverage monopoly control over local inputs into the provision of Internet services. 
As discussed above, we do conclude that, as a result of the merger, the combined entity will have
an increased incentive and ability to discriminate against rivals providing advanced services, such
as xDSL services, and that a significant public interest harm will result from this increased
incentive and ability.  We find the link from potential control over xDSL services to any market
power over Internet services somewhat attenuated, and, therefore, disagree with MCI WorldCom. 

      2.  In order to gain market power over Internet backbone services, the combined
entity would need to obtain a critical mass of customers as an Internet service provider.  As noted
by SBC and Ameritech, the ISP industry is extremely competitive; we find no compelling
evidence that SBC and Ameritech could gain significant market share for their ISP, even by
bundling Internet access services with residential xDSL service.  We further agree with
Applicants that incumbent LECs cannot apply access charges unilaterally to ISP calls; as the
merger does not increase the combined entity's ability to impose such access charges, we find
MCI WorldCom's concerns inapplicable at this time.  Therefore, we disagree with MCI
WorldCom and CompTel that the merger is likely to cause public interest harm in the provision of
Internet services.

                    (1)         Empirical Evidence
     
 1.  Background.  In a submission of the Applicants, Dennis Carlton and Hal Sider present
empirical evidence they claim contradicts Sprint's assertions that the SBC-Ameritech merger will
give the merged firm greater incentive to discriminate against downstream rivals.  Carlton and
Sider argue that if the Sprint hypothesis were correct, evidence of such behavior would have
appeared in the aftermath of the two recent RBOC mergers, SBC/PacTel and Bell
Atlantic/NYNEX.  They claim instead that competitive LEC activity in LATAs within the merged
RBOCs' regions, as measured by the number of firms that have been assigned numbering codes, is
not lower either than competitive LEC activity in other RBOCs' regions, or lower than it would
have been but for the relevant mergers, controlling for differences in population size, population
growth, and area. 

 1.  Discussion.  We find these results unpersuasive on a number of grounds.  In terms
of methodology, we find their chosen variables inadequate to validate their claims.  Using the
number of firms that have been assigned numbering codes in each LATA is an inadequate measure
of competitive LEC activity for a number of reasons.  First, as they themselves recognize,
"assignment of a numbering code in a particular area does not indicate that the carrier assigned
the code is providing service in the area."  Second, to the extent that such a carrier is providing
service, the possession of numbering codes provides no indication of the number of customers
that each competitive LEC is serving. Therefore, this variable does not adequately reflect the
degree to which competitive LEC activity in one region may or may not be affected by incumbent
LEC discrimination.  Further, we question Carlton and Sider's use of the variables population
size, population growth, and area to adequately control for "economic and demographic
characteristics."  Population size and growth, for instance, may have no correlation to the
variables that make a particular LATA attractive to the competitive LECs serving larger business
customers.  Therefore, in their comparisons of LEC activity in different BOCs' regions, they are
unable to control accurately for many characteristics that may attract competitive LECs.  In sum,
we find that using Carlton and Sider's data, it is difficult to reach a conclusion regarding the level
of competitive LEC activity, and ultimately the corresponding amount of discrimination, in the
regions of the merged RBOCs.

      2.  We find further that, in spite of the foregoing, lack of conclusive evidence that the
past RBOC mergers resulted in increased discrimination does not preclude any such effects
resulting from the instant merger.  First, we find that the potential public interest harms resulting
from the instant merger are greatest for advanced services and interexchange services, services
that RBOCs had little or no incentive to discriminate against at the time of the prior RBOC
mergers.  Therefore any evidence regarding previous mergers' effects on discrimination against
competitive LEC entry may not be relevant.  Second, with respect to the degree of competitive
LEC activity, Carlton and Sider themselves cite to BOC incentives to accommodate competitive
LECs in order to enter the long distance market.  These incentives may counteract any incentives
to discriminate against competitive LECs and thereby explain the lack of evidence of
discrimination found by these authors.  Finally, we agree with Hayes et. al. that the size of the
merged entity at question in the instant proceeding may exceed a threshold level with respect to
the incentives to discriminate.  The combined SBC-Ameritech, with the ability to deny, degrade,
or delay competitive LEC access to almost one-third of the nation's access lines may have a much
greater unilateral effect on a potential rival's national entry strategy, and therefore such
discrimination may become more attractive. 

               a)   Conclusion

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

      II.  ANALYSIS OF POTENTIAL PUBLIC INTEREST BENEFITS

  
 1.  In addition to assessing the probable public interest harms of this merger, we also must
consider whether the merger is likely to generate redeeming public interest benefits.  For
example, we ask whether the merged entity is likely to pursue business strategies resulting in
demonstrable and verifiable benefits to consumers that could not be pursued but for the merger. 
Public interest benefits also include any cost saving efficiencies arising from the merger if such
efficiencies are achievable only as a result of the merger, are sufficiently likely and verifiable, and
are not deemed the result of anti-competitive reductions in output or increases in price.  Finally,
merger specific benefits may also include beneficial conditions either proffered by the Applicants,
by other parties, or imposed by the Commission. We address the Applicants' commitment to
implement the National Local Strategy below. 

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

 2.  In their initial application, the Applicants enumerated a series of potential public
interest benefits that they claim offset any anticipated public interest harms. We find that, of these
claimed public interest benefits, few are in fact merger-specific, likely and credible. We conclude
that the harms to the public interest likely to result from the merger outweigh the likely benefits.  

 3.  The initial application claims three primary public interest benefits of the merger.
First, Applicants assert that the merger will enable them to implement their out-of-region
National-Local Strategy (in which the merged firm will enter 30 out-of-region cities as a
competitive LEC), which they assert, in turn, will spark local exchange competition around the
country and in certain foreign markets.  Second, the Applicants claim that the merger will
generate efficiencies in the forms of procurement savings, consolidation efficiencies,
implementation of best practices, faster and broader roll-out of new products and services, and
benefits to employees and communities. Third, they maintain that the merger will produce public
interest benefits in other product markets, including wireless services, Internet services, long
distance and international services and global seamless services for large business customers. 
We discuss each of these in turn, and conclude that the Applicants have provided insufficient
evidence to support any of their claims and that they have not demonstrated that, on balance, the
merger is in the public interest, convenience and necessity.  

1                               National-Local Strategy

     
 1.  Background.  According to the Applicants, the National-Local Strategy is "the essentially
simultaneous, facilities-based entry of the combined company into each of the Top 30 major U.S.
markets outside of the area in which the combined company would be the incumbent carrier." 
As originally formulated, the Strategy commits the merged entity to entering these 30 out-of-
region metropolitan markets within three years following consummation of the merger. 
Additionally, it calls for extending the Applicants' facilities-based geographic reach to 14 major
foreign markets within five years of the close of the proposed merger. 

   1.     The Applicants maintain that the National-Local Strategy contemplates a "smart build"
strategy in constructing facilities that are most needed and combining them with leased transport
where available and with UNEs where necessary.  More specifically, the Applicants plan to
install initially over 60 switches for the large and mid-size business segment in the 30 new
markets. Subsequently, they plan to install over 80 additional switches for the small business and
residential customer segment, and to construct an intra-city fiber network of between 75 and
125 fiber miles in each of the 30 targeted markets, (along with leasing inter-city trunks from
third parties.)  Applicants acknowledge that the architecture of the network and the facilities
used will vary from market to market, and that they will build facilities, buy capacity, partner with
another competitive LEC, and/or use some combination of these approaches. Although it is not
clear from the record whether the Applicants will buy or lease switches, nor whether they will
lease or construct their own fiber, it does appear that they intend to construct some facilities.  

   2.     In international markets, the Applicants plan to target large multinational customers in
certain European, South American and Asian markets.  In these markets, Applicants
contemplate initially installing one switch per city by 2001, and subsequently installing an
additional 13 switches for a total of 27 by the end of their business plan. According to the
Applicants, they plan to lay fiber in these cities, with 1,400 kilometers of fiber installed within two
years of the merger's close and more than 2,000 kilometers installed by the end of the plan.

   3.     Many large firms headquartered in current Ameritech or SBC territory have additional
business locations out of Ameritech's and SBC's regions.  The Applicants' rationale behind the
National-Local Strategy is to follow large and mid-size in-region multi-location business
customers of the combined firm out-of-region into markets around the country and globe where
those businesses have satellite offices or plant facilities.  The Applicants' strategy appears to be
to offer these customers a full range of local, vertical, long distance, data and other services.  In
this fashion, the Applicants hope to become an end-to-end provider of a full range of
telecommunications services to large business customers with multiple locations.  These
customers would function as "anchor tenants," justifying the Applicants' entry into markets and
facilitating the eventual deployment of voice and data services to small businesses and residential
customers within those markets.

 1.  Rationale for the Merger.  SBC claims that the merger with Ameritech, standing
alone, "is certainly not a compelling business opportunity for SBC."  Rather, SBC regards the
merger as "the means" and the National-Local Strategy "as the objective." The Applicants
further state that SBC's Board of Directors did not approve the merger "as an end in itself," but
rather "as necessary for the company's pursuit of its National-Local Strategy."  According to
the Applicants, the real value creation for SBC shareholders "lies entirely" in the Applicants'
successful execution of, and resulting benefits from, the National-Local Strategy.

   4.     The Applicants contend that neither SBC nor Ameritech individually could pursue the
National-Local Strategy as currently envisioned.  In support of this claim, Applicants first submit
that "[n]either SBC nor Ameritech currently has the scale, scope, resources, management and
technical ability to implement the proposed national and global strategy on its own."   The
Applicants further maintain that "neither [company] alone could suffer the earnings dilution that
would accompany implementation of this plan."  

 1.  Thus, the Applicants assert that the merger is necessary to achieve the National-
Local Strategy.  Specifically, the Applicants believe that only through a merger will the combined
company have: (1) the customer base (economies of scale); (2) the financial resources and
reduced earnings dilution; (3) the geographic reach (economies of scope); and (4) the managerial
and employee talent necessary to implement successfully the National-Local Strategy.  We
examine these claims more fully below. 

      5.  Claimed Benefits. Applicants assert that the combined company's implementation
of the National-Local Strategy will facilitate enhanced out-of-region local exchange competition,
which, in turn, will escalate in-region local exchange competition.  Specifically, the Applicants
maintain that their joint entry into 30 new out-of-region markets will "jump start competition for
business and residential customers throughout the country."  The Applicants claim that a key
benefit is that "[n]o other major competitive LEC currently provides service in each of the 30
markets that the new SBC plans to enter."  This salvo of new nationwide local exchange
competition, the Applicants suggest, will pressure interexchange carriers, competitive LECs and
the other incumbent LECs to compete not only in their own markets, but also in SBC's and
Ameritech's home markets as well.  In addition, the Applicants submit that implementation of
the National-Local Strategy will inject local exchange competition into 14 major foreign
markets and will create a new, major U.S. participant in the global telecommunications
marketplace.  Finally, the Applicants maintain that a key public interest benefit from the
National-Local Strategy's implementation is the creation of thousands of new jobs, both
domestically and internationally. 

 6.  Discussion.  Elsewhere in this Order, we have concluded that the merger proposed
by the Applicants portends probable and substantial harm to the public interest, as defined by the
goals, values, and purposes of the Communications Act.  The National-Local Strategy, Applicants
assert, will provide public interest benefits that outweigh these harms.  To make their case, the
Applicants must also demonstrate that their merger is a reasonably necessary means to enable
them to achieve these benefits, i.e. that the benefits are specific to the merger.  Should the
Applicants be able to pursue the Strategy   or its equivalent   without merging, consumers could
achieve the benefits of the National-Local Strategy without suffering the harms of the merger.  A
mere recitation by the Applicants that they will provide some benefit if and only if their license
transfer is approved cannot suffice to show that such a benefit is merger specific.  Rather, we need
sufficient evidence from the Applicants that the benefit is dependent on the merger if the benefit is
to be included in an overall assessment of the effects of the license transfer. 

 7.  In the following subsections, we conclude that the merger is not plausibly
necessary to obtain the benefits of this Strategy.  That is, we are not persuaded that the National-
Local Strategy is a merger-specific benefit.  First, we reject the argument that the merger
increases the incentive of the two Applicants to pursue an out-of-region strategy.  Second, the
evidence does not support the Applicants' claim that, absent the merger, they would not have the
ability to pursue an out-of-region strategy.  Finally, we conclude that even though the National-
Local Strategy is not a merger-specific benefit, successful implementation of the National-Local
Strategy will bring some benefits to the local exchange marketplace, though not to the extent
claimed by the Applicants.  The single merger-specific benefit appears to be the increased speed
with which the Applicants can expand into the country's top 50 markets.  Even this benefit is
tempered, however, because SBC effectively is merging with the incumbent in seven of those
markets, which generates the substantial harm of eliminating a significant potential competitor in
those markets.

 8.  Our evaluation of the National-Local Strategy centers around two inquiries: (1)
Are the benefits promised by the Strategy merger-specific, in that they can be obtained only as a
result of the merger? (2) Are the probable benefits consumers will receive from the Strategy large
enough so that these benefits might be weighed, if necessary against the merger's probable harms?


          1.   The Benefits are Not Merger-Specific
      
     
 1.  We conclude that, whatever benefits might arise from the Applicants' proposed National-
Local Strategy, these benefits cannot be used to justify the merger because the merger is not a
sufficiently necessary condition -- either of the parties could implement this strategy on their own. 
The Applicants do not need to merge to become successful out-of-region competitive LECs, nor
does their merger increase the likelihood that either or both will seek to implement a National-
Local Strategy.  We find only one claimed benefit to be merger-specific, and that is the speed with
which the Applicants can reach their 50 market goal contemplated in the National-Local Strategy. 
 We conclude that no other benefits of the National-Local Strategy, as it is proposed in the initial
application, are merger-specific.   
               
               a)   The National-Local Strategy is Not Unique 

 1.  The Applicants maintain that the National-Local Strategy is in some way unique
because it is a "significant" out-of-region local exchange strategy.  The Applicants in fact
submit that it is the very uniqueness of the Strategy that necessitates this merger.

 2.  We note that in a previous section entitled "Analysis of Competitive Effects in
Local Exchange and Exchange Access Services," we concluded that the merger causes a public
interest harm by eliminating SBC and Ameritech as among the most significant potential
participants in the mass market for local exchange and exchange access services in each other's
regions.  Additionally, we concluded in the mass market for local exchange services that not only
are both firms most significant market participants in geographic areas adjacent to their own
regions, but also in out-of-region markets in which they have a cellular presence. 

 3.  As out-of-region competitors, therefore, we consider SBC and Ameritech to be
unusually qualified.  In this section, however, we address the strategy itself that these unusually
qualified competitors plan to implement.  We conclude that while the Applicants themselves may
be particularly strong competitors relative to other new entrants, that their facilities-based strategy
for going out-of-region is far from unique.

 4.  We note that smaller companies are pursuing similar facilities-based strategies
offering similar product packages. For example, NEXTLINK claims that its goal is to provide
integrated, end-to-end solutions for all of its customers' communications needs over its own
network, which currently operates 23 local networks in 38 U.S. cities.  Allegiance Telecom,
Inc. seeks to be a premier provider of telecommunications services to business, government and
other institutional users in major metropolitan areas.  Allegiance offers an integrated set of voice
and data products to customers in thirteen U.S. cities, with plans to enter eleven more cities for a
total of 24 by the end of 2000. Other carriers pursuing multi-market local exchange strategies
include: Frontier, which offers facilities-based bundled voice and data services in 23 major
markets today; Focal, which offers facilities-based local switched voice services in 29
metropolitan statistical areas; WinStar, which offers facilities-based bundled voice and data
services in 30 markets today; and AT&T and MCI WorldCom, which claim to offer facilities-
based bundled voice and data services in 90-100 cities reaching 70-90% of all business subscriber
lines.

 5.  We also note that many of these companies have plans to expand into more
markets in timeframes comparable to those contemplated by the Applicants.  For example,
WinStar, a competitive LEC with a market capitalization of only $2.3 billion, has announced plans
to enter, on a facilities-basis, 30 additional major domestic markets in two years and an additional
50 major international markets within five years.

 6.  The Applicants claim that they are the only major competitive LEC planning to
serve the specific 30 out-of-region markets contemplated by their National-Local Strategy.  We
note, in the aggregate, however, that numerous competitive LECs already are providing bundled
services in those markets while the Applicants' Strategy is still in the planning stages and will not
see commercial roll-out until next year.  In fact, Applicants' own research shows that there are
numerous competitive LECs in their target out-of-region markets.  To put the Applicants'
Strategy into perspective, below we provide a matrix of the number of competitive LECs
operating as of the end of 1998 in each of the 30 out-of-region markets identified by the
Applicants.


Market Name 
Competitive LECs


Albany, NY
7


Atlanta, GA
20


Baltimore, MD
11


Birmingham, AL
5


Boston, MA
21


Buffalo, NY
5


Cincinnati, OH
5


Denver, CO
15


Greensboro, NC
7


Honolulu, HI
3


Las Vegas, NV
8


Louisville, KY
6


Memphis, TN
7


Miami, FL
12


Minneapolis, MN
7


Nashville, TN
8


New Orleans, LA
10


New York, NY
30


Norfolk, VA
3


Orlando, FL
11


Philadelphia, PA
16


Phoenix, AZ
14


Pittsburgh, PA
4


Portland, ME
3


Providence, RI
3


Rochester, NY
7


Salt Lake City, UT
9


Seattle, WA
13


Tampa/St.Petersburg, FL
13


Washington, DC
22



 7.  That no single competitive LEC currently offers competitive services in each of the
30 markets misses the point; many of these competitive LECs offer coverage in markets not
targeted by the Applicants, which the Applicants choose to overlook. Additionally, the
Applicants' claim that establishing a presence in these top 30 out-of-region markets enhances their
ability to compete for the business of large multi-location business customers similarly misses the
point. The vast majority of these markets have multiple competitors all vying for the same
business customers targeted by the Applicants. We conclude, therefore, that the Applicants'
National-Local Strategy is neither unique in scope nor in its primary target customers. 

               a)   Effect of the Merger on Applicants' Ability to Provide Out-Of-
               Region Services

     
 1.            The Applicants contend that their ability to carry out the National-Local
Strategy is vastly reduced absent the merger.  Having concluded supra that the
Applicants are significant potential competitors in each other's regions as well as in their out-of-
region cellular territories, we find to the contrary that each of the Applicants is fully capable of
undertaking a strategy of the size and scope of the National-Local Strategy.  Dozens of
competitive LECs, without the size, resources or assets of either SBC or Ameritech are presently
pursuing significant entry plans in multiple markets.  Moreover, the record reveals that, of the
competitive LECs and several investment analysts interviewed by the Commission, not one
believes that a company the size of the proposed merged entity is necessary to succeed as a
competitive LEC.  We note that the Applicants appear to acknowledge that size is not necessarily
commensurate with a carrier's ability to enter or to compete.  For example, according to the
Applicants, once they begin providing services in the territories of other incumbent LECs, these
incumbents will retaliate by competing in the Applicants' territory.  Notably, the Applicants do
not contend that these incumbent LECs must first merge in order to do so, despite the fact that
those other incumbent LECs will be notably smaller than the combined SBC/Ameritech.  To
assert that these multi-billion dollar Applicants need to merge in order to pursue the National-
Local Strategy therefore is contrary to both experience and common sense. 

 1.  Nevertheless, Applicants offer four reasons why this merger is necessary to
enhance their ability to implement their Strategy: 1) an insufficient customer base; 2) insufficient
geographic reach; 3) likelihood of excessive earnings dilution if pursued on a standalone basis;
and 4) insufficient managerial and employee talent.  

 2.  We find that geographic reach, while an important consideration in a national or
international expansion strategy for a regional or local player, plays at best a modest role in terms
of this merger.  After all, this merger gives SBC only seven of the 37 additional markets SBC
intends to enter to achieve its coverage of the top 50 domestic markets.  Had geographic
coverage been the principal driver of SBC's expansion plans, SBC could have purchased a
competitive LEC such as WinStar, which has facilities already built in 30 of the top markets. Such
an acquisition certainly would bring SBC substantially closer to its goal of reaching the top 50
markets than does the Ameritech acquisition.

 3.  Similarly, we find that insufficient managerial and employee talent, while an
important consideration, does not play an important role in this merger. Although SBC picks up
over 40,000 employees with this merger, many of whom are experienced managers, if the lack
of personnel were the number one issue constraining SBC's ability to deploy a competitive LEC
strategy in numerous new markets today, it would not buy an incumbent LEC whose personnel
are least likely to have deployed competitive LEC operations in new markets, and who face the
prospect of having to move locations to those new markets.  Rather, it is more probable it would
purchase a competitive LEC with experienced personnel and operations in those markets SBC
plans to enter if the need for personnel to run such operations were the major consideration. 

 4.  We therefore focus our discussion on the two reasons that appear to be the key
drivers of this merger:  an insufficient customer base and the threat of excessive dilution.

                    (1)         Insufficient Customer Base
     
 1.  The Applicants contend that the merger is necessary to create a sufficient in- region
customer base to follow into out-of-region markets.  We conclude, on the basis of substantial
marketplace evidence, that the Applicants have failed to demonstrate that they must have almost
50 percent of the nation's Fortune 500 companies headquartered in its regions in order to launch
successfully an out-of-region strategy.
     
 1.  Specifically, Applicants claim that they need a larger customer base because their
out-of-region plan involves a facilities-based entry strategy for which a "sufficiently broad base of
customer relationships" is needed to support the large capital investments necessary to deploy
new switches and networks. Although we recognize that spreading fixed capital costs across a
broader number of customers effectively reduces the cost per customer of geographic expansion,
we question the Applicants' assertion that neither company individually has a sufficiently broad
and large customer base to venture out-of-region.  We note that the Applicants have identified
numerous other companies that provide a range of services for business customers on a national
or regional basis, including AT&T, e.spire, Focal Communications, Frontier, Intermedia
Communications, Level 3, MCI WorldCom, McLeodUSA, NEXTLINK, Qwest, RCN, Sprint,
Teligent and Winstar.  Although the competitors on this list vary in size, each of these
companies operates in multiple markets around the country. Although some may pursue only
niche strategies in terms of products offered and customers targeted, we find that most of these
companies are pursuing expansionist strategies without business customer bases even approaching
the levels of either SBC or Ameritech alone.  We also note that the Applicants themselves admit
the feasibility of SBC's entering the 15 largest MSAs out of SBC's region on its own, presumably
with the customer base it has today.  Finally, Applicants also claim that their out-of-region
ventures will lead other incumbent LECs to invade Applicants' regions.  They do not assert,
however, that these incumbent LECs will need to acquire enhanced customer bases before they
retaliate, which implies that SBC and Ameritech currently are large enough on a standalone basis
to pursue out-of-region strategies. 

      2.  When specific examples are considered, we find that the Applicants' assertion that
going out-of-region requires a large customer base far larger than either currently possesses
distorts market reality.  The Applicants identify Phoenix, Arizona as an "excellent example" of
how the follow-the-customer strategy would work.   The Applicants identify over 2,100
Phoenix locations owned or operated by businesses headquartered in the Ameritech and SBC
regions.  Of these locations, 60% or over 1,250 belong to businesses headquartered in the
Ameritech region. The remaining 40% or close to 850 locations belong to businesses
headquartered in the SBC region.  The Applicants conclude that absent the merger, neither SBC
nor Ameritech "would have a sufficiently large customer base to follow into Phoenix."

      3.  We find it incredible that neither SBC nor Ameritech has a sufficiently large
customer base to enter the Phoenix market on its own.  Competitors of far smaller size and
resources are entering markets of the size of Phoenix on a facilities-basis and with substantially
smaller customer bases.  For example, as of the end of 1998, 14 facilities-based competitors were
already in the Phoenix market.  Indeed we doubt that, absent the merger, the Applicants would
ignore the competitive threat to their customer bases in-region by not going out-of-region to
those markets such as Phoenix where each Applicant would find densely located outposts of many
of its in-region customers.  
     
                    (1)         Excessive Earnings Dilution
 1.  Applicants maintain that established companies such as SBC and Ameritech are
valued by financial markets based on their earnings performance and not on another metric such
as cash flow which is typically used to value younger companies with little or no earnings. The
Applicants argue that the cost of implementing the Strategy would be too dilutive to earnings for
their more conservative-minded shareholders to tolerate.   Furthermore, the companies argue
that this merger will mitigate the dilutive impact by increasing the shareholder base over which
costs can be spread, by increasing the revenue base to absorb the out-of-region costs, and by
reducing the number of new markets that the company would have to enter de novo to serve the
top 50 markets. 

      1.  First, we question the Applicants' claims regarding the extent of 
dilution resulting from implementation of the Strategy.  We note the Applicants intend to utilize a
"smart build" strategy for entering the 30 out-of-region markets.  By "smart build," the Applicants
contemplate placing multiple switches in each market, and then utilizing available inter-city and
local transport capabilities to most efficiently manage their capital.  Only where such transport is
not available will the Applicants construct their own fiber networks.

      1.  We find that this "smart build" strategy, which emphasizes installation of one's
own switches, but delays construction of one's own fiber capacity until sufficient numbers of
customers are won and the economics of demand dictate that such construction makes economic
sense, is not unique.   To the contrary, numerous other competitive LECs are pursuing such a
strategy.  This strategy contrasts with either investing up front in fiber in anticipation of
recouping the investment in the future, or with pursuing a lease-only strategy whereby entrants
lease the fiber as a long-term strategy. The attraction to competitive LECs of the "smart build"
strategy over other strategies is the short-term prospect of fast market entry, quick revenue
generation, deferral of substantial capital costs and the mitigation of dilution, and the long-term
prospect of ramping up one's own fiber deployment, which facilitates realization of economies of
scale, lower variable costs and improved margins. This view is consistent with that of the
Applicants as they look to go out-of-region.  Even Applicants' note that their "smart build"
approach is analogous to the strategy utilized by competitive access providers when they first
entered the local exchange market.

      2.  We also note that the Applicants predicate their National-Local Strategy on
following existing in-region multi-location business customers into out-of-region markets. The
existence of a large customer base, which most other competitive LECs lack, reduces the
Applicants' customer acquisition costs relative to what other competitive LECs incur.
Furthermore, the Applicants are not forced at the outset to invest in an all-out local market
strategy in all 30 markets which most other competitive LECs would be forced to do if they
sought to offer services comparable to those in the National Local Strategy. The cost and
attendant dilution of the National-Local Strategy, therefore, are much less than they are for most
competitive LECs. If it typically takes two to three years for a "smart build" competitive LEC
to achieve break even on a cash flow basis in a given market, we would expect that time period
to be compressed for the Applicants.  On a market-by-market basis, we find that expected dilution
for the Applicants is not only not excessive, it is a substantial improvement upon the earnings
dilution likely experienced by competitive LECs.

      3.  Second, although the merger is projected to be accretive to earnings after 2001, 
even the relative dilution in the early years suggests that the National-Local Strategy in and of
itself is not excessively or intolerably dilutive for the Applicants and their shareholders.  Although
we note that the National-Local Strategy may seem dilutive on an aggregate basis for all 30
markets, the Applicants provided guidance to Wall Street at the time of the merger announcement
that suggested that the Strategy would dilute earnings by no more than one percent per year for
the next several years.  According to the Applicants, SBC would experience approximately
twice the dilution if it implemented the National-Local Strategy without the merger, implying
earnings dilution of two percent per year over the next several years.  This proposed merger
between SBC and Ameritech, by contrast, is projected to dilute earnings by seven percent in 2000
and by three percent in 2001 due to the issuance of additional shares necessary to pay the
approximately 27% premium.  Nevertheless, shareholders for both companies approved this
proposed merger. 

      4.  Third, we note that the Applicants each have pursued substantial and dilutive
projects in the past. For example, SBC's purchase of Pacific Telesis in 1997 was valued at $17
billion and was earnings dilutive for two years to an extent comparable with the currently
proposed merger.  In terms of internal projects, SBC and its Pacific Telesis subsidiary have
spent almost $900 million in the last three years on capital expenditures for their PCS business.
EBITDA losses in that time period were approximately $360 million, with losses of $229
million in 1997 alone.  Similarly, Ameritech's cable overbuilds involve substantial capital
expenditures and are expected on a franchise-by-franchise basis to be earnings dilutive for the first
four years.  More specifically, analyst estimates of Ameritech's cable business project capital
expenditures of $3.5 billion over the next 10 years and EBITDA losses for 1999 alone of $159
million.  By comparison, the National-Local Strategy calls for capital expenditures of more than
$2 billion over ten years, or approximately $200 million per year.  We conclude that
shareholders of both companies have weathered and tolerated comparable dilution from expensive
projects in the past.  We remain unconvinced that shareholders would not be so inclined in the
context of the National-Local Strategy.

 5.  Finally, we reject the Applicants' argument that the merger mitigates the Strategy's
dilutive impact by reducing the number of new markets that the company has to enter de novo to
serve the top 50 markets.  SBC's merger with Ameritech reduces from 37 to 30 the number of
new markets that SBC needs to enter out-of-region to attain the top 50 markets goal. The
associated capital expenditures required for market entry therefore would not apply to these seven
markets.  Most of the operating expenses, by contrast, would apply since they largely represent
ongoing costs that would occur post-market entry.  Although the reduction in overall capital
expenditures from entering seven fewer markets is directly tied to the merger, the merger itself
involves a substantial premium of almost $13 billion paid by SBC to Ameritech in the form of
additional shares issued.  So while the Applicants argue on the one hand that they need more
shareholders to reduce earnings dilution (by spreading the costs of the National-Local Strategy
over a larger base), they admit that the very method of gaining these shareholders, via this merger,
will dilute earnings due to the issuance of more shares for the premium paid.  We cannot fully
separate the increased cost to shareholders of the premium paid from the decreased cost to
shareholders due to the merger benefit of reducing the number of new markets the combined
company will enter out-of-region.  In short, we conclude that the reduction in cost is countered in
part by the increase in cost from the premium paid.  We also conclude that the reduction in cost
from having to enter seven fewer markets comes at the great expense of losing a potential
competitor in those markets.

               a)   The Merger Does Not Enhance Applicants' Incentive to Enter
               Out-of-Region Markets

 1.  Having concluded that the Applicants individually are able today to pursue
substantial out-of-region strategies without this merger, we turn to whether the merger in some
way enhances the Applicants' incentive to go out-of-region. Where ability in this context refers to
whether each Applicant has the wherewithal to pursue a standalone competitive LEC strategy,
incentive, by contrast, refers to whether the Applicants have an economic desire to do so.

      2.  The fundamental motivation for the National-Local Strategy, according to the
Applicants, is the recognition that they must compete for the business of large national and global
customers both in-region and out-of-region." They maintain that they "cannot remain idle while
[their] competitors capture the huge traffic volumes generated by a relatively small number of
larger customers."  For Southwestern Bell Telephone Company, one of SBC's operating
companies, the top one percent of its business customers represent eight percent of the company's
total revenues.  For Ameritech, the top one percent represent eleven percent of the company's
total revenues.  SBC asserts that it has lost a significant amount of existing business, as well as
new business opportunities, to competitive LECs. Ameritech maintains that,  although it rarely
loses 100% of an in-region large customer's entire telecommunications spending, it does lose out
on potential revenue because it is prohibited from participating in the growth of new services or in
bidding for the higher-margin services.  

 3.  The Applicants fail to provide sufficient evidence to persuade us of the extent of
the competitive threat that they face. Although the Applicants provide aggregate data related to
resold and unbundled loops, they provide little data in the way of lost customers, number of
lines lost per customer, line additions that might offset line losses.  With regard to the provision
of end-to-end services to large business customers, SBC claims it does not have the data
necessary to calculate the percentage of its or Ameritech's business customers, or business
opportunities, that either company has lost to those carriers that currently offer and market end-
to-end service to business customers. Similarly, Ameritech argues that it has no information on
SBC's competitive losses to those same carriers, and that it has not previously calculated such
losses for itself, though it presumes that they are considerable.  We conclude that, although the
Applicants may be suffering some lost lines to their competitors, these losses are not occurring at
such a rate as to lead to disinvestment and/or rate increases, as the Applicants suggest.

      4.  We further find misleading the presumption that Applicants must cover 70-80% of
their large business customers' local and long distance expenditures in order to compete to retain
those customers.  The Applicants claim that a local presence in the top 50 markets with local
exchange offerings is critical to compete. Yet, there is evidence to suggest that local exchange
service is less important relative to long distance services for these large business customers.  For
example, one noted Wall Street analyst reports that, of the $82 billion in switched telephony
revenues generated by large and medium businesses in 1998, approximately 75% were for long
distance/international services and the remaining 25% were for local exchange services. 

 5.  None of this, however, is to deny that the Applicants clearly have the incentive to
enter out-of-region markets and to gain section 271 approval absent the merger. Not only are the
Applicants at a competitive disadvantage in the long distance voice market, they are at serious
disadvantage to large and small competitive LECs alike in the data market where over 85% of
large and medium business customer expenditures are for long-haul services.  We find,
therefore, that the Applicants' suggestion that the merger and consequent pursuit of the National-
Local Strategy gives them added incentive to meet the necessary market opening conditions in-
region to achieve section 271 approval is inconsistent with the market reality.

 6.  Finally, we note that evidence of prior out-of-region activity by both Applicants
suggests that each already has exhibited the incentive to expand absent this merger.  We already
concluded above that Ameritech's Managed Local Access Program gave Ameritech both the
incentive and capability to become a significant potential entrant serving large businesses in
certain markets in California, Missouri and Texas. Additionally, we concluded that Ameritech
would have entered the St. Louis residential market with a wireline/wireless service offering but
for the merger with SBC.  We concluded that SBC had the incentive and capabilities to make it a
significant potential market participant in the mass market for local services in Chicago.  We
also note that SBC's acquisition of SNET led one noted Wall Street analyst to conclude that
SNET would be the vehicle by which SBC would attack the Northeast integrated services
markets, New York and Boston in particular. 

 7.  We find that the Applicants, irrespective of this merger, have demonstrated
definitively that they have a critical need to respond to losses in the business market by expanding
their geographic reach and providing a full suite of telecom services. We further find that the
Applicants already have acted on this incentive, as demonstrated by their out-of-region plans
mentioned above.  We conclude, therefore, that the Applicants' incentive to expand out-of-region
is demonstrable and substantial absent this merger, and that the merger can do little to enhance
this incentive.

          1.   Magnitude of the Claimed Benefits
          
     
 1.  We have concluded that the Applicants' out-of-region strategy is neither dependent on the
merger, nor unique.  We also have concluded that the merger in and of itself does not materially
enhance the Applicants' already substantial abilities and incentives to pursue out-of-region
strategies on an individual basis.  Thus, we find that the single primary benefit of the merger, in
the context of the National-Local Strategy, is speed.  The Applicants can achieve their goal of
establishing a presence in the top 50 U.S. markets somewhat faster by acquiring Ameritech than
by rolling out competitive services in Ameritech's present markets as well as the additional 30
markets outside of Ameritech's and SBC's territories.  Applicants claim that faster
implementation of the Strategy materially increases the likelihood that the Strategy will be
successful.

      1.  We next evaluate the magnitude of actual benefits resulting from an accelerated
implementation of the Applicants' National-Local Strategy.  The Applicants maintain that the
benefits are substantial and accrue to business and residential customers alike both out-of-region,
as well as in-region. In the following subsections, we evaluate the Applicants' arguments,
focusing on a) the Strategy's dependency on interLATA authority, and b) the Applicants' claims
of public interest benefits resulting from the National-Local Strategy.
          
               a)   The National-Local Strategy is Dependent on In-Region
               InterLATA Authority

 1.  The Applicants assert that the National-Local Strategy "is predicated on
SBC/Ameritech's ability to offer a package of interLATA voice and data services" both in-region
and out-of-region.  Consequently, this Strategy requires them to obtain authority to provide in-
region long distance.  Without section 271 approval to offer long distance voice and data
services, the Applicants would suffer from the same product constraints that prevent them today
from competing for all of the voice and data business of their customers.  For example, Applicants
are already disadvantaged in responding to requests for one-stop shopping capabilities due to,
among other factors, interLATA limitations.  We conclude, therefore, that for the National-
Local Strategy to be successfully implemented, the Applicants' own evidence indicates that they
must possess and offer a full suite of services, which in turn is dependent not on the merger, but
on the Applicants gaining section 271 approval in-region. 

   1.     Applicants state that the "relationship between the receipt of section 271 authority and the
implementation of the Strategy is a question of timing."   We note that this, in turn, will affect
the timing of the National-Local Strategy roll-out. In February 1999, SBC claimed that it expects
to have section 271 authority in its largest states within the next 12-18 months, which is
consistent with its current plans for the roll-out of the Strategy in the initial markets, which
brings us to February to August 2000.  SBC also anticipates that, once section 271 authority is
obtained in its largest states, it will secure the authority in the remaining states "in short order." 
In contrast, Ameritech makes no claim about when it anticipates obtaining section 271 authority. 
Although SBC plans to begin the roll-out of the Strategy before it has received section 271
authority in all of the combined companies' states, it has not determined a "minimum" number of
such states.  

 1.  Furthermore, according to the Applicants, the economics of the merger require
that the merged company rapidly receive interLATA authority.  Through the National-Local
Strategy, the Applicants aim to serve successfully the needs of multi-location customers for local,
long distance, data, Internet and customized private network services. According to a recent
report produced by a Wall Street bank, long distance accounts on average for approximately 80%
of blended voice and data revenues generated by large business customers, with long distance
representing 85-90% of data for these customers.  Data is outgrowing voice as a percentage of
revenues 15 to 1, and, therefore, interLATA authority is critical in order to participate in this
growing demand for data transmission. According to one noted Wall Street analyst, those
BOCs that get into long distance earlier will have a better chance of protecting their large business
accounts and penetrating further their large business accounts.   Clearly, the inability to provide
long distance services will create an enormous gap in the bundled product offering and thus
missed revenue opportunities.

 2.  Although it is understandable that the Applicants' plans are not yet fully
determined, the uncertainty regarding section 271 approvals makes it difficult for us to evaluate
the extent of the claimed benefits and makes them speculative at best.  Although we expect the
Applicants to push aggressively to meet their roll-out schedule, it is impossible to predict
obstacles they may encounter in obtaining their section 271 authority.  Any delays to section 271
approvals impede the roll-out of the National-Local Strategy.  Such delays to the Strategy,
therefore, result in delayed benefits to consumers.  We therefore conclude that the dependency of
the National-Local Strategy on section 271 approvals is a substantial constraint to both the full
implementation and success of the plan. 

               a)   Analysis of Applicants' Claims Regarding the Effect of the
               National-Local Strategy on Competition 

                    (1)         Out-of-region Competition 
 1.  The Applicants argue that their National-Local Strategy will benefit business and
residential customers by offering them a significant, new, facilities-based competitive choice for a
fully-integrated package of services." Also, according to the Applicants, the addition of another
entrant will force other incumbent LECs, whose markets the Applicants plan to enter, to respond
by expediting their own efforts to provide in-region long distance. 
     
      2.  Large and Mid-Size Businesses.  Applicants argue that the only carriers currently
competing on a national-local basis for the 1,000 largest business customers in America are the
vertically-integrated interexchange carriers.  The Applicants, therefore, maintain that the addition
of another entrant, the merged SBC/Ameritech, would bring more competition to these customers
seeking end-to-end solutions locally, nationally and globally. 

      3.  The addition of another entrant to these new markets should benefit the
competitive landscape in those markets.  We question, however, the extent of the benefit.  Even
the Applicants admit that the large business and government customers enjoy the largest number
of options for their local exchange and other telecommunications needs.  They state that
"[t]hese are the customers most avidly pursued by the competitive LECs."  The Applicants
further state that SBC's National-Local Strategy "is only one of several recent responses" to new
competitive dynamics in the telecommunications industry. As examples, the Applicants cite
competitive LECs that are pursuing similar strategies and targeting customers in similar
geographic markets: Allegiance Telecom, AT&T, Covad, e.spire, Electric Lightwave, Focal, GST
Telecommunications, Hyperion, ICG Communications, Intermedia Communications, Sprint, Time
Warner Telecom, WinStar, and MCI WorldCom.
 
 4.  We find that the Applicants' National-Local Strategy has substantial company in
competitors that have not only announced, but also deployed, facilities in the geographic markets
and to serve the customer base contemplated by the Applicants.  We conclude, therefore, that the
benefits of an additional entrant targeting the large/medium business customer base in the top 50
markets are modest. 
     
 5.  Residential Customers and Small Businesses.  Applicants contend that out-of-
region small business and residential customers also will benefit from SBC/Ameritech's entry as
an additional facilities-based entrant providing local, long distance and data services. 

 6.  Specifically, the Applicants plan to target "about 25 percent of the total residential
and small business customers in out-of-region areas and expect to service 16.5 percent of this
target group after 10 years."  This translates into an overall penetration rate of four percent of
the residential customers in these 30 markets and closer to six percent of the small businesses in
these markets.  The residential customers that the Applicants will target are heavy users of
telecommunications services that are most likely to want bundles of local exchange, long distance
and other services.  The Applicants initially plan to serve these residential customers primarily
with a mix of UNEs and later via unbundled loops, with a small portion being served by resale. 
The Applicants contend that a significant percentage of residential and small business customers
are within reach of the first out-of-region offices that the merged company plans to equip with
switches and fiber. 

 7.  We find that the Applicants' provide little evidence to support these assertions.
The Applicants claim that a significant percentage of residential and small business customers are
near central offices first targeted by the Strategy; yet they provide no supporting evidence, with
the exception of a few maps depicting two geographic markets, one of which is not even slated to
be in the first phase of market roll-outs.  We therefore have no basis to determine how many
residential and small business customers are likely to benefit from the Applicants' National-Local
Strategy, or when they will benefit.
 
 8.  We also find that the Strategy contemplates targeting only the top quartile of
residential customers, based on telecommunications expenditures.  While we are encouraged by
the promise of greater residential competition in these markets, this is not, as the Applicants
suggest, the panacea for residential competition intended by the 1996 Act. 

                    (1)         In-region Competition
 1.  The Applicants' claims that their merger will stimulate increased in-region
competition are not fully persuasive either.  They state that their National-Local Strategy will put
the company in direct competition with all major interexchange carriers, incumbent LECs and
other competitive LECs outside its region. Consequently, the Applicants believe that their out-
of-region expansion will also generate competitive responses from these competitors who will
attempt to follow their customers into SBC's territory.  More specifically, the Applicants based
the National-Local Strategy on the assumption that "incumbent BOCs" in particular would have
to respond to defend not only their business in their own region, but in the Applicants' regions, as
well.  In support of this contention, the Applicants cite economic literature suggesting that
actions by one firm might have a "demonstration effect" that validates the firm's strategy for other
firms, thereby reducing the risk and uncertainty to those other firms of adopting similar
strategies.  The Applicants expect, therefore, other BOCs to retaliate by competing initially for
large business customers in SBC-Ameritech territory in an attempt to follow select customers
or by undertaking efforts to achieve similar economies of scale, scope and geographical diversity
as the new SBC. 

 2.  Of course, the Applicants cannot have it both ways.  On the one hand, they argue that
the merger is the catalyst for their own out-of-region expansion.  On the other, they maintain that
their own expansion will trigger imitative retaliatory responses by other BOCs.  For other BOCs to
pursue a similar out-of-region strategy, the Applicants' own logic dictates that other BOCs, too, will
need to merge to facilitate their expansion.

 3.  Furthermore, while we are encouraged by the promise of greater competition, we
once again question the extent of such competition due to retaliation in in-region markets.  First,
we are skeptical that residential customers will benefit from retaliatory responses that likely will
target large business customers, at least initially.  Second, we reiterate that the Applicants
themselves have said that the large business market already enjoys the largest number of
competitive options.  It seems to us that retaliatory responses, therefore, would not have a
substantial impact. We note that even the Applicants share this view. 
     
1                               Efficiencies

     
 1.  We concluded above that the Applicants' pursuit of the National-Local Strategy, and the
associated benefits to local exchange markets resulting from this Strategy, are largely not merger-
specific.  In this section, we evaluate the second component of the Applicants' claimed benefits --
efficiencies resulting from the merger in the form of revenue enhancements and cost savings.

 1.  In the Bell Atlantic-NYNEX Merger Order, the Commission outlined the types of
efficiencies that it would consider as the public interest benefits of a proposed merger.  The
Commission generally recognized that efficiencies generated through a merger can mitigate public
interest harms if such efficiencies enhance the merged firm's ability and incentive to compete and,
therefore, result in lower prices, improved quality, enhanced service or new products.  The
Commission further noted, however, that beneficial efficiencies include only those efficiencies that
are merger specific, i.e., those that would not be achievable but for the proposed merger.  Thus,
the Commission held that efficiencies that can be achieved through means less harmful to the
public interest than the proposed merger cannot be considered to be true merger benefits.  The
Commission further stated that efficiencies are particularly significant if they improve market
performance in a relevant market and thereby reduce the harms otherwise presented by the
proposed merger.  The Commission recognized also, that in order to mitigate public interest
harms, efficiencies cannot result from anti-competitive reductions in output or service.  

 2.  The Commission also recognized in the Bell Atlantic-NYNEX Merger Order that
efficiencies resulting in reductions to marginal costs, as opposed to fixed or overhead costs, were
more likely to offset unilateral or coordinated effects by counteracting the merged firm's incentive
to elevate price, or enhancing the incentive of a maverick firm to lower price or by creating a new
maverick firm.  The Commission determined in that proceeding that only a small fraction of the
Applicants' asserted costs savings qualified, in that they reduce marginal costs, rather than fixed
or overhead costs. 

      3.  As the Commission has previously noted, the Applicants bear the burden of
showing both that the merger-specific efficiencies will occur, and that these efficiencies and any
other public interest benefits sufficiently offset any harms resulting from the merger such that the
Commission can conclude that the transaction is in the public interest.  Thus, Applicants cannot
carry their burden if their efficiency claims are vague or speculative, and cannot be verified by
reasonable means. Therefore, the public interest benefits of a merger include any efficiencies
arising from the transaction if such efficiencies are merger-specific, are sufficiently likely and
verifiable, and are not the result of anti-competitive reductions in output or increases in price.   
          
 4.  The Applicants maintain that the merger will produce significant cost savings and
additional revenues due to synergies in new product development and marketing, purchasing
discounts, and the elimination of duplication.  According to the Applicants, the resulting
increased cash flow will make the combined company a more effective competitor, enhance and
expand services to existing customers, and help support the financial requirements for the merged
company's in-region, out-of-region, and global plans. The Applicants estimate that by the third
year after the closing of this merger, the merger will enable the combined company to realize total
efficiency gains on an annual basis of $2.5 billion, including almost $800 million in additional
revenues and over $1.7 billion in cost savings. 
          
      5.  Although we conclude that this merger would expedite the achievement of many of
the Applicants' claimed efficiencies, we find that only a portion of them are indeed merger-
specific.  We further find that, of those efficiencies that are merger-specific, fewer still are
efficiencies that can be passed through to consumers in a verifiable fashion. Because we already
have concluded in this Order that this merger, absent conditions, is likely to result in substantial
harms to the public interest, we conclude here that the claimed efficiencies that are merger-
specific are not sufficient to outweigh these public interest harms.

          1.   Cost Savings
   
 1.  The Applicants claim that the proposed merger will produce annual cost savings of
$1.43 billion, which includes $1.17 billion in expense savings and $260 million in capital
savings.  These cost savings will be realized in the areas of administrative overhead, support
functions and telephone company operations. 
   
           1.  The claimed efficiencies fall into several categories, including: 1)
          elimination of duplicative or redundant personnel or functions, 2) economies of
          scale, 3) economies of scope, and 4) adoption of best practices.  Specifically, the
          Applicants assert that the largest cost savings will come from support operations
          ($771 million), such as volume discounts on equipment purchases ($381 million)
          and consolidation of billing/ordering functions ($227 million).  The Applicants
          also project cost savings of $313 million from combining the operations of the
          SBC and Ameritech telephone operating companies.  According to the Applicants,
          such savings will be derived from provisioning and maintenance ($115 million),
          switching operations and network engineering ($45 million), and other
          miscellaneous sources ($153 million).   The Applicants also claim cost savings
          from combining administrative functions ($201 million) and from combining the
          two companies' activities in businesses such as Yellow Pages, wireless service, and
          Internet service ($146 million).
          
           2.  We find that certain types of cost savings are indeed merger-
          specific.  For example, elimination of duplicative or redundant administrative
          functions, or the reduction in future equipment purchases, are direct
          consequences of the merger. The same is true for some types of best practices,
          such as when superior methods of provisioning service and maintaining operations
          are transferred between companies, and economies of scale or scope that could not
          be achieved but for the merger. 
          
           3.  Although such cost savings may be merger-specific, verifiable and
          even likely, some may be the result of decreases in output.  For instance, in Bell
          Atlantic-NYNEX, we found that the elimination of parallel research and
          development efforts would eliminate a form of non-price competition in which
          firms attempt to differentiate products either in function or quality. Both SBC
          and Ameritech, like Bell Atlantic and NYNEX, engage in research and
          development and the merger, by consolidating these functions, could reduce this
          competitive differentiation. 
          
           4.  Additionally, although some cost savings may be merger-specific,
          verifiable and even likely, they may not necessarily be passed through to
          consumers in the form of lower prices or new or improved services.  For
          example, elimination of a redundant controller is merger-specific.  It is verifiable
          and indeed quite likely.  But such a reduction in fixed costs, however, may or may
          not be passed on to consumers.  In the absence of explicit pass-throughs which are
          publicly committed to by the Applicants, we find it difficult to evaluate just how
          much of such cost savings actually would benefit the public interest. 
          
           5.  The redundant controller example highlights a general problem -
          although the Applicants have assigned dollar amounts to the various claimed cost
          savings, they provide little supporting evidence to persuade us that these savings
          will occur or, if so, in what magnitude.  The Applicants maintain that their prior
          experience with the Pacific Telesis merger should serve as a useful indicator of
          their ability to fulfill their cost savings projections. Although we recognize
          SBC's success with realizing synergies from the Pacific Telesis merger, prior
          experience is not a sufficient substitute for rigorous analysis of the facts or
          presentation of persuasive evidence. Without sufficient evidence to support their
          claimed cost savings, we find it difficult at best to evaluate their claims.
          
           6.  The Applicants also state that in excess of $1.45 billion of
          investment is necessary to achieve these savings.  The Applicants provide no
          further breakout detailing the nature, extent and impact of these investments,
          however, and they provide little information as to when these investments will be
          made and completed. 
          
           7.  Finally, the Applicants argue that these efficiencies will generate
          extra cash flows that then will be used to benefit the public interest. They maintain
          that realizing the claimed efficiencies will enable them to become a more effective
          competitor, enhance and expand services to existing customers, and help support
          the financial requirements for the new company's in-region, out-of-region, and
          global plans.  We do not disagree that increased cash could be used to
          accomplish these aims.  But, as we reject the majority of claimed cost savings on
          the grounds that they are either not merger-specific or not easily verifiable, we also
          reject the attendant benefits as not being merger-specific. 
   
           8.  We conclude, therefore, that while some portion of the cost savings
          do satisfy the established criteria, they do not contribute sufficiently to amend our
          overall conclusion that this merger is not in the public interest, absent the
          possibility of appropriate, substantial conditions.
   
          9.   Revenue Enhancements

 1.  The Applicants estimate additional revenues of $778 million on an annual basis by
the third year after merger closing.  They claim that these are efficiency gains stemming from
the adoption of best practices by both companies.  For example, the Applicants contend that
SBC's strength in research and development, along with its expertise in developing and marketing
attractive service packages, will enable Ameritech to achieve significant new revenue
opportunities in selling vertical services.  Similarly, the Applicants claim that Ameritech's
strength in selling Centrex services will enable SBC to increase penetration and sales of Centrex in
its own territory.
   
 2.  The Applicants estimate annual revenue growth of $778 million from the
implementation of best practices between the companies.   Specifically, the Applicants expect
increased sales of vertical features ($230 million), additional lines ($134 million), directory
publishing ($98 million), data services ($65 million), wireless services ($50 million), and all other
products and services that the companies offer, such as Centrex ($120 million).
   
 3.  In general, the Commission has not recognized claimed revenue synergies as
merger-specific because additional revenues can also be generated through increases in price or
increases in quantity.  As the Applicants assure us that their projections assume no price increases,
the thrust of our inquiry will focus on increases in output which will be generated, according to
the Applicants, by the adoption of best practices by both companies.  The Applicants claim that
the result of these efforts will be an incremental $778 million in revenue on an annual basis. 

      4.  First, we find that the Applicants fail to account for any increases in input costs
due to the corresponding increases in output.  For example, the claimed increases in vertical
features penetration results from the transfer of best practices from SBC to Ameritech. This
transfer comes at a cost, whether it involves retraining Ameritech's sales force or recrafting
vertical features packages, or by some other change.  As the Justice Department's Merger
Guidelines state, cognizable efficiencies are assessed "net of costs produced by the merger or
incurred in achieving those efficiencies."  The net contribution to the merged company from the
claimed revenue synergies, therefore, would be something substantially less than the $778 million
claimed by the Applicants. 

      5.  Second, although the Applicants have quantified the projected incremental revenue
associated with transfers of best practices between the companies, they fail to provide supporting
calculations demonstrating how they arrived at those quantifications.  The Applicants point to
SBC's merger with Pacific Telesis as evidence of prior experience in these matters. Although
we recognize that SBC may have gained valuable experience in this regard, we do not accept such
experience as a sufficient substitute for providing the supporting calculations. Additionally, even
the Applicants admit that regardless of past experience, "no one can predict with 100 percent
certainty when or if all the estimated synergy benefits will occur." 

      6.  Third, best practices, even if fully implemented, can be difficult to verify.  We
conclude, therefore, that these claimed revenue synergies are speculative at best, are difficult to
verify, and lack the supporting evidence to persuade us as to their likelihood and verifiability.  In
any event, neither party needs to merge with the other in order to learn about selling vertical
services or Centrex services.  Surely simply hiring experienced personnel or forming a limited
joint venture should be sufficient.  
   
          1.   Long Distance

 1.  The Applicants expect a net benefit of $300 million from additional revenues and
reduced costs in the combined company's long distance operations after it receives in-region,
interLATA authority.  They cite three main factors, including: 1) increased intra-region traffic
over their own networks which reduces unit costs; 2) larger wholesale purchase discounts from
increased long distance traffic; and 3) increased long distance revenues from the combination of
large business customer bases and implementation of the National-Local Strategy.

 2.  We recognized in the Bell Atlantic-NYNEX Merger Order that savings in the costs
to provide long distance services counted as efficiencies.  However, any increases in intra-
regional traffic and increased long-distance revenue claimed by the Applicants could simply be the
result of shifting traffic from competitors' networks to their own.  This is not a reduction in the
cost of providing services and therefore does not constitute a merger specific efficiency.  With
respect to being able to obtain larger wholesale discounts, the Applicants have not shown that
such discounts (if they can be verified) could not be achieved by alternate less harmful means. 
   
1                               Other Product Markets

 1.  The National-Local Strategy's emphasis on jump-starting local exchange
competition around the country remains the Applicants' primary claimed public interest benefit of
the proposed merger.   The Applicants, however, also maintain that the merger itself will
generate synergies and pro-competitive benefits that will benefit ancillary product markets,
including markets for Internet services, wireless services, long distance and international services,
global seamless services for large business customers, video services and alarm monitoring
services. 

      2.  With respect to wireless services, the Applicants state that the merger expands
their geographic reach, thereby enabling them to offer a more seamless and broader footprint to
customers.  Additionally, the Applicants submit that, as a merged entity, they can offer customers
consistency of advanced features, which is dependent on an integrated, regional network to
reduce unit costs and maximize efficiencies. 

      3.  The Applicants also maintain that the merger will stimulate greater competition in
the national market for Internet services.  According to the Applicants, today they hold less
than 2% of this national market on a combined basis.  Although they currently provide only
dial-up access services, both SBC and Ameritech are deploying high-speed data networks and
services.  Moreover, SBC has an equity stake in Williams Communications, which owns one of
the largest nationwide fiber networks.  The Applicants conclude that the only effect of the merger
in this market will be to help them to compete better against more dominant competitors. 
     
      4.  The Applicants contend that the merger will help reduce concentration and
promote competition in the long distance and international services market.  The Applicants use
the following logic to support their contention: the merger makes possible the Applicants' pursuit
of the National-Local Strategy; the National-Local Strategy, in turn, calls for offering a full bundle
of data and voice services, including long distance and international services.  The full
competitive benefit in the long distance and international services market, therefore, is dependent
on the merger.  By capturing a share of out-of-region long distance traffic, coupled with in-region
traffic once section 271 authorizations are secured, the Applicants believe they can add to
competitive choices in these markets that they claim is still dominated by AT&T, MCI WorldCom
and Sprint.  They believe that internationally, U.S.-based business customers should benefit
from the Applicants' expanded geographic reach into 14 major foreign markets by paying lower
international termination rates and other such costs.   Applicants also maintain that as they
follow their large customers out-of-region domestically, the realities of the marketplace will also
require that they follow them to foreign markets. We have discussed the international
component of the National-Local strategy above.

 5.  Finally, the Applicants claim that as they expand out-of-region and begin to
provide bundled services, the long distance providers and competitive LECs will have to compete
to preserve their existing long distance and full-service customers. As the Applicants themselves
have noted, they are currently able to provide long distance service out-of-region immediately,
though they have refrained from doing so.  Further, as the Commission found in the Bell
Atlantic/NYNEX merger order, the experience of other incumbent LECs in offering in-region
interexchange service suggest that the Applicants can be quite effective competitors once they
receive section 271 authority.  We, therefore, do not find their argument that the merger will
generate more long distance competition persuasive.  

      6.  In the global seamless services market for large business customers, the Applicants
claim that the merger will create a strong new competitor with the reach, resources and scale to
bring new competition to a market populated by only a handful of major competitors worldwide. 
This merger will benefit large business customers that not only have domestic telecommunications
needs, but transnational requirements as well.  According to the Applicants, their increased ability
to compete globally through this transaction will spur competition not only in the large business
market, but also in the small business and residential markets. 
 
      7.  We conclude that the merger brings few tangible merger-specific benefits to these
other product markets.  In general, we find that the only merger-specific benefits to these markets
are those related to speed of expansion and reductions in unit costs, such as with consistency of
advanced features in the wireless services market.  Other than these benefits, we find that each
company could expand geographically or offer the products on its own.  Specifically, each
company individually could expand its respective wireless footprints through other acquisitions or
joint ventures that do not threaten equivalent public interest harms.  Each company could offer
out-of-region Internet services today, so expanding its customer base of dial-up customers could
be achieved absent this merger.  Each company could offer long distance services out-of-region
and abroad today absent the merger.  In-region, each company's ability to offer long distance
services is subject to section 271 authorizations which are not dependent on this merger.  Each
company could secure large business customers today in the global seamless services market by
leveraging its substantial international holdings and by introducing a full suite of local and long
distance voice and data products.  These activities, therefore, are not dependent on the merger
and could be accomplished individually.

                          I.CONDITIONS

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

   1.     As noted above, on July 1, 1999, the Applicants supplemented their initial Application to
include a package of voluntary commitments that they intended would alter the public interest
balance in their favor.  After receiving extensive public comment on their proposed conditions,
SBC and Ameritech clarified and modified their commitments on August 27, 1999, and in
subsequent filings.  We believe that the Applicants' package of conditions, with the
modifications by this Commission, alters the public interest balance of the proposed merger by
mitigating substantially the potential public interest harms while providing additional public
interest benefit.  Accordingly, with the full panoply of conditions that we adopt in this Order, and
assuming the Applicants' ongoing compliance with these conditions, we find that the Applicants
have demonstrated that the proposed transfer of licenses and lines from Ameritech to SBC will
serve the public interest, convenience and necessity.

1                               Open Process

     
 1.  As a threshold matter, we affirm that considering conditions in license and line transfer
proceedings is an appropriate and, in circumstances such as this merger, a necessary process in
our application review.  It is seductively simple, yet short-sighted, to believe that our role is
limited to voting an application up or down, measuring an application solely against whether it
violates a specific provision of the Act or a specific Commission rule.  Such a view rests on the
assumption that our market-opening rules will work equally well regardless of the number of
major incumbent LECs or RBOCs and of who owns them.  As we discussed at some length in
Section IV of this Order, however, this would be an incorrect view of our rules, and the current
realities of the telecommunications industry.  

      1.  Accordingly, following the Applicants' acceptance of the process outlined in the
Chairman's April 1st letter, Commission staff discussed with the Applicants a set of voluntary
conditions that might both alleviate our public interest concerns and strengthen the merger's
public interest benefits.  It is, of course, up to the Commission   not the staff   to judge whether
such conditions are sufficient.  Throughout these discussions, Commission staff and the parties
understood that, although productive dialogue required separate meetings among staff and
various parties, this agency is a public agency and it conducts its business in public.  Accordingly,
our staff followed procedures that were designed to permit effective negotiations in the context of
an open reporting process.  To these ends, the staff first met with representatives of SBC and
Ameritech, with each meeting memorialized by a letter included in the public file of this
proceeding that summarized the topics discussed.  Then, in order to learn the views of interested
parties, our staff conducted a public forum on conditions on May 6, 1999 at which numerous
citizens, representatives of citizen groups, and industry members spoke.  The staff also met
extensively, in individual sessions, with dozens of individuals, groups and firms, both before and
after the Applicants placed on the public record, for full public commentary, an initial version of
their supplemental proffered conditions.  

      2.  The success of these "open negotiation" procedures is, we think, evident from the
Applicants' supplemental proffer of conditions.  A comparison between the Applicants' initial
proposed conditions, filed on July 1, 1999, and the contents of the May 6th public forum and the
reports of Commission staff's early ex parte meetings with consumer representatives and industry
participants evidence how substantially the public input influenced those proposals.  When
compared with their July filing, the Applicants' subsequent proffers show on their face that public
input substantially altered and shaped the Applicants' final proposal.  

 3.  Having explained why the staff engaged in discussions over conditions and why the
staff operated in an "open negotiation" process designed to permit constructive bargaining, we
turn now to a description of the conditions voluntarily submitted by SBC and Ameritech in their
final joint supplement to their initial Application.  Subsequently, we explain why we have decided
to accept these voluntary conditions, and to approve the proposed merger subject to those
conditions.

1                               Adopted Conditions

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

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

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

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

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

      5.  We approve this merger on the assumption and expectation that all of the
conditions that we adopt today will remain effective and enforceable for 36 months, or the period
specified in the condition if different.  Accordingly, for conditions that take effect a certain period
of time after the merger closing, SBC/Ameritech's obligations under those conditions would
extend from their effective date for a full 36-month period of benefit, which would fall later than
36 months after the merger closing.     

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

      7.  Our approval of this Application subject to conditions should not be considered as
an indication that future applicants always will be able to rely on similar public interest
commitments to offset potential public interest harms.  Each case will present different facts and
circumstances.  Some potential mergers may present serious public interest harms such that no
package of commitments, each of which may benefit some aspect of the public interest, could
offset the harms.  In any case, however, the burden rests always with the applicants to
demonstrate that any proposed transaction will, on balance, further the public interest,
convenience and necessity.

      8.  We also reiterate our growing concern about the impact of the declining number of
major incumbent LECs.  As the Commission has stated, further consolidation among the major
incumbent LECs could gravely impair our implementation of Congress's directive to open all
telecommunications markets to competition.  After the Bell Atlantic/NYNEX merger reduced the
number of remaining RBOCs to five, this Commission expressly cautioned that future applicants
seeking approval of a merger between major incumbent LECs "bear an additional burden in
establishing that a proposed merger will, on balance, be pro-competitive and therefore serve the
public interest, convenience and necessity."  The instant transaction, approved with a stringent
set of conditions, removes yet another independent major incumbent LEC, thereby further
escalating the burden on any future major incumbent LEC merger applicants.

          1.   Promoting Equitable and Efficient Advanced Services Deployment

 1.  Separate Affiliate for Advanced Services.  Under this condition, SBC and
Ameritech will create, prior to closing the merger, one or more separate affiliates to provide all
advanced services in the combined SBC/Ameritech region on a phased-in basis.  At present,
we note that SBC and Ameritech are only permitted to provide intraLATA advanced services. 
Establishing an advanced services separate affiliate will provide a structural mechanism to ensure
that competing providers of advanced services receive effective, nondiscriminatory access to the
facilities and services of the merged firm's incumbent LECs that are necessary to provide
advanced services.  Because the merged firm's own separate advanced services affiliate will use
the same processes as competitors, and pay an equivalent price for facilities and services, the
condition should ensure a level playing field between SBC/Ameritech and its advanced services
competitors.  Given this expectation, we anticipate that this condition will greatly accelerate
competition in the advanced services market by lowering the costs and risks of entry and reducing
uncertainty, while prodding all carriers, including the Applicants, to hasten deployment.

 2.  The separate advanced services affiliate will be distinct from SBC/Ameritech's in-
region telephone companies and operate largely in accordance with the structural, transactional,
and nondiscrimination requirements of sections 272(b), (c), (e), and (g).  The condition,
however, specifies certain activities that will be permitted between the SBC/Ameritech incumbent
LEC and the separate affiliate, some of which differ from section 272's requirements.  

 3.  Specifically, the SBC/Ameritech incumbent LEC and its advanced services affiliate
may jointly market the other's services and perform certain customer care services.  In addition,
the incumbent may perform certain operation, installation, and maintenance (OI&M) functions,
pursuant to a tariff, written affiliate agreement, or approved interconnection agreement, and
provide billing and collection services, pursuant to  a written agreement, for its separate affiliate
on a nondiscriminatory basis.  The incumbent may engage in line sharing with its affiliate on an
exclusive, interim basis as long as it provides unaffiliated entities with the "surrogate line-sharing"
discount described below for the use of a second loop to provide advanced services.  The
incumbent LEC may also transfer to the separate affiliate specified advanced services equipment
on an exclusive basis during a limited grace period.  Starting 30 days after the merger closing, all
new advanced services equipment must be purchased and owned by the separate affiliate.  The
affiliate may also use the SBC/Ameritech incumbent LEC's name, trademarks or service marks on
an exclusive basis, and employees of the separate affiliate may be located in the same buildings
and on the same floors as the incumbent LEC's employees.  Moreover, although SBC/Ameritech
will comply with the Commission's section 272 accounting safeguards, it will be permitted to
deviate from these only to the extent that it will not have to comply with the Commission's
transaction disclosure requirements under section 272(b)(5) with respect to transactions
conducted pursuant to interconnection agreements between an SBC/Ameritech incumbent and its
advanced services affiliate.  To ensure that all transactions between the advanced services affiliate
and the incumbent are conducted on an arms-length basis, SBC/Ameritech's compliance with this
separate affiliate condition will be subject to a rigorous annual audit.

 4.  After a transition period, the responsibility to provide advanced services in the
SBC/Ameritech service area will rest with the separate affiliate, and the activities that it and the
incumbent may undertake are specifically set forth in the conditions.  Nevertheless, the conditions
permit an SBC/Ameritech incumbent to perform certain activities on behalf of its affiliate on an
exclusive basis for the period of time during which SBC/Ameritech transitions to this separate
affiliate structure.  Specifically, for a limited period, SBC/Ameritech may provide network
planning, engineering, design or assignment services associated with advanced services to its
affiliate, and receive and isolate troubles affecting an advanced services customer on behalf of the
affiliate.  
 
 5.  SBC/Ameritech's obligation to provide all advanced services through a separate
affiliate will sunset after either: (a) the later of 42 months after the merger's closing, or 36 months
after the incumbent ceases to process trouble reports for the affiliate on an exclusive basis; (b) the
date on which Congress has enacted legislation that specifically prohibits the Commission from
requiring an incumbent LEC to establish a separate advanced services affiliate and the
Commission has modified its rules and regulations in a manner that would materially alter the
structure or interaction between the incumbent and affiliate from that set forth in the conditions;
or (c) nine months after a final, non-appealable judicial decision determines that the separate
advanced services affiliate is deemed a successor or assign of the incumbent, unless that decision
is based substantially on conduct by or between an SBC/Ameritech incumbent and its affiliate that
was not expressly permitted by these conditions.  

 6.  If, after one of these three sunset events occurs, SBC/Ameritech decides to no
longer provide advanced services through a separate affiliate in a particular state, then
SBC/Ameritech will continue certain other obligations until 48 months after the merger closing
date.  In that case, SBC/Ameritech must, for example, provide all advanced services through a
separate office or division that will continue using the same OSS interfaces, processes and
procedures that are made available to unaffiliated entities (including using the Electronic Data
Interchange (EDI) interface for processing a substantial majority of pre-order inquiries and
orders).  In addition, SBC/Ameritech will continue the surrogate line-sharing and advanced
services OSS discounts, and its incumbent LECs will continue to provide unaffiliated carriers with
the same OI&M services that its retail operations use, as well as those OI&M services that
previously were made available under the conditions.
 
 7.  Surrogate Line-Sharing Discount.  By separating a line into a voice channel and an
advanced services channel and carrying both voice and advanced services traffic simultaneously,
line sharing potentially enables each service to be provided by a different carrier.  Although the
Applicants have not proposed in this proceeding to allow other carriers to provide data services
over the same loop on which SBC or Ameritech provides voice service, they have proposed to
allow their separate advanced services affiliate to do so.  The conditions permit SBC/Ameritech to
provide line sharing to its advanced services affiliate on an exclusive basis until SBC/Ameritech
provides line sharing to unaffiliated carriers in the same geographic area.  Nevertheless, in order
to ensure that competitors receive a benefit comparable to this "interim line sharing" between an
SBC/Ameritech incumbent LEC and its affiliate, SBC/Ameritech will offer other carriers a second
loop at a substantial discount.  In this manner, the conditions require SBC/Ameritech to offer
competing carriers the economic equivalent of line sharing until line sharing becomes available to
unaffiliated carriers.  In addition, the performance measurements adopted as part of this Order
will encourage the rapid installation of the surrogate line.  For example, measures 6c and 8 ensure
that loops will be installed in a nondiscriminatory and timely manner.  

 8.  Specifically, where SBC/Ameritech and its separate advanced services affiliate
engage in "interim line sharing," the merged firm will charge unaffiliated providers of advanced
services surrogate charges for an additional unbundled loop, provided that the loop is used solely
for the provision of advanced services (conforming to an industry-standard spectral mask) to a
customer that is receiving voice-grade service, either on a retail or wholesale basis, from an
SBC/Ameritech incumbent LEC.  The "surrogate line-sharing charges," which SBC/Ameritech
also will charge to its separate advanced services affiliate for interim line sharing, represent a 50-
percent discount from the monthly recurring charge and the nonrecurring line or service
connection charge.  This discount not only puts unaffiliated advanced services providers on
comparable economic footing with the merged firm's separate advanced services affiliate, but,
pending actual implementation of line sharing, it allows these carriers to obtain reduced loop costs
that otherwise would not be available to them.  We note that, in the event that SBC/Ameritech is
required to line share with competitors, the Applicants will temporarily waive all nonrecurring
charges associated with the installation of a new shared line in order to ease the transition for
those competitors using a second loop under the surrogate line sharing discount.  In addition,
SBC/Ameritech will continue to provide this discount until the line is actually shared.  We find
that this condition will spur deployment of advanced services by SBC/Ameritech, as well as other
carriers, while ensuring that these other carriers receive treatment from an SBC/Ameritech
incumbent LEC comparable to that provided to the SBC/Ameritech separate affiliate. 

 9.  Advanced Services OSS.  In addition to the general OSS conditions outlined
below, SBC/Ameritech will develop and deploy common electronic OSS interfaces across all 13
SBC/Ameritech states to be used by any telecommunications carrier, including the merged firm's
advanced services affiliates, for pre-ordering and ordering facilities used to provide advanced
services.  This condition will guard against discrimination by the merged entity toward its rivals
while, at the same time, lower those rivals' costs of providing competing advanced services.  The
requirements of this condition track the phases involved in unifying SBC's and Ameritech's
general OSS interfaces described below.  Subject to certain implementation schedules, the merged
firm will:  (1) prepare a plan of record outlining the steps that will be taken in developing and
deploying the electronic OSS advanced services interfaces (Phase I); (2) collaborate with
participating telecommunications carriers to reach agreement on the interfaces, enhancements, and
business requirements to be implemented (Phase II); and (3) develop and deploy the agreed-upon
interfaces, enhancements, and business requirements within a specified period of time (Phase III). 
Phases I and III are associated with voluntary incentive payments to encourage rapid deployment. 
SBC and Ameritech therefore will either meet the planning (Phase I) and deployment (Phase III)
commitments within the prescribed time period, or make voluntary incentive payments of $10,000
per business day per state, or up to $110,000 per day across all 13 states, for a missed target date. 
The total voluntary payments will not exceed $20 million across all states.  Once deployed, the
Applicants will maintain the enhancements and additional interfaces for not less than 36 months. 
The Chief of the Common Carrier Bureau may authorize an independent third party arbitrator to
resolve disputes stemming from the collaborative process or SBC/Ameritech's implementation of
the agreed-upon interfaces, enhancements and business requirements.

 10. Until SBC/Ameritech has developed and deployed the advanced services OSS
enhancements, interfaces, and business requirements described above, and the SBC/Ameritech
separate advanced services affiliate uses the EDI interface for pre-ordering and ordering a
substantial majority of the facilities it uses to provide advanced services, SBC/Ameritech will
offer telecommunications carriers a 25-percent discount from the recurring and nonrecurring
charges for unbundled loops used in the provision of advanced services.  This discount is intended
to compensate other carriers for the unenhanced OSS and to provide SBC/Ameritech with an
incentive to improve the systems and processes as quickly as possible.  

 11. Access to Advanced Services Loop Information.  This condition should promote
rapid deployment of advanced services by ensuring that carriers have access to the information
they need to market and sell their advanced services offerings.  Competing carriers have stated
that they need, at the pre-ordering stage, a method of obtaining information about the local loop
to make informed decisions about whether and how they can provide advanced services to a
customer.   Thus, the condition reiterates SBC/Ameritech's general obligation under the
Communications Act to provide unaffiliated telecommunications carriers with nondiscriminatory
access to the same loop information that is available to its own retail operations.  The condition
goes on, however, to require SBC/Ameritech to provide specific information regarding its loops
to requesting telecommunications carriers without regard to the information that is available to
SBC/Ameritech's retail operations.

 12. First, SBC/Ameritech will provide competitors electronic, pre-order access to
address-specific loop pre-qualification information (i.e., the theoretical loop length) before the
merger's closing in most SBC states, and within 22 months of the closing in the Ameritech
states.  Second, within one year of the merger's closing, SBC/Ameritech will provide in all
SBC/Ameritech states pre-order Internet access to loop pre-qualification information based upon
a zip code of end users within a wire center.  This will assist telecommunications carriers in
targeting geographic areas capable of receiving advanced services.  Third, no later than 90 days
after the merger closing, SBC/Ameritech will provide requesting telecommunications carriers,
including its separate advanced services affiliate, with additional loop make-up information in
response to an address-specific request.  Depending on the request, SBC/Ameritech will provide,
by manual means until it is available electronically, information contained on an individual loop
record, which may include:  the actual loop length; length by gauge; the presence of bridged taps,
load coils, and repeaters, and their approximate location and number; the presence of pair-gain
devices, digital loop carriers or digital added main lines; and the presence of disturbers in the same
or adjacent binder groups.  SBC/Ameritech will price the provision of this loop makeup
information in compliance with any applicable Commission pricing rules for UNEs.  Although
SBC/Ameritech is allowed under the condition to provide such loop information by manual means
pending electronic delivery, the condition (like all others) does not prevent a state from imposing
additional consistent requirements.   

 13. Loop Conditioning Charges and Cost Studies.  Numerous parties allege that the
rates charged by incumbents for conditioning loops are unreasonably high and preclude
competitors from offering advanced services to many potential customers, particularly residential
and small business customers where the conditioning costs may exceed prospective net income.  
This condition is designed to ensure that SBC/Ameritech will not erect a barrier to the
competitive deployment of advanced services by charging excessive rates for loop conditioning. 
Within 180 days of the merger's closing, SBC/Ameritech will file with state commissions cost
studies and proposed rates for conditioning loops used in the provision of advanced services,
prepared in accordance with the methodology contained in the Commission's pricing rules for
UNEs.  Pending approval of state-specific rates, SBC/Ameritech will immediately make
available to carriers loop conditioning rates (provided that they are greater than zero) contained in
any effective interconnection agreement to which an SBC/Ameritech incumbent LEC is a party,
subject to true-up.  In addition, subject to true-up, SBC/Ameritech will impose no loop
conditioning charges on loops less than 12,000 theoretical feet during this period.  Moreover,
advanced services providers will have a choice in the amount and extent of conditioning on any
particular loop.  

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

          15.  Ensuring Open Local Markets

 1.  Carrier-to-Carrier Performance Plan.  As a means of ensuring that
SBC/Ameritech's service to telecommunications carriers will not deteriorate as a result of the
merger and the larger firm's increased incentive and ability to discriminate and to stimulate the
merged entity to adopt "best practices" that clearly favor public rather than private interests,
SBC/Ameritech will publicly file performance measurement data for each of the 13
SBC/Ameritech in-region states with this Commission and the relevant state commission on a
monthly basis.  The data will reflect SBC/Ameritech incumbent LECs' performance of their
obligations toward telecommunications carriers in 20 different measurement categories.  These
categories cover key aspects of pre-ordering, ordering, provisioning, maintenance and repair
associated with UNEs, interconnection, and resold services.  Many of the twenty measurement
categories are divided into numerous disaggregated sub-measurements, thereby tracking
SBC/Ameritech's performance for different functions and different types of service. 
Furthermore, the list of measurements reported by SBC/Ameritech under this condition is not
static.  This list is subject to addition or deletion, and the measurements themselves are subject to
modification, by the Chief of the Common Carrier Bureau, through a joint semi-annual review
with SBC/Ameritech.  

 2.  Under this condition, SBC/Ameritech will either achieve the stated performance
goal for the agreed-upon measures in each state or, if SBC/Ameritech fails to provide service that
meets the stated performance goal, make a voluntary incentive payment to the U.S. Treasury in an
amount varying according to the level and significance of discrimination detected.  These
voluntary incentive payments are subject to monthly state-specific caps that total, across all states,
as much as $250 million in the first year, $375 million in the second year, and $500 million in the
third year (i.e., a total of up to $1.125 billion over three years), with a credit for amounts paid to
states and competitive LECs under state-imposed performance monitoring plans or under
liquidated damages provisions of interconnection agreements.  As discussed below,
SBC/Ameritech's potential liability may be reduced by up to $125 million in the third year if
SBC/Ameritech completes and deploys OSS enhancements before their target date, depending
upon the enhancement and how early it is completed.

 3.  The specific performance measures that SBC and Ameritech will implement are
based primarily upon performance measures developed in a Texas collaborative process involving
SBC's application for in-region, interLATA relief.  The performance measures in California and
Nevada will be reported using rules that were developed in a collaborative process in California. 
Rather than develop a new set of measures for this merger proceeding, we find that relying upon
these performance measures and corresponding business rules, which may be modified over time,
will achieve the goals of the Carrier-to-Carrier Performance Plan and conserve time and
resources.  We emphasize that use of such measures in this merger review proceeding is not
meant to affect, supplant, or supersede any existing or future state performance plan.  The
adoption of these measures in the present merger context does not signify that these performance
measures would be sufficient in the context of a section 271 application.  

 4.  These limited performance measures are intended to offset or prevent some of the
merger's potential harmful effects; they are not designed or intended as anti-backsliding measures
for purposes of section 271.  The present performance plan must be viewed in the context of the
entire set of proposed safeguards that comprise the overall merger conditions package.  As SBC
and Ameritech explain, this merger-related Carrier-to-Carrier Performance Plan is designed to
cover the "range of activities that have the most direct and immediate impact on [competitive
LECs] and their customers," and is not intended "to cover each and every facet of local
competition, to supplant state performance programs, nor to preempt state consideration of
performance measures for section 271 purposes."  Indeed, we expect   and we encourage  
each state to adopt rigorous and extensive performance monitoring programs in connection with
section 271 proceedings.  Under these conditions, therefore, SBC/Ameritech's obligations under
the plan in a given state will terminate upon the company's authorization to provide in-region,
interLATA service in that state.  The condition will expire otherwise 36 months after the payment
obligation arises in the state. 
          
 1.  Uniform Enhanced OSS.  Effective, nondiscriminatory access to OSS is critical for
achieving the 1996 Act's local competition objectives.  This condition will guard against
discriminatory treatment by the merged entity to its rivals, as well as reducing the costs and
uncertainty of providing competing services.  Under this condition, SBC and Ameritech will
establish, in consultation with competitive LECs, uniform OSS interfaces and systems across their
combined 13 in-region states that are based on the best practices (from their competitors'
perspective) of the two companies.  

 2.  Specifically, the companies will develop and deploy uniform application-to-
application interfaces (e.g., EDI), uniform graphical user interfaces, uniform business rules or
software solutions to ensure that local service requests submitted by other carriers are consistent
with SBC/Ameritech's business rules, and a uniform change management process, which will be
deployed in each SBC/Ameritech state unless rejected by that state.  In general, for each
obligation, the merged firm will:  (1) prepare a plan of record outlining the steps that will be taken
in unifying the OSS of each operating company (Phase I); (2) collaborate with participating
competitive LECs to reach agreement on the interfaces, enhancements, business requirements,
and change management process to be implemented (Phase II); and (3) develop and deploy the
agreed-upon interfaces, enhancements, and business requirements within a specified period of
time (Phase III).  Phases I and III are associated with voluntary incentive payments to encourage
rapid deployment.  SBC and Ameritech will either meet the planning (Phase I) and deployment
(Phase III) requirements within the prescribed time period, or make voluntary incentive payments
to the U.S. Treasury of $10,000 per business day per state, or up to $110,000 per day across all
13 states, for a missed target date.  The total voluntary payments will not exceed $20 million per
obligation across all states.  Once deployed, the Applicants will maintain the enhancements and
additional interfaces for not less than 36 months.  The Applicants also will provide direct access
to SBC's Service Order Retrieval and Distribution system and Ameritech's and SNET's
equivalent service order processing systems, as well as enhancements to SBC's existing electronic
bonding interface for maintenance and repair.  Under this condition, states may choose whether to
accept SBC/Ameritech's plan for uniform change management.

 3.  We share SBC/Ameritech's concern that disputes between SBC/Ameritech and its
rivals might substantially delay the availability of these important OSS enhancements.  Therefore,
we agree that the Chief of the Common Carrier Bureau should be empowered to authorize an
independent third party arbitrator to resolve disputes stemming from the collaborative process or
SBC/Ameritech's proper implementation of the agreed-upon interfaces, enhancements and
business requirements.  In addition, we note that SBC/Ameritech has incentive to complete the
OSS enhancements as quickly as possible.  Specifically, if SBC/Ameritech completes and deploys
the OSS enhancements prior to the deployment target dates, the total amount of its potential
liability for voluntary incentive payments under the Carrier-to-Carrier Performance Plan may be
reduced by up to $125 million in the third year, depending upon the enhancement and how early it
is completed.  

 4.  Restructuring of OSS Charges.  This condition is designed to assist smaller
competitors and new entrants by requiring the merged firm to recover electronic OSS costs on a
strict usage basis rather than through a flat monthly fee.  Because SBC currently charges a flat
monthly fee for access to electronic OSS, parties feared that SBC would spread this practice to
Ameritech's region following the merger.  Under the condition, therefore, for a period of at least
36 months, SBC/Ameritech will restructure OSS charges to eliminate any flat-rate, up-front
charge for the right to use the company's standard electronic interfaces for accessing OSS (i.e.,
flat-rate monthly charges for access to SBC's Remote Access facility and Information Services
Call Center, amounting to approximately $3600 per month).  This condition is not meant to
affect the merged firm's ability to recover any OSS-related costs associated with UNEs and resold
services through its pricing of such elements and services in accordance with applicable federal
and state requirements.  SBC/Ameritech is not required to eliminate extra charges for manual
processing of service orders, provided that an electronic means of processing such orders is
available to carriers.  If, however, no electronic interface for processing orders of 30 lines or less
is available to a carrier, SBC/Ameritech will eliminate any extra charge for manual processing and
shall charge instead the rate for processing similar orders electronically.

 5.  Training in the Use of OSS for Qualifying Carriers.  As a means of reducing the
barriers to new entry in its region, SBC/Ameritech will provide special OSS assistance to any
"qualifying" competitive LEC (a competitive LEC having less than $300 million in total annual
telecommunications revenues).  Specifically, the merged firm will designate and make available
for 36 months at no additional cost a team of OSS experts to assist these qualifying carriers with
OSS issues.  The condition also obligates SBC/Ameritech to identify and develop training and
procedures beneficial to such qualifying carriers.  Disputes regarding whether a carrier qualifies as
competitive LEC under this condition will be resolved by the appropriate state commission.

 6.  Collocation Compliance.  Competing carriers contend that collocation
provisioning and costs have been a major impediment to competitive provisioning of local
service.  To address this concern, SBC and Ameritech have agreed to implement a number of
measures to ensure that the companies provide collocation to telecommunications carriers in a
lawful and timely manner.  Before the merger closing date, SBC and Ameritech will file a tariff
or offer to amend interconnection agreements in each SBC/Ameritech state to demonstrate
compliance with the Commission's collocation rules.  In addition, prior to the merger closing
date, an independent auditor, approved by the Chief of the Common Carrier Bureau, will conduct
a review and determine whether each company is offering collocation terms and conditions, and
has in place methods and procedures, that comply with the Commission's rules.  

      7.  After the merger closing, an independent auditor will develop and implement a
comprehensive audit of the merged company's compliance with the Commission's collocation
requirements for the first eight months after the closing.  The independent auditor will present its
final audit report to the Commission, and publicly file a copy with the Secretary, no later than ten
months after the merger closing date.  If the auditor's report reveals problems with
SBC/Ameritech's collocation practices and policies, we fully expect that SBC/Ameritech will
implement immediately any necessary corrective action.  After reviewing the auditor's findings,
the Commission may, of course, decide to take additional action as deemed necessary and
appropriate.  As an additional incentive for the merged firm to provide efficient collocation,
SBC/Ameritech will waive the nonrecurring charges for physical, virtual, adjacent and cageless
collocation arrangements if the firm misses the collocation due date by more than 60 days.

 8.  Most-Favored Nation Arrangements.  This condition, designed to facilitate market
entry throughout SBC/Ameritech's region as well as the spread of best practices (as that term is
understood by SBC/Ameritech's competitors), has two components.  First, where it is feasible
given technical limitations, SBC/Ameritech will offer telecommunications carriers operating
within its service area any interconnection arrangement or UNE that SBC/Ameritech, as a
competitive LEC outside of its incumbent service area, secures from the incumbent LEC and that
was not previously made available by the incumbent.  SBC/Ameritech will make the
interconnection arrangement or network element available on the same terms and conditions as
the incumbent, with prices determined on a state-specific basis.  Second, where it is feasible
given technical limitations, SBC/Ameritech will make available to any requesting
telecommunications carrier in any of its 13 states any interconnection arrangement or UNE in any
other of the same 13 states that was negotiated by an affiliate of SBC, subject to state-specific
pricing.  When a carrier selects an interconnection arrangement or network element for an in-
region state in which no rate for a comparable arrangement or element has been established,
SBC/Ameritech will make the arrangement or element available at the rates in the originating state
on an interim basis until the requisite rates are developed.  Disputes regarding the availability of
an interconnection arrangement or unbundled element will be resolved through negotiation
between the parties or by the relevant state commission pursuant to section 252.  
          
 9.  Multi-State Interconnection and/or Resale Agreements.  Negotiating a separate
interconnection agreement between the same parties in multiple states can impose substantial
unnecessary costs and delays on competitors and provides incumbent LECs with an incentive to
game the process.  Because this merger increases the number of states in which SBC operates
from eight to 13, it will increase the merged firm's incentive and ability to impose unnecessary
negotiation costs on its competitors.  To neutralize this incentive, in addition to promoting market
entry and assisting telecommunications carriers that want to operate in more than one
SBC/Ameritech state, SBC/Ameritech will offer requesting telecommunications carriers an
interconnection and/or resale agreement covering multiple SBC and/or Ameritech states,
subject to technical feasibility and state-specific pricing.  SBC/Ameritech will make a sample
generic multi-state agreement available to any requesting carrier no later than 60 days after the
merger closing.  Carriers may elect that generic agreement for any number of SBC/Ameritech
states, or may negotiate a different multi-state agreement with SBC/Ameritech.  In conjunction
with the in-region most-favored nation provision described above, carriers that negotiate an
interconnection agreement with an SBC/Ameritech incumbent LEC in one state may require
SBC/Ameritech to sign the same agreement (exclusive of price) throughout the SBC/Ameritech
region.  
          
 10. Carrier-to-Carrier Promotions.  To offset the loss of probable competition
between SBC and Ameritech for residential services in their regions and to facilitate market entry,
the Applicants propose three promotions designed specifically to encourage rapid development of
local competition in residential and less dense areas.  SBC/Ameritech will offer these promotions
equally to all telecommunications carriers with which it has an existing interconnection and/or
resale agreement in an SBC/Ameritech state.  Within ten days of the merger closing,
SBC/Ameritech will provide each such telecommunications carrier a written offer to amend the
carrier's interconnection agreement in that state to incorporate the promotions.  The offering
window for each promotion will begin 30 days after the merger closing date and run through the
later of:  (a) 24 months; (b) the date on which SBC/Ameritech is authorized to provide in-region,
interLATA services in the relevant state; or (c) the date on which SBC/Ameritech provides
facilities-based service to at least one customer in 15 out-of-territory markets.  Notwithstanding
this offering window, the conditions specify the maximum number of lines per state for which
SBC/Ameritech must provide the promotion.  As indicated below, SBC/Ameritech will make
each promotion available equally to any telecommunications carrier that makes a timely request,
and each promotion will last 36 months from the date that the promotional loop, resold service or
platform is installed or operational.

 11. Carrier-to-Carrier Promotions:  Unbundled Loop Discounts.  First,
SBC/Ameritech will offer a promotional discount on the monthly recurring charges for unbundled
local loops used in the provision of residential local service and not used in combination with
SBC/Ameritech's local switching.  The promotional discounted prices are set forth in the
conditions and are, on average within each state, 25 percent below the lowest applicable
monthly recurring price established by the state commission.  SBC/Ameritech will make the
promotional loop discount available equally to all telecommunications carriers that request the
discount prior to expiration of the offering window or satisfaction of the line threshold limitation,
and the promotion will last 36 months for each loop requested in that period.

 12. Carrier-to-Carrier Promotions:  Resale Discounts.  As another means of
encouraging residential competition in less dense areas, SBC/Ameritech will offer a promotional
resale discount on SBC/Ameritech's retail telecommunications services, where such services are
resold to residential customers.  The promotional resale discount shall be 32 percent from retail
rates for an initial period of not less than 24 months, and, for the remaining period of the
promotion, a rate equal to 1.1 times the standard wholesale discount rate established for that
service by the state commission (i.e., an additional discount of ten percent).  SBC/Ameritech will
make the promotional resale discount available equally to all telecommunications carriers that
request the discount prior to expiration of the offering window or satisfaction of the line threshold
limitation, and the promotion will last 36 months.

 13. Carrier-to-Carrier Promotions:  UNE Platform.  Competitors have asserted that
the availability of end-to-end combinations of UNEs is essential for residential competition.  To
spur residential competition, SBC/Ameritech will offer end-to-end combinations of all network
elements required to be unbundled as of January 24, 1999 (including the UNE platform) to
competitive LECs providing residential local service regardless of the outcome of the
Commission's UNE Remand proceeding.  The price for the promotional UNE platform shall be
negotiated or established by the appropriate state commission in accordance with federal and state
pricing rules for UNEs.  SBC/Ameritech will make the promotional UNE platform available
equally to all telecommunications carriers that request it prior to expiration of the offering
window or satisfaction of the line threshold limitation, and the promotion will last 36 months
from the date the promotional UNE platform is provisioned.
          
 14. Offering of UNEs.  In order to reduce uncertainty to competing carriers from
litigation that may arise in response to the Commission's order in its UNE Remand proceeding,
from now until the date on which the Commission's order in that proceeding, and any subsequent
proceedings, becomes final and non-appealable, SBC and Ameritech will continue to make
available to telecommunications carriers each UNE that was available under SBC's and
Ameritech's interconnection agreements as of January 24, 1999, even after the expiration of
existing interconnection agreements, unless the Commission removes an element from the list in
the UNE Remand proceeding or a final and non-appealable judicial decision determines that
SBC/Ameritech is not required to provide that UNE in all or a portion of its operating territory.

          
 15. Alternative Dispute Resolution Through Mediation.  As a means of streamlining
and expediting resolution of carrier-to-carrier disputes, SBC/Ameritech will offer
telecommunications carriers, subject to the appropriate state commission's approval and
participation, an option of resolving interconnection agreement disputes through a state-
supervised mediation dispute resolution process.  This mediation process supplements, rather
than supersedes, any other options at the carrier's disposal for addressing interconnection disputes
with SBC or Ameritech, including negotiated dispute resolution mechanisms.  We note that no
state or competitive LEC is required to adopt or participate in this process.  
          
 16. Shared Transport.  Under this condition, no later than the merger closing date,
Ameritech will file tariffs to provide shared transport to telecommunications carriers using a
surrogate billing method in each Ameritech state.  Within one year of the merger closing date,
SBC/Ameritech will provide shared transport utilizing an advanced intelligent network software
solution in each Ameritech state.  This condition also obligates Ameritech to provide shared
transport until a final order of the Commission or a final and non-appealable judicial decision
determines that SBC/Ameritech is not required to provide shared transport in all or a portion of
its operating territory. 
          
 17. Access to Cabling in Multi-Unit Properties.  In order to provide information
regarding possible options for additional competition in the provision of local service to multi-unit
properties, SBC/Ameritech will conduct a trial in five cities that will provide telecommunications
carriers with access at a single point of interconnection to cabling owned or controlled by SBC-
Ameritech in multi-tenant residential and business properties.  As a separate commitment,
SBC/Ameritech will design and install all new cabling owned or controlled by SBC/Ameritech in a
manner so that it can be accessed by any telecommunications carrier at a single point of
interconnection, located at the minimum point of entry.  
          
          1.   Fostering Out-of-Territory Competition

 1.  Out-of-Territory Competitive Entry (National-Local Strategy).  As a condition of
this merger, within 30 months of the merger closing date the combined firm will enter at least 30
major markets outside SBC's and Ameritech's incumbent service area as a facilities-based
provider of local telecommunications services to business and residential customers.  This will
ensure that residential consumers and business customers outside of SBC/Ameritech's territory
benefit from facilities-based competitive service by a major incumbent LEC.  This condition
effectively requires SBC and Ameritech to redeem their promise that their merger will form the
basis for a new, powerful, truly nationwide multi-purpose competitive telecommunications carrier. 
We also anticipate that this condition will stimulate competitive entry into the SBC/Ameritech
region by the affected incumbent LECs.  

 2.  Under this condition, SBC and Ameritech will select the 30 out-of-territory
markets from the list of 50 major markets that they included in their proposal. As part of the
combined firm's entry into each of these new markets, SBC and Ameritech will either meet
certain verifiable entry requirements in each market (i.e., installing or obtaining switching
capability; providing facilities-based service to each of three business or residential customers;
collocating in each of ten wire centers; offering facilities-based service to all business and all
residential customers served by each of those ten wire centers; and offering service, whether by
resale, unbundled elements or facilities, to all business and all residential customers within the
entire service area of the incumbent RBOC or Tier 1 incumbent LEC in the market), or make
voluntary incentive payments to a state-designated fund (or as governed by state law) in the
amount of $110,000 per day for each missed entry requirement, for a total of $1.1 million per
entry requirement per market.  SBC/Ameritech would therefore be obligated to pay $39.6 million
if it missed all 36 entry requirements in a market, or nearly $1.2 billion for missing the entry
requirements in all 30 markets.  The Applicants' implementation schedule requires the combined
firm to enter Boston, Miami and Seattle within 12 months after the merger closing, an additional
12 markets within 18 months of closing, and all 30 markets by the later of 30 months after the
merger closing date or 60 days following the company's authorization to provide in-region,
interLATA services in states representing at least 60 percent of all access lines served by the
combined firm's incumbent LECs.  

          3.   Improving Residential Phone Service

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

 2.  Enhanced Lifeline Plans.  Designed specifically to ensure that the benefits of the
merger extend to low-income residential customers throughout all of SBC's and Ameritech's
regions, this condition requires the merged firm to offer each of its 13 in-region states a plan to
provide discounts on basic local service for eligible customers.  SBC/Ameritech will offer a
low-income Lifeline universal service plan modeled after the Ohio Universal Service Assistance
(USA) Lifeline plan that Ameritech and Ohio community groups negotiated in 1994 and later
revised to adjust to the 1996 Act.  It will also incorporate elements from the December 1998 Ohio
Commission Order addressing the Ohio USA plan.  Specifically, SBC/Ameritech will offer to
provide a discount equal to the price of basic residential measured rate service, excluding local
usage, in each state, up to a maximum discount of $10.20 per month (including all federal, state
and company contributions).  Although the Applicants' initial commitment was limited to the
subscriber eligibility, discounts and eligible services features of the Ohio USA Lifeline plan, after
the public comment period, SBC and Ameritech extended the offer to include certain other
commitments.  

 3.  Under the revised condition, SBC/Ameritech will permit a Lifeline customer with
past-due bills for local service to restore local service after payment of no more than $25 and an
agreement to repay the balance of local charges in six equal monthly payments.  Lifeline
customers also will not be required to pay a deposit for local service if they elect toll blocks. 
SBC/Ameritech will allow prospective Lifeline customers to verify their eligibility on a written
form, and SBC/Ameritech will give those forms to state agencies that administer qualifying
programs so that the agencies can distribute the forms to their clients.  SBC/Ameritech also will
negotiate with state agencies administering qualifying programs to procure an on-line verification
process.  Easing the financial burden for prospective Lifeline customers, SBC/Ameritech will
provide both a toll-free telephone number for prospective customers to inquire about or subscribe
to the program and a toll-free fax line for customers to send program documentation, and new
customers will not be required to pay a deposit to obtain local service.  SBC/Ameritech will
publicize the program in each state with an annual promotional budget that is proportional to the
annual promotional budget in Ohio.  In addition to including Lifeline information on customer
service center voice response units where practical and appropriate, SBC/Ameritech also will
automatically upgrade current Lifeline customers to the new program where it is evident that
doing so will unambiguously improve the customer's situation.  For each state that accepts
SBC/Ameritech's offer, the company will maintain the plan for a period of not less than 36
months.  
          
 1.  Additional Service Quality Reporting.  As a safeguard against potential
deterioration in SBC's or Ameritech's quality of service as a result of the merger, and to promote
affirmative service quality improvements, this condition requires SBC/Ameritech to report
additional benchmark and service-quality information.  First, SBC/Ameritech will report, on a
quarterly basis, the quality of service that it provides to customers.  SBC/Ameritech will develop
and file with this Commission and state commissions quarterly state-by-state service quality
reports in accordance with the National Association of Regulatory Utility Commissioners
(NARUC) Technology Policy Subgroup's November 1998 "Service Quality White Paper." 
Through this reporting program, SBC/Ameritech will make publicly available in a timely manner
key information about its service quality, including installation and repair performance, switch and
transmission facility outages, consumer complaints, and answer time performance.  We
anticipate that, by providing consumers and states with information about SBC/Ameritech's
service quality, this condition will, at a minimum, deter any potential service quality degradation
and motivate the merged firm to improve its service quality where possible.  

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

 3.  NRIC Participation.  Through this condition, we expect that SBC/Ameritech will
demonstrate and further its commitment to maintain reliable, high-quality networks and services. 
The Applicants will continue their participation in the Network Reliability and Interoperability
Council (NRIC), a committee organized to make recommendations to the Commission on how to
ensure "optimal reliability, interoperability and interconnectivity of, and accessibility to, public
telecommunications networks."  SBC/Ameritech's continued participation will provide
assurance that the merged firm will review the causes of network outages in a timely manner and
adopt industry best practices designed to promote reliable, high quality services.
 


          1.   Ensuring Compliance with and Enforcement of these Conditions

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

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

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

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

      4.  Independent Auditor.  Because the public interest benefit of these conditions
depends entirely upon SBC/Ameritech's compliance, the conditions also establish an independent
oversight program.  SBC and Ameritech will retain an independent auditor to conduct an
annual audit to provide a thorough and systematic evaluation of SBC/Ameritech's compliance
with the conditions and the sufficiency of SBC/Ameritech's internal controls.  Acting pursuant
to its delegated authority, the Common Carrier Bureau will approve the independent auditor and
oversee the conduct of the independent audit, which will include reviewing the scope and quality
of the auditor's work.  The independent auditor's final report, which will be publicly available,
will contain sufficient detail for the Commission and the public to understand the extent of the
auditor's testing and evaluation procedures.  In addition, the findings in the auditor's report, or
the review of the auditor's working papers, could form the basis of enforcement actions. 
SBC/Ameritech and the independent auditor also will meet for a post-audit conference to assess
the conduct of the audit and the need for any modifications to the audit program.  Based on these
requirements, we find that the conditions provide for effective Commission oversight of the audit
process and a mechanism for revising the audit programs and procedures based on our experience
over time.

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

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

      7.  Voluntary Payment Obligations.  For many of the conditions, the Applicants
proposed a voluntary incentive payment structure, which could expose SBC/Ameritech to
significant financial liability, if the merged firm fails to satisfy an obligation in a timely manner. 
For example, as described above, under its National-Local Strategy, SBC/Ameritech will make
voluntary incentive payments, valued at a maximum of $39.6 million per market, for missing a
market's entry requirements.  In addition, SBC/Ameritech will incur similar voluntary payment
obligations for failing to provide service to competitive LECs that meets the standards of the
Carrier-to-Carrier Performance Plan (up to a total of $1.125 billion over three years, with an
offset for early OSS deployment), and for failing to meet the deployment schedule for its OSS
enhancements (up to a total of $20 million per obligation).  We expect that the size and scope of
these potential voluntary payments will provide a strong incentive for SBC/Ameritech to ensure
that it fully complies with both the letter and the spirit of the conditions.  The conditions
recognize that SBC/Ameritech is strictly liable for making any and all payments arising out of its
nonperformance.  Moreover, failing either to satisfy the underlying obligation or to make timely
voluntary payments will subject the Applicants to potential liability in the same way
SBC/Ameritech would be liable for violating any other Commission order, rule, or regulation.

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

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

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

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

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

1                               Benefits of Conditions

     
 1.  We conclude that, with the conditions that we adopt in this Order, the merger of SBC and
Ameritech is likely to be beneficial for consumers and spur competition in the local and advanced
services markets.  Given that the conditions will substantially mitigate the potential public interest
harms of the proposed merger and will result in affirmative public benefit, we conclude that the
Applicants have demonstrated that the proposed merger, on balance, will serve the public interest,
convenience and necessity.  
          1.   Mitigating Harm from Loss of Potential Competition

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

      1.  We find that, while not substituting fully for the loss of direct competition between
SBC and Ameritech, the conditions we adopt will significantly mitigate any potential public
interest harms.  After the merger, these conditions require the merged firm to open its markets to
others while at the same time entering markets outside of its region.  Specifically, the conditions
require the merged SBC/Ameritech to enter 30 out-of-region markets as a competitive LEC
within 30 months of the merger's closing.  Although we concluded above that the Applicants'
initial pledge to implement the National-Local Strategy offered no merger-specific competitive
benefit, as augmented by the conditions, the plan will motivate the combined company to enter
markets more quickly than the companies, separately, would have entered absent the merger.  For
example, the Applicants shortened the timetable pledged in their initial Application by six months
and have agreed to voluntary incentive payments that could amount to nearly $1.2 billion if
SBC/Ameritech fails to implement the strategy in all thirty markets.  Thus, the merged firm will
face significant economic repercussion if it fails to achieve a certain level of entry in each market
according to a specified implementation schedule.  These benefits to some extent counterbalance
the loss of direct competition between SBC and Ameritech, particularly if the outcome of
SBC/Ameritech's implementation of the condition is faster retaliation within its home region by
the major incumbent LECs whose home territories the merged firm invades.  

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

          1.   Mitigating Harm from Loss of Benchmarks

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

      1.  We anticipate that several conditions will require the merged firm to spread best
practices throughout its region.  Significantly, "best practices," as we use the phrase here, will be
identified in full or in part by the Applicants' customers and regulators, not by SBC and
Ameritech.  Both the out-of-region and in-region most-favored nation requirements are designed
explicitly to assure carriers some ability to obtain beneficial arrangements, whether specifically
requested by SBC/Ameritech as an out-of-region competitor or simply offered by the firm in an
in-region state, throughout the merged firm's 13-state area.  With respect to OSS,
SBC/Ameritech will establish uniform OSS interfaces and systems across its 13 in-region states
that, in the Applicants' own words, "are based on the best practices of the two companies." 
This commitment to implement OSS best practices offers assurance that the merged firm will take
into account practices of certain operating companies that other carriers have found useful or
beneficial in establishing uniform interfaces, enhancements and business requirements.  

      2.  Another example of the spread of best practices concerns shared transport. 
Pursuant to the condition requiring the provision of shared transport in Ameritech territory, which
Ameritech has vigorously resisted implementing in the past, SBC/Ameritech has committed to
implement and offer in the Ameritech states the same version of shared transport that SBC has
implemented in Texas.  Similarly, the merged firm will offer a Lifeline plan based on features of
the Ameritech Ohio plan to each of the merged firm's in-region states.  SBC/Ameritech's
commitment to provide all advanced services through a separate affiliate, essentially adopting
Ameritech's long-standing approach to advanced services, also represents a departure from
SBC's former opposition to any such requirement. 

      3.  The conditions also require SBC/Ameritech to continue participation in the NRIC,
which issues periodic reports concerning the reliability of public telecommunications network
services, and regularly compiles detailed lists of industry best practices designed to reduce the
number and scope of network outages.  Through its continued participation in the NRIC, we fully
expect SBC/Ameritech to study and, to every extent possible, implement the industry best
practices for network reliability.  In this way, we anticipate that SBC/Ameritech will be able to, at
a minimum, maintain a high state of reliability after the merger and take aggressive steps to
address network reliability in those areas where the company may need improvement.

      4.  Aside from the spread of existing best practices, several conditions will help to
offset the potential loss of future diversity and experimentation resulting from the merger.  For
example, addressing an issue that drew comments from several parties, SBC and Ameritech have
agreed to conduct a trial with interested competitive LECs in five large cities to identify the
procedures and associated costs required to provide carriers with access to LEC owned or
controlled cabling behind a single point of interconnection within multi-dwelling unit premises. 
Similarly, although Ameritech previously had established separate affiliates to provide advanced
services, the merged firm is subject to specific obligations under the separate affiliate structure
that will result in a flow of information to federal and state regulators, as well as competitors,
concerning the Applicants' provision of advanced services.

      5.  In addition to promoting experimentation and spreading best practices, the
conditions also help ameliorate any potential loss of observable information to regulators and
competitors.  In particular, the Carrier-to-Carrier Performance Plan will generate valuable
information for regulators and competitors for use in implementing and enforcing the
Communications Act.  The merged firm will also continue to report ARMIS data separately for
each of its operating companies, and will now report such data on a quarterly basis.  The
requirement that the Applicants develop and file state-by-state service quality reports in
accordance with the recommendations of the NARUC Technology Policy Subgroup will facilitate
comparative practices analysis by providing additional data for this Commission and state
commissions in carrying out their statutory responsibilities and in detecting potential violations of
the Communications Act.  The Applicants also are obligated under the conditions to provide
quarterly state-specific service quality reports regarding the quality of services provided to
interexchange carriers, and to file a statement of the cost savings associated with the merger.  
  
          1.   Mitigating Harm from Potential Increased Discrimination  

     
 1.  We find that several commitments will alleviate the concern that the merged firm will use
its combined size and market power to discriminate more effectively against its rivals in its in-
region markets for local services as well as advanced services.  As stated by one commenter, an
effective means of ensuring that the merged firm cannot engage in anticompetitive conduct against
smaller entrants is to "make sure that the company is already permitting effective entry into the
SBC and Ameritech regions."  The conditions that we adopt today are carefully targeted at the
types of discrimination the merger was otherwise most likely to engender.  Moreover, they
substantially reduce entry barriers to the merged entity's region.  

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

      2.  The Applicants' commitments to establish uniform advanced services and other
OSS interfaces also should reduce somewhat the costs and other barriers that local or advanced
services competitors face in entering multiple markets within the SBC and Ameritech regions. 
This uniformity should also reduce the merged firm's ability to impair a national, or regional,
competitive LEC's strategy that is at the heart of the merged firm's increased incentive to
discriminate.  We expect that other conditions, most notably the collocation compliance and
surrogate line sharing discount, also will reduce the costs and uncertainty of providing advanced
services in SBC/Ameritech's region, and thereby remedy to a certain extent any effects of
increased discrimination for national competitive LEC entrants. 

      3.  The Carrier-to-Carrier Performance Plan also partially alleviates the Applicants'
increased incentive and ability to discriminate against rivals following the merger.  By requiring
the merged firm to report results of 20 performance measures, and achieve the agreed-upon
standard or voluntarily make incentive payments, the plan provides heightened incentive for the
company not to discriminate in ways that would be detected through the measures.  Competing
carriers operating in or contemplating entry into SBC/Ameritech territory will have an increased
measure of confidence that the company will not engage in discrimination that would be detected
through such measures.  If the results reveal unequal treatment, the voluntary payment scheme, as
NorthPoint notes, will "create a direct economic incentive for SBC/Ameritech to cure
performance problems quickly."  

      4.  The Carrier-to-Carrier Performance Plan is specifically designed to permit
monitoring for discriminatory conduct in SBC/Ameritech's provision of elements and services
utilized by the incumbent or other carriers in providing advanced services.  Certain measures, such
as the average installation interval for DSL loops (performance measure # 8) and the average
response time for loop makeup information (performance measure # 9), were designed specifically
to address the needs of advanced services providers.  For many of the other measures, data will be
reported distinctly for DSL loops.  The availability of this information will assist entities that are
contemplating providing advanced services in the SBC/Ameritech 13-state region, as well as
helping carriers already operating in the region to monitor and address any potential increased
discrimination.     
 
      5.  As explained above, with SBC's new access to customer accounts in Ameritech's
region (e.g., Dallas business customers with branch offices in Chicago), and vice-versa, the
merged firm gains an advantage in servicing multi-location business customers.  Allowing
competitors to import most-favored nation arrangements across SBC-Ameritech's in-region states
helps to safeguard against this increased potential for discrimination while reducing the merged
firm's advantage of servicing multi-location customers.

      6.  The enforcement mechanisms contained in these conditions also will aid in the
detection of discriminatory behavior by SBC/Ameritech.  In particular, the conditions require the
more thorough type of audit, an agreed-upon procedures engagement, for the separate advanced
services affiliate provisions.  Like the section 272(d) audit, the independent auditor will conduct a
systematic and thorough examination into SBC/Ameritech's compliance with the structural,
transactional, nondiscrimination and other requirements of the separate advanced services affiliate. 


          1.   Additional Benefits from Conditions

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

      1.  As an initial matter, nearly all of the obligations under the conditions apply
throughout SBC's and Ameritech's 13 in-region states, and others even extend to markets outside
of the companies' traditional service areas.  Because our public interest analysis is not limited to
potential public benefit within a select geographic area or market, but also considers potential
public interest benefits of applying conditions such as those imposed in this Order to a wider area,
the breadth of the conditions helps the Applicants in carrying their burden of demonstrating how
the merger advances competition. 

      2.  We also find it significant that the conditions in general will last for a 36-month
period.  As addressed in the conditions, the duration of each commitment is tied not to our
approval or the merger closing date, but to the initiation of the benefit of the condition.  In other
words, the commitments are designed to provide 36 months of benefit once SBC/Ameritech's
obligations take effect.  In the fast-changing world of telecommunications industries, these
commitments, in our judgment, will last for a sufficient period to have real impact, but not so long
as to threaten imposing obsolete responses to future issues.  

      3.  Fostering Out-of-Territory Competitive Entry.  We described earlier the
Applicants' post-merger National-Local Strategy and why we could not regard its undoubted
benefits as merger-specific.  These conditions do not alter the basic fact that the parties do not
need to merge in order to form out-of-region competitive LECs.  The conditions do, however,
greatly increase both the likelihood and the magnitude of a post-merger out-of-region entry
strategy.  These certainly enhance the public interest.  

      4.  Lower Entry Barriers for Residential Competition.  In broad terms, we anticipate
that the conditions will prove beneficial in jumpstarting residential competition by lowering entry
barriers for residential competition.  The carrier-to-carrier promotions are specifically designed to
induce more entry into residential markets quickly.  The Applicants' commitments regarding
carrier-to-carrier promotions, collocation, OSS, and multi-state interconnection agreements will,
in our judgment, greatly reduce the costs of entry over the long run.  In addition, the commitment
to reform the process of cabling new multi-tenant dwellings and business properties will increase
access to customers by competitors not otherwise relying on the incumbent's wireline network.  

      5.  Accelerating Advanced Services Deployment.  Several conditions are aimed at
increasing the availability of and broadening choices for advanced services for all Americans.  The
extensive commitments regarding advanced services all help to attain a single overriding goal:  to
encourage entry into the provision of advanced services by numerous firms, as well as the
Applicants, while protecting against the risk that SBC/Ameritech might cripple these services in
their infancy by discriminating against rival advanced services providers.  The provisions for
equitable sharing of loop information, for a surrogate line-sharing discount, for a separate affiliate
for the Applicants' provision of advanced services, and for a new, open and nondiscriminatory
OSS system will reduce the costs, including the risks, of entering these markets.    

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

1                               Other Requested Conditions or Modifications
to Proffered Conditions

     
 1.  Several commenters suggest additional conditions or modifications to the Applicants'
package of voluntary proposed conditions.  To the extent that a party requested a condition that
we do not impose today, or suggested a change in the Applicants' proposal that we did not
incorporate, we explain our rationale for declining the request below.  We begin by discussing the
separate advanced services affiliate, and whether the structure set forth in the conditions would
render it a "successor or assign" of the incumbent LEC.  

          1.   Separate Affiliate for Advanced Services

 1.  Several commenters question whether the separate advanced services affiliate
structure described in the Applicants' July filing contains adequate safeguards to ensure that the
SBC/Ameritech advanced services affiliate will function separately from the incumbent like any
other competitive LEC.  Although commenters are divided over the merits of the separate
affiliate condition, we find that SBC/Ameritech's provision of advanced services through a
separate affiliate will spur the deployment of advanced services by all entities.  We conclude that
the separate affiliate structure contained in the conditions that we adopt today, which has changed
significantly since the July filing, will ensure that advanced services are deployed efficiently.  At
the same time, the structure will safeguard against SBC/Ameritech leveraging its control over
certain bottleneck facilities into the nascent advanced services market.   

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

               a)   Section 251(h)(1) Statutory Framework

  
 1.  In the Advanced Services Order and NPRM, the Commission recognized that a
determination as to whether a carrier is an incumbent LEC is based on the statutory definition set
forth in section 251(h).  As discussed below, section 251(h)(1) of the Act defines an incumbent
local exchange carrier as a local exchange carrier that was providing local exchange service as
of the date of enactment of the 1996 Act and was a member of an exchange carrier association on
such date, or that is a "successor or assign" of such a carrier.  Section 251(h)(2) provides that
the Commission may deem, by rule, that a LEC is comparable to, and therefore should be treated
as, an incumbent if the following three criteria are met:  (1) the LEC occupies a position in the
market for telephone exchange service comparable to an incumbent LEC; (2) the LEC has
"substantially replaced" an incumbent; and (3) treating the LEC as an incumbent "is consistent
with the public interest, convenience, and necessity and the purposes of [section 251]." 
Furthermore, section 3(4)(B) of the Act defines a "Bell Operating Company" as including "any
successor or assign of any such company that provides wireline telephone exchange service." 
Thus, under the Act, a "successor or assign" of an incumbent LEC, or in this case a BOC, will be
subject to the obligations imposed upon incumbent LECs in section 251(c).

      1.  We recognize that one interpretation of section 251(h)(1) is that, in order to fall
within its definition, two conditions must be met:  (1) the LEC must have provided service in the
area as of February 8, 1996; and (2) it must have been a member of NECA on that date or
became a successor or assign of a NECA member after that date.  Under this interpretation, an
entity that was a successor or assign of a NECA member would not be deemed an incumbent
LEC under 251(h)(1) unless that entity itself was also providing local exchange service in the
NECA member's area on February 6, 1996.  In other words, an affiliate established after the
date of enactment, regardless of whether it replaces or substantially continues the operations of
the incumbent, would never meet the definition of an incumbent LEC under 251(h)(1) under this
interpretation because it was not in existence, thus could not have been providing telephone
exchange service, as of February 8, 1996.  We find that this formulation appears to distort the
notion of "successor or assign" that is at the heart of the statutory provision.  

      2.  We find the more reasonable interpretation of section 251(h)(1) to mean that an
entity may become an incumbent LEC by being a successor or assign of a LEC that, as of
February 8, 1996, was providing local exchange service in a particular area and was a member
of NECA, even if that entity was not itself providing local exchange service in the area or a
member of NECA as of that date.  This interpretation of "successor and assign" is not only
more consistent with the goals of section 251, but conforms more closely to the traditional notion
of "successor or assign."  We therefore decline to follow the approach set forth in MCI
Telecomm. Corp., as we believe such interpretation produces a result plainly at variance with
the policy of the legislation as a whole.

      3.  In this proceeding, therefore, we must examine whether the SBC/Ameritech
advanced services affiliate that will be created and operated in accordance with the conditions
would be deemed a successor or assign of the SBC/Ameritech incumbent LEC, which was
providing service and was a member of NECA as of February 8, 1996.  As discussed below, we
reach a rebuttable presumption that the SBC/Ameritech advanced services affiliate should not be
deemed a successor or assign of an incumbent LEC under section 251(h)(1).

               a)   Legal Analysis of "Successor or Assign"

  
 1.  As an initial matter, we note that the Commission has never determined the circumstances
under which one entity will be considered a successor or assign of another under section
251(h)(1) or section 3(4) of the Act.  This issue is, therefore, a matter of first impression for the
Commission.  In order to provide guidance to the Applicants regarding the interconnection
obligations that will be required of the advanced services affiliate, we analyze section 251(h)(1) as
it applies to the affiliate structure set forth in the conditions. 

   1.     To determine whether an advanced services affiliate would be deemed an incumbent LEC
pursuant to section 251(h)(1), or a BOC pursuant to section 3(4), we first look to the text of the
statute to determine the circumstances under which an entity would become a successor or assign. 
Neither the Act nor its legislative history defines the terms "successor or assign" in either context. 
Employing our traditional tools of statutory construction, therefore, we look to the purposes of
the Act, and section 251 in particular, to determine a reasonable meaning of the terms in their
context.  We also examine case law for guidance on how federal courts have interpreted these
terms.

      2.  One of the fundamental goals of the Act is to promote innovation and investment
in the telecommunications marketplace by all participants, both incumbents and new entrants, and
to stimulate competition for all services, including advanced services.  We therefore interpret
the terms "successor or assign" as used in section 251 in a manner that promotes, rather than
frustrates, the pro-competitive and innovation-enhancing purposes of that section and section
706(a) of the 1996 Act.  The primary pro-competitive objective of section 251 is to open the local
exchange market to competition in all services to ensure that consumers reap the benefits of
broad-based and long-lasting competition.  In particular, section 251 requires all incumbent LECs
to provide nondiscriminatory access to their network facilities, thereby allowing competing
carriers to enter local markets by purchasing parts of the incumbent's network, and to allow resale
of their services at wholesale rates.  Section 251 also facilitates investment and deployment of
innovative technologies by encouraging new carriers to enter markets previously foreclosed to
them with a wide array of diverse services.  Thus, we must interpret the terms "successor or
assign" in a manner that furthers increased competition among various service providers, while
encouraging investment in new services and deployment of innovative technologies.

      3.  Typically, a successor or assign legal analysis is triggered after an entity ceases to
exist.  For example, when an existing entity creates another entity to replace it, it may be
appropriate to consider whether the new entity has "stepped into the shoes" of the previously
existing entity.  In our context, however, we must assess circumstances under which an incumbent
LEC may develop a new line of business in a new, less regulated entity, or transfer a nascent
business to such an entity, while continuing other core lines of business in the incumbent LEC. 
Essentially, we must ensure that the existing entity has ceded sufficient control of the new entity
so that we are able to recognize the new entity as its own operation.

      4.  We recognize, as the Supreme Court confirmed in Howard Johnson Co. v. Detroit
Local Joint Executive Bd., that a determination as to whether an affiliate is a successor or assign
is ultimately fact-based, and the terms take their meaning from the particular legal context in
which they are used.  In considering the particular facts and the legal context, however, courts
generally have looked for "substantial continuity" between two companies such that one entity
steps into the shoes of, or replaces, another entity.  In particular, in the labor law case of Fall
River Dyeing & Finishing Corp. v. NLRB, the Supreme Court, in determining whether substantial
continuity existed between two companies such that one company was the successor of another,
focused on whether the company had "acquired substantial assets of its predecessor and
continued, without interruption or substantial change, the predecessor's business operations."

      5.  For the instant inquiry, we find it instructive to consider the affiliate structure that
Congress established in another part of the Act to accomplish similar policy objectives.  In
particular, we are guided by the affiliate structure chosen by Congress in section 272.  Section
272 requires BOCs to provide certain manufacturing activities and origination of certain
interLATA telecommunications services and interLATA information services only through a
separate affiliate.  Congress set forth certain structural and transactional safeguards, as well as
nondiscrimination and audit requirements, to prevent a BOC from leveraging its market power in
the local market into adjacent, more competitive markets in an anticompetitive manner.  A
section 272 affiliate must, for example, operate independently from the BOC; maintain separate
books, records, and accounts; have separate officers, directors, and employees; not obtain credit
recourse to the BOC; and conduct all transactions on an arm's length basis, reduced to writing,
and available for public inspection.  Although we are not bound by section 272 here, the
underlying policy rationales of separation in that context, as discussed in prior Commission
orders, are similar to those in the instant context.  Indeed, in this case, consideration of section
272's requirements will enable us to avoid re-inventing the wheel with respect to previous
Commission consideration of separation criteria.

      6.   We find that a separate affiliate structure for advanced services should not be
more stringent than necessary to effectuate the overriding statutory purpose of promoting local
competition and the deployment of advanced services by all carriers. While section 272's intent,
to prevent an incumbent from leveraging market power in an anticompetitive manner and thereby
frustrating the purposes of the Act, has some bearing on our analysis of the degree of separation
between the SBC/Ameritech incumbent and its advanced services affiliate, other considerations
are also present in the context of advanced services.  In particular, the Commission has an
affirmative duty to encourage the rapid deployment of advanced services pursuant to section
706(a) of the 1996 Act.  The conditions therefore attempt to strike a balance that ensures that
the separation requirements and safeguards are not outweighed by countervailing burdens that
may tend to stifle the deployment of innovative technologies.  While we are concerned that, to not
be deemed an incumbent LEC, section 251's purposes require a degree of separation between an
incumbent LEC and its advanced services affiliate, we also seek to preserve, if possible,
innovative business structures and certain economies of scale and scope that will spur rapid
deployment of advanced services by all carriers, as specifically envisioned by Congress.  

      7.  Based on the case law and goals of the 1996 Act, and guided by the separation
principles established by Congress in section 272, we conclude that, in determining whether an
advanced services affiliate is a successor or assign of an incumbent LEC, we must consider
whether, given the totality of the circumstances, "substantial continuity" exists between the
incumbent LEC and the affiliate.  In order to ensure that there is no substantial continuity between
an incumbent and its advanced services affiliate, we look for the presence of certain indicia. 
Specifically, we evaluate whether:  (1) there is identifiable physical separation between the
entities; (2) the incumbent LEC has not transferred to its affiliate substantial assets or assets that
are necessary for the continuation of the incumbent's traditional business operations; (3)
transactions between the incumbent and affiliate are conducted at arms-length and are transparent;
and (4) the affiliate does not derive unfair advantage from the incumbent.  This approach is
intended to ensure that an advanced services affiliate is not, in effect, standing in the shoes of an
incumbent LEC and therefore rendered a "successor or assign" of the incumbent.  If, for example,
the affiliate's operations become too intertwined with the incumbent, thereby frustrating the pro-
competitive purposes of section 251, the incumbent would be in a position to evade its obligations
under section 251(c).  We evaluate whether these indicia are present in the SBC/Ameritech
advanced services affiliate structure below. 

               a)   Successor or Assign Analysis Applied to SBC/Ameritech Advanced
               Services Affiliates

 1.  We expect that, on the basis of the conditions as written, there will be no
substantial continuity between the SBC/Ameritech incumbent LEC and its advanced services
affiliate.  Accordingly, we find that a rebuttable presumption is established that SBC/Ameritech's
advanced services affiliate will not be a "successor or assign" of an incumbent LEC or a
BOC, and therefore not be subject to incumbent LEC regulation under section 251.  Our
conclusion, however, is a rebuttable presumption based exclusively on our analysis of the
permitted activities described in the conditions.  As discussed above, a successor or assign
analysis is ultimately fact-based, and, at this time, SBC/Ameritech's advanced services affiliate
has yet to engage in actual transactions with the incumbent or establish a course of conduct that
will shed light on the degree of continuity.  We do not yet know, for example, whether
SBC/Ameritech will choose to lessen the risk that its advanced services affiliate will be deemed a
successor or assign by adhering to a more stringent structural separation model than that outlined
in the conditions.  We assume, however, for the purposes of the instant discussion, that
SBC/Ameritech and its affiliates will conduct their operations by engaging in all of the activities
permitted in the conditions.   

      1.  Commenters urge us to require SBC/Ameritech to provide advanced services
through a separate affiliate that complies fully with the structural and transactional requirements
of section 272.  As an initial matter, we note that section 272, by its terms, applies only to
manufacturing activities, in-region originating interLATA services, and interLATA information
services.  Accordingly, the structure of an SBC/Ameritech affiliate that provides advanced
services need not be dictated by section 272's framework. 

      2.  The Applicants' proposal nonetheless adheres to most of the structural and
transactional requirements of sections 272(b), (c), (e), and (g), as interpreted by the Commission. 
Deviations from these requirements are expressly set forth in the description of activities
permitted between the SBC/Ameritech incumbent LEC and its advanced services affiliate.  Under
the conditions, the separate advanced services affiliate will be permitted:  (1) to engage in joint
marketing with the SBC/Ameritech incumbent on an exclusive basis, which includes customer
contacts up to and including the sale (i.e., the incumbent may perform advanced services
customer inquiries, sales, and order-taking); (2) to engage in certain customer care activities with
the incumbent on an exclusive basis (i.e., the incumbent may notify customers of service order
progress, respond to customer inquiries regarding the status of an order, change customer
account information, and receive customer complaints other than those regarding receipt and
isolation of trouble); (3) to use the incumbent's brand name on an exclusive basis; (4) to obtain
billing and collection services from the incumbent on a nondiscriminatory basis; (5) to obtain
operation, installation and maintenance (OI&M) services from the incumbent on a
nondiscriminatory basis; (6) to receive, within a limited grace period, from the incumbent an initial
transfer of assets used to provide advanced services; and (7) to locate employees in the same
buildings and on the same floors as employees of the incumbent, provided that the underlying
building facilities are owned or leased by the affiliate.  In addition, the conditions permit the
SBC/Ameritech incumbent to perform certain activities on behalf of its affiliate on an exclusive
basis for the period of time during which SBC/Ameritech transitions to this separate affiliate
structure.  Specifically, for a limited period, SBC/Ameritech may provide network planning,
engineering, design or assignment services associated with advanced services to its affiliate, and
receive and isolate troubles affecting an advanced services customer on behalf of the affiliate. 
Additionally, the SBC/Ameritech incumbent is permitted to line share with its advanced services
affiliate on an exclusive basis until it provides line sharing to unaffiliated providers of advanced
services.  

 3.  Using the indicia outlined above, we find that, assuming the SBC/Ameritech
advanced services affiliate strictly adheres to the structure set forth in the conditions, or to a more
stringent separation structure, a rebuttable presumption is established that there will be no
substantial continuity between the SBC/Ameritech incumbent and its advanced services affiliate
and that the affiliate will thus not be a successor or assign of the incumbent LEC.  We believe
that the affiliate structure set forth in the conditions will ensure that an SBC/Ameritech advanced
services affiliate occupies a position in the market comparable not to an incumbent, but rather to a
non-incumbent advanced services competitors.  

 4.   Identifiable Physical Separation.  We find that SBC/Ameritech's compliance with
the structural requirements of section 272(b) ensures an identifiable level of physical separation
between the incumbent and its affiliate.  Under these rules, the incumbent and its affiliate will not
jointly own transmission and switching facilities, nor the buildings and land where switching and
transmission facilities are located.  The affiliate will also not obtain credit under any
arrangement that would permit a creditor, upon default, to have recourse to the assets of the
incumbent.  Additionally, the advanced services affiliate will maintain separate officers,
directors, and employees from the incumbent.  Although the SBC/Ameritech advanced services
affiliate is permitted to locate employees in the same buildings and on the same floor as the
incumbent's employees, the conditions contain additional restrictions that mitigate the risk of
abuse or malfeasance in this case.  Despite the potential proximity, the affiliate must use only the
same OSS systems, processes and procedures that are available to unaffiliated entities, and the
incumbent's employees will conduct transactions with the affiliate in the same manner in which
they conduct transactions with unaffiliated entities.  For example, in communicating with the
affiliate, the incumbent's employees must use the same mode of communication that they use with
unaffiliated carriers (e.g., phone calls or email).  Furthermore, complying with the Commission's
accounting safeguards protects ratepayers of SBC/Ameritech's regulated services from bearing
the risks and costs associated with the affiliate. 

 5.   Asset Transfers.  We find that SBC/Ameritech will not be transferring substantial
assets or assets that are necessary to continue the incumbent's traditional business operations. 
The conditions permit the limited transfer of certain advanced services equipment to the affiliate,
but require that such transfers comply with the Commission's affiliate transactions rules and
accounting safeguards, including the obligation that the transfer of facilities used to provide
advanced services be made at the higher of net book cost or estimated fair market value.  This
safeguard ensures that the actual value of the asset is reflected in the transfer, and will prevent
SBC/Ameritech from discriminating in favor of its affiliate through below-cost transfers.  In
addition, although not explicitly discussed in the conditions, we recognize that, shortly after the
affiliate is created, SBC/Ameritech will also be transferring other types of assets to its separate
affiliate including customer accounts, initial capital contribution, and real estate, as well as
employees.  This limited transfer of assets and employees necessary for the provision of
advanced services will not result in the transferring of a substantial portion of the incumbent's
assets or the shifting of the incumbent's traditional business operations.  The incumbent will
continue to provide traditional voice-based circuit-switched local services, as well as other
services, through the use of the assets and employees that remain with the incumbent.  Moreover,
to the extent that our transactional safeguards are applicable to these other asset transfers as well,
such safeguards continue to pre-ensure arms-length dealings.  We therefore find that a limited
one-time transfer of such assets and employees does not frustrate the statutory purpose of section
251, nor manifest substantial continuity between the incumbent and its advanced services affiliate. 
Rather, such transfers will further the pro-competitive goals of the Act, section 706(a) of the 1996
Act in particular, by facilitating a more efficient and competitive deployment of advanced services
to consumers.

 6.   Although the SBC/Ameritech incumbent is permitted to transfer equipment to its
affiliate, the permitted transfers only encompass equipment that is used to provide advanced
services.  SBC/Ameritech is explicitly not permitted to transfer UNEs or other equipment used
primarily to provide basic local services.  All equipment transfers between the incumbent and
affiliate also must be conducted within a limited grace period.  We note also that the equipment
transfers are further limited by the requirement that any new advanced services equipment must be
purchased by the affiliate after 30 days from the merger's closing.  Allowing this limited transfer
of advanced services equipment will facilitate the affiliate's creation and prevent the affiliate from
having to duplicate investments that have already been made by the SBC/Ameritech incumbent. 
Moreover, the limited transfer will allow the affiliate to begin deploying advanced services to
consumers more quickly. 

      7.  Transactional Safeguards.  We find that adequate protection against improper
cost allocation exists in the affiliate structure contained in the conditions.  Structural separation,
by itself, greatly assists in deterring improper cost allocation.  Additional protection against
improper cost allocation, however, is provided by SBC/Ameritech's adherence to the
requirements of sections 272(b)(5) and (c)(2), and the Commission's implementing rules. 
Complying with the affiliate transactions rules in this case therefore protects ratepayers of
regulated services from bearing the risks and costs associated with competitive ventures while
allowing for the provision of advanced services in a competitive manner by all providers.

      8.   Specifically, consistent with section 272(b)(5), the conditions also provide that the
SBC/Ameritech incumbent will conduct all transactions with its advanced services affiliate on an
arm's length basis, with transactions reduced to writing and timely posted on the company's
Internet website in accordance with the Commission's rules.  In this way, the relations between
an SBC/Ameritech incumbent and its advanced services affiliate will be highly transparent, which
will facilitate monitoring and enforcement of the condition's requirements.  The only respect in
which the SBC/Ameritech incumbent and its affiliate are permitted to deviate from these
requirements is with regard to the facilities and services that the affiliate will order out of its
interconnection agreement with the incumbent.  Although these transactions will not be made
available consistent with the transaction disclosure requirements of section 272(b)(45),
SBC/Ameritech will comply with all of the Commission's other transaction requirements. 
Moreover, the interconnection agreement itself will be made publicly available pursuant to the
requirements of section 252, and SBC/Ameritech must provide all such services and facilities to
unaffiliated parties on a nondiscriminatory basis.   Moreover, the transactions will be audited by
the independent auditor as part of the thorough advanced services affiliate audit.  This audit,
which will be conducted on an annual basis by an independent auditor in accordance with industry
standards, as well as through any spot audits that may be conducted by Commission staff as part
of the Commission's regulatory oversight, should readily detect any improper cost allocation. 
Given that these safeguards will assist in detecting and deterring cross-subsidization and
discrimination, we find that transactions between the incumbent and affiliate are not likely to
manifest substantial continuity between the entities.   

      9.   Unfair Advantage.  For the most part, SBC/Ameritech will comply with the
requirements of section 272(c)(1) and will not discriminate between its advanced services affiliate
and any other entity in the provision or procurement of goods, services, facilities, or information,
or in the establishment of standards.  These safeguards are intended to ensure that an affiliate
will not derive unfair advantages from the incumbent.  The SBC/Ameritech advanced services
affiliate must, for example, obtain facilities necessary for the provision of advanced services, such
as local loops and collocation space, at the same rates and using the same operations support
systems interfaces and procedures that are available to other competitive LECs.  This gives the
SBC/Ameritech incumbent strong incentive to provide the necessary inputs in an efficient, cost-
effective manner that will benefit all providers of advanced services and, ultimately, the public at
large.  Additionally, the incumbent's provision of inputs to its advanced services affiliate will serve
as an important benchmark against which to measure its performance to unaffiliated carriers.

      10.  We find that an SBC/Ameritech advanced services affiliate will not derive unfair
advantages from the activities between it and the incumbent that are permitted under the
conditions.  First, with respect to joint marketing, we note that section 272(g) expressly
contemplates that a BOC and its section 272 affiliate can jointly market and sell the other's
services, and, pursuant to section 272(g)(3), this joint marketing would not violate the
nondiscrimination provisions of section 272(c).  Presumably, the section 272 affiliate would not
be a successor or assign of a BOC under section 251(h) and 3(4).  We see no reason that the
SBC/Ameritech advanced services affiliate should be treated more strictly than a section 272
affiliate.  Moreover, permitting the SBC/Ameritech incumbent and its advanced services affiliate
to engage in joint marketing activities will further the 1996 Act's objective of spurring rapid
deployment of advanced services to consumers by facilitating the SBC/Ameritech affiliate's and
incumbent's ability to tailor the services offered in a manner that best suits the consumer's
needs.  Given the nascency of the advanced services market, joint marketing between an
incumbent and its advanced services affiliate would not confer an unfair advantage on the affiliate,
particularly as other entities are also able to engage in such marketing activities. 

      11.  Although a closer question is presented by the exclusive provision of customer
care services (defined in the conditions as notification of service order progress, response to
customer inquiries regarding the status of an order, changes to customer account information, and
receipt of certain customer complaints), we find that sharing these services will not unfairly
advantage the affiliate.  Specifically, we find that prohibiting such sharing of services would add
unnecessary costs and burden the affiliate in such a manner that its ability to be an effective
advanced services provider would be diminished.  Moreover, we believe that it would lead to
customer confusion if a customer were not permitted to track the progress of an order or modify
account information by placing a single phone call to the incumbent.

      12. We conclude that, if we were to prohibit the sharing of joint marketing and
customer care services in this context, the ability of an incumbent LEC and its advanced services
affiliate to achieve the economies of scale and scope inherent in offering an array of services
would be diminished without conferring benefits to justify the prohibition.  Moreover, we do
not believe that the competitive benefits of allowing an incumbent LEC and its advanced services
affiliate to achieve such efficiencies are outweighed by an incumbent LEC's potential to engage in
discrimination or improper cost allocation.  As described above, an incumbent LEC must allocate
the cost of such services between itself and its advanced services affiliate.  In addition, an
agreement for an SBC/Ameritech incumbent to provide joint marketing and customer care
services to its affiliate, or vice versa, constitutes a transaction between the incumbent and affiliate. 
Accordingly, such transactions must be conducted on an arm's length basis, reduced to writing,
and made available for public inspection.  Such transactions, of course, also will be inspected by
the independent auditor, as noted above.  
 
      13.  Allowing the SBC/Ameritech advanced services affiliate to use the incumbent's
brand name in this situation is also consistent with and furthers the 1996 Act's objective to
promote competition and innovation in the local market.  As with joint marketing, we note that
section 272 does not prohibit the use of the BOC's brand name by its affiliate.  In this context, by
permitting the advanced services affiliate to use a widely-recognized brand name, SBC/Ameritech
will be in a position to bring new packages of services, lower prices, and increased innovation to
customers in a more expedient manner.  Moreover, given the nascency of the advanced services
market, we do not believe it is unfair to permit the affiliate to use the incumbent's brand name as
other competitors may have an equally well-recognized brand name, or an equivalent opportunity
to develop one.  Accordingly, we find no basis for restricting the affiliate's use of the incumbent's
brand name in this case.  

      14.  We decline to limit the advanced services affiliate's ability to purchase UNEs
from, or resell the retail services of, an SBC/Ameritech incumbent LEC.  The advanced services
affiliate will not be not precluded from providing local exchange services, such as local, circuit-
switched services, as long as it provides such services bundled in conjunction with advanced
services.  The affiliate will also be allowed to provide incumbent LEC resold services in the same
manner as any other competitive LEC.  As long as the affiliate obtains services and facilities from
the incumbent LEC pursuant to a tariff or valid interconnection agreement, the affiliate will stand
in the same position as any competitive advanced services provider and should therefore have the
same flexibility as competitors to provide "one-stop shopping" to its customers.  We find that the
increased flexibility resulting from the affiliate's ability to provide both advanced services along
with traditional local exchange services serves the public interest, because such flexibility will
encourage the advanced services affiliate to provide innovative new services.  Moreover, we
note that the conditions contain safeguards which should deter the affiliate from pricing its retail
services below the wholesale price it pays to the incumbent.  

      15.  Although the conditions permit SBC/Ameritech and its affiliate to share operation,
installation, and maintenance (OI&M) services, we do not find that such sharing will confer upon
the affiliate an unfair advantage in the provision of advanced services.  We reach this conclusion
for several reasons.  First, although sharing of these services is permitted, the conditions also
provide that such services will be made available to unaffiliated entities on a nondiscriminatory
basis.  As such, there should be no difference in price or quality between the OI&M services
provided to the affiliate vis-a-vis unaffiliated entities.  Second, although we recognize that in the
section 272 context the Commission prohibited the sharing of these functions, we do not find such
a prohibition to be required in the advanced services context.  For example, because the loop is
used to provide both telephone exchange services and advanced services, greater network
integration is required in the provision of advanced services than in the provision of long distance
services.  Given this, allowing the SBC/Ameritech incumbent to share these services with its
affiliate, on the same basis that it shares them with unaffiliated entities, will permit greater
economies of scope and enable the affiliate to be a more efficient competitor.  Third, as described
above, the merger conditions require a rigorous internal compliance program and annual audits. 
We believe that these mechanisms will adequately deter SBC/Ameritech from favoring its affiliate
in the provision of OI&M services (as well as other services). 

      16.  For similar reasons, we do not find that permitting the SBC/Ameritech incumbent
to provide billing and collection services to its advanced services affiliate and other unaffiliated
entities on a nondiscriminatory basis would unfairly advantage the affiliate.  We note that the
billing and collection services provided by the incumbent to the affiliate will be made available to
other advanced services providers on a disaggregated basis that allows these unaffiliated carriers
to select the particular services that they desire from the incumbent.  Allowing this
nondiscriminatory provision of billing and collection services by the incumbent not only enables
the affiliate to receive greater economies of scope, but it may also enable unaffiliated providers to
be more efficient competitors, thereby accelerating the deployment of advanced services by all
carriers.  Again, we find that the conditions' internal compliance program and annual audit
requirements should deter and detect any preferential treatment.

      17.  We also find that the SBC/Ameritech advanced services affiliate will not derive
unfair advantage from the incumbent through the activities that are permitted for a short,
transitional period.  We recognize that because SBC/Ameritech had previously been performing
such activities on an integrated basis, it will take some time, both logistically and technically, to
remove these functions from the incumbent.  We are therefore persuaded that the incumbent's
provision of these activities on an interim basis to the affiliate is a reasonable measure to
effectuate the creation of the advanced services affiliate and its orderly transition.  Moreover, we
note that the separate affiliate requirement will not sunset until 36 months after the incumbent
ceases to process trouble reports on behalf of the affiliate on an exclusive basis.  As such, the
conditions provide an incentive for the transitional period to be a very limited one.  

      18.  Although the discriminatory provision of line sharing ordinarily would give us
concern that the affiliate is deriving unfair advantage from the incumbent, our concern is tempered
in this case for two reasons.  First, exclusive line sharing is only an interim measure that will
disappear when the SBC/Ameritech incumbent provides line sharing to unaffiliated entities. 
Second, during the period in which an SBC/Ameritech incumbent provides interim line sharing to
an affiliate, competing providers will receive the economic equivalent of this "interim line sharing"
through a 50 percent discount on the use of a second loop to provide advanced services.  We are
therefore persuaded that the incumbent's provision of line sharing exclusively to the affiliate does
not confer an unfair advantage upon the affiliate in this case.  
 
          1.   Requests Regarding Other Conditions

  
 1.  Surrogate Line-Sharing Discount.  We reject the suggestion of several carriers that we
require the merged firm to make line sharing available immediately to competitors.  The
Commission recently issued a further notice of proposed rulemaking that sought comment on
operational, pricing and other practical issues associated with line sharing.  We find it more
suitable to address these complex issues in the context of the ongoing industry-wide rulemaking
rather than this merger proceeding.

   1.     We also decline to require that SBC/Ameritech delay offering line sharing to its separate
advanced services affiliate through its "interim line-sharing" proposal until it offers line sharing on
a commercial scale to competitors.  We do not find that permitting interim line sharing between
an SBC/Ameritech incumbent and its affiliate will unfairly advantage the affiliate vis--vis
competitors because through the surrogate line sharing discount, unaffiliated carriers will be on
comparable economic footing with the SBC/Ameritech advanced services affiliate.  

   2.     Access to Advanced Services Loop Information.  Some competing carriers object that
SBC/Ameritech is allowed 22 months after the merger closing date to provide electronic access to
advanced services loop information (i.e., the theoretical loop length) in the Ameritech states. 
As noted above, unlike SBC, Ameritech purportedly does not already have the necessary
information in electronic form.  Because, in the Ameritech region, the SBC/Ameritech separate
advanced services affiliate will be disadvantaged in the same manner as competing advanced
services providers without electronic access to loop pre-qualification information, we believe that
SBC/Ameritech will have every incentive to expedite its fulfillment of this condition.   

 1.  Nondiscriminatory Rollout of xDSL Services.  Some parties suggest that this
condition should affirmatively require SBC/Ameritech to adhere to a timetable for deploying
xDSL technology to rural and low-income areas.  Other commenters question when the
Applicants' obligation under this condition would become effective, and suggest that the
Commission require at least one low-income rural and urban wire center among the first ten wire
centers where the merged firm rolls out xDSL service.  Given the high market demand for
advanced services, and that a number of other conditions are designed to spur deployment of
advanced services and to benefit low-income consumers, we decline to subject SBC/Ameritech to
a specific timetable for advanced services deployment, or to enforce the condition prior to
deployment in twenty wire centers.  We note, however, that SBC/Ameritech will report the status
of its xDSL deployment, including deployment to low-income areas, to the Commission on a
quarterly basis.   

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

   4.     Similarly, we decline to require parity across measurements between different states, as
suggested by the Indiana Utility Regulatory Commission.  We find that the plan is sufficient, for
merger purposes, to reduce the larger entity's increased incentive for discrimination by giving its
individual operating companies incentives to treat competitors as they would SBC's or
Ameritech's own retail operations.  Other merger commitments, such as the most-favored nation
and OSS conditions, address uniformity and the spread of best practices across the merged firm's
13-state region.    

   5.     Although some commenters also note that SBC/Ameritech's obligation to make voluntary
incentive payments under the plan commences later in Connecticut than in the other
SBC/Ameritech states, SBC has indicated that in light of its recent acquisition of SNET, it
needs additional time to implement the payment obligations in that state.  Given this, and that the
voluntary payment obligations for Connecticut will extend for the full 36 month period, we find it
reasonable for SBC to allow additional time to conform its systems in Connecticut.  

   6.     Uniform Enhanced Operations Support Systems.  Although several parties contend that
the OSS enhancement implementation timelines are too long and should be shortened, we are
persuaded by the Applicants' assertion that timelines contained in their commitments "reflect the
bare minimum time needed for successful implementation of the required elements."  Given that
unification of the OSS systems of SWBT, PacTel, SNET and Ameritech is a substantial
undertaking, and recognizing that the benefit of the OSS enhancements will be realized for at least
a full 36-month period, we deem the implementation timelines reasonable.  We expect
SBC/Ameritech to design and build reliable, error-free systems that will serve the needs of
competitors and their customers as efficiently as possible.  Moreover, we note that
SBC/Ameritech has an incentive to expedite deployment of these enhancements.  For example,
until SBC/Ameritech develops and deploys the advanced services OSS enhancements and
interfaces, and until those systems are actually used by its separate advanced services for the bulk
of its pre-ordering and ordering, competitors will receive a 25-percent discount on the recurring
and nonrecurring charges for loops used in the provision of advanced services.  In addition, the
maximum amount of SBC/Ameritech's voluntary incentive payments in the third year of the
Carrier-to-Carrier Performance Plan decreases proportionately as the firm implements the OSS
enhancements, interfaces, and business requirements ahead of schedule.   

   7.     Competitors also assert that the July proposal's remedy of $100,000 per business day,
capped at $10 million, for failure to meet the OSS implementation schedules is not an adequate
incentive for a company the size of a combined SBC and Ameritech.  With subsequent filings, the
OSS voluntary incentive payments are now $110,000 per business day, capped at $20 million,
which we find adequate to incent the company to satisfy its obligations in a timely manner.  In
addition, unlike the initial proposal, with the August Clarification, the payments will reach back to
the initial failure date, should a failure occur, which removes incentive on SBC/Ameritech's part
to delay arbitration.  

   8.     Competitive carriers also seek to have the Commission require third-party testing of the
OSS enhancements and interfaces to ensure that they are uniform, comply with applicable
standards and guidelines, and are scalable and workable, meaning that they support seamless end-
to-end interoperability for all five core OSS functions.  Although comprehensive third-party
testing may be useful in other contexts, such as section 271 proceedings, we decline to require
SBC/Ameritech to submit its OSS enhancements and interfaces to third-party testing as part of
these conditions.  We find adequate enforcement mechanisms at our disposal should
SBC/Ameritech not develop and deploy OSS enhancements and interfaces consistent with the
requirements of the conditions.  Moreover, SBC/Ameritech has committed to make significant
voluntary incentive payments if it fails to deploy OSS upgrades and enhancements in substantial
compliance with the collaborative agreement.  This potential exposure should provide adequate
incentive for the merged firm to develop and deploy efficiently OSS enhancements and interfaces
that fully comply with the collaborative agreement and are scalable and workable. 

   9.     We also reject the other more specific changes to the OSS conditions suggested by
commenters.  Several parties claim, for example, that the conditions should define
SBC/Ameritech's precise obligations under each phase and for each obligation.  We find that
these are details that will be addressed in the collaborative process.  Ideally, the details of
implementing the uniform OSS enhancements and interfaces will be worked out expeditiously in
these workshop sessions.  We find no reason to prevent the voluntary participants, with the
assistance of a neutral arbitrator, if necessary, and oversight of the Common Carrier Bureau, from
determining the best manner in which to implement the requirements of these conditions. 

   10.    Training in the Use of OSS for Qualifying Carriers.  CompTel suggests that the
Commission should lower the threshold for a carrier to qualify for assistance under this
condition, while other carriers ask that this Commission, rather than state commissions, verify a
competitive LEC's status as a qualifying carrier.  We decline to take either suggestion.  We find
that limiting eligibility to those competitive LECs that earn less than $300 million in annual
revenues should adequately target those carriers in most need of assistance, and thereby stimulate
competitive entry.  Further, we find that, given state commissions' roles in certifying
competitive LECs and monitoring their activity within the state, they are best-suited for verifying
the status of a particular competitive LEC. 

   11.    Collocation Compliance.  We decline to alter the nature and design of the
collocation audits.  Commenters suggest that the Commission should exert more control to ensure
neutrality and completeness, and that the audit period should be extended.  As indicated
above, we find that the independent audit procedures set forth in the conditions, with participation
by the Common Carrier Bureau, will ensure that SBC/Ameritech is in compliance with all
collocation requirements.  

   12.    Most-Favored Nation Arrangements.  We also reject requests by commenters to
change SBC/Ameritech's most-favored nation obligations.  Parties claim, for example, that the
limitation in the out-of-region provision that SBC/Ameritech must only provide an
interconnection arrangement or network element that had not previously been available by that
incumbent is unnecessarily restrictive.  Instead, they urge us to require SBC/Ameritech to offer,
if requested, each interconnection arrangement or UNE that SBC/Ameritech avails itself of
outside of its service territory, or every arrangement or UNE that is being offered by the host
incumbent.  The change requested by these carriers, therefore, could require SBC/Ameritech to
provide in-region every interconnection arrangement or UNE that is being offered by each
incumbent in all 30 out-of-territory markets.  We are concerned that such a requirement would be
inefficient and undermine the National-Local Strategy's goals.  If such a requirement were
imposed, SBC/Ameritech might select cities to enter by limiting the number of incumbent LECs
whose territory it enters, or by only entering areas where the incumbent offers less diverse
arrangements.  Either strategy would undermine our expectation that the merged firm will enter
diverse geographic markets and become a powerful competitive LEC as part of its National-Local
Strategy.  The condition as written balances these policy considerations by ensuring that
SBC/Ameritech will not seek special arrangements outside its territory that it would not offer to
competitors inside its territory.    

   13.    Several competitive LECs also urge us to require SBC/Ameritech to make
available in all 13 SBC/Ameritech states any interconnection arrangement or network element that
is available in any SBC or Ameritech state, whether voluntarily negotiated or arbitrated.  We
decline to expand the condition to arbitrated arrangements because doing so might interfere with
the state arbitration process under sections 251 and 252 of the Communications Act.  We note
that where SBC/Ameritech has stipulated in arbitration proceedings that specific arrangements
have been determined through negotiation, these voluntary arrangements will be available for
"most-favored nation" treatment.  If we required SBC/Ameritech to import arbitrated terms and
conditions from one state into all others, then one state could effectively interpret the merged
firm's obligations under sections 251 and 252 for all other states.  For similar reasons, we
decline to extend the condition to reach the Proposed Interconnection Agreement (PIA) in
Texas.
  
   14.     We also decline the request by some commenters that the condition apply to
interconnection agreements negotiated by Ameritech, Pacific Bell or SNET prior to each entity's
acquisition by SBC.  We find it reasonable for this condition to be implemented on a going-
forward basis, applying only to arrangements negotiated by an affiliate of SBC.  In this way,
SBC/Ameritech, bearing in mind its commitment to implement best practices, will be on notice as
to which systems and procedures could become uniform across its region.  Furthermore, we find
that the technical feasibility exemption is not a loophole, for the relevant state commission can
ascertain what is possible in light of state law and the technical capability of SBC/Ameritech's
systems within that state.

   15.    Carrier-to-Carrier Promotions.  We also reject commenters' suggestions that we
eliminate the restrictions on the availability of the carrier-to-carrier promotions.  For example,
commenters seek removal of the limitation that competitors receiving the promotional unbundled
loop discount can only use these loops for voice services, as well as the residential restriction and
line limitation contained in each of the three promotions. 

   16.    We find that, by targeting the promotions to the residential market, these
conditions will bring more competitive offerings to residential customers that have less choice
today than large or medium-sized business customers.  Our desire to promote residential
competition is consistent with Congress's intent, through enacting the 1996 Act, to spur facilities-
based competition to serve residential customers.  Moreover, we find that the promotions'
limited duration and line limitations will motivate competing carriers to enter the residential
market faster to secure the benefit of the promotions, thereby accelerating the availability of
competitive offerings to residential consumers.  Once a carrier secures the promotion, however,
it is guaranteed the promotional terms for a full three-year period.  Because our intent is for these
promotions to ignite competition in the residential local exchange or exchange access markets in
SBC's and Ameritech's regions, we decline to expand this particular condition to cover loops
used in the provision of advanced services.  Indeed, we note that competitors that choose to use
an unbundled loop to provide advanced services receive greater discounts elsewhere in the
conditions.

   17.    We also reject arguments by certain competitive LECs that the carrier-to-carrier
promotions are unlawful in that they contradict core premises of the Communications Act and
Commission rules.  First, based on the manner in which SBC/Ameritech will execute its
obligations, we do not find that the residential and voice service restrictions transgress the Act or
corresponding Commission rules.  Specifically, SBC/Ameritech will implement the promotions
by voluntarily offering to amend its interconnection agreements with telecommunications carriers
to incorporate the promotional terms.  Moreover, SBC/Ameritech will make this offer in a
nondiscriminatory manner to all telecommunications carriers with which it has an interconnection
agreement in any SBC/Ameritech state.  

   18.    The 1996 Act and corresponding Commission rules give incumbent LECs and their
competitors certain latitude to enter into customized contractual arrangements, subject to section
252(i)'s requirement that any negotiated arrangement must be made available to all interested
carriers.  Section 252(a)(1) provides that "an incumbent local exchange carrier may negotiate and
enter into a binding agreement with the requesting telecommunications carrier or carriers without
regard to the standards set forth in sections (b) and (c) of section 251."  Likewise, although
section 252(e)(2) requires a finding of compliance with section 251 when state commissions
review arbitrated agreements, there is no corresponding requirement with respect to negotiated
agreements. 

   19.    Some commenters contend that the line limitation on the number of discounted
loops, resale and platform offerings that will be made available to competitive LECs would violate
the "pick and choose" rule of section 252(i), as well as the general nondiscrimination requirements
of section 251(c)(3) and 251(c)(4)(B).  We note that, under the specific terms of the merger
conditions, these promotions are being offered to competitors in a nondiscriminatory fashion. 
Specifically, in each of its states, SBC/Ameritech will offer the promotion simultaneously to all
telecommunications carriers that have an existing interconnection and/or resale agreement with
SBC or Ameritech, and, for carriers that accept the promotion at any time within 10 business days
of the initial offer, SBC/Ameritech will simultaneously file the amendments with the relevant state
commission for approval.  These measures should ensure that all competitive LECs operating in
SBC/Ameritech's region will be afforded an equal opportunity to participate in the promotions. 
Moreover, carriers that begin operating in SBC/Ameritech's region, or decide to participate in the
promotions, after this initial offer period will have the opportunity to participate in the offerings,
and SBC/Ameritech will respond to their inquiries within 10 days.  To this end, SBC/Ameritech
will notify all carriers operating in the state when 50 percent and 80 percent of the maximum lines
in that state are reached.

   20.    Offering of UNEs.  Several commenters criticize SBC and Ameritech for not
committing to provide indefinitely the UNEs described in section 51.319 of the Commission's
rules, regardless of the outcome of the UNE Remand proceeding.  Certain cellular carriers also
ask that the condition explicitly recognize extended local calling area arrangements, commonly
known as reverse billing arrangements, in order to prevent the merged firm from terminating
Ameritech's existing extended local calling area arrangements.  We emphasize that this
condition has practical effect only in the event that the Commission's rules in the UNE Remand
proceeding are stayed or vacated.  Until that time, SBC/Ameritech will comply with the
unbundling rules mandated by the Commission in the UNE Remand proceeding.

   21.    Alternative Dispute Resolution Through Mediation.  We reject Covad's request
that we expand the ADR process to permit multi-state mediations of similar or common issues. 
As noted above, a core component of the optional alternative dispute resolution process set forth
in the conditions is the voluntary participation of state commission staff, which, we anticipate, will
assist carriers in getting disputes resolved quickly.  Multiple states, therefore, may choose to be
involved but we do not require such participation in this Order. 

   22.    Access to Cabling in Multi-Unit Properties.  Parties generally support the
conditions related to accessing cabling in multi-unit premises, but request that the Commission
make the trial more comprehensive.  ALTS, for example, comments that the proposed trial
excludes buildings that contain only medium-sized and large commercial tenants.  We find that
the cabling trials are sufficient to address their intended purpose, which is verifying the technical
feasibility and costs of such offerings, and therefore decline to alter the features of the trials. 
Moreover, we believe that the Applicants' commitment to provide carriers with access to LEC
owned or controlled cabling behind a single point of interconnection for multi-unit properties and
campuses of garden apartment dwellings will significantly further competitors' access to cabling. 
We also note that, in addition to these conditions, SBC/Ameritech will comply with any rules
resulting from the UNE Remand proceeding. 

   23.    Out-of-Territory Competitive Entry (National-Local Strategy).  Some commenters
claim that the condition establishing milestones for the Applicants' National-Local Strategy does
not go far enough in advancing residential competition, and therefore urge us to strengthen
SBC/Ameritech's residential entry requirements.  The Consumer Coalition, for example,
suggests that, rather than simply buying up competitive LECs, the merged firm should have to
meet at least half of its build-out commitments with new facilities.  Imposing these additional
restrictions would severely limit the Applicants' ability to undertake innovative business strategies
or ventures with other firms.  We anticipate that the presence of SBC/Ameritech, a large,
experienced incumbent LEC, as a facilities-based competitor in 30 markets will foster competition
in those market.  We find that the entry requirements included within the Applicants' proposed
condition are sufficient to ensure that SBC/Ameritech provides meaningful, facilities-based service
outside its territories.  

   24.    Enhanced Lifeline Plans.  We reject the requests of some commenters that we
impose additional requirements on SBC/Ameritech's offer of enhanced Lifeline plans.  We also
decline to obligate the merged firm to provide community voice mail services or community
technology centers for residential customers in low-income areas.  Although these additional
requirements would benefit low-income consumers, SBC and Ameritech point out that such
matters are being addressed at the state level. We find that the Applicants' commitment to offer
states an enhanced Lifeline plan, which was significantly strengthened after the comment period,
will provide substantial direct benefits to low-income residential consumers.   

   25.    Independent Auditor.      We disagree with arguments by commenters that we should
not rely on independent audits because the auditor may not retain an appropriate degree of
independence.  The Commission is not delegating its enforcement and investigative authority,
or its responsibility to enforce the Act, to either the independent auditor or the Applicants. 
Instead, we are adopting the Applicants' plan that involves using an independent audit as a cost-
effective tool to supplement the Commission's normal processes and procedures.  The
Commission has the authority to use independent auditors to supplement our usual investigative
the authority, and we have extensive experience with this method for ensuring compliance with
our rules.  Independent audits, combined with targeted on-site audits conducted by Commission
staff and thorough reviews of the auditor's working papers, have proven largely successful in
ensuring compliance with the Commission's accounting safeguards.  Furthermore, the
independent audit requirement in the 1996 Act indicates that independent audits are useful tools
for evaluating compliance with structural, transactional, and nondiscrimination requirements. 
Likewise, we view the success that other federal agencies have had with independent audit
programs as further evidence that the audit provisions will be an effective tool for ensuring
compliance with the conditions.

   26.    By relying on auditing industry standards, the condition ensures that
SBC/Ameritech will engage a technically proficient licensed auditor, and that the auditor will
exercise due care in performing the audit and obtain sufficient evidence needed to support its
findings.  Because the auditor will evaluate the sufficiency of SBC/Ameritech's internal control
structure, the conditions provide for an assessment of the merged firm's ability to comply on an
ongoing basis, and thereby establish a heightened compliance standard.  Furthermore,
Commission oversight of the audit process and the public disclosure of the auditor's report further
convince us that the independent auditor will perform the engagement to our satisfaction.  We
anticipate that Commission review of the auditor's working papers, and the public disclosure of
the auditor's detailed final report, will provide additional assurances regarding the thoroughness
of the audit and the auditor's independence.  The Commission can take appropriate action,
including terminating the independent auditor, in the event problems arise related to the conduct
of the audit.

   27.    Although the independent audit will provide a systematic means of  evaluating
SBC/Ameritech's compliance, we are aware of inherent limitations in the audit process.  Most
notably, an independent audit does not guarantee discovery of noncompliance or illegal acts. 
Because detection of noncompliance is not guaranteed, an auditor's report that fails to note any
exceptions does not preclude an individual from filing a complaint with the Commission or the
courts and a subsequent finding of noncompliance.  Finally, we stress that the independent
auditor's failure to uncover noncompliance does not free SBC/Ameritech from its responsibility to
ensure compliance with the conditions.

   28.    We decline to adopt commenters' suggestions that we establish a formal
mechanism for participation in the audit process by state commissions and others.  The audit
provisions contained under these conditions, however, are not implemented pursuant to section
272(d).  We recognize that the state commissions have valuable insight into on-going issues and
problems in the telecommunications industry, and we stress that the Commission will work
closely with the state commissions on an informal basis regarding SBC/Ameritech's compliance
with these conditions.  Pursuant to long-standing delegated authority, the Common Carrier
Bureau may cooperate with state commissions by coordinating compliance and enforcement
activities and sharing information gathered in the course of audits.  Moreover, we note that,
under the conditions, SBC/Ameritech will ensure that the independent auditor provides access to
its working papers to state commissions, thereby alleviating some concerns raised by the states.

   29.    Although the conditions establish clear deadlines for completing the audit planning
and preparation work, and for submitting the independent auditor's report, some commenters
raise concerns with the September 1 deadline, arguing generally that the submission deadline will
provide a lengthy delay in learning about potential problem areas.  These concerns are
addressed by the obligation to use AICPA standards, which require the independent auditor to
perform procedures designed to identify additional information about SBC/Ameritech's
compliance after the end of the relevant calendar year but before the submission of the final
report.  In addition, we expect that the requirement for SBC/Ameritech to notify the
independent auditor and the Commission of its on-going progress, as well as the other public
disclosure requirements and the corporate compliance program, will ensure prompt and complete
notification of potential problem areas.  Furthermore, with respect to concerns regarding the
timing of the independent audit of the advanced services affiliate provisions, we note that under
the conditions the implementation schedule is accelerated if the merger closing date occurs late in
the calendar year.  Finally, the conditions establish a mechanism by which the Commission can
evaluate the effectiveness of the audit program and determine the need for any modifications or
improvements.

   30.    Enforcement.  We have carefully evaluated the conditions to ensure that the
Applicants have not proposed mere paper promises.  We find that the corporate compliance
program, independent audit, public disclosure requirements, and specificity of the conditions will
ensure that these conditions produce meaningful and effective change.  Despite some objection
from commenters, we find that that the conditions contain clear and specific language defining
SBC/Ameritech's obligations, which will greatly facilitate compliance and enforcement efforts that
may arise.  The conditions also specify deadlines and implementation schedules for several of
SBC/Ameritech's obligations.  We recognize that our experience administering these conditions
over time may reveal overlooked ambiguities.  As with all of the Commission's regulations, we
have the authority to interpret these conditions.  We plan to interpret any ambiguity in manner
consistent with the underlying intent of the conditions and in accordance with our normal
processes and procedures.

   31.    Several commenters urge the Commission to require satisfaction of all or most of
the conditions prior to consummation of the merger.  Claiming that the merger is a reaction to
current industry trends, the Applicants respond that further delay would drain the companies'
business operations and impede strategic and day-to-day decision-making.  We have balanced
these considerations and find that the conditions contain specific, concrete requirements which
will facilitate post-merger enforcement.  The conditions also require completion of certain tasks
prior to consummation of the merger, which include:  (1) filing a collocation tariff and/or offering
to amend interconnection agreements to reflect standard terms and conditions for collocation; (2)
incorporating separate advanced services affiliates, seeking necessary state certifications and
approvals and negotiating and filing interconnection agreements between SBC/Ameritech
incumbent LECs and their advanced services affiliates; (3) filing an OSS Process Improvement
Plan with the Commission; and (4) engaging an independent auditor for the ten-month collocation
audit and the first annual compliance review.  A number of the obligations imposed upon SBC and
Ameritech also take effect within 10 or 30 days of the merger's closing date.  We find that the
pre-merger obligations are adequate to ensure that SBC and Ameritech will have set in motion,
prior to the merger, processes and actions that are necessary to bring the conditions to fruition in
a speedy manner.  Given the comprehensive enforcement mechanisms contained in the conditions,
we also decline to require the merged firm to post a bond to ensure compliance with these
conditions.  

   32.    Sunset.  Some parties object that the three-year expiration of the Applicants'
proposed conditions is inadequate, and suggest that the conditions should remain in place as
long as necessary to serve their intended purpose.  We note that in August the Applicants
clarified their commitments to provide, in general, at least 36 months of benefit for each
condition.  We find that this three-year period of benefit is sufficient for this merger proceeding,
given the rapidly changing telecommunications industry.

   33.    Effect of Conditions.  A common concern expressed by state commissions,
competitors and several other parties is that the Applicants' commitments will set the bar for
other state and federal proceedings, particularly ongoing or anticipated proceedings to implement
sections 251 and 271 of the Act.  This is certainly not our intention; nor should these conditions
have that effect.  As explained above, the conditions that we adopt today are in no way intended
to define what is required under, for example, sections 251 or 271, and SBC/Ameritech's
compliance with these conditions does not signify that it will satisfy its nondiscrimination
obligations under the Act or Commission rules.  We emphasize that the performance measures
that are part of this merger-related conditions package should not be viewed by states, BOCs, or
competitors as sufficient, let alone optimal, measures to demonstrate a BOC's compliance with
section 271 or to satisfy the public interest standard in that context.  Rather, these measures
constitute a package of voluntary commitments proposed by the Applicants to resolve issues and
concerns that are peculiar to this merger.

   34.    Some parties also object to the paragraph in the Applicants' proposal that states
that the expiration of a condition will not be considered in the Commission's public interest
analysis of a section 271 application.  We note that these conditions are stand-alone obligations
adopted as conditions to our approval of SBC/Ameritech's application to transfer licenses and
lines.  Provided that SBC/Ameritech complies fully with the letter and spirit of the conditions, the
expiration of any obligation in accordance with the conditions will not affect other proceedings.

   35.    Section 271 Approval Pre-Merger.  Several commenters in this proceeding,
including the attorneys general of Indiana, Michigan, Missouri and Wisconsin, have suggested that
we require SBC and Ameritech to obtain authorization to provide in-region, interLATA services
in at least a majority of each company's in-region states prior to consummation of the merger. 
According to these commenters, the section 271 approval process assures the Commission that
SBC and Ameritech have sufficiently opened their local markets to competition.  Requiring
section 271 authorization pre-merger, these commenters claim, would have the benefit of being
directly responsive to the competitive conditions that underlie the harms, while providing strong
incentive for the companies to complete their market-opening obligations imposed under the 1996
Act, and avoiding enforcement problems created by prior post-merger conditions.  The
commenters also note that the Applicants, themselves, consider section 271 approval as a
necessary prerequisite for success of their National-Local Strategy.  

   36.    Although imposing such a condition may provide the Commission with assurance
regarding the openness of the Applicants' markets, we do not consider pre-merger section 271
approval to be the only means at the Commission's disposal in this merger proceeding to achieve
a level of confidence that the Applicants have opened their market sufficiently and that the
proposed transaction will advance the public interest.  In the instant proceeding, we find that the
Applicants have voluntarily submitted a set of conditions that suffice to demonstrate that the
merger, on balance, will serve the public interest.  We therefore decline to impose a pre-merger
section 271 approval condition in this proceeding.  Similarly, we reject the suggestion of some
parties that we require SBC and Ameritech to demonstrate pursuant to section 271 that effective
competition exists throughout its entire region, rather than in the state for which the company
applied for section 271 authorization.

   37.    Level 3 Structural Split.  We also reject Level 3's request that we condition the
merger on "planning" for loop divestiture, or a structural solution that isolates the BOCs from
control of the local loops.  We find that the conditions contain adequate safeguards, such as
requiring a separate affiliate for the provision of advanced services, that mitigate
SBC/Ameritech's increased incentive and ability to discriminate against rivals as a result of the
merger.  

   38.    Divestiture of Alarm Services.  We discuss in Section VIII.C below the Alarm
Industry Communications Committee's (AICC's) claim that section 275 of the Communications
Act requires Ameritech to divest ownership of its SecurityLink alarm services subsidiary to an
independent, unaffiliated entity prior to the merger.

 1.  Enhanced Extended Links.  We decline to require SBC and Ameritech in this
proceeding to offer enhanced extended links as an UNE.  We find that the legal, technical and
policy implications of deeming enhanced extended links as UNEs are better addressed in the
context of an industry-wide rulemaking.  Moreover, we note that some state commissions have
required incumbent LECs to offer enhanced extended links. 
  
 39.    Other Conditions.  We also reject, as contrary to the 1996 Act, the request
that we require the Applicants to resell voicemail services.  We also find it inappropriate to
require the merged firm to affirmatively urge repeal of state legislative measures that prevent
public power utilities from providing telecommunications services.  To the extent that other
commenters suggest conditions aimed at curbing specific conduct on the part of SBC and/or
Ameritech, such as winback, directory listings and paging practices or compliance with reciprocal
compensation provisions, we find that these concerns are best addressed in the context of
enforcement proceedings.  
                        II.OTHER ISSUES

1                               Wireless Services
                                
          1.   Wireless Service Offerings
                                                               
          
 1.       Various subsidiaries of SBC hold commercial mobile radio service (CMRS) licenses.  PBMS
provides in-region personal communications services (PCS) and SWBW operates both in-region
cellular and PCS franchises.  SBMS provides out-of-region cellular services in Chicago, Boston,
Baltimore/Washington D.C., and upstate New York.  Through its recent acquisition of SNET,
SBC provides cellular, PCS, and paging services in portions of New England.  SBC has also
recently acquired Comcast Cellular Corp., which has cellular operations in the mid-Atlantic region
and in the greater Chicago area. Ameritech operates 42 cellular franchises, serving 3.5 million
customers in markets totaling 20 million residents.  In addition, Ameritech now offers PCS in the
Cleveland and Indianapolis MTAs.  Ameritech also provides paging services to 1.5 million
customers collectively within its five-state wireline territory, Minnesota and Missouri. 

          1.   Relevant Markets
     
     
 1.  Both parties provide mobile voice telephone service over cellular and PCS networks and
two-way mobile data (CDPD) over cellular networks.  Ameritech currently provides cellular,
paging, wireless data and security monitoring services in SBC's region.  Aside from its cellular
operations, SBC's commercial offerings of wireless services in Ameritech's territory are limited to
the resale of paging services.  The Wireless Bureau has previously found that interconnected
mobile voice telephone services, paging/messaging services, and two-way wireless data services
constitute relevant product markets.  Hence, we examine the effects of the merger on the public
interest in mobile voice telephone services, wireless data services, and paging services.  We also
address concerns raised with respect to commercial disputes involving wireless operations
generally.

          1.   Mobile Voice Telephone Services
     
     
 1.  SBC and Ameritech both hold cellular telephone licenses in 14 cellular service areas in the
greater St. Louis and Chicago metropolitan areas.  Thus, the proposed merger implicates the
Commission's cellular cross-interest rule, which generally prohibits an entity from holding a direct
or indirect ownership interest in licensees for channel blocks in overlapping cellular geographic
service areas ("CGSA").  The proposed merger also raises issues under the CMRS spectrum
cap, which generally prohibits a licensee from having an attributable interest in more than 45 MHz
of CMRS licensed spectrum in the same geographic area.  SBC/Ameritech have committed to
divest one of the overlapping systems in each of these 14 Metropolitan Statistical Areas (MSAs)
and Rural Service Areas (RSAs). 

      1.  On May 14, 1999, the Wireless Telecommunications Bureau, by delegated
authority, announced that Ameritech had filed applications seeking Commission consent to
transfer to GTE Consumer Services Inc. (GCSI) control of cellular properties that overlap with
SBC and Comcast properties.  On August 20, 1999, the Bureau granted these applications. 
Consummation of that transaction pursuant to this approval will remedy cellular cross-ownership
and spectrum cap concerns raised by the SBC/Ameritech transaction.  Therefore, we will grant
this application subject to the condition that Ameritech closes its deal with GCSI before or
simultaneous with the closing of the SBC/Ameritech transaction.

      2.  We note that Ameritech's divestiture of assets is also consistent with the DOJ
Consent Decree entered into by Applicants in connection with this proposed merger.  DOJ also
reserved the right to approve the proposed buyer of the divested assets to ensure that the
divestiture would not harm competition by substituting a less robust competitor.  This concern
was also voiced by several parties who feared that Ameritech would attempt to impede
competition by assigning its cellular licenses to one or more parties unable to compete effectively
against the combined SBC/Ameritech.  DOJ has approved Ameritech's divestiture of the
licenses to GCSI and we agree that competition would not likely be harmed in these wireless
markets.  Thus, we find that the commenting parties' concerns have been addressed. 

          1.   Two-way Wireless Data Services
     
     
 1.  We find no basis for concern that the proposed merger will harm competition in the
markets for wireless data services.  First, SBC does not presently offer CDPD in any region where
its cellular network overlaps that of Ameritech, so the proposed merger would not harm existing
competition.  Second, any concerns regarding the loss of potential competition are addressed by
the divestiture of cellular assets as described above.  Finally, no concern was raised by any
commenter.

          1.   Paging Services
     
     
 1.  Some parties contend that we should not grant this application because SBC has failed to
abide by the Commission's interconnection rules.  The Paging and Messaging Alliance of the
Personal Communications Industry Association (PMA) submits that SBC continues to charge
paging providers for SBC-originated traffic and refuses to pay compensation to paging carriers
for terminating SBC-originated calls.  PMA also states that when SBC assumed control of
Pacific Bell, negotiations with Pacific Bell regarding the terms of interconnection came to an
immediate halt.  SBC reports that the issue of interconnection is a "good faith" dispute that is
currently pending before a federal court, before the FCC and before the California PUC.  SBC
believes that the reciprocal compensation provisions of the Act were intended to apply only to
two-way communication.  Except in California, therefore, where a California PUC Order
specifically addresses this issue, SBC does not pay reciprocal compensation for one-way paging. 
This matter is the subject of a separate proceeding at the Commission and need not be resolved in
the context of this license transfer review.  

          1.   Other Competitive Issues
     
     
 1.  Several parties claim that we should not grant these applications because of pending
disputes with SBC.  We find, however, that none of these commenters has raised concerns that
would preclude our grant of this application.  Several commenters allege that SBC's acquisition
of Ameritech may jeopardize the ability of AirTouch to provide "calling party pays" service. 
However, the California PUC recently denied a petition by
AirTouch to compel Pacific Bell to provide billing and collection
for a CPP trial based on Pacific Bell's tariff for billing and
collection of wireless services.  The denial was based on
language in a prior California PUC decision prohibiting a LEC
from billing its wireline customers at wireless rates for calls
placed to wireless phones.  As we previously discussed in our order approving the
SBC/SNET merger, however, we find that this is not an appropriate forum for resolving these
disputes.  

1                               International Issues

     
 1.  Subsidiaries of both SBC and Ameritech are authorized under section 214 of the Act to
provide U.S. international service on an out-of-region basis.  Both SBC and Ameritech also
have ownership interests in carriers that operate on the foreign end of U.S. international routes. 
Some of these interests rise to the level of an "affiliation" within the meaning of section 63.09. 
This application raises the issue whether the public interest would be served by permitting the
merged entity to provide U.S. international service on these affiliated routes and, if so, under what
terms.  We consider first the foreign carrier affiliations of SBC and the issues raised by those
affiliations in this transfer proceeding.  We then consider the affiliations of Ameritech and issues
raised by those affiliations.

          1.   SBC Foreign Carrier Affiliations

     
 1.  As a result of the merger, Ameritech's international carrier subsidiaries would become
newly-affiliated with all of SBC's foreign carrier affiliates.  SBC's foreign carrier affiliates
operate in South Africa (Telkom South Africa Ltd.) and Switzerland (diAx).  Ameritech holds
section 214 authorization to serve each of these foreign points, and the Applicants request that we
authorize a transfer of control of all of Ameritech's international authorizations to SBC.  Our
approval of the Application thus would permit SBC-controlled subsidiaries to serve these
affiliated routes.  This Application raises for our consideration the issue whether the public
interest would be served by permitting SBC to provide U.S. international service between the
United States and South Africa and Switzerland through its acquisition of control of Ameritech's
international section 214 certificates.  If we approve the proposed transfer of control of
Ameritech's authorizations to SBC, we also must inquire whether SBC's affiliates in South Africa
or Switzerland have sufficient market power to warrant classifying the combined entity's U.S.
international carrier subsidiaries as "dominant" U.S. international carriers on either of these
routes.  We conclude that the public interest would be served by transferring control of
Ameritech's international section 214 authorizations to SBC, subject to classification of SBC
subsidiaries as dominant international carriers in their provision of service on the U.S.-South
Africa route.

      1.  The rules and standards adopted in the Commission's Foreign Participation Order
govern our decision whether, and on what terms, to authorize SBC to provide service on routes
where SBC has affiliations with foreign carriers.  In that decision, the Commission adopted an
open entry standard for applicants that request authority to serve a World Trade Organization
(WTO) member country in which the applicants have a foreign carrier-affiliate.  Previously, the
Commission applied the "effective competitive opportunities (ECO)" test to certain applicants that
sought to provide service on routes where an affiliated foreign carrier possessed market power. 
In the Foreign Participation Order, the Commission eliminated the ECO test in favor of a
rebuttable presumption that applications for international section 214 authority from applicants
affiliated with foreign carriers in WTO member countries do not pose concerns that would justify
denial of the application on competition grounds.  The Commission retained the ECO test for
certain applicants that seek to serve non-WTO countries in which the applicant has an affiliation
with a foreign carrier possessing market power.  The Commission also considers other public
interest factors that may weigh in favor of, or against, granting an international section 214
application, including national security, law enforcement, foreign policy and trade concerns.

      2.  Both South Africa and Switzerland are members of the WTO.  Accordingly, we
find that SBC is entitled to a presumption that its foreign carrier affiliations do not raise
competition concerns that would warrant denial of its request to serve the U.S.-South Africa and
U.S.-Switzerland routes through its acquisition of control of Ameritech's international section 214
certificates.  We note that no party has filed comments that address specifically the international
transfer application, and we find no public interest factors that would warrant denying SBC's
request to acquire control of Ameritech's international section 214 authorizations.

      3.  We next examine whether it is necessary to impose our international dominant
carrier safeguards on SBC's international carrier subsidiaries in their provision of service on these
affiliated routes.  Under rules adopted in the Foreign Participation Order, we regulate U.S.
international carriers as dominant on routes where an affiliated foreign carrier has sufficient
market power on the foreign end to affect competition adversely in the U.S. market.  A U.S.
carrier presumptively is classified as non-dominant on an affiliated route if the carrier
demonstrates that the foreign affiliate lacks 50 percent market share in the international transport
and local access markets on the foreign end of the route.  Section 63.18 of the rules requires
SBC, as transferee in this proceeding, to demonstrate that it qualifies for non-dominant
classification on any affiliated route for which it seeks to be regulated as a non-dominant
international carrier.  The Joint Application recognizes that SBC's affiliate in South Africa,
Telkom South Africa Ltd., is the incumbent telecommunications carrier in South Africa, and
unlike the case of its Switzerland affiliate, SBC does not assert that Telkom South Africa lacks
market power.  We therefore amend, effective upon consummation of the proposed merger with
SBC, the international section 214 authorizations held by Ameritech Communications, Inc. (ACI),
File Nos. ITC-96-441 and ITC-97-289, to apply dominant carrier regulation, as specified in
section 63.10 of the rules, to its provision of the authorized services on the U.S.-South Africa
route.

      4.  We note that SBC and Ameritech subsidiaries currently have section 214 authority
to resell the switched services of unaffiliated U.S. international carriers to South Africa and are
classified as non-dominant in their provision of such service.  We find that, upon consummation of
the merger, each of SBC's subsidiaries will warrant continued regulation as non-dominant
providers of switched services to South Africa for so long as each provides such services only
through the resale of unaffiliated U.S.-authorized carriers' switched services.  SBC subsidiaries
are and will be required, however, to file quarterly reports of their switched resale traffic on this
route.     

      5.  We find that SBC has provided sufficient information to demonstrate that its
affiliate in Switzerland lacks market power and that it therefore warrants non-dominant carrier
treatment on the U.S.-Switzerland route.  SBC represents that its affiliate lacks 50 percent market
share in the international transport and local access markets in Switzerland, and there is no
evidence in the record that contradicts this statement or otherwise suggests that SBC's affiliate
has market power.     

          1.   Ameritech Foreign Carrier Affiliations

     
 1.  Ameritech has investment interests in several foreign carriers that rise to the level of an
affiliation under section 63.09 of the rules. Ameritech identifies the following foreign carrier
affiliates: MATAV Rt (Hungary), Tele Danmark A/S (Denmark), Talkline (Germany and the
Netherlands), BEN Netherland B.V. (the Netherlands), and UAB Mobilios Telekomunikacijos or
"Bite" (Lithuania).  In the case of Tele Danmark, Talkline, and Bite, Ameritech's investment
interests constitute controlling interests.

      1.  As a result of the proposed merger, SBC would acquire indirectly Ameritech's
ownership interests in MATAV, Tele Danmark, Talkline, BEN Netherlands and Bite.  The
controlling interests that SBC would acquire in Tele Danmark, Talkline, and Bite trigger a pre-
merger notification requirement under section 63.11(a) of the rules.  This provision requires, in
relevant part, that authorized carriers notify the Commission sixty days prior to acquiring, directly
or indirectly, a controlling interest in a foreign carrier.  As explained in the Foreign
Participation Order, the prior notification requirement of section 63.11 gives the Commission the
opportunity to evaluate new affiliations under the entry standards adopted in that order.  

      2.  In this case, section 63.11(a) directs us to determine whether, upon consummation
of the proposed merger, it would continue to serve the public interest to allow SBC's carrier-
subsidiaries to serve Denmark, Germany, the Netherlands and Lithuania, where SBC proposes to
acquire controlling interests in foreign carriers as a result of its merger with Ameritech.  Applying
the entry standard of the Foreign Participation Order, we conclude that the public interest would
continue to be served by SBC's provision of service, through all its authorized subsidiaries, on
U.S. international routes to Denmark, Germany and the Netherlands.  Each of these countries is a
member of the WTO, and we find no other public interest factors that would warrant a
different conclusion.  SBC does not assert, however, that Tele Danmark lacks sufficient market
power in Denmark to affect competition adversely in the United States.  We therefore amend,
effective upon consummation of the proposed merger with Ameritech, the international section
214 authorizations held by certain of SBC's currently authorized subsidiaries to apply dominant
carrier regulation, as specified in section 63.10 of the rules, to their provision of the service on the
U.S.-Denmark route.  We note that ACI already is classified as a dominant carrier in its
provision of service on this route. 

      3.  We find that, after the merger, SBC subsidiaries would be subject to continued
regulation as non-dominant carriers to Germany and the Netherlands.  The record indicates that
Talkline currently provides mobile communications services in Germany and resold cellular
service in the Netherlands.  As we have previously found in our 1998 Biennial Regulatory
Review of international common carrier regulations, foreign carriers that operate solely on a
resale basis, or that have only mobile wireless (and no wireline) facilities, are unlikely to raise
market power concerns. 

      4.  Although SBC proposes to acquire Ameritech's controlling interest in Bite in
Lithuania, which is not a member of the WTO, we find that the public interest would continue to
be served by SBC's authorization to provide service on this route.  Bite is authorized in Lithuania
to provide mobile wireless service only.  On this basis, and in the absence of any other evidence
of market power, we conclude that Bite lacks sufficient market power to affect competition
adversely in the United States.  Accordingly, we find that SBC's investment is consistent with
the entry policies adopted in the Foreign Participation Order for carriers from non-WTO
countries.  We also find that, after the merger, SBC subsidiaries would be subject to continued
regulation as non-dominant international carriers between the United States and Lithuania.   

1                               Alarm Monitoring

          1.   Overview

     
 1.  The Alarm Industry Communications Committee (AICC) argues that, if SBC is permitted
to take control of Ameritech's alarm monitoring business, by means of acquiring Ameritech, and
makes it a wholly-owned subsidiary, SBC will be engaging in the provision of alarm monitoring
services in violation of section 275(a)(1) of the Communications Act.  For the reasons
discussed below, we conclude that it is unnecessary to require Ameritech to divest its alarm
monitoring assets as a condition to our approval of its merger with SBC.  This conclusion is based
on our determination that, if SBC and Ameritech were to consummate their planned merger
without Ameritech divesting its alarm monitoring assets and ceasing to provide alarm monitoring
service, the combined entity would not violate the prohibition in section 275(a)(1) against BOCs,
other than those permitted by section 275(a)(2), providing alarm monitoring services for five
years after the date of enactment of the Telecommunications Act of 1996. We therefore reject
AICC's request that we precondition our merger approval on, among other things discussed
below, Ameritech divesting its alarm monitoring assets and ceasing to provide alarm monitoring
services.

 1.  The 1996 Act provides for delayed entry by BOCs into the alarm monitoring
business until five years after the date of enactment.  Specifically, section 275(a)(1) states: "[n]o
Bell operating company or affiliate thereof shall engage in the provision of alarm monitoring
services before the date which is 5 years after the date of enactment of the Telecommunications
Act of 1996."  Section 275 provides a grandfathering clause, however, allowing BOCs that
were providing alarm monitoring service as of November 30, 1995, to continue doing so. 
Specifically, section 275(a)(2) states: "[p]aragraph (1) does not prohibit or limit the provision,
directly or through an affiliate, of alarm monitoring services by a Bell operating company that was
engaged in providing alarm monitoring services as of November 30, 1995, directly or through an
affiliate." Section 275(a)(2) also states: 
          
          [s]uch Bell operating company or affiliate may not acquire any equity interest in, or
          obtain financial control of, any unaffiliated alarm monitoring service entity after
          November 30, 1995, and until 5 years after the date of enactment of the
          Telecommunications Act of 1996, except that this sentence shall not prohibit an
          exchange of customers for the customers of an unaffiliated alarm monitoring
          service entity.
          
      2.  We note that the restriction in section 275(a)(1) applies to a BOC (such as the
SBC BOCs or Ameritech BOCs) or BOC affiliate.  The grandfathering exception in section
275(a)(2) also applies to a BOC or BOC affiliate.  The alarm monitoring services at issue are
provided by SecurityLink.  SecurityLink currently is an affiliate of the five grandfathered
Ameritech BOCs.  After the merger, SecurityLink will also be an affiliate of the non-
grandfathered SBC BOCs.  For purposes of brevity, when we refer to "SBC" or "Ameritech"
providing alarm monitoring services, or being grandfathered or exempt from the restriction
against BOCs providing such services, we will in fact be referring to the SBC BOCs or Ameritech
BOCs, or to SecurityLink as their affiliate.
          
      3.  The Commission has concluded in its rulemaking proceeding implementing section
275 that the scope of section 275(a)(2) is best addressed on a case-by-case basis in which the
Commission is able to consider all of the facts that may apply to a particular transaction.  In
that Order, the Commission found that, because Ameritech is the only BOC that was authorized
to provide alarm monitoring service as of November 30, 1995, it is the only BOC that qualifies for
"grandfathered" treatment under section 275(a)(2).  Ameritech provides intraLATA alarm
monitoring pursuant to an approved CEI plan and interLATA alarm monitoring services
pursuant to a waiver of the Modification of Final Judgement.  The Commission currently has
pending before it several cases in which it has ordered Ameritech to show cause why it should not
be required to divest Ameritech's purchases of unaffiliated providers of alarm monitoring
service.  On August 31, 1999, the Commission released an order denying Ameritech's request
that the Commission forbear from applying section 275(a) of the Act to apply both to alarm
monitoring service transactions already completed and to future transactions by Ameritech.

          1.   Analysis

               a)    "Engaged in the Provision" of Alarm Monitoring Services under
               Section 275(a)(1).

 1.  The first question we must consider is whether, by means of Ameritech being a
wholly-owned subsidiary of SBC that provides alarm monitoring services through its affiliate,
SecurityLink, SBC would be "engage[d] in the provision" of alarm monitoring services within
the meaning of that term under section 275(a)(1).  There is no dispute in the record that, if SBC
acquires Ameritech, SecurityLink would remain a BOC affiliate (affiliated with the SBC BOCs, as
well as the Ameritech BOCs) and would be "engage[d] in the provision of" alarm monitoring
services within the meaning of the term in section 275(a)(1).  SecurityLink would be under
common ownership and control with the SBC BOCs and the Ameritech BOCs.
 
               a)   "Grandfathering" under Section 275(a)(2).

 1.  Introduction.  Given that the SBC BOCs would indeed be "engage[d] in the
provision of" alarm monitoring services under section 275(a)(1) through SBC's newly acquired
affiliate, SecurityLink, we now consider whether SBC, by means of acquiring Ameritech, along
with the Ameritech BOCs and their alarm monitoring subsidiary, also acquires Ameritech's
grandfathered status under section 275(a)(2) such that the SBC BOCs would not be unlawfully
"engag[ing] in the provision of" alarm monitoring services under section 275(a)(1).

 2.  We note that the varying interpretations in the record, described below, of whether
a grandfathered BOC loses its exemption under section 275(a)(2) if the exempt entity is acquired
by a non-grandfathered BOC demonstrates the need for Commission statutory interpretation.  For
example, AICC asserts that if SBC acquires Ameritech along with its SecurityLink alarm
monitoring subsidiary, Ameritech's exemption under section 275(a)(2) to provide services
through SecurityLink does not pass to SBC.  Rather, according to AICC, once control of
Ameritech passes to SBC, Ameritech "effectively loses its grandfathered status."  Applicants
respond that the opposite is true because, under Applicants' reading of that statute,  "'control'
simply is not a statutory condition for qualifying under section 275(a)(2)   a Bell operating
company or its affiliate was either providing alarm monitoring services in 1995 or not." 
Applicants argue that because section 275(a)(2) creates a "permanent" exception for a BOC, like
the Ameritech BOCs, that provided alarm monitoring services as of November 30, 1995, and
because after the merger Ameritech, its operating companies, and SecurityLink all will continue to
exist, the exemption under section 275(a)(2) "will continue to apply by its plain language." 
Applicants further argue that because SBC, once it acquires Ameritech, will become a "successor
or assign" to Ameritech under section 153(4), it will be "a successor to Ameritech's interests,"
including its grandfathering rights to own SecurityLink.  There is no dispute that Ameritech is
entitled to its exempt status.  For the reasons discussed below, we conclude that Ameritech does
not lose its grandfathered status merely because of its acquisition by a BOC to whom the
grandfathering exemption in section 275(a)(2) does not apply.

 3.  Statutory Analysis.  Section 275 is silent on the issue of whether, when an alarm
monitoring entity that is affiliated with a grandfathered BOC also becomes affiliated with a non-
grandfathered BOC, the exempt status of the grandfathered BOC transfers to the non-
grandfathered BOC.  The legislative history does not provide illumination on the matter.  We
must, therefore, examine the statutory purpose and structure of section 275 to give meaning to
the scope of the restriction and exception thereto.  Using the traditional tools of statutory
construction, we look to the purpose of the Act, and section 275 in particular, to devise a
reasonable interpretation of the applicability of the exemption in section 275(a)(2).

 4.  Although the legislative history does not speak to the applicability of
grandfathering rights in section 275(a)(2) to the situation at hand, the legislative history does
indeed shed some light on Congress' concern in deciding to impose a 5-year moratorium on BOC
provision of alarm monitoring services, and on Congress' general purpose in grandfathering
existing BOC provision of alarm monitoring services.

 5.  Congress, in enacting section 275, appeared concerned about ensuring a "level
playing field" between the BOCs and the alarm monitoring industry.  The Judiciary Committee
Report on the Antitrust Consent Decree Reform Act of 1995 would have allowed a BOC to apply
with the Department of Justice to provide alarm monitoring services 3 years after the date of
enactment.  It included an exception, however, "'grandfathering' any alarm monitoring services
being provided by a Bell operating company on or before the date of enactment."  In reasoning
about the need for grandfathering, the Report stated: "[I]t is the intent of this Committee that any
such company be permitted to manage and conduct their alarm monitoring services as would any
other industry participant, without arbitrary restrictions on customer acquisition or growth of the
business."  It appears that Congress created this exception ultimately adopted in section
275(a)(2) in order not to burden companies currently providing alarm monitoring services by
requiring them to sell that business.
          
 6.  We must construe the exception in a way that does not void it of any meaning. 
Engaging in this construction, we conclude that section 275(a)(2) is most reasonably interpreted
not to require BOCs, such as the Ameritech BOCs, that were providing alarm monitoring services
as of November 30, 1995 (and that are, therefore, explicitly permitted to continue providing such
services) to sell their alarm monitoring affiliate and cease providing these services merely because
that alarm monitoring affiliate also has become affiliated with non-exempt BOCs, such as the SBC
BOCs.  As Applicants point out, after the merger, Ameritech, notwithstanding that it will be a
subsidiary of SBC, will continue to exist and the relationship among Ameritech, its BOCs, and
SecurityLink will not change.

 7.  For the grandfathering provision in section 275(a)(2) to have any significance,
Congress must have intended for the exemption in section 275(a)(2) to be a "permanent" one, as
Applicants assert it is.  We note that the Michigan Consumer Federation supports a
requirement that Ameritech divest its alarm monitoring assets prior to merging with SBC, arguing
that the nature of the grandfather provision is like a "snapshot," i.e., we should only consider
whether SBC was providing alarm monitoring services as of November 30, 1995.  We believe,
however, that a decision not to require Ameritech to divest its exempt alarm monitoring assets
would preserve the "snapshot" nature of the section 275(a)(2) exemption as far as Ameritech is
concerned.  Forcing Ameritech to divest its alarm monitoring affiliate would effectively terminate
the exemption for Ameritech.

 8.  As noted above, it appears that Congress created the exception in section
275(a)(2) in order not to burden companies providing alarm monitoring services by requiring
them to sell their business.  A requirement that Ameritech divest its alarm monitoring assets now
would do just this.  There would be no less of a burden now than Congress envisioned there
would have been at the time it enacted the 1996 Act.  Indeed, the burden may even be greater
now, given that, in all likelihood, selling the business now would mean the loss of more customers
than it would have three years ago.

 9.  Such an understanding of Congressional intent is supported by principles of
statutory construction.  In the instant case there is a potential conflict between sections 275(a)(1)
and (a)(2) which we must resolve.  Currently, SecurityLink is providing alarm monitoring services
as an affiliate of  the grandfathered Ameritech BOCs.  After the merger, Security Link will also be
an affiliate of the non-grandfathered SBC BOCs.  Therefore, after the merger, SecurityLink will
be providing alarm monitoring services both as an affiliate of BOCs subject to the section
275(a)(2) exemption from the general prohibition against BOCs or their affiliates providing alarm
monitoring services and as an affiliate of BOCs subject to the general prohibition in section
275(a)(1).  Because neither the statute nor the legislative history sheds light on how this apparent
conflict might be resolved, we must resolve the conflict in a way that makes sense of the statute as
a whole.  For the reasons discussed below, we determine that, as a matter of statutory
construction, the more specific exemption in section 275(a)(2) should prevail over the more
general prohibition in section 275(a)(1).  We believe this outcome is consistent with Congress'
apparent intent not to burden BOCs currently engaged in the provision of alarm monitoring
services by forcing them to sell their business.

 10. The ultimate issue in assessing AICC's and Applicants' competing interpretations
of section 275 is whether the rule in section 275(a)(1) or the exception in section 275(a)(2) is the
more specific and, therefore, the controlling provision.  As the Supreme Court stated in Morales
v. Transworld Airlines, "it is a commonplace of statutory construction that the specific governs
the general."  In interpreting this canon, the Supreme Court more recently has stated: "[t] his
Court has understood the present canon ('the specific governs the general') as a warning against
applying a general provision when doing so would undermine limitations created by a more
specific provision."  We agree with Applicants that section 275(a)(2) is the more specific and
hence controlling provision.  An exception necessarily is more specific than the general rule to
which it applies.  Section 275(a)(2) is plainly an exception: it provides that "[p]aragraph (1)
does not prohibit or limit the provision, directly or through an affiliate, of alarm monitoring
services by a [grandfathered] Bell operating company."  In addition, the proximity of sections
275(a)(1) and (a)(2) in the statute further support application of the rule that the more specific
governs the general.  We see no compelling reason to conclude that, in these circumstances,
the general rule is more specific than the exception.
 
 11. AICC argues that "acceptance of SBC and Ameritech's 'successor or assign'
argument would significantly expand the grandfathering provision of Section 275(a)(2)." 
Applicants respond by pointing out that section 275 does not impose size limitations on alarm
monitoring entities or on the geographic area in which a grandfathered BOC or BOC affiliate may
provide alarm monitoring services.  In this regard, nothing in section 275's language suggests
that Congress was concerned about in-region discrimination by the BOC controlling the
bottleneck over the last mile:  the general prohibition in section (a)(1) prohibits ownership of
alarm monitoring services out-of-region as well as in-region, and the exception in section (a)(2)
applies to in-region as well as out-of-region.  In addition, as evidenced by section 271, Congress
knew how to draft language to prevent BOCs from providing new in-region services, such as long
distance, but did not follow this pattern in drafting section 275.  Congress may have chosen to
exclude most BOCs from the provision of alarm monitoring out of more general competitive
concerns.  As noted above, Congress, in enacting section 275, appeared concerned about ensuring
a "level playing field" between the BOCs and the alarm monitoring industry.  Adopting
Applicants' interpretation of section 275 would not seem to undermine this purpose or indeed to
affect the competitive balance at all.  No more of the alarm monitoring industry would be
affiliated with the BOCs than before.

 12. It is under the rubric of specific statutory language trumping general statutory
language that we address AICC's comparison of the instant situation with that in the Bell
Atlantic/GTE merger.  AICC argues that one reason we must require Ameritech to divest its
alarm monitoring assets if it merges with SBC is to be consistent with the in-region interLATA
issue in the pending Bell Atlantic/GTE license transfer application.  AICC argues that the
issues are similar because in both there is a transfer of obligations when an acquiring entity
becomes a successor or assign of the acquired entity.  AICC points out that Bell Atlantic and
GTE recognize that GTE's freedom from restrictions on providing interLATA services does not
extend to Bell Atlantic merely because Bell Atlantic would be acquiring GTE.  If Bell Atlantic
acquires GTE, Bell Atlantic would not succeed to GTE's interLATA authority, and Bell
Atlantic's statutory restriction on entering the in-region interLATA market would govern the
resulting combination.  In AICC's view, just as GTE's freedom from in-region interLATA
restrictions would not transfer to Bell Atlantic, and, therefore prevail over the restriction in
section 271, the Ameritech BOCs' section 275(a)(2) grandfathered rights should not transfer to
the SBC BOCs, and prevail over the restriction in section 275(a)(1).  We disagree with AICC. 
Unlike section 275(a)(2) for alarm monitoring services, there is no specific exception in section
271 that trumps the general prohibition against BOCs providing in-region interLATA services. 
Therefore, the rule of statutory construction addressing specific and general language in a statute
does not even come into play in the Bell Atlantic/GTE scenario. 

 13. We reject AICC's argument that, in effect, the Commission already has determined
that the rule of section 275(a)(1) is the more specific provision that takes precedence over the
exception in section 275(a)(2).  In support of this contention, AICC cites the Commission's
statement that "[s]ection 275(a)(2)  has no applicability to non-grandfathered BOCs."  Read
in context, however, this statement does not support AICC's contention.  The cited sentence
concludes a discussion of what constitutes being "engage[d] in the provision of" alarm monitoring
services for purposes of section 275(a)(1).  In this context, the cited sentence indicates that
section 275(a)(2)'s limitation on the steps that a grandfathered BOC may take to expand its
business "has no applicability" in determining what constitutes "engag[ing] in provision of" alarm
monitoring services under section 275(a)(1)'s prohibition.  This portion of the Order has no
bearing on whether section 275(a)(2) may otherwise be considered in determining whether a BOC
is subject to the general prohibition on engaging in alarm monitoring or falls within the exception
in section 275(a)(2).

          1.        AICC Motion on Smith Alarm 

     
 1.  We note that AICC also filed a motion requesting that the Commission require Ameritech
and SBC to submit to the Commission, and to make available to others pursuant to the protective
order in this proceeding, all documents relating to their relationship with Smith Alarm Systems,
Inc. (Smith Alarm), an unaffiliated, privately-held alarm monitoring service provider based in
Dallas, TX, that, according to AICC is the 15th largest provider of alarm monitoring services, with
annual revenues exceeding $32 million.  AICC asserts that it:

          is concerned by published reports and recent statements by Ameritech executives
          which confirm that: Ameritech has paid a reported $6 million for an option to
          purchase Smith Alarm in March 2001, at a price which already has been
          negotiated; and Ameritech has agreed to bankroll Smith Alarm in pursuing
          additional alarm monitoring acquisitions.  

AICC also asserts that it "believes that Smith Alarm has an explicit or implicit agreement to
purchase any assets that Ameritech is required to divest as a result of FCC orders   assets which,
as a result of Ameritech's option to purchase Smith Alarm, would soon return to Ameritech." 
AICC is concerned that, given these arrangements, even if the Commission were to require
Ameritech to divest its alarm monitoring assets as a precondition to approval of the
SBC/Ameritech merger, any divestiture would be a sham.  AICC also argues that, in addition,
"Ameritech's option/lending arrangement [with Smith Alarm] is itself a violation of Section 275 . .
. by giving Ameritech 'financial control' over an unaffiliated alarm monitoring service entity."

      1.  Applicants, in addition to responding that AICC's allegations are incorrect, also
argue that Ameritech's business relationship with Smith Alarm is not relevant to this merger
proceeding.  First, Applicants assert that Ameritech has not entered into a loan agreement with
Smith Alarm, and that the article to which AICC refers does not state as much.  Applicants
also deny that Smith has agreed to purchase any assets which Ameritech is ordered to divest. 
Ameritech further argues that, consistent with previous Commission determinations, a merger
proceeding is not the proper forum to address issues such as these which are related to effective
enforcement of section 275.  In support of their proposition, Applicants cite to, among other
things, the MCI WorldCom Order.  Applicants assert that "even when an argument may 'raise
[]serious concerns,' the Commission has refused 'to delay consummation of [a] merger in order to
resolve them.'"

      2.  We need not, and cannot on this record, reach a conclusion on the merits of
AICC's concern about Ameritech's involvement with Smith Alarm.  We agree with Applicants
that issues such as these are not appropriate for resolution in the context of a merger proceeding. 
We note that, for purposes of this merger proceeding, the result is the same   issues such as those
relating to Ameritech's ties to Smith Alarm, or any other alarm monitoring entity, are better
addressed in a separate proceeding, with a full record developed on the relationship with a
particular alarm monitoring entity.  As a result, therefore, we will state the obvious   that we
expect, once SBC and Ameritech merge, that the combined entity will abide by the
Communications Act, including section 275, and all Commission rules.

1                               Cable Overbuild Issues

     
 1.  A few commenters express concern that SBC may discontinue Ameritech's cable
overbuilds operated by Ameritech New Media (ANM), thereby reducing competition in the video
services market after the merger.  Sprint also asserts that the proposed transfer is unlawful
under section 652 of the Communications Act.  We address these issues below. 

      1.  Cable Overbuilds.  Sprint notes that SBC has not addressed its plans with respect
to Ameritech's significant in-region cable overbuilds.  Sprint and others cite SBC's
discontinuance of cable operations in the past as cause for concern that SBC will cease ANM's
cable overbuilds in the Midwest.  SBC responds that the merger will merely change the
ultimate corporate parent of ANM from Ameritech to SBC, and will not affect the obligations of
ANM to manage and operate its cable systems.  Further, SBC states that it has made no plans
regarding changes to ANM or its operations, and that it intends to evaluate ANM's ongoing
performance once detailed post-merger planning can occur.

      2.  We conclude that the possible discontinuance of ANM's cable overbuilds does not
raise issues cognizable under the antitrust laws or the Commission's public interest standards
under sections 214(a) and 310(d).  Further, speculation about a possible future decision by
SBC to exit the cable business is not triggered by the structure of any ownership changes that will
occur because of the transfer.  Rather, the issue arises solely based on historical evidence that
SBC may have different business plans than Ameritech.  We decline to extend our public interest
analysis to dictate the merged entity's cable business strategy. 

      3.   Section 652.  Sprint contends that section 652 bars SBC from acquiring, as part of
the merger, any cable systems operated by Ameritech because SBC's telephone service area will
include Ameritech's telephone service area after the merger.  Section 652 of the
Communications Act, entitled "Prohibition on Buy Outs," was enacted as part of the 1996
Act.  Section 652(a) states that no "local exchange carrier or any affiliate of such carrier
owned by, operated by, controlled by, or under common control with such carrier may purchase
or otherwise acquire directly or indirectly more than a 10 percent financial interest, or any
management interest, in any cable operator providing cable service within the local exchange
carrier's telephone service area."   Section 652(b) places a corresponding prohibition on cable
operators. 

      4.  We conclude that section 652 is not applicable to the proposed transaction.
Ameritech, as an incumbent LEC, has begun overbuilding incumbent cable operators in its
telephone service region.  SBC, as the acquiring incumbent LEC, would not be acquiring the local
cable operator in these areas, but simply would stand in Ameritech's shoes as an incumbent LEC
offering competing service.  Congress was not opposed to the provision of cable service by a
LEC, Congress simply did not want that provision of service to occur by the acquisition of the
local cable operator.  If a LEC chooses to provide video programming on its own, the LEC is
not prohibited.  Likewise, a LEC is not prohibited from choosing to construct a new system to
provide programming or services, even with the local cable operator.  Ameritech has built its
own cable systems.  The merged entity will continue to own those same cable systems. SBC
acquires Ameritech's cable overbuilds as part of the very same transaction in which SBC's
telephone service area expands to include Ameritech's local exchange carrier operations. 
Accordingly, SBC is not making any purchase or acquisition of a cable operator that would
constitute a prohibited buyout under section 652. 

1                               Service Quality Issues
     
     
 1.  A number of commenters raise concerns regarding potential
service quality problems resulting from the merger.  These
parties generally argue that service quality data and anecdotal
evidence regarding Pacific Bell's performance in California
demonstrate that mergers among large incumbent LECs adversely
affect the public interest by hampering the delivery of service
to consumers.  SBC objects to these arguments, and provides a variety of information to
demonstrate that its earlier merger with PacTel resulted in improved service quality.

      1.  As a general matter, service quality information
consists of data regarding the provisioning of telecommunications
services, the maintenance and repair of telecommunications
equipment and facilities, the frequency of various types of
network trouble, trunk blockage, switch outages, and the
performance of the local loop.  The Commission has
traditionally relied on monitoring the quality of
telecommunications service to ensure that consumers enjoy high
quality, rapid communications.  Through the annual Automated
Reporting Management Information System ("ARMIS") filing
requirements, price cap incumbent LECs submit data depicting the
quality of service provided to their customers.  In addition
to the ARMIS reporting requirements, carriers report to the
Commission information about the frequency and scope of network
outages.  Commenters point to formal and informal complaint
rates to support their claims that PacTel's service deteriorated
after its merger with SBC.  SBC and Pacific Bell's ARMIS data
suggest that there were some service quality problems in the
PacTel regions following the SBC/PacTel merger.  For example,
Pacific Bell reported an average repair time of 38.8 hours for
1997, which is below its premerger performance of 29.3 hours, and
its 1998 ARMIS submissions showed continued problems with repair
time.  In February 1999, SBC submitted additional information
on the record, some of which further corroborated the service
quality concerns, and some of which showed improvement. 

      2.  We reject claims that we should prohibit these license
transfers because of speculation that service quality in the
Ameritech region will deteriorate as a result of the merger. 
Evidence in the record reveals that SBC has increased its
commitments to improving service quality by hiring more
employees, investing in infrastructure, and adopting enhanced
operating practices.  We conclude that these commitments and
the further commitments proffered by SBC and Ameritech in
supplementing the instant application sufficiently mitigate the
service quality concerns raised in the record.  The commitments
proffered by SBC and Ameritech include several measures designed
to prevent potential service quality degradation after the
merger.  Moreover, we anticipate that the quarterly reporting
requirements, which are based on recommendations from the states,
will provide the Commission, state public service commissions,
and the public with key service quality data in a timely manner. 
In this way, we expect that these conditions will assist the
states in promoting a high quality telecommunications service by
providing uniform information.  Further, providing the service
quality data will assist the Commission in taking appropriate
action in the event we find that service quality suffers after
the merger. 

1                               Public Interest Issues Involving SBC's
Acquisition of the Ameritech Licenses and Lines 
     
     
 1.  Section 310(d) of the Communications Act provides that no station license may be
transferred, assigned, or disposed of in any manner except upon a finding by the Commission that
the "public interest, convenience and necessity will be served thereby."  Among the factors that
the Commission considers in its public interest inquiry is whether the applicant for a license has
the requisite "citizenship, character, financial, technical, and other qualifications."  The
Commission has previously determined that, in deciding character issues, it will consider certain
forms of adjudicated, non-FCC related misconduct that includes: (1) felony convictions; (2)
fraudulent misrepresentations to governmental units; and (3) violations of antitrust or other laws
protecting competition.  With respect to FCC-related conduct, the Commission has stated that
it would treat any violation of any provision of the Act, or of the Commission's rules or polices, as
predictive of an applicant's future truthfulness and reliability and, thus, as having a bearing on an
applicant's character qualifications.  In prior incumbent LEC merger orders, the Commission
has used the Commission's character policy in the broadcast area as guidance in resolving similar
questions in transfer of licenses proceedings.  

      1.  A number of commenters maintain that SBC has a history of vigorously resisting
competition in its existing monopoly markets.  These commenters assert that approval of the
merger will enable SBC to expand the reach of this corporate culture to the five-state Ameritech
region.  Other commenters maintain that SBC has engaged in "endless litigation and frivolous
appeals" designed to delay state regulatory commission decisions.  The record is replete with
specific examples cited by commenters alleging anti-competitive conduct by SBC.  For
example, 800 Resale Carriers maintains that, in violation of the Commission's 800 Readyline
Orders, and sections 69.105 and 69.205 of the Commission's rules, SBC has refused to rebate
overcharges imposed upon hundreds of resellers of 800 service dating back to 1986 and
amounting to hundreds of millions of dollars.  Further, the Paging and Messaging Alliance of
PCIA states that, in violation of specific provisions of the Act, and the Commission's rules, SBC
continues to charge CMRS carriers who provide paging services for SBC-originated traffic, and
refuses to pay compensation to paging carriers for terminating calls originated by SBC. 

      2.  SBC responds that many of the allegations cited in the record concern matters that
are already being addressed by this Commission, a state regulatory agency, and/or a federal
court.  For example, allegations that: (1) Pacific Bell refuses to make available to paging
companies interconnection terms and conditions that it has offered to others; (2) SBC fails to
pay reciprocal compensation to Internet service providers and paging providers; (3) SBC's
performance measures are inadequate; (4) Pacific Bell refuses to provide the billing and
collection services necessary to implement CPP; and (5) SBC has used intellectual property
claims to deny new entrants access to network elements, concern subjects that are currently
being considered in other proceedings. 

      3.  We conclude that none of the foregoing allegations provides a basis for finding
that applicants lack the fitness to acquire licenses and authorizations currently held by Ameritech. 
The Commission has previously stated that typically it will not consider in merger proceedings
"matters that are the subject of other proceedings before the Commission because the public
interest would be better served by addressing the matter in the broader proceeding of general
applicability."  Although it may be true that certain conduct by Applicants had the effect of
delaying and minimizing the emergence of competition in their respective local markets, none of
these acts were found to be a violation of any law.  Thus, we decline to consider them as part of
our analysis of SBC's fitness to acquire licenses and authorizations currently held by Ameritech. 
We emphasize that, in reaching this conclusion, we are in no way condoning actions by an
incumbent LEC that have the potential to impede the 1996 Act's goal of facilitating competition in
all telecommunications markets.  Indeed, as noted below, without SBC's voluntary commitments
aimed at opening its local markets to competition, the public interest benefits of the proposed
merger would not outweigh the significant public interest harms.  We believe that SBC and
Ameritech's commitments on issues such as collocation, OSS enhancements, shared transport,
and offering of UNEs, and performance measurements, should facilitate the development of
competition in the combined SBC/Ameritech region.  

      4.  Moreover, we also note that many allegations concerning SBC's conduct have
been specifically rebutted by evidence proffered by Applicants.  For example, SBC points out that
the district court granted summary judgment in favor of SBC on AT&T's claim that SBC
improperly influenced Ernst & Young to withdraw from providing consulting services for
AT&T. 

      5.  On the basis of the foregoing, there is no basis for concluding SBC's or
Ameritech's behavior to date precludes our finding that the proposed license and lines transfers
serve the public interest.                                            
                              
1                               Requests for Evidentiary Hearing

     
 1.  Several commenters in this proceeding request that the Commission designate the
proposed merger, or specific issues raised by the merger, for a trial-type evidentiary hearing
before an administrative law judge to determine whether approval of the transfer of control
request resulting from the proposed merger would serve the public interest.

      1.  Under the Communications Act, the Commission is required to hold an evidentiary
hearing on transfer of control applications in certain circumstances. Parties challenging an
application to transfer control by means of a petition to deny under section 309(d) must satisfy a
two-step test.  First, the petition to deny must set forth 'specific allegations of fact sufficient to
show that . . . a grant of the application would be prima facie inconsistent with [the public
interest];'.  Second, the petition must present a 'substantial and material question of fact.'   
If the Commission concludes that the protesting party has met both prongs of the test, or if it
cannot, for any reason, find that grant of the application would be consistent with the public
interest, the Commission must formally designate the application for a hearing in accordance with
section 309(e). 

      2.  To satisfy the first prong of the test, a petitioning party must set forth allegations,
supported by affidavit, that constitute "specific evidentiary facts, not ultimate conclusionary facts
or mere general allegations . . .."  The Commission determines whether a petitioner has met
this threshold inquiry in a manner similar to a trial judge's consideration of a motion for directed
verdict:  "if all the supporting facts alleged in the affidavits were true, could a reasonable fact
finder conclude that the ultimate fact in dispute had been established."

      3.  If the Commission determines that a petitioner has satisfied the threshold standard
of alleging a prima facie inconsistency with the public interest, it must then proceed to the second
phase of the inquiry and determine whether, "on the basis of the application, the pleadings filed, or
other matters which [the Commission] may officially notice," the petitioner has presented a
"substantial and material question of fact."  If the Commission concludes that the "totality of
the evidence arouses a sufficient doubt" as to whether grant of the application would serve the
public interest, the Commission must designate the application for hearing pursuant to section
309(e).

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

                     1.  As an initial matter, we note that some parties seeking an
evidentiary hearing in this merger proceeding did not satisfy the procedural requirements of
section 309(d)(1).  First, several commenters included their requests for evidentiary hearings in
general comments regarding the Application, not in a petition to deny, as section 309(d)(1)
requires. We further note that although JSM Telepage, Inc., Paging & Messaging Alliance, and
Time Warner Telecom Corporation have properly filed petitions to deny, these parties failed to
support any allegations by affidavits.  Finally, some parties have met the procedural requirements
of 
                309(d)(1) including 800 Resellers Carrier, AT&T, Sprint, and the Texas
Office of Public Utility Counsel.  We note, however, that a number of issues raised in the record
do not reflect disputes over material facts, but rather focus on issues concerning competitive
impact of the merger and the public interest.  These types of issues "manifestly do not" require a
live hearing. 

      4.  We conclude that none of the requests for evidentiary hearing has raised a
substantial and material question of fact that would require an evidentiary hearing.  The parties
dispute the overall competitive impact of the merger and the ultimate public interest determination
which, according to the D.C. Circuit, are claims that "manifestly do not" require a hearing. 
Certain parties have requested evidentiary hearings to evaluate the Applicants' intra-corporate
motives, particularly with respect to Ameritech's plans to enter the St. Louis market. 
CoreComm, for example, argues that the Commission "is not bound by the applicants' self-
serving statements with respect to their pre-merger competitive plans, but must inspect internal
documents and subject the applicants to discovery and cross-examination."  Hyperion argues
that "the decision whether the acquiring firm is an actual potential competitor is, in the last
analysis, an independent one to be made by the trial court [or the FCC in this case] on the basis of
all relevant evidence properly weighed according to its credibility."  To the extent that these
requests are grounded in inferences and conclusions to be drawn from Ameritech's plans to enter
the St. Louis market, rather than in concrete facts regarding such entry, we note that this is the
ultimate task that is before the Commission in making its public interest determination.  The
Commission extensively investigated the documentary evidence regarding Ameritech's plans to
enter the St. Louis market, and made inferences therefrom, in making its determination on the
merger's potential public interest harms.  Mere assertions from the commenters of corporate
motives, without specific factual allegations, cannot require the grant of a petitioner's request for
an evidentiary hearing.

      5.  We conclude that, even where parties rely on conflicting allegations regarding
Ameritech's planned entry into St. Louis, these matters concern the competitive impact of the
merger and are not, as asserted, substantial and material questions of fact.  Accordingly, we find
that no party has satisfied the two-step test set forth in section 309(d), both procedurally and
substantively.  The voluminous record before us in this proceeding, including the numerous
comments and ex parte filings we have received, and the public forums we have conducted, has
provided sufficient evidence to conclude no substantial and material question of fact has been
raised and that grant of the Applicants' request, as supplemented with the conditions imposed in
this Order, serves the public interest, convenience and necessity.


                      II. ORDERING CLAUSES

     
 1.  Accordingly, having reviewed the applications and the record in this matter, IT IS
ORDERED, pursuant to Sections 4(i) and (j), 214(a), 214(c), 309, and 310(d) of the
Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j), 214(a), 214(c), 309,
310(d), that the applications filed by SBC Communications and Ameritech Corporation in the
above-captioned proceeding are GRANTED subject to the conditions stated below.

      1.  IT IS FURTHER ORDERED pursuant to Sections 4(i) and (j), 214(a), 214(c),
309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j),
214(a), 214(c), 309, 310(d), that the above grant shall include authority for SBC to acquire
control of:

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

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

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

      2.  IT IS FURTHER ORDERED that as a condition of this grant SBC and Ameritech
shall comply with the conditions set forth in Appendix C of this Order.
                                
      3.  IT IS FURTHER ORDERED that, pursuant to Section 4(i) of the
Communications Act of 1934, as amended, 47 U.S.C.  154(i), grant of the SBC/Ameritech
Application is subject to the condition that, before or on the same day as the closing of the
SBC/Ameritech transaction, Ameritech assign to GTE Ameritech's interest in cellular licensees in
those areas identified herein where SBC's and Ameritech's interests currently overlap and that are
the subject of the Wireless Telecommunications Bureau's Memorandum Opinion and Order, DA
99-1677, granting consent to such assignment.

      4.  IT IS FURTHER ORDERED that the Section 214 authorizations granted to
Ameritech Communications, Inc. (ACI), File Nos. ITC-96-441 and ITC-97-289, are amended,
effective upon consummation of Ameritech's merger with SBC, to apply dominant carrier
regulation, as specified in Section 63.10 of the rules, to ACI's provision of the authorized services
on the U.S.-South Africa route.

      5.  IT IS FURTHER ORDERED that the following Section 214 authorizations
granted to subsidiaries of SBC are amended to apply dominant carrier regulation, as specified in
Section 63.10 of the rules, to their provision of the authorized services on the U.S.-Denmark
route effective upon consummation of Ameritech's merger with SBC: Pacific Bell
Communications, File No. ITC-96-689; SBC Global Communications, Inc., File Nos. ITC-96-692
& ITC-98-423-T/C; Southwestern Bell Communications Services, Inc., File No. ITC-97-770
(renumbered ITC-214-19971108-00689); SNET America, Inc., File No. 96-172; SNET
Diversified Group, Inc., File No. 96-538.      

      6.  IT IS FURTHER ORDERED that pursuant to Section 212 of the Communications
Act and Part 62 of the Commission's rules, 47 C.F.R. Part 62, all of SBC's post-merger carrier
subsidiaries will be "commonly owned carriers" as that term is defined in the Commission's rules.

      7.  IT IS FURTHER ORDERED that all motions to accept late-filed comments filed
in CC Docket No. 98-141 are GRANTED.

      8.  IT IS FURTHER ORDERED that all petitions to deny the applications of SBC
and Ameritech for transfer of control, and all requests to hold an evidentiary hearing, are
DENIED for the reasons stated herein.

      9.  IT IS FURTHER ORDERED that SBC and Ameritech's request for a blanket
exemption from any applicable cut-off rules in cases where Ameritech's subsidiaries or affiliates
file amendments to pending Part 22, Part 24, Part 25, Part 90 and Part 101 or other applications
to reflect the consummation of the proposed transfer of control is GRANTED.

      10. IT IS FURTHER ORDERED that pursuant to section 1.103 of the Commission's
rules, 47 C.F.R.  1.103, this Memorandum Opinion and Order is effective upon adoption.
                                             APPENDIX A:  Public Record Filings   
                                
                                
1                               List of Commenters and Filings

The Commission received 7 petitions to deny the SBC-Ameritech application, 28 comments, and
9 reply comments, filed by the parties listed below. 

Petitions to Deny Filed by:  (7)

  1. AT&T
  2. JSM Tele-Page, Inc.
  3. Paging and Messaging Alliance of PCIA 
  4. Sprint
  5. Texas Public Utility Counsel
  6. Time Warner
  7. 800 Resale Carriers

Comments Filed by:  (28)

  1. Alarm Industry Communications Committee (AICC)
  2. Consumer Coalition (Indiana Office of Utility Consumer Counselor, Missouri  
     Office of the Public Counsel, Ohio Consumers' Counsel, Texas Office of 
  the Public Utility Counsel, and The Utility Reform Network)
  3. Consumer Federation of America/Consumers Union
  4. CoreComm
  5. Citizens for a Sound Economy
  6. Communications Workers of America
  7. Edgemont Neighborhood
  8. e.spire
  9. Focal
  10.     Hyperion
  11.     Indiana URC
  12.     Kansas Corp. Commission
  13.     Keep America Connected 
  14.     KMC
  15.     Level 3
  16.     MCI WorldCom, Inc.
  17.     McLeod
  18.     Michigan Consumer Federation
  19.     Missouri PSC
  20.     National Assoc. of Telecommunications Officers and Advisors (NATOA)
  21.     Ohio PUC
  22.     Parkview Seniors
  23.     Pilgrim Telephone, Inc.
  24.     Shell Oil
  25.     South Austin Community
  26.     Supra Telecomm.
  27.     Telecommunications Resellers Association
  28.     Texas PUC

Reply Comments Filed by: (9)

  1. Competition Policy Institute
  2. Competitive Telecommunications Association
  3. Consumer Federation of America, Consumers Union, and AARP
  4. CoreComm 
  5. Consumer Coalition (Indiana Office of Utility Consumer Counselor, Missouri 
     Office of the Public Counsel, Ohio Consumers' Counsel, Texas Office of 
  the Public Utility Counsel, and The Utility Reform Network)
  6. Level 3 
  7. MCI WorldCom, Inc.
  8. Missouri PSC
  9. SBC Communications Inc. and Ameritech Corporation


The Commission received 51 comments on the proposed conditions, and 14 reply comments, filed
by the parties listed below.

Comments Filed by:  (51)

  1. AARP
  2. AT&T Corp.
  3. Alarm Industry Communications Committee
  4. Allegiance Telecom, Inc.
  5. American Public Power Association
  6. Arkansas Public Service Commission
  7. Association for Local Telecommunications Services (ALTS)
  8. BellSouth Corporation and BellSouth Telecommunications, Inc.
  9. CTC Communications Corp.
  10.     Cable & Wireless USA, Inc.
  11.     Campaign for Telecommunications Access and 51 Participating Commenters
  12.     Centennial Cellular Corp., CenturyTel Wireless, Inc., Thumb Cellular Limited Partnership and
  Trillium Cellular Corp. ("Joint Cellular Carriers")
  13.     Citizen Action of Illinois et al.
  14.     Communications Workers of America
  15.     Competitive Telecommunications Association (CompTel)
  16.     CoreComm Ltd.
  17.     Covad Communications Co.
  18.     Edgemont Neighborhood Coalition, Benton Foundation, Appalachian People's Action
  Coalition and Community Technology Institute (the Low Income Coalition)
  19.     Focal Communications Corp, Adelphia Business Solutions, and McLeodUSA
  Telecommunications Services, Inc.
  20.     GST Telecom Inc., KMC Telecom Inc., Logix Communications Corp. and RCN Telecom
  Services, Inc.
  21.     ICG Communications, Inc.
  22.     Indiana Utility Regulatory Commission (IURC)
  23.     Kansas Corporation Commission
  24.     Level 3 Communications, Inc.
  25.     MCI WorldCom, Inc.
  26.     Metromedia Fiber Network Services, Inc.
  27.     Mexican American Legal Defense and Educational Fund
  28.     National ALEC Association
  29.     National Council of La Raza
  30.     NEXTLINK Communications, Inc. and Advanced TelCom Group, Inc.
  31.     NorthPoint Communications, Inc.
  32.     Ntegrity Telecontent Services
  33.     Ohio Consumers' Counsel
  34.     Optel, Inc.
  35.     Paging Network, Inc.
  36.     Parkview Areawide Seniors, Inc.
  37.     Personal Communications Industry Association (PCIA)
  38.     Pilgrim Telephone, Inc.
  39.     Power-Finder West Communications, LLC
  40.     Public Utilities Commission of Ohio (PUCO)
  41.     Rhythms NetConnections Inc.
  42.     Sprint Communications Company L.P.
  43.     TDS Metrocom 
  44.     Telecommunications Resellers Associations (TRA)
  45.     Texas Office of Public Utility Counsel
  46.     Texas Public Utility Commission
  47.     Texas Rural Municipal Electric Utilities
  48.     Time Warner Telecom
  49.     Williams Communications, Inc.
  50.     Winstar Communications, Inc. and Teligent, Inc.
  51.     Wisconsin Public Service Commission

Reply Comments Filed by: (14)

  1. Cablevision Lightpath, Inc.
  2. California Public Utilities Commission
  3. CTC Communications Corporation
  4. Excel Telecommunications, Inc.
  5. Focal Communications Corporation, Adelphia Business Solutions, & McLeod USA
  Telecommunications Services, Inc.
  6. GST Telecom Inc., KMC Telecom Inc., Logix Communications Corporation & RCN
  Telecom Services Inc.
  7. Level 3 Communications, Inc.
  8. MCI WorldCom, Inc.
  9. Michigan Public Service Commission (MPSC)
  10.     NEXTLINK Communications, Inc. and Advanced Telecom Group, Inc.
  11.     Rhythms Netconnections, Inc.
  12.     SBC Communications Inc. and Ameritech
  13.     Sprint Communications Company L.P.
  14.     Texas Rural Municipal Electric Utilities
  
1                               List of Participants in Public Forum on
Merger Conditions

  1. George Herrera
U.S. Hispanic Chamber of Commerce

  2. Mark Rosenblum
AT&T

  3. Steve Augustino
Alarm Industry Communications Committee

  4. Leon M. Kestenbaum
Sprint

  5. Gerry Salemme
NextLink

  6. Jonathan Sallet
MCI

  7. David Newburger
Campaign for Telecommunications Access

  8. Max J. Starkloff

  9. Mark Buechele
Supra Telecom and Information Systems

  10.     H. Russell Frisby, Jr.
CompTel

  11.     Brian R. Moir
International Communications Association

  12.     Lynn Dangtu
Vietnamese-American Chamber of Commerce
of Southern California

  13.     Michael Metzler
Santa Ana Chamber of Commerce

  14.     Wendy Yoo
Korean American Federation of Orange County

  15.     Stan Oftelie
Orange County Business Council

  16.     Dolores Davis Penn
Missouri Center for Minority Health and Aging

  17.     Ralph Pugh
Hispanic Chamber of Commerce of Orange County, California

  18.     Bea Bacon
National Silver Haired Congress

  19.     Roy Neel
USTA

  20.     Mark Cooper
Consumer Federation of America

  21.     Judy McCollum

  22.     Ron Binz
Competition Policy Institute

  23.     Eric Branfman
CoreComm

  24.     Doug Lawrence

  25.     Robert McCauslan
Allegiance Telecom

  26.     Dahlia Hayles
Rainbow/PUSH Coalition

  27.     Jim Gray
Oklahoma Indian Times

  28.     Lee Ruck
NATOA

  29.     Barbara Easterling
Communications Workers of America

  30.     Angela Ledford
Keep America Connected

  31.     Jeff Smith

  32.     Patricia T. Heudel
National Assocation of Commissions for Women

  33.     Mike C. Turpen

  34.     Dennis Thomas

  35.     Neil F. Hartigan

  36.     David Kumar Singh
IWAYNet Communications

  37.     Dr. Robert G. Harris

  38.     Howard Bedlin
National Council on Aging

  39.     Tom Koutsky
Covad

  40.     Rev. Edward E. Fields

  41.     Robert Crandall
Bell Atlantic

APPENDIX B:  Summary of Confidential Information and Conclusions
                                
       [TEXT NOT AVAILABLE IN PUBLICLY RELEASED VERSION]

               
           1.  This Appendix summarizes documents produced by the Applicants and the conclusions we
          draw from those documents insofar as they relate to each Applicant's plans to
          compete outside its home region, and in particular within each other's region. We
          also discuss additional information regarding the Applicants' showing of public
          interest benefits. 
                    
                    
     A.  Each Applicant's Plans to Compete Outside Its Home Region

          1.   Ameritech's Out-of-Region Plans

          2.   SBC's Out-of-Region Plans

          3.   Conclusion


     B.  Additional Information Pertaining to the Analysis of Potential Public Benefits

     

                    APPENDIX C:  Conditions