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 Federal  Communications  Commission  FCC  00-  221 
 Before  the 
 Federal  Communications  Commission 
 Washington,  D.  C.  20554 

 In  re  Application  of  )  ) 
 GTE  CORPORATION,  )  Transferor,  ) 
 )  and  ) 
 )  CC  Docket  No.  98-  184  BELL  ATLANTIC  CORPORATION,  ) 
 Transferee  )  ) 
 For  Consent  to  Transfer  Control  of  Domestic  )  and  International  Sections  214  and  310  ) 
 Authorizations  and  Application  to  Transfer  )  Control  of  a  Submarine  Cable  Landing  License  ) 
 ) 

 MEMORANDUM  OPINION  AND  ORDER 
 Adopted:  June  16,  2000  Released:  June  16,  2000 
 By  the  Commission:  Commissioners  Ness  and  Tristani  issuing  separate  statements; 
 Commissioners  Furchtgott-  Roth  and  Powell  concurring  in  part,  dissenting  in  part,  and  issuing 
 separate  statements. 

 TABLE  OF  CONTENTS 
 Paragraph 

 I.  INTRODUCTION  ...........................................................................................................  1 
 II.  EXECUTIVE  SUMMARY  ..............................................................................................  5 
 III.  BACKGROUND  .............................................................................................................  6 
 A.  The  Applicants  .....................................................................................................  6 
 B.  The  Merger  Transaction  .....................................................................................  10 
 C.  The  Merger  Review  Process  ...............................................................................  11 
 1.  Department  of  Justice  Review  .....................................................................  11 
 2.  State  Review  ..............................................................................................  12 
 3.  Commission  Review  ...................................................................................  12 

 IV.  PUBLIC  INTEREST  FRAMEWORK  ...........................................................................  20 
 V.  COMPLIANCE  WITH  SECTION  271  ..........................................................................  26 
 A.  Applicants  Spin-  off  Proposal  .............................................................................  29 
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 B.  Discussion  ..........................................................................................................  39 
 1.  Ownership  ..................................................................................................  41 
 2.  Analysis  of  the  Applicants  Spin-  off  Proposal  ..............................................  59 
 3.  Control  .......................................................................................................  76 
 4.  Other  Issues  ...............................................................................................  92 

 VI.  ANALYSIS  OF  POTENTIAL  PUBLIC  INTEREST  HARMS  .......................................  96 
 A.  Overview  ............................................................................................................  96 
 B.  Loss  of  Competition  Between  Bell  Atlantic  and  GTE  in  the  Local  Market  ..........  97 
 1.  Background  ................................................................................................  97 
 2.  Discussion  ................................................................................................  100 
 3.  Relevant  Markets  ......................................................................................  101 
 C.  Comparative  Practices  Analysis  ........................................................................  127 
 1.Need  for  Comparative  Practices  Analyses  ......................................................  132 
 2.Effect  of  Reduction  in  Number  of  Benchmarks  ..............................................  134 
 3.  Adverse  Effects  of  Bell  Atlantic/  GTE  Merger  ................................................  143 
 4.Continued  Need  for  Major  Incumbent  LEC  Benchmarks  ................................  152 
 5.Conclusion  ....................................................................................................  171 
 D.  Increased  Discrimination  ...................................................................................  173 
 1.  Overview  ..................................................................................................  173 
 2.  Analysis  ....................................................................................................  179 

 VII.  ANALYSIS  OF  PUBLIC  INTEREST  BENEFITS  ......................................................  209 
 A.  Background  ......................................................................................................  209 
 B.  Internet  Backbone  Services  ..............................................................................  214 
 C.  Local  Exchange  and  Bundled  Services  ..............................................................  218 
 1.  Entry  into  Out-  of-  Region  Local  Exchange  Markets  ..................................  220 
 2.  Provision  of  Nationwide  Bundled  Services  ................................................  226 
 D.  Long  Distance  Services  ....................................................................................  232 
 E.  Wireless  Services  ..............................................................................................  235 
 F.  Efficiencies  .......................................................................................................  239 
 G.  Conclusion  .......................................................................................................  245 

 VIII.  CONDITIONS  ............................................................................................................  248 
 A.  Adopted  Conditions  ..........................................................................................  248 
 1.  Promoting  Equitable  and  Efficient  Advanced  Services  Deployment  ...........  260 
 2.  Ensuring  Open  Local  Markets  ..................................................................  279 
 3.  Fostering  Out-  of-  Territory  Competition  ....................................................  319 
 4.  Improving  Residential  Phone  Service  ........................................................  324 
 5.  Ensuring  Compliance  with  and  Enforcement  of  these  Conditions  ..............  332 
 B.  Benefits  of  Conditions  ......................................................................................  349 
 1.  Mitigating  Harm  from  Loss  of  Potential  Competition  ................................  350 
 2.  Mitigating  Harm  from  Loss  of  Benchmarks  ...............................................  353 
 3.  Mitigating  Harm  from  Potential  Increased  Discrimination  .........................  359 
 4.  Additional  Benefits  from  Conditions  .........................................................  366 
 C.  Other  Requested  Conditions  or  Modifications  to  Proffered  Conditions.  .............  373 
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 IX.  MOBILE  COMMUNICATIONS  SERVICES  ..............................................................  376 
 A.  Licenses  and  Service  Offerings  .........................................................................  378 
 B.  Analysis  of  Potential  Competitive  Harms  ..........................................................  380 
 1.  Overlapping  Ownership  Interests  ..............................................................  380 
 2.  Revised  Consent  Decree  ...........................................................................  383 
 3.  Compliance  with  CMRS  Ownership  Rules  ................................................  385 
 4.  Other  Competitive  Issues  ..........................................................................  390 
 C.  Conclusion  .......................................................................................................  393 

 X.  INTERNATIONAL  ISSUES  .......................................................................................  394 
 A.  General  .............................................................................................................  394 
 B.  Foreign  Affiliation  ............................................................................................  400 
 1.  Standards  .................................................................................................  402 
 2.  Specific  Affiliations  ...................................................................................  406 
 3.  Cable  Landing  Licenses  ............................................................................  423 

 XI.  OTHER  ISSUES  .........................................................................................................  427 
 A.  Service  Quality  Issues  .......................................................................................  427 
 B.  Character  Issues  ...............................................................................................  429 
 C.  Requests  for  Evidentiary  Hearing  ......................................................................  434 

 XII.  ORDERING  CLAUSES  ..............................................................................................  439 

 APPENDIX  A:  List  of  Commenters 
 APPENDIX  B:  Genuity  Conditions 
 APPENDIX  C:  Summary  of  Confidential  Information 
 [TEXT  NOT  AVAILABLE  IN  PUBLICLY  RELEASED  VERSIONS] 

 APPENDIX  D:  Market-  Opening  Conditions 
 APPENDIX  E:  GTE  April  17,  2000  Ex  Parte  Letter 
 APPENDIX  F:  GTE  April  28,  2000  Ex  Parte  Letter 
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 I.  INTRODUCTION 
 1.  In  this  Memorandum  Opinion  and  Order,  we  consider  the  joint  applications  of  Bell 
 Atlantic  Corporation  (Bell  Atlantic)  and  GTE  Corporation  (GTE)  (collectively,  Applicants)  1 
 pursuant  to  sections  214(  a)  and  310(  d)  of  the  Communications  Act  of  1934,  as  amended 
 (Communications  Act  or  Act),  2  for  approval  to  transfer  control  of  licenses  and  lines  from  GTE  to 
 Bell  Atlantic  in  connection  with  their  proposed  merger.  3  In  order  to  persuade  us  to  grant  their 
 applications,  Bell  Atlantic  and  GTE  must  demonstrate  that  their  proposed  transaction  will  serve 
 the  public  interest,  convenience,  and  necessity.  4  As  described  in  more  detail  below,  Bell  Atlantic 
 and  GTE  supplemented  their  original  applications  with  an  additional  filing  that  included  proposed 
 merger  conditions  to  which  both  parties  voluntarily  committed.  5  In  addition,  the  Applicants 
 submitted  a  proposal  to  transfer  the  Internet  and  related  assets  of  GTE  Internetworking,  Inc.,  now 
 known  as  Genuity,  Inc.  (Genuity),  to  an  independently  owned  public  corporation  so  that 
 consummation  of  the  merger  would  not  instantly  result  in  a  violation  of  section  271  6  of  the 
 Telecommunications  Act  of  1996.  7 

 2.  We  first  conclude  that  the  Applicants  proposal  to  spinoff  GTEs  Internet 
 1  Throughout  this  Order,  we  refer  to  Bell  Atlantic  and  GTE  as  the  Applicants  or  Bell  Atlantic  and  GTE.  We 
 refer  to  the  post-  merger  combined  Bell  Atlantic/  GTE  as  the  merged  entity,  the  merged  firm,  or  the  merged 
 company. 

 2  47  U.  S.  C.    214(  a),  310(  d).  Our  review  is  also  conducted  pursuant  to  the  Cable  Landing  License  Act,  47 

 U.  S.  C.    34-  39  (Cable  Landing  License  Act). 
 3  See  Application  of  GTE  Corporation  and  Bell  Atlantic  Corporation  for  Transfer  of  Control  (filed  Oct.  2,  1998) 

 (Bell  Atlantic/  GTE  Oct.  2,  1998  Application);  Supplemental  Filing  of  Bell  Atlantic  and  GTE  (filed  Jan.  27,  2000) 
 (Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing). 

 4  See  47  U.  S.  C.    214(  a),  310(  d).  See  also  Application  of  Ameritech  Corporation  and  SBC  Communications 

 Inc.  for  Transfer  of  Control  of  Corporations  Holding  Commission  Licenses  and  Lines  Pursuant  to  Section  214  and 
 310(  d)  of  the  Communications  Act  and  Parts  5,  22,  24,  25,  63,  90,  95,  and  101  of  the  Commissions  Rules,  CC 
 Docket  No.  98-  141,  Memorandum  Opinion  and  Order,  14  FCC  Rcd  14712,  14736-  38,  paras.  1,  46-  48  (1999) 
 (SBC/  Ameritech  Order);  Application  of  WorldCom,  Inc.  and  MCI  Communications  Corporation  for  Transfer  of 
 Control  of  MCI  Communications  Corporation  to  WorldCom,  Inc.,  CC  Docket  No.  97-  211,  Memorandum  Opinion 
 and  Order,  13  FCC  Rcd  18025,  18026-  27,  18030-  32  at  paras.  1,  8-  10  (1998)  (WorldCom/  MCI  Order); 
 Applications  of  NYNEX  Corporation  Transferor,  and  Bell  Atlantic  Corporation  Transferee,  For  Consent  to 
 Transfer  Control  of  NYNEX  Corporation  and  Its  Subsidiaries,  File  No.  NSD-  L-  96-  10,  Memorandum  Opinion  and 
 Order,  12  FCC  Rcd  19985,  19987,  20000-  04  at  paras.  2,  29-  32  (1997)  (Bell  Atlantic/  NYNEX  Order). 

 5  See  Proposed  Conditions  for  Bell  Atlantic/  GTE  Merger  (filed  Jan.  27,  2000)  (Bell  Atlantic/  GTE  Jan.  27,  2000 

 Proposed  Conditions). 
 6  Section  271  prohibits  Bell  Operating  Companies  (BOCs)  such  as  Bell  Atlantic  from  providing  interLATA 

 services  within  their  territories  until  such  time  as  they  have  demonstrated  compliance  with  section  271.  47  U.  S.  C. 
   271.  Section  271  was  added  to  the  Communications  Act  by  the  Telecommunications  Act  of  1996,  Pub.  L.  No. 
 104-  104,  110  Stat.  56  (1996  Act),  codified  at  47  U.  S.  C.    151  et  seq.  All  citations  to  the  1996  Act  will  be  in 
 accordance  with  its  codification  in  Title  47  of  the  United  States  Code. 

 7  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing. 
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 backbone  and  related  assets  into  a  separate  public  corporation  is  sufficient  to  demonstrate  that 
 completion  of  the  merger  would  not  result  in  a  violation  of  section  271.  Under  the  transaction  we 
 approve  herein  and  that  the  Applicants  must  complete  prior  to  merger  closing,  the  Applicants  will 
 retain  shares  that  represent  less  than  10  percent  of  the  spun-  off  entity  and  that  contain  a 
 conditional  conversion  right.  Applying  a  three-  part  test,  we  conclude  that  the  merged  firm  will 
 not  own  an  equity  interest  or  the  equivalent  thereof  of  more  than  10  percent  of  Genuity.  We 
 further  find  that  the  merged  firm  will  not  control  Genuity,  nor  will  it  be  providing  interLATA 
 services  through  its  post-  spin-  off  relationship  with  Genuity. 

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

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

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

 x  Compliance  with  Section  271.  Because  GTE  will  transfer  its  Internet  backbone  and 

 8  Because  of  its  size,  the  Commission  has  consistently  referred  to  GTE  as  a  first-  tier  incumbent  LEC  and  thus 
 included  it  in  the  small  group  of  carriers,  along  with  the  RBOCs,  that  have  substantial  market  power.  See 
 SBC/  SNET  Order,  13  FCC  Rcd  at  21302,  para.  21  (citing  Policy  and  Rules  Concerning  Rates  for  Dominant 
 Carriers,  CC  Docket  No.  87-  313,  Second  Report  and  Order,  5  FCC  Rcd  6786,  6818-  20  (1990)). 
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 related  assets  to  a  separate  public  corporation  (Genuity)  prior  to  merger  closing,  the 
 proposed  transaction  will  not  result  in  a  violation  of  section  271  of  the  Act.  The 
 merged  firm  will  retain  shares  of  Genuity  stock  that  will  comprise  less  than  10  percent 
 of  Genuitys  voting,  dividend  and  distribution  rights.  These  Class  B  shares  will 
 contain  a  contingent  right  that  enables  the  merged  firm  to  convert  the  shares  into 
 additional  shares  of  up  to  80  percent  of  Genuity  only  if  it  obtains  section  271  authority 
 with  respect  to  95  percent  of  Bell  Atlantics  in-  region  access  lines  within  five  years  of 
 the  mergers  closing.  We  conclude  that  this  conditional  conversion  right  is  not  an 
 equity  interest  or  its  equivalent  within  the  meaning  of  the  Act,  for  the  following 
 reasons: 

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

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

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

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

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

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

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

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

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

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

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

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

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

 x  Conditions.  On  January  27,  2000,  the  Applicants  supplemented  their  initial  application 
 by  submitting  a  set  of  voluntary  commitments  as  conditions  of  approval  of  their 
 proposed  transfer  of  licenses  and  lines.  Following  a  period  of  public  comment 
 regarding  their  proposed  conditions,  the  Applicants  revised  their  commitments  on 
 April  14,  2000,  April  28,  2000,  and  May  19,  2000.  Assuming  the  merged  firms 
 satisfactory  compliance  with  their  proposals,  implementation  of  the  conditions  adopted 
 herein  will  further  the  following  goals: 
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 1)  promote  advanced  services  deployment; 
 2)  enhance  the  openness  of  in-  region  local  telecommunications  markets; 
 3)  foster  out-  of-  region  local  competition; 
 4)  improve  residential  phone  service;  and 
 5)  enforce  the  Merger  Order. 
 These  commitments  are  sufficient  to  alter  the  public  interest  balance  such  that  the 
 application  to  transfer  licenses  and  lines  is,  overall,  in  the  public  interest  and  should  be 
 approved. 

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

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

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

 9  Letter  from  Pat  Koch,  Bell  Atlantic,  to  Julie  Patterson,  Federal  Communications  Commission,  filed  May  22, 
 2000  (Bell  Atlantic/  GTE  May  22,  2000  Ex  Parte  Letter). 
 10  Id. 

 11  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing,  Exhibit  B,  Attach.  3,  Joint  Declaration  of  Marion  C. 
 Jordan  and  Jerry  Holland  at  para.  10  (Bell  Atlantic/  GTE  Joint  Jordan/  Holland  Decl.). 
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 interest  in  the  Puerto  Rico  Telephone  Company.  12 
 7.  In  addition  to  providing  local  exchange  and  exchange  access  services,  GTE 
 provides  wireless,  Internet  access,  and  directory  publishing  services.  Not  subject  to  the 
 interLATA  restrictions  governing  BOCs,  GTE  entered  the  long  distance  market  in  1997  through  a 
 long-  term  agreement  with  LDDS  WorldCom.  13  GTE  also  has  significant  investments  in 
 communications  and  information  services  business  in  Canada,  the  Dominican  Republic, 
 Venezuela,  Argentina,  Micronesia,  and  China.  14 

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

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

 10.  Bell  Atlantic.  Bell  Atlantic,  one  of  the  original  seven  regional  Bell  Operating 
 Companies  formed  as  part  of  the  divestiture  of  AT&  Ts  local  operations,  is  the  primary  incumbent 
 LEC  in  thirteen  states  in  the  mid-  Atlantic  and  northeastern  United  States,  in  addition  to  the 
 District  of  Columbia.  17  Through  its  operating  companies,  Bell  Atlantic  services  more  than  43 
 million  local  exchange  access  lines  and  had  1999  operating  revenues  in  excess  of  $33  billion.  18  In 
 1997,  Bell  Atlantic  acquired  NYNEX  Corporation,  which  had  been  the  incumbent  provider  of 
 local  exchange  and  exchange  access  services  in  the  states  of  the  northeastern  United  States, 
 extending  its  in-  region  incumbent  LEC  activities  substantially.  19 

 12  GTE  1999  Annual  Report  at  2. 
 13  Bell  Atlantic/  GTE  Joint  Jordan/  Holland  Decl.  at  para.  10. 
 14  Bell  Atlantic  Oct.  2,  1998  Application  at  3.  GTE  is  also  engaged  in  ventures  unrelated  to  the  communications 
 industry,  including  financing,  insurance,  leasing,  and  other  related  activities.  Id. 
 15  Bell  Atlantic/  GTE  Oct.  2,  1998  Application,  Exhibit  A,  Declaration  of  John  T.  Curran  at  para.  1  (Bell 

 Atlantic/  GTE  Curran  Decl.). 
 16  Id. 

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

 18  See  Bell  Atlantic  1999  Annual  Report  at  6. 

 19  See  generally  Bell  Atlantic/  NYNEX  Order,  12  RCC  Rcd  19985. 
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 11.  In  addition  to  local  exchange  and  exchange  access  services,  Bell  Atlantics 
 operating  companies  provide  a  wide  range  of  other  services,  including  cellular,  personal 
 communications  services  (PCS),  paging,  Internet  access,  and  directory  publishing  services.  20  Bell 
 Atlantics  wireless  operations  include  service  provided  throughout  the  United  States  as  well  as 
 investments  in  Latin  America,  Europe,  and  the  Pacific  Rim.  21  In  1999,  Bell  Atlantics  wireless 
 companies  provided  service  to  more  than  27  million  subscribers.  22  Bell  Atlantic  also  has  many 
 overseas  investments,  including  direct  or  indirect  financial  interests  in  communications  and 
 information  services  businesses  in  New  Zealand,  Mexico,  Italy,  Indonesia,  Thailand,  Gibraltar,  the 
 Philippines,  the  United  Kingdom,  Greece,  Slovakia,  and  the  Czech  Republic.  23 

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

 B.  The  Merger  Transaction 
 13.  Proposed  Transaction.  On  July  28,  1998,  Bell  Atlantic  and  GTE  announced  their 
 Agreement  and  Plan  of  Merger  (Merger  Agreement),  under  which  a  wholly-  owned  subsidiary  of 
 Bell  Atlantic  would  merge  with  GTE,  and  GTE  would  be  the  surviving  corporation  and  would 
 itself  become  a  wholly-  owned  subsidiary  of  Bell  Atlantic.  26  GTE  would  therefore  survive  as  a 
 wholly-  owned  subsidiary  of  Bell  Atlantic,  and  the  GTE  subsidiaries  holding  section  214 
 authorizations,  submarine  cable  landing  licenses,  or  radio  licenses  would  survive  as  wholly-  owned 
 subsidiaries  of  GTE.  27  Following  the  merger,  approximately  57  percent  of  the  shares  of  Bell 

 20  Bell  Atlantic  1999  Annual  Report  at  6. 
 21  Id. 
 22  Id. 
 23  Bell  Atlantic/  GTE  Oct.  2,  1998  Application  at  4.  Bell  Atlantic  is  also  engaged  in  financing,  systems 
 integration  services,  customer  premises  equipment  distribution,  and  telecommunications  consulting.  Id. 
 24  See  Vodafone  AirTouch,  Plc  and  Bell  Atlantic  Corporation,  File  Nos.  0000032969  et  al.,  Memorandum 

 Opinion  and  Order,  DA  00-  721  (WTB/  IB  rel.  Mar.  30,  2000)  (Vodafone/  Bell  Atlantic  Order);  FCC  Bureaus 
 Approve  Bell  Atlantic/  Vodafone  and  VoiceStream/  Aeriel  License  Transfers  and  Assignments  Two  New  National 
 Wireless  Competitors  to  be  Created,  Press  Release  (rel.  Mar.  30,  2000). 

 25  Id. 

 26  Bell  Atlantic/  GTE  Oct.  2,  1998  Application  at  2. 
 27  Id.  at  3. 
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 Atlantic  would  be  held  by  the  current  shareholders,  and  approximately  43  percent  of  the  shares  of 
 Bell  Atlantic  would  be  held  by  the  shareholders  of  GTE.  The  board  of  directors  of  the  merged 
 firm  would  be  comprised  of  an  equal  number  of  members  from  Bell  Atlantics  board  and  GTEs 
 board.  28 

 14.  Together,  Bell  Atlantic  and  GTE  would  serve  more  than  69  million  local  access 
 lines,  representing  more  than  one  third  of  the  nations  total  access  lines.  29  As  determined  from  the 
 December  1999  statistics  of  both  companies,  the  merged  entity  would  have  annual  revenues  in 
 excess  of  $58  billion.  30  Accordingly,  as  measured  by  revenues,  a  combined  Bell  Atlantic  and  GTE 
 would  be  the  second  largest  telecommunications  company  in  the  country  behind  only  AT&  T. 
 Based  on  the  extensive  breadth  of  the  companies  operations,  the  proposed  merger  between  Bell 
 Atlantic  and  GTE  requires  the  review  of  several  government  agencies,  including  the  DOJ,  state 
 public  utility  commissions,  and  this  Commission. 

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

 28  Id. 
 29  See  Trends  in  Telephone  Service,  Federal  Communications  Commission  (March  2000)  at  20-  3,  Table  20.21; 
 see  supra  paras.  6,  10. 
 30  Bell  Atlantic  1999  Annual  Report  at  6;  GTE  1999  Annual  Report  at  2. 

 31  See  United  States  of  America  v.  Bell  Atlantic  Corp.,  99CV-  01119,  Motion  for  Entry  of  Final  Judgment  (Apr. 
 20,  2000). 
 32  United  States  of  America  v.  Bell  Atlantic  Corp.,  99CV-  01119,  Motion  for  Leave  to  File  Supplemental 

 Complaint  (Dec.  6,  1999). 
 33  Id. 

 34  Id. 
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 markets  for  wireless  services  in  thirteen  MTAs  and  ninety-  six  MSAs  and  RSAs  in  fifteen  states.  35 
 On  April  20,  2000,  the  parties  submitted  to  the  court  a  proposed  final  judgment  that  requires  Bell 
 Atlantic,  GTE,  or  Vodafone  to  divest  wireless  assets  in  ninety-  six  cellular  overlap  markets.  36 

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

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

 18.  On  February  24,  1999,  in  response  to  concerns  raised  by  Commission  staff,  Bell 
 Atlantic  and  GTE  filed  a  Report  on  Long  Distance  Issues  in  Connection  with  their  Merger  and 
 Request  for  Limited  Interim  Relief.  With  respect  to  long  distance  voice  services,  Applicants 

 35  United  States  of  America  v.  Bell  Atlantic  Corp.,  99CV-  01119,  Motion  for  Entry  of  Final  Judgment  (Apr.  20, 
 2000). 
 36  Id. 

 37  Bell  Atlantic-  GTE  Clear  Last  State  Merger  Hurdle  with  Cal.,  Washington  Telecom  Newswire  (Mar.  2, 
 2000). 
 38  Id. 

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

 41  The  parties  that  filed  formal  pleadings  in  this  proceeding  are  listed  in  Appendix  A. 

 42  See  Commission  to  Hold  En  Bancs  Regarding  Telecom  Mergers,  Public  Notice,  DA  98-  2045  (Oct.  9,  1998); 
 Commission  to  Hold  En  Bancs  Regarding  Telecom  Mergers,  Public  Notice,  DA  98-  2415  (rel.  Dec.  2,  1998) 
 (Dec.  2,  1998  Public  Notice);  Chief  Economist  Names  Participants  on  Economic  Round  Table  Regarding  Telecom 
 Mergers,  Public  Notice,  DA  99-  119  (rel.  Jan.  25,  1999)  (Jan.  25,  1999  Public  Notice). 
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 requested  that  the  Commission  grant  a  reasonable  transition  period  to  permit  GTE  to  transfer  to 
 other  interexchange  carriers  its  existing  customers  within  Bell  Atlantics  region.  43  Applicants  also 
 requested  that  the  Commission  grant  interim  relief  to  enable  the  merged  firm  to  continue 
 providing  interLATA  data  services  through  GTEs  Internet  backbone  provider,  GTE 
 Internetworking,  while  the  merged  company  pursued  section  271  authority  for  Bell  Atlantics  in-region 
 states.  44  The  Applicants  subsequently  asked  that  the  Commission  hold  its  Request  for 
 Interim  Relief  in  abeyance  pending  later  filings  addressing  the  long  distance  issues.  45  On  April  14, 
 1999,  Applicants  requested  that  the  Commission  suspend  processing  of  their  merger  application 
 pending  a  further  submission  following  Bell  Atlantics  filing  with  the  Commission  of  its 
 application  for  section  271  relief  in  New  York.  46 

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

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

 44  Id. 

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

 46  See  Letter  from  Steven  G.  Bradbury,  Counsel  for  GTE,  and  Edward  D.  Young,  III,  Counsel  for  Bell  Atlantic, 

 to  Katherine  Brown,  Federal  Communications  Commission,  CC  Docket  No.  98-  184  (filed  Apr.  14,  1999)  (Bell 
 Atlantic/  GTE  Apr.  14,  1999  Ex  Parte  Letter). 

 47  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing;  Bell  Atlantic/  GTE  Jan.  27,  2000  Proposed 

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

 48  See  Letter  from  Steven  G.  Bradbury,  Counsel  to  GTE,  to  Magalie  Roman  Salas,  Secretary,  Federal 

 Communications  Commission,  CC  Docket  No.  98-  184  (filed  Apr.  3,  2000)  (Bell  Atlantic/  GTE  Apr.  3,  2000  Ex 
 Parte  Letter). 

 49  See  Letter  from  Michael  E.  Glover,  Associate  General  Counsel,  Bell  Atlantic,  to  Magalie  Roman  Salas, 

 Secretary,  Federal  Communications  Commission,  CC  Docket  No.  98-  184  (filed  Apr.  14,  2000)  (Bell  Atlantic/  GTE 
 Apr.  14,  2000  Ex  Parte  Letter). 

 50  Letter  from  William  P.  Barr,  Executive  Vice  President  and  General  Counsel,  GTE,  to  Magalie  Roman  Salas, 

 Secretary,  Federal  Communications  Commission,  CC  Docket  No.  98-  184  (filed  Apr.  28,  2000)  (Bell  Atlantic/  GTE 
 Apr.  28,  2000  Ex  Parte  Letter). 

 51  Letter  from  Pat  Koch,  Bell  Atlantic,  to  Magalie  Roman  Salas,  Secretary,  Federal  Communications 

 Commission,  CC  Docket  No.  98-  184  (filed  May  19,  2000)  (Bell  Atlantic/  GTE  May  19,  2000  Ex  Parte  Letter). 
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 sought  further  comment  on  the  altered  spin-  off  proposal  and  modified  merger  conditions.  54 
 IV.  PUBLIC  INTEREST  FRAMEWORK 
 20.  Before  approving  the  transfer  of  control  of  licenses  and  lines  in  connection  with 
 the  proposed  merger,  the  Commission  must  determine,  pursuant  to  sections  214(  a)  and  310(  d)  of 
 the  Communications  Act,  that  the  proposed  transfers  serve  the  public  interest.  55  In  accordance 
 with  the  Acts  public  interest  standard,  we  must  weigh  any  potential  public  interest  harms  of  the 
 proposed  transaction  against  the  potential  public  interest  benefits  to  ensure  that,  on  balance,  the 
 merger  services  the  public  interest,  convenience,  and  necessity.  56  In  doing  so,  we  examine,  inter 
 alia,  possible  competitive  effects  of  the  proposed  transfers  and  measure  the  effect  of  the  merger 
 on  both  the  broader  aims  of  the  Communications  Act  and  federal  communications  policy.  57 

 21.  Section  214(  a)  of  the  Communications  Act  generally  requires  carriers  to  obtain 
 from  the  Commission  a  certificate  of  public  convenience  and  necessity  before  constructing, 
 acquiring,  operating  or  engaging  in  transmission  over  lines  of  communication,  or  before 
 discontinuing,  reducing  or  impairing  service  to  a  community.  58  In  this  case,  section  214(  a) 
 requires  the  Commission  to  find  that  the  "present  or  future  public  convenience  and  necessity 
 require  or  will  require"  Bell  Atlantic  to  operate  the  acquired  telecommunications  lines  and  that 
 "neither  the  present  nor  future  public  convenience  and  necessity  will  be  adversely  affected"  by  the 
 discontinuance  of  service  from  GTE.  59  Section  310(  d)  provides  that  no  construction  permit  or 

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

 53  Letter  from  Michael  E.  Glover,  Associate  General  Counsel,  Bell  Atlantic,  to  Magalie  Roman  Salas,  Secretary, 

 Federal  Communications  Commission,  CC  Docket  No.  98-  184  (filed  June  14,  2000)  (Bell  Atlantic/  GTE  Glover 
 June  14,  2000  Ex  Parte  Letter). 

 54  Commission  Seeks  Comment  on  Additional  Filings  Submitted  by  Bell  Atlantic  Corporation  and  GTE 

 Corporation,  Public  Notice,  CC  Docket  No.  98-  184,  DA  00-  959  (rel.  Apr.  28,  2000)  (Apr.  28,  2000  Public  Notice). 
 55 
 47  U.  S.  C.    214(  a),  303(  r),  310(  d).  See  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18030,  para.  8;  Bell 

 Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20000,  para.  29. 

 56  See  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18031-  32,  para.  10. 

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

 58  47  U.  S.  C.    214(  a). 

 59 
 47  U.  S.  C.    214(  a).  See  Implementation  of  Section  402(  b)(  2)(  A)  of  the  Telecommunications  Act  of  1996; 

 Petition  for  Forbearance  of  the  Independent  Telephone  and  Telecommunications  Alliance,  CC  Docket  No.  97-  11; 
 AAD  File  No.  98-  43,  Report  and  Order  in  CC  Docket  No.  97-  11  and  Second  Memorandum  Opinion  and  Order  in 
 (continued.) 
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 15 
 station  license  may  be  transferred,  assigned,  or  disposed  of  in  any  manner  except  upon  a  finding 
 by  the  Commission  that  the  public  interest,  convenience,  and  necessity  will  be  served  thereby.  60 
 Accordingly,  the  Commission  must  determine  that  the  proposed  transfer  of  licenses  from  GTE  to 
 Bell  Atlantic  "serves  the  public  interest,  convenience,  and  necessity"  before  it  can  approve  the 
 transaction.  61 

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

 23.  Our  analysis  of  public  interest  benefits  and  harms  under  parts  three  and  four  of  the 
 public  interest  test  includes,  but  is  not  limited  to,  an  analysis  of  the  potential  competitive  effects  of 
 the  transaction,  as  informed  by  traditional  antitrust  principles.  65  Although  an  antitrust  analysis 

 (Continued  from  previous  page) 
 AAD  File  No.  98-  43,  FCC  99-  104  (rel.  June  30,  1999)  (continuing  to  require  Commission  approval  for  transfers  of 
 control,  even  though  blanket  section  214  entry  certification  and  streamlined  section  214  exit  certification  have  been 
 granted  for  domestic  carriers). 

 60  47  U.  S.  C.    310(  d). 

 61 
 Id. 

 62 
 See  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20063,  para.  157. 

 63  Applications  for  Consent  to  the  Transfer  of  Control  of  Licenses  and  Section  214  Authorizations  from  Tele-Communications, 

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

 64  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14737,  para.  48. 

 65 
 Although  the  Commissions  analysis  of  competitive  effects  is  informed  by  antitrust  principles  and  judicial 

 standards  of  evidence,  it  is  not  governed  by  them,  which  permits  the  Commission  to  arrive  at  a  different 
 assessment  of  likely  competitive  benefits  or  harms  than  antitrust  agencies  adduce  based  on  antitrust  law.  See  FCC 
 v.  RCA  Communications,  346  U.  S.  86,  96-  97  (1953)  (  To  restrict  the  Commissions  action  to  cases  in  which 
 tangible  evidence  appropriate  for  judicial  determination  is  available  would  disregard  a  major  reason  for  the 
 (continued.) 
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 Federal  Communications  Commission  FCC  00-  221 
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 focuses  solely  on  whether  the  effect  of  a  proposed  merger  may  be  substantially  to  lessen 
 competition,  66  the  Communications  Act  requires  the  Commission  to  apply  a  different  standard. 
 The  Commission  must  make  an  independent  public  interest  determination  that  includes  an 
 evaluation  of  the  merger's  likely  effect  on  future  competition.  67  Because  Congress  has  determined 
 that  additional  competition  in  telecommunications  markets  will  better  serve  the  public  interest,  in 
 order  to  conclude  that  a  merger  is  in  the  public  interest,  the  Commission  must  be  convinced  that 
 it  will  enhance  competition,  not  merely  lessen  it.  68 

 24.  Where  necessary,  the  Commission  can  attach  conditions  to  a  transfer  of  lines  and 
 licenses  to  ensure  that  the  public  interest  is  served  by  the  transaction.  69  Section  214(  c)  of  the  Act 
 authorizes  the  Commission  to  attach  to  the  certificate  "such  terms  and  conditions  as  in  its 
 judgment  the  public  convenience  and  necessity  may  require."  70  Similarly,  section  303(  r)  of  the 
 Communications  Act  authorizes  the  Commission  to  prescribe  restrictions  or  conditions,  not 
 inconsistent  with  law,  that  may  be  necessary  to  carry  out  the  provisions  of  the  Act.  71  Indeed,  (Continued  from  previous  page) 

 creation  of  administrative  agencies,  better  equipped  as  they  are  for  weighing  intangibles  by  specialization,  by 
 insight  gained  through  experience,  and  by  more  flexible  procedure.).  See  also  SBC/  Ameritech  Order,  14  FCC  Rcd 
 at  14738,  para.  49,  n.  121;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18034,  para.  13  (citing  RCA  Communications, 
 346  U.  S.  at  94;  United  States  v.  FCC,  652  F.  2d  72,  81-  82  (D.  C.  Cir.  1980)  (en  banc)  (The  Commission's 
 "determination  about  the  proper  role  of  competitive  forces  in  an  industry  must  therefore  be  based,  not  exclusively 
 on  the  letter  of  the  antitrust  laws,  but  also  on  the  'special  considerations'  of  the  particular  industry."); 
 Teleprompter-  Group  W,  87  FCC  2d  531  (1981),  aff'd  on  recon.,  89  FCC  2d  417  (1982)  (Commission 
 independently  reviewed  the  competitive  effects  of  a  proposed  merger);  Equipment  Distributors'  Coalition,  Inc.  v. 
 FCC,  824  F.  2d  1197,  1201  (D.  C.  Cir.  1987);  Northeast  Utilities  Service  Co.  v.  FERC,  993  F.  2d  937,  947-  48  (1st 
 Cir.  1993)  (public  interest  standard  does  not  require  agencies  "to  analyze  proposed  mergers  under  the  same 
 standards  that  the  Department  of  Justice  .  .  .  must  apply."). 

 66  See  15  U.  S.  C.    18. 

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

 69  See  47  C.  F.  R.    1.110.  See  also  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18031-  32,  para.  10;  Bell 
 Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20001-  2,  para.  30. 
 70 
 47  U.  S.  C.    214(  c).  See  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18032,  para.  10  n.  35  (citing  MCI 

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

 71 
 47  U.  S.  C.    303(  r).  See,  e.  g.,  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18032,  para.  10  n.  36  (citing  FCC  v. 

 Nat'l  Citizens  Comm.  for  Broadcasting,  436  U.  S.  775  (1978)  (Nat'l  Citizens)  (broadcast-  newspaper  cross-ownership 
 rules  properly  adopted  pursuant  to  section  303(  r));  U.  S.  v.  Southwestern  Cable  Co.,  392  U.  S.  157,  178 
 (1968)  (section  303(  r)  powers  permit  Commission  to  order  cable  company  not  to  carry  broadcast  signal  beyond 
 station's  primary  market);  United  Video,  Inc.  v.  FCC,  890  F.  2d  1173,  1182-  83  (D.  C.  Cir.  1989)  (syndicated 
 exclusivity  rules  adopted  pursuant  to  section  303(  r)  powers). 
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 Federal  Communications  Commission  FCC  00-  221 
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 unlike  the  role  of  antitrust  enforcement  agencies,  the  Commissions  public  interest  authority 
 enables  it  to  rely  upon  its  extensive  regulatory  and  enforcement  experience  to  impose  and  enforce 
 conditions  to  ensure  that  the  merger  will  yield  overall  public  interest  benefits.  72 

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

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

 27.  In  anticipation  of  its  merger  with  Bell  Atlantic,  GTE  agreed  to  exit  various 
 interLATA  businesses,  including  resold  voice  long  distance  service,  in  the  section  271-  restricted 

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

 73  See  AT&  T/  TCI  Order,  14  FCC  Rcd  at  3170,  para.  16. 

 74  See  47  U.  S.  C.    271(  a).  See  also  47  U.  S.  C.    271(  c)  (setting  forth  the  requirements  for  a  BOC  to  seek 
 authority  to  provide  in-  region,  interLATA  services). 
 75  See  47  U.  S.  C.    153(  4)  (defining  Bell  operating  company). 

 76  See  Application  by  Bell  Atlantic  New  York  for  Authorization  under  Section  271  of  the  Communications  Act  to 
 Provide  In-  Region,  InterLATA  Service  in  the  State  of  New  York,  CC  Docket  No.  99-  295,  Memorandum  Opinion 
 and  Order,  15  FCC  Rcd  3953  (1999). 
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 Bell  Atlantic  states  before  closing  the  merger.  77  GTE  Communications  Corporation,  for  example, 
 terminated  its  direct  dialing,  dial  around,  800  toll  free,  operator,  private  line  and  frame  relay  data 
 services,  and  agreed  to  deactivate  all  calling  cards  of  customers  in  the  affected  states  and  cease 
 origination  of  calling  card  calls  in  that  region.  78  In  addition,  GTE  transferred  to  unaffiliated 
 carriers  the  dedicated  capacity  services  provided  by  GTE  Data  Services  Incorporated,  GTE 
 Telecommunication  Services,  Inc.  and  GTE  Network  Services,  and  interLATA  transmission 
 services  provided  by  GTE.  net  that  originated  in  Bell  Atlantic  states  other  than  New  York.  GTE 
 also  agreed  to  divest  the  retail  private  line  resale  business  of  GTE  Telecom  Inc.  (GTE  Telecom) 
 prior  to  merger  close.  79  With  respect  to  GTE  Telecoms  private  line  wholesale  services,  GTE  is 
 seeking  Commission  approval  to  transfer  corporate  control  of  GTE  Telecom  to  Genuity. 

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

 A.  Applicants  Spin-  off  Proposal 
 29.  Under  the  Applicants  spin-  off  proposal,  81  GTE  will  transfer  substantially  all  82  of 

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

 78  In  February  2000,  GTE  notified  its  residential  voice  long  distance  customers  in  Bell  Atlantics  section  271- 

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

 79  See  Letter  from  Alan  F.  Ciamporcero,  Vice  President  Regulatory  Affairs,  GTE,  to  Magalie  Roman  Salas, 

 Secretary,  FCC,  CC  Docket  No.  98-  184  (filed  Apr.  28,  2000),  attached  hereto  as  Appendix  F. 
 80  See  Letter  from  Steven  G.  Bradbury,  Kirkland  &  Ellis,  Counsel  for  GTE,  to  Magalie  Roman  Salas,  Secretary, 

 FCC,  CC  Docket  No.  98-  184  (filed  Mar.  9,  2000)  (Bell  Atlantic/  GTE  Mar.  9,  2000  Ex  Parte  Letter)  at  2;  Letter 
 from  Patricia  E.  Koch,  Assistant  Vice  President  Federal  Regulatory,  Bell  Atlantic,  to  Magalie  Roman  Salas, 
 Secretary,  FCC,  CC  Docket  No.  98-  184  (filed  June  9,  2000)  (Form  S-  1  Registration  Statement,  Amendment  No. 
 3),  at  1-  2  (describing  services  provided  by  Genuity). 

 81  See  Appendix  B  (Conditions  for  Establishment  of  Genuity  as  a  Separate  Corporation;  hereinafter  Genuity 

 Conditions).  The  Applicants  submitted  their  spin-  off  proposal  on  January  27,  2000  and  modified  various  aspects 
 in  ex  parte  submissions  to  the  Commission  on  April  3,  2000,  April  28,  2000,  June  7,  2000,  and  June  14,  2000.  See 
 Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing;  Bell  Atlantic/  GTE  Apr.  3,  2000  Ex  Parte  Letter;  Bell 
 (continued.) 
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 Federal  Communications  Commission  FCC  00-  221 
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 Genuitys  nationwide  data  business  to  a  separate  public  corporation.  Before  merging  with  Bell 
 Atlantic,  GTE  will  exchange  its  stockholdings  in  Genuity  for  shares  of  a  new  class  of  common 
 stock,  Class  B  common  stock.  Through  an  initial  public  offering  (IPO)  conducted  prior  to  closing 
 the  merger  with  Bell  Atlantic,  public  shareholders  will  purchase  shares  of  Genuity  Class  A 
 common  stock  initially  carrying  90.5  percent  of  the  voting  rights  and  the  right  to  receive  90.5 
 percent  of  any  dividends  or  other  distributions.  83  The  merged  Bell  Atlantic/  GTEs  Class  B  shares 
 will  carry  9.  5  percent  of  the  voting  rights  and  the  right  to  receive  9.5  percent  of  any  dividends  or 
 other  distributions,  along  with  a  conversion  right  and  certain  investor  safeguards.  84  Subject  to 
 satisfying  certain  conditions,  the  Class  B  shares  will  be  convertible  into  newly-  issued  shares 
 representing  80  percent  of  the  shares  of  Genuity  outstanding  immediately  after  the  IPO. 

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

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

 (Continued  from  previous  page) 
 Atlantic/  GTE  Apr.  28,  2000  Ex  Parte  Letter;  Bell  Atlantic/  GTE  June  7,  2000  Glover  Ex  Parte  Letter;  Bell 
 Atlantic/  GTE  June  14,  2000  Ex  Parte  Letter. 

 82  The  assets  transferred  to  Genuity  would  include  all  of  GTEs  Internet  backbone  and  related  data  business, 

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

 83  Bell  Atlantic/  GTE  June  7,  2000  Glover  Ex  Parte  Ex.  A  at  1. 

 84  Id. 
 85  Id.  Bell  Atlantic  in-  region  lines  refers  to  the  sum  of  the  number  of  total  billable  access  lines  reported  in 
 1999  ARMIS  Report  43-  04  for  the  Bell  Atlantic  operating  company  in  each  of  Bell  Atlantics  in-  region  states.  Id. 
 at  n.  1. 
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 20 
 representing  10  percent  of  the  then-  outstanding  shares  of  Genuity. 
 x  95-  Percent  Threshold  for  Bell  Atlantic/  GTE  Conversion.  If  the  merged  firm  satisfies  the  50-percent 
 threshold,  the  ability  of  Bell  Atlantic/  GTE  itself  to  convert  remains  subject  to  a  further 
 restriction.  The  merged  firm  can  exercise  the  right  to  convert  the  Class  B  shares  into  shares 
 representing  approximately  80  percent  of  the  shares  of  Genuity  outstanding  immediately  after 
 the  IPO  86  only  if  it  eliminates  section  271  restrictions  as  to  at  least  95  percent  of  Bell  Atlantic 
 in-  region  lines  within  five  years  from  merger  closing,  and  eliminates  any  section  271 
 restrictions  with  respect  to  all  remaining  lines.  87  If,  therefore,  Bell  Atlantic/  GTE  satisfies  this 
 95-  percent  threshold,  it  can  exercise  the  Class  B  conversion  right  for  the  purpose  of 
 immediately  bringing  Genuitys  business  into  compliance  with  section  271.  As  set  forth  in  an 
 agreement  between  the  merged  firm  and  Genuity,  however,  the  merged  firm  may  require 
 Genuity  to  reconfigure  its  operations  to  conform  to  section  271  in  the  states  for  which  the 
 merged  firm  has  not  obtained  section  271  authorization  only  if  those  states  in  the  aggregate 
 represent  no  more  than  3  percent  of  Genuitys  revenues  and  if  Bell  Atlantic/  GTE  reimburses 
 Genuity  for  the  costs  of  coming  into  compliance  with  section  271.  88  Under  the  proposal,  at 
 least  90  days  before  the  merged  firm  intends  to  convert  and  require  Genuity  to  reconfigure  its 
 operations,  it  will  notify  the  Commission  and  submit  to  the  Chief  of  the  Common  Carrier 
 Bureau  a  plan  for  how  it  would  reconfigure  Genuitys  operations  in  the  relevant  states.  89 

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

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

 86  The  post-  conversion  interest  would  be  lower  than  80  percent  if  Genuity  were  to  issue  additional  Class  A  shares 
 prior  to  any  conversion.  Id.,  Ex.  A  at  4. 
 87  See  id. 

 88  Id. 
 89  Id. 
 90  Id.  at  2. 
 91  The  merged  firm  will  elect  to  pay  the  relevant  portion  of  any  in-  region  appreciation  by  making  a  payment  to 
 Genuity  for  distribution  to  the  Class  A  shareholders  or  by  adjusting  the  conversion  ratio  to  reduce  by  a 
 corresponding  amount  the  number  of  shares  that  the  merged  firm  receives  upon  conversion.  Id. 
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 access  lines  compared  to  the  number  of  the  merged  firms  access  lines  nationwide.  92 
 x  Options  between  50  and  95  percent.  If  the  merged  firm  meets  the  50-  percent  threshold  but 
 not  the  95-  percent  threshold,  it  can  dispose  of  all  or  a  portion  of  its  Class  B  shares,  93  but  the 
 merged  firm  can  only  retain  sale  proceeds  that  do  not  exceed  the  value  of  its  original 
 investment  (or  ratable  portion  thereof)  plus  a  return  based  on  the  Standard  &  Poors  500 
 Index.  94  Nonetheless,  if  Bell  Atlantic/  GTE  intends  to  dispose  of  all  or  a  portion  of  its  shares, 

 92  This  would  involve  first  determining  Bell  Atlantic/  GTEs  total  appreciation,  or  the  gain  in  value  of  the  Class 
 B  shares  from  the  IPO  price  on  an  as-  converted  basis,  which  would  be  calculated  by  a  nationally-  recognized 
 investment  banking  firm  (which  has  no  prior  association  with  the  merged  firm)  based  on  the  appreciation  of  the 
 Class  A  stock  adjusted,  if  necessary,  to  exclude  any  change  in  value  attributable  to  the  anticipated  payment  to  Class 
 A  shareholders.  Next,  the  appreciation  attributable  to  a  10-  percent  interest  would  be  subtracted  from  that  total 
 appreciation.  Then,  for  each  anniversary  of  the  IPO,  the  percentage  of  Bell  Atlantic  in-  region  lines  still  subject  to 
 section  271  restrictions  will  be  divided  by  the  total  number  of  Bell  Atlantic  in-  region  lines,  and  then  multiplied  by 
 25  percent  to  account  for  the  portion  of  Genuitys  domestic  business  operating  in  Bell  Atlantics  region.  These 
 annual  fractions  will  be  averaged  and  multiplied  by  the  total  appreciation,  less  10  percent,  with  the  result  adjusted 
 for  taxes  (as  if  the  merged  firm  had  sold  the  Genuity  stock  initially).  Id.,  Ex.  A  at  3.  Although  AT&  T  and  the 
 Competition  Policy  Institute  suggest  that  basing  the  25-  percent  multiplier  on  the  percentage  of  in-  region  access 
 lines  is  flawed,  and  that  a  better  approach  would  be  to  use  a  multiplier  equal  to  the  ratio  of  Genuitys  revenues 
 derived  from  the  Bell  Atlantic  region  as  compared  with  Genuitys  national  revenues,  we  note  that  the  25-  percent 
 figure  closely  approximates  the  actual  percentage  of  Genuitys  1999  revenues  attributable  to  the  Bell  Atlantic  states 
 other  than  New  York.  See  Letter  from  Peter  D.  Keisler,  Sidley  &  Austin,  Counsel  for  AT&  T,  to  Magalie  Roman 
 Salas,  Secretary,  FCC,  CC  Docket  No.  98-  184  at  1-  3  (filed  June  9,  2000)  (AT&  T  June  9,  2000  Ex  Parte  Letter); 
 Letter  from  Ronald  J.  Binz,  President,  Competition  Policy  Institute,  to  Magalie  Roman  Salas,  Secretary,  FCC,  CC 
 Docket  No.  98-  184  at  2  (filed  June  12,  2000).  But  see  Letter  from  Steven  G.  Bradbury,  Kirkland  &  Ellis,  Counsel 
 for  GTE,  to  Magalie  Roman  Salas,  Secretary,  FCC,  CC  Docket  No.  98-  184  (filed  Apr.  12,  2000)  (containing 
 confidential  revenue  materials).  Accordingly,  we  find  that  the  25-  percent  multiplier  is  a  reasonable  approximation 
 of  the  portion  of  Genuitys  business  that  would  be  attributable  to  the  Bell  Atlantic  section  271-  restricted  states. 

 93  The  merged  firm  may  also  exercise  its  conversion  rights  as  part  of  a  transaction  by  which  it  immediately 

 disposes  of  all  or  a  portion  of  its  interest  in  Genuity  so  that  its  post-  conversion  interest  in  Genuity  does  not  exceed 
 10  percent,  subject  to  the  limitations  described  below,  which  include  offering  the  remainder  first  to  Genuity  and 
 retaining  limited  sales  proceeds.  Bell  Atlantic/  GTE  June  7,  2000  Glover  Ex  Parte  Letter  Ex.  A  at  3. 

 94  Specifically,  if  the  merged  firm  sells  the  Class  B  shares  before  it  has  met  the  95-  percent  threshold,  it  will  not 

 have  the  right  to  retain  sale  proceeds  that  exceed  (i)  sale  proceeds  attributable  to  a  10-  percent  interest  in  Genuity, 
 plus  (ii)  an  amount  equal  to  what  the  merged  firm  would  have  had  if  it  had  invested  in  the  Standard  &  Poors  500 
 Index  its  initial  investment  in  Genuity  above  a  10-  percent  interest  (based  on  the  IPO  price).  Similarly,  if  it  sells  all 
 its  stock  except  an  amount  convertible  into  a  10-  percent  interest,  it  can  retain  only  the  amount  described  in  clause 
 (ii)  above.  In  either  case,  Bell  Atlantic/  GTE  would  pay  the  remainder  of  its  sales  proceeds  to  the  U.  S.  Treasury. 
 Id.,  Ex.  A  at  4.  Although  the  Applicants  submissions  refer  to  after-  tax  sales  proceeds,  we  agree  with  AT&  T  that 
 using  after-  tax  proceeds  would  result  in  a  windfall  to  the  merged  firm.  See  AT&  T  June  9,  2000  Ex  Parte  Letter  at 
 5.  Because  the  Applicants  reserved  the  right  to  retain  S&  P  500-  based  appreciation  in  the  pre-  tax  value  of  their 
 initial  investment  in  Genuity  above  a  10-  percent  interest,  and  thus  do  not  account  for  tax  effects  from  the 
 disposition  of  Genuity  at  the  front  end  of  the  calculation,  we  believe  it  is  reasonable  to  adjust  the  cap  at  the  back 
 end  to  reflect  the  fact  that  GTE  would  have  had  to  pay  taxes  when  it  sold  Genuity  and  would  have  had  less 
 money  to  invest.  Bell  Atlantic/  GTE  June  7,  2000  Glover  Ex  Parte  Letter  Ex.  A  at  5.  See  also  Letter  from 
 Michael  E.  Glover,  Associate  General  Counsel,  Bell  Atlantic,  to  Magalie  Roman  Salas,  Secretary,  FCC,  CC  Docket 
 No.  98-  184  (filed  June  14,  2000)  (clarifying  that  the  amount  the  merged  firm  could  retain  is  calculated  without 
 regard  to  tax  consequences  but  that  the  payment  to  the  U.  S.  Treasury  would  be  calculated  on  a  tax-  adjusted  basis  to 
 (continued.) 
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 it  must  first  offer  to  sell  the  shares  to  Genuity  for  an  amount  that  is  the  lesser  of  the  value  of 
 its  original  investment  (or  ratable  portion  thereof)  plus  a  return  based  on  the  Standard  & 
 Poors  500  Index  or  the  fair  market  value  of  such  shares  at  the  time  of  their  disposition.  95 
 Genuity  may  pay  the  purchase  price  through  a  marketable  debt  instrument  that  will  bear 
 interest  at  a  commercially  reasonable  rate.  96  If  Genuity  declines  to  purchase  Bell 
 Atlantic/  GTEs  shares,  the  merged  firm  would  be  able  to  transfer  the  shares  to  a  disposition 
 trustee  for  sale  to  third  parties,  subject  to  the  limitation  on  the  firms  receipt  of  sales  proceeds.  97 

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

 (Continued  from  previous  page) 
 reflect  the  fact  that  the  portion  of  sales  proceeds  above  the  cap  may  be  subject  to  taxes).  Therefore,  as  reflected  in 
 Appendix  B,  we  clarify  that  the  Applicants  are  not  entitled  to  retain  pre-  tax  sales  proceeds  that  exceed  the  specified 
 amount.  We  further  clarify,  however,  that  to  the  extent  that  the  Applicants  must  remit  sales  proceeds  in  excess  of 
 the  cap,  that  remission  will  be  adjusted  to  reflect  taxes  due  on  any  such  excess  amount. 

 95  The  Applicants  clarified  that  their  proposal  would  not  prevent  Genuity  from  purchasing  the  merged  firms 

 shares  (either  directly  from  Bell  Atlantic/  GTE  or  from  the  disposition  trustee)  at  a  lesser  mutually-  agreeable  price 
 in  the  event  that  the  value  of  the  shares  were  less  than  the  specified  amount.  See  Letter  from  Michael  E.  Glover, 
 Associate  General  Counsel,  Bell  Atlantic,  to  Magalie  Roman  Salas,  Secretary,  FCC,  CC  Docket  No.  98-  184  (filed 
 June  8,  2000),  at  1.  As  reflected  in  Appendix  B,  we  clarify  the  proposal  even  further  to  explicitly  provide  that 
 Genuity  has  the  right  to  purchase  the  shares  directly  from  the  merged  firm  upon  its  initial  offer  (prior  to 
 involvement  of  a  disposition  trustee)  at  the  fair  market  value,  if  lower  than  the  specified  amount. 

 96  Bell  Atlantic/  GTE  June  7,  2000  Glover  Ex  Parte  Letter  at  1.  Genuity  will  have  90  days  after  the  date  it 

 receives  an  offer  to  agree  to  purchase  the  merged  firms  shares.  If  Genuity  intends  to  purchase  the  shares,  the 
 merged  firm  will  grant  any  consents  necessary  under  its  investor  safeguards,  and  Genuity  will  have  180  days  after 
 the  date  it  received  the  offer  to  make  any  applicable  financial  or  other  arrangements.  Although  the  Applicants  do 
 not  make  representations  concerning  the  interest  rate  or  term  of  the  debt  instrument,  we  clarify  in  Appendix  B  that 
 the  applicable  interest  rate  and  term  must  be  commercially  reasonable,  or  comparable  to  rates  and  terms  under 
 similar  instruments  held  by  companies  with  debt  ratings  comparable  to  Genuity.  If  necessary,  the  conversion 
 period  will  be  extended  to  allow  for  the  sale  to  Genuity  or  another  party. 

 97  Id.,  Ex.  A  at  2-  3.  To  the  extent  Class  B  shares  are  purchased  by  a  person  who  is  not  subject  to  section  271 

 restrictions,  the  purchaser  would  be  free  to  convert  the  Class  B  shares  into  Class  A  shares  immediately. 
 98  As  reflected  in  Appendix  B,  we  clarify  that  if  the  merged  entity  has  achieved  approvals  representing  90 

 percent  of  Bell  Atlantic  in-  region  access  lines  (or  95  percent  but-  for  one  state),  the  Commission  has  discretion 
 whether  to  grant  the  merged  firm  an  additional  year  in  which  to  obtain  the  remaining  section  271  approvals. 
 Although  the  Applicants  proposal  also  enables  the  Commission  to  toll  or  extend  the  conversion  period  to  account 
 for  intervening  events  that  delay  elimination  of  section  271  restrictions,  we  foresee  no  circumstances  under  which 
 the  Commission  would  extend  the  conversion  period  in  such  a  manner. 
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 entity  shall  be  deemed  to  have  eliminated  those  restrictions  within  the  conversion  period.  99 
 31.  Officers  and  Directors.  Under  the  proposed  structure  for  the  Genuity  board  of 
 directors,  Genuity  ultimately  will  have  a  thirteen-  member  board,  twelve  of  whom  are  periodically 
 elected  by  the  Class  A  shareholders.  Bell  Atlantic/  GTE,  as  the  holder  of  the  Class  B  shares,  will 
 designate  the  other  member.  In  order  to  establish  an  independent  board,  GTE  will  appoint  six 
 directors  before  the  IPO:  one  will  be  the  CEO  of  Genuity,  one  will  be  designated  by  GTE  (as  the 
 Class  B  designee),  and  the  other  four  will  be  independent  directors  who  have  no  prior  relationship 
 with  Bell  Atlantic  or  GTE.  100  Within  90  days  after  the  IPO,  the  four  independent  directors  will 
 select  seven  additional  directors  who  have  no  prior  relationship  with  Bell  Atlantic  or  GTE.  This 
 will  bring  the  total  board  membership  to  13  directors,  a  majority  of  whom  will  have  been  selected 
 after  the  IPO. 

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

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

 34.  Investor  Safeguards.  The  Class  B  shares  also  contain  certain  investor  safeguards 
 designed  to  protect  the  merged  firms  interest  as  a  minority  investor  and  potential  future  majority 
 shareholder.  104  The  merged  company  will  have  these  rights  only  until  it  converts  its  Class  B 
 shares  or  no  longer  has  the  possibility  of  converting  into  more  than  a  10-  percent  interest.  105  These 
 safeguards  include  the  right  to  approve  certain  fundamental  business  changes  such  as  a  change  in 
 control  of  Genuity  or  the  sale  of  a  significant  portion  of  its  assets.  Some  safeguards  require  a 

 99  Bell  Atlantic/  GTE  June  7,  2000  Glover  Ex  Parte  Letter  Ex.  A  at  5. 
 100  Id. 
 101  Bell  Atlantic/  GTE  Apr.  28,  2000  Ex  Parte  Letter  Ex.  A  at  1. 
 102  Id.,  Ex.  B  at  1. 
 103  Bell  Atlantic/  GTE  June  7,  2000  Glover  Ex  Parte  Letter  Ex.  A  at  5. 
 104  Id. 
 105  See  Appendix  B  (Genuity  Conditions)  at  Att.  1  (Investor  Safeguards).  We  note  that  the  merged  firms  right  to 
 receive  shares  of  up  to  80  percent  if  it  owns  shares  of  at  least  70  percent  extends  for  one  year  following  conversion. 
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 vote  of  the  Class  B  shares,  106  while  others  require  Genuity  to  obtain  consent  from  the  merged 
 company.  107  In  addition,  no  single  holder  or  group  of  Class  A  shareholders  may  vote  more  than 
 20  percent  of  the  Class  A  stock.  108  Moreover,  insofar  as  Genuitys  business  plan  does  not 
 contemplate  the  acquisition  of  a  traditional  voice  long  distance  service  provider,  pursuant  to  these 
 investor  safeguard  rights,  Bell  Atlantic/  GTE  will  withhold  its  consent  from  Genuitys  acquisition 
 of  such  a  carrier  absent  Commission  approval.  109 

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

 36.  Commercial  Contracts.  All  commercial  interactions  between  the  merged  Bell 
 Atlantic/  GTE  (and  any  affiliates)  and  Genuity  will  be  pursuant  to  commercially  reasonable 
 contracts.  For  example,  the  companies  will  enter  into  contracts  for  the  merged  company  to 
 provide  transitional  administrative  support  services.  Each  contract  will  have  a  term  of  one  year  or 

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

 107  Bell  Atlantic/  GTEs  consent  is  required  for:  (a)  agreements  or  arrangements  that  (i)  bind  or  purport  to  bind 

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

 108  Bell  Atlantic/  GTE  Apr.  28,  2000  Ex  Parte  Letter  Ex.  C  at  1. 

 109  Bell  Atlantic/  GTE  June  7,  2000  Glover  Ex  Parte  Letter  Ex.  A  at  6. 
 110  Id.,  Ex.  A  at  5. 
 111  Id.  This  25-  percent  limitation  would  not  affect  Genuitys  ability  to  purchase  Bell  Atlantic/  GTEs  Genuity 
 shares  using  a  debt  instrument  in  the  event  that  the  merged  firm  fails  to  obtain  section  271  approvals  representing 
 95  percent  of  its  access  lines  and  seeks  to  dispose  of  its  shares. 
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 less,  and  will  be  terminable  at  any  time  by  Genuity  without  penalty.  112  In  view  of  the  transitional 
 nature  of  the  contracts,  the  contracts  will  not  be  renewed  by  the  parties.  Although  the  contracts 
 enable  the  merged  firm  to  provide  some  human  resources  administrative  support,  the  merged  firm 
 will  not  have  any  role  in  hiring  or  firing  Genuity  employees.  113  In  addition,  Genuity  will  not  rely 
 upon  any  network  monitoring  from  the  merged  firm  after  October  31,  2000.  114 

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

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

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

 The  term  affiliate  means  a  person  that  (directly  or  indirectly) 

 112  Id.,  Ex.  A  at  6. 
 113  Id.,  Ex.  A  at  6-  7. 
 114  Id.,  Ex.  A  at  7. 
 115  Id.,  Ex.  A  at  6. 
 116  Id. 
 117  Id.,  Ex.  A  at  7.  As  discussed  in  Section  VIII,  the  merged  firms  compliance  with  the  spin-  off  proposal  and  the 
 ongoing  relationship  between  the  companies  following  the  spin-  off  will  be  included  within  the  scope  of  the 
 independent  audit  required  by  the  merger  conditions. 

 118  Through  section  271,  Congress  made  the  BOCs  authority  to  provide  in-  region,  interLATA  services 

 contingent  upon  the  BOC  opening  its  local  markets  to  competition  by,  for  example,  providing  access  and 
 interconnection  to  local  competitors.  47  U.  S.  C.    271. 
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 owns  or  controls,  is  owned  or  controlled  by,  or  is  under  common 
 ownership  or  control  with,  another  person.  For  purposes  of  this 
 paragraph,  the  term  own  means  to  own  an  equity  interest  (or  the 
 equivalent  thereof)  of  more  than  10  percent.  119 

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

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

 a.  Statutory  Meaning  and  History  of  Equity  Interest  and  its 
 Equivalent 

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

 119  47  U.  S.  C.    153(  1). 
 120  47  U.  S.  C.    153(  1). 
 121  All  parties  agree  that  Bell  Atlantic/  GTEs  outright  ownership  of  shares  representing  9.  5  percent  of  Genuity 
 plainly  constitutes  an  equity  interest  in  Genuity.  Parties  disagree,  however,  on  whether  the  potential  right  to 
 convert  those  Class  B  shares  upon  satisfaction  of  certain  conditions  would  itself  fall  within  the  meaning  of  equity 
 interest  (or  the  equivalent  thereof),  thereby  potentially  bringing  Bell  Atlantic/  GTEs  equity  holdings  above  the  10-percent 
 statutory  restriction. 
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 terms  equity  interest  (or  the  equivalent  thereof)  include  conditional  interests. 
 43.  Both  the  Applicants  and  AT&  T  have  asserted  facially  plausible,  yet  opposing, 
 meanings  for  the  terms  equity  interest  and  its  equivalent.  The  Applicants  interpret  these 
 terms  narrowly  and  argue  that  a  conversion  right,  or  an  option  to  acquire  an  equity  interest  in  the 
 future,  is  not  an  equity  interest  prior  to  conversion  if  it  confers  none  of  the  three  legal  rights 
 that,  they  contend,  traditionally  attend  equity  ownership:  to  vote,  to  participate  in  corporate 
 earnings,  and  to  participate  in  dissolution  proceeds.  122  This  interpretation,  they  maintain,  is 
 supported  by  the  statutes  use  of  the  present  tense  (  owns,  is  owned,  and  is  under  common 
 ownership),  which  they  claim  evidences  that  Congress  intended  to  capture  only  current 
 possession  of  equity  interests,  not  interests  that  give  rise  to  an  equity  interest  in  the  future.  123  In 
 further  support  of  their  interpretation,  the  Applicants  cite  the  treatment  of  options  in  other 
 contexts,  including  bankruptcy  and  accounting  principles,  124  in  court  cases  construing  the  notion 
 of  equity  ownership  and  the  rights  conferred  through  options,  125  and  Fletchers  Cyclopedia,  which 
 states  that  [  a]  n  option  to  purchase  stock  does  not  vest  in  the  prospective  purchaser  an  equitable 
 title  to,  or  any  interest  or  right  in  the  stock.  126 

 44.  Conversely,  AT&  T  and  other  commenters  interpret  these  terms  broadly, 
 contending  that  the  term  equity  interest  plainly  encompasses  a  conversion  right  embedded  in  an 
 underlying  equity  security,  as  well  as  other  convertible  interests  such  as  standalone  options. 

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

 123  Bell  Atlantic/  GTE  May  9,  2000  Reply  at  13  (citing  Sutton  v.  United  Air  Lines,  119  S.  Ct.  2139,  2146  (1999) 

 (holding  that  a  statute  defining  disability  in  the  present  indicative  verb  form  requires  that  a  person  be 
 presently    not  potentially  or  hypothetically    substantially  limited  in  a  major  life  activity)). 

 124  See,  e.  g.,  Bell  Atlantic/  GTE  May  9,  2000  Reply  at  21  (citing  In  re  Motels  of  America,  Inc.,  146  B.  R.  542,  544 

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

 125  See  Bell  Atlantic/  GTE  May  9,  2000  Reply  at  14  (citing  Ball  v.  Overton  Square,  Inc.,  731  S.  W.  2d  536,  540 

 (Tenn.  Ct.  App.  1987)  ([  A]  n  option  to  purchase  stock  does  not  vest  in  the  prospective  purchaser  an  equitable  title 
 to,  or  any  interest  or  right,  in  the  stock.);  Association  of  Flight  Attendants  v.  USAir,  Inc.,  24  F.  3d  1432,  1435 
 (D.  C.  Cir.  1994)  (  USAir  has  no  present  equity  interest  in  Shuttle,  but  it  has  an  option  to  purchase  a  controlling 
 interest  in  the  company  effective  October  10,  1996.);  Powers  v.  British  Vita,  P.  L.  C.,  969  F.  Supp.  4,  5  (S.  D.  N.  Y. 
 1997)  (  Many  cases  hold  that  an  option  contract  does  not  qualify  as  an  equity  interest.)). 

 126  Fletchers  Cyclopedia    5575.  According  to  Fletchers,  [  t]  he  essence  of  an  option  is  the  right  of  the  optionee 

 to  buy  or  not  to  buy  at  the  optionees  election.  The  fact  that  the  optionee  is  not  bound  to  buy  is  the  distinguishing 
 feature  of  the  contract.  Id. 
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 Specifically,  AT&  T  claims  that  options  are  treated  as  equity  under  securities  law,  127  bankruptcy 
 law,  128  corporate  law  129  and  financial  accounting  practices.  130  In  particular,  AT&  T  cites  the 
 American  Law  Institutes  Principles  of  Corporate  Governance,  which  defines  an  equity  interest 
 as  an  an  equity  security  in  a  corporation,  131  which  in  turn  is  defined  to  include  any  instrument 
 convertible  [into]  a  share  in  a  corporation.  132 

 45.  The  parties  also  disagree  on  the  scope  and  meaning  of  term  equivalent  under 
 section  3(  1).  The  Applicants  maintain  that  the  equivalent  of  an  equity  interest  refers  to  those 
 arrangements  that  confer  the  same  (or  very  similar)  participation  rights  as  equity  interests.  133 
 AT&  T,  on  the  other  hand,  interprets  the  term  more  flexibly  to  mean  something  equal  in  value  or 
 worth.  Consequently,  AT&  T  regards  as  decisional  the  value  that  the  market  would  place  on  Bell 
 Atlantic/  GTEs  Class  B  shares,  which  it  asserts  would  amount  to  nearly  80  percent  of  Genuity.  134 
 We  find  that  both  of  these  positions  are  plausibly  supported  by  common  uses  of  the  term.  The 
 first  of  Blacks  Law  Dictionarys  two  definitions  of  the  term  equivalent,  meaning  [  e]  qual  in 

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

 128  AT&  T  May  5,  2000  Opposition  at  18  n.  16  (citing  11  U.  S.  C.    101(  16);  Allen  v.  Levy,  226  B.  R.  857,  865 

 (Bankr.  N.  D.  Ill.  1998)  (  The  Bankruptcy  Code  defines  equity  security  as  a  share  in  a  corporation  and  includes 
 the  right  to  purchase  shares  within  the  definition);  In  re  The  Charter  Company,  44  B.  R.  256  (Bankr.  M.  D.  Fla. 
 1984)(  holding  that  shares  of  convertible  preferred  stock  are  equity  securities  under  the  bankruptcy  laws)).  But 
 see  Bell  Atlantic/  GTE  May  9,  2000  Reply  at  20  (stating  that  bankruptcy  law  treats  some  potential  future  interests 
   such  as  options    like  equity  for  the  purpose  of  prioritizing  the  holders  economic  interest  in  the  estate.). 

 129  AT&  T  May  5,  2000  Opposition  at  19  (citing  Entel  v.  Guilden,  223  F.  Supp.  129,  132  (S.  D.  N.  Y.  1963) 

 ([  W]  arrants  are  used  .  .  .  as  a  separate  form  of  equity  in  corporations.)). 
 130  AT&  T  claims  that  options  are  regarded  as  common  stock  equivalents  under  financial  accounting  standards. 

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

 131  American  Law  Institute,  Principles  of  Corporate  Governance    1.19  (1994). 

 132  American  Law  Institute,  Principles  of  Corporate  Governance    1.20  (1994). 
 133  Bell  Atlantic/  GTE  May  9,  2000  Reply  at  28-  29  (explaining  that  equity  equivalents  would  include  devices 
 that  conferred  the  three  participation  rights  through  contract  or  other  instruments  that  carry  the  distribution  and 
 liquidation  rights  of  equity  ownership  absent  voting,  such  as  partnership  interests,  debt  interests  that  confer  the 
 right  to  participate  in  earnings,  and  nonvoting  preferred  stock).  See  also  Bell  Atlantic/  GTE  Supplemental  Filing 
 at  35  n.  21;  Bell  Atlantic/  GTE  Apr.  3,  2000  Ex  Parte  Letter  Ex.  E  at  para.  18  (Second  Supp.  Decl.  of  Ronald  J. 
 Gilson). 

 134  Letter  from  Peter  D.  Keisler,  Sidley  &  Austin,  Counsel  for  AT&  T,  to  Magalie  Roman  Salas,  Secretary,  FCC, 

 CC  Docket  No.  98-  184  (filed  Mar.  10,  2000),  at  3  (  Two  things  are  equivalent,    of  course,  if  they  are  equal  in 
 value.). 
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 value,  force,  amount,  effect,  or  significance,  135  could  be  read  to  support  AT&  Ts  assertion  that 
 the  primary  indicia  of  ownership  is  the  amount  of  Genuitys  value  attributed  by  the  market  to  the 
 Class  B  shares.  By  incorporating  functional  concepts,  however,  the  second  definition, 
 [  c]  orresponding  in  effect  or  function;  nearly  equal;  virtually  identical  136  seemingly  supports  a 
 more  narrow  interpretation  related  to  the  indicia  of  ownership  asserted  by  the  Applicants  (i.  e., 
 voting  rights,  earnings  rights  and  liquidation  rights).  Other  definitions  of  equivalent  similarly 
 reference  both  value  and  effect.  137 

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

 47.  The  issue  of  whether  a  conditional  conversion  right  constitutes  an  equity  interest 
 (or  the  equivalent  thereof)  under  section  3(  1)  presents  a  novel  question  for  the  Commission.  139 

 135  Blacks  Law  Dictionary  (7th  ed.  1999). 
 136  Id. 
 137  Websters  multiple  definitions  of  the  term  equivalent  include  equal  in  value  as  well  as  corresponding  or 
 virtually  identical  esp.  in  effect  or  function.  Websters  Third  New  International  Dictionary,  (1993).  Similarly, 
 the  Oxford  English  Dictionary  defines  equivalent  as  [  e]  qual  in  value,  [  t]  hat  is  virtually  the  same  thing; 
 identical  in  effect;  tantamount,  and  [  h]  aving  the  same  relative  position  or  function;  corresponding.  The  Oxford 
 English  Dictionary  (Vol.  III  1969). 

 138  47  U.  S.  C.    274(  i)(  4)  (defining  the  term  control  as  having  the  meaning  that  it  has  in  17  C.  F.  R.  240.12b-  2, 

 the  regulations  promulgated  by  the  Securities  and  Exchange  Commission  pursuant  to  the  Securities  Exchange  Act 
 of  1934  (15  U.  S.  C.  78a  et  seq.)  or  any  successor  provision  to  such  section.). 

 139  The  Commission  has  never  clearly  delineated  the  status  of  a  conditional  conversion  right  under  section  3(  1). 

 In  1997,  the  Cable  Services  Bureau  was  confronted  with  the  question  of  whether  a  multichannel  video 
 programming  distributor  was  affiliated  with  Bell  Atlantic  or  NYNEX,  each  of  whom  held  shares  of  convertible 
 preferred  stock  and  jointly  held  a  warrant  to  purchase  additional  shares.  Time  Warner  Cable,  CUID  Nos.  NY0335 
 et  al.,  Memorandum  Opinion  and  Order,  12  FCC  Rcd.  23363  (CSB  1997).  At  that  time,  unlike  the  permanent 
 rules  that  adopted  a  different  affiliate  definition,  the  Commissions  interim  rules  regarding  the  LEC  effective 
 competition  test  of  section  623  of  the  Act  applied  section  3(  1)  s  definition  of  affiliate.  47  U.  S.  C.    543(  l)(  1)(  D). 
 (continued.) 
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 Although  the  Commission  has  considered  the  treatment  of  options  and  conversion  rights  in  other 
 contexts,  we  find  that  these  do  not  control  our  analysis  of  equity  interest  or  its  equivalent 
 under  section  3(  1).  As  the  Applicants  point  out,  the  Commission  traditionally  has  not  attributed 
 options,  warrants  and  other  convertible  securities  as  current  ownership  interests  under  the  CMRS 
 spectrum  cap  rules,  140  the  LEC/  LMDS  cross-  ownership  rules,  141  the  application  of  section  310s 
 foreign  ownership  restrictions,  142  and  the  broadcast  143  and  cable  144  attribution  rules.  We 
 nonetheless  agree  with  AT&  Ts  observation  that  the  equity  plus  debt  rule  recently  adopted  as 
 part  of  the  broadcast  and  cable  attribution  rules  implies  that  such  interests,  if  of  a  certain  size,  may 
 be  considered.  145  As  AT&  T  further  observes,  the  Commissions  rules  for  designated  entities  in 
 spectrum  auctions  treat  options  as  if  the  rights  thereunder  already  have  been  fully  exercised.  146 
 We  find,  therefore,  that  the  Commissions  treatment  of  convertible  instruments  differs  depending 
 on  the  structure  and  purposes  of  the  specific  statute  at  issue.  Insofar  as  none  of  precedents  cited 
 seek  to  interpret  section  3(  1)  or  the  specific  terms  equity  interest  and  its  equivalent,  we  do 
 not  find  that  any  particular  precedent  is  controlling  for  our  purposes.  In  addition,  we  note  that  the 
 equity  plus  debt  rule  in  the  broadcast  and  cable  attribution  context  seeks  to  identify  not  only 
 entities  with  ownership  and  control,  but  also  entities  with  influence  over  a  licensee.  Further,  we 
 note  that,  unlike  the  broadcast  and  cable  attribution  context,  here  we  are  not  concerned  with 
 promoting  localism  or  a  diversity  of  viewpoints.  We  conclude  therefore  that  none  of  these 
 (Continued  from  previous  page) 
 See  Implementation  of  Cable  Act  Reform  Provisions  of  the  Telecommunications  Act  of  1996,  CS  Docket  No.  96-85, 
 Order  and  Notice  of  Proposed  Rulemaking,  11  FCC  Rcd  5937,  5944  (1996).  Without  attempting  to  resolve  the 
 definitional  issues  arising  under  section  3(  1),  the  Bureau  concluded  that  the  interests  held  by  Bell  Atlantic  and 
 NYNEX  did  not  give  rise  to  an  affiliate  relationship.  Although  the  Applicants  here  attempt  to  rely  upon  that  case 
 as  controlling  precedent  for  their  spin-  off  proposal,  we  find  that  Time  Warner  is  limited  to  its  unique  facts  and  not 
 useful  for  resolving  the  question  presently  before  us.  The  Bureau  expressly  did  not  resolve  the  scope  of  equity 
 interest  or  its  equivalent  under  section  3(  1),  and,  in  fact,  the  Bureaus  conclusion  rested  principally  upon  the 
 intent  of  the  parties,  through  a  binding  agreement,  to  dispose  of  their  entire  interest  in  the  entity  in  question, 
 something  that  the  Applicants  have  not  expressed  an  intent  to  do. 

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

 141  Id.  (citing  47  C.  F.  R.    101.1003(  e)(  5)). 
 142  Id.  (citing  BBC  License  Subsidiary,  File  Nos.  BALCT-  941031KF  et  al.,  Memorandum  Opinion  and  Order,  10 
 FCC  Rcd  10968,  10972,  para.  20  n.  12  (1995);  GWI  PCS,  Inc.,  File  Nos.  00200CWL96,  Memorandum  Opinion  and 
 Order,  12  FCC  Rcd  6441,  6445-  46,  para.  10  (1997)). 

 143  Id.  (citing  47  C.  F.  R.    73.3555,  Note  2(  b)  &  (f)). 

 144  Id.  (citing  47  C.  F.  R.    76.501,  Note  2(  e)). 
 145  AT&  T  May  5,  2000  Opposition  at  20.  See  also  infra  Section  V.  B.  1  (discussing  equity  plus  debt  attribution 
 rules  for  broadcasting  and  cable). 
 146  24  C.  F.  R.    24.709(  b)(  7).  See  also  Washingtons  Christian  Television  Outreach,  Inc.,  File  Nos.  BPCT-  5042, 

 Memorandum  Opinion  and  Order,  94  F.  C.  C.  2d  1360  (1983)  (establishing  a  rebuttable  presumption  in  the  context 
 of  comparative  broadcast  hearings,  where  Commission  staff  sought  to  establish  a  fixed  factual  base  for  comparative 
 purposes  that  viewed  the  applicants  structure  in  its  most  unfavorable  light,  the  Commission  would  take 
 cognizance  of  options  that  are  adverse  to  the  applicants  interests  in  the  absence  of  evidence  that  the  options  will 
 not  be  exercised.). 
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 precedents  controls  our  analysis. 
 48.  Thus,  employing  the  traditional  tools  of  statutory  construction,  147  we  conclude  that 
 the  undefined  terms  equity  interest  or  its  equivalent,  as  discussed  above,  are  susceptible  to 
 varying  interpretations.  Neither  the  text  of  statute  nor  the  context  in  which  the  terms  equity 
 interest  (or  the  equivalent  thereof)  are  used  provide  any  specific  guidance  on  the  characterization 
 of  a  conditional  conversion  right. 

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

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

 50.  While  this  history  is  instructive,  150  in  the  end  we  find  the  Applicants  argument  that 
 the  MFJ  controls  in  interpreting  equity  interest  and  equivalent  thereof  unpersuasive  and  that 
 the  wholesale  adoption  of  factors  employed  under  the  MFJ  would  be  reading  too  much  into  the 

 147  See  Natural  Resources  Defense  Council,  Inc.  v.  Browner,  57  F.  3d  1122,  1125  (D.  C.  Cir.  1995)  (quoting 
 Chevron  USA  Inc.  v.  Natural  Resources  Defense  Council,  Inc.,  467  U.  S.  837,  843  n.  9  (1984)). 
 148  See  United  States  v.  American  Telephone  and  Telegraph  Co.,  552  F.  Supp.  131,  228  (D.  D.  C.  1982) 

 (Modification  of  Final  Judgment),  at  Section  IV(  A)  (stating  that  [  f]  or  the  purposes  of  this  paragraph,  the  terms 
 ownership  and  owned  mean  a  direct  or  indirect  equity  interest  (or  the  equivalent  thereof)  of  more  than  fifty  (50) 
 percent  of  an  entity.). 

 149  H.  R.  Rep.  No.  559(  I),  103d  Cong.,  2d  Sess.  130  (1994).  See  also  H.  R.  Rep.  103-  559  (II),  103d  Cong.,  2d  Sess. 

 227  (1994)  (same). 
 150  In  this  regard,  we  note  that  the  MFJ  court  drew  a  distinction  between  the  acquisition  of  a  conditional  option 

 and  the  acquisition  of  an  equity  interest.  The  Court  wrote  in  Tel-  Optik  that  NYNEX  [  was]  not  proposing,  at 
 this  juncture,  acquisition  of  an  equity  interest  in  Tel-  Optik,  but  rather  that  NYNEX  had  paid  for  the  right  to 
 acquire  all  of  Tel-  Optiks  stock  if  certain  conditions  are  met.  See  United  States  v.  Western  Electric  Co.,  No. 
 Civ.  A.  82-  0192,  1986  WL  11238,  at  *1  (D.  D.  C.  Aug.  7,  1986)  (Tel-  Optik)  (emphasis  added  and  footnote  omitted). 
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 legislative  history.  The  1996  Act  expressly  overhauled  the  MFJ  in  favor  of  a  pro-  competitive  and 
 deregulatory  regime  designed  to  open  all  telecommunications  markets  to  competition,  151  and  we 
 decline  to  import  into  the  Act  an  understanding  of  the  term  affiliate  derived  solely  from  the 
 MFJ. 

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

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

 53.  Therefore,  we  resolve  this  issue  from  the  perspective  of  communications 
 jurisprudence  and  the  statutory  purposes  underlying  the  provisions  at  issue.  In  making  these 
 determinations,  we  will  evaluate,  on  a  case-  by-  case  basis,  whether  exclusion  of  the  particular 
 conditional  interest  from  the  status  of  an  equity  interest  or  equivalent  would  undermine  Congress 
 intentions.  Where  failure  to  treat  a  specific  conditional  interest  as  an  equity  interest  (or  the 

 151  See  47  U.  S.  C.    152  note. 
 152  Because  these  attribution  rules  are  not  derived  from  section  3(  1)  s  affiliate  definition  and  are  designed  in  part 
 to  identify  persons  with  influence  over  the  core  operations  of  a  licensee,  we  decline  to  adopt  the  bright  line  33-percent 
 threshold  adopted  therein.  See  infra  Section  V.  B.  1  (discussion  of  debt-  equity  rule). 
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 equivalent  thereof)  --  and  thus  as  an  affiliate  --  would  thwart  the  underlying  statutory  provision 
 in  which  the  term  affiliate  is  used,  we  would  find  that  such  a  conditional  interest  constitutes  an 
 equity  interest  or  equivalent.  We  conclude,  therefore,  that  a  close  evaluation  of  statutory 
 purposes  is  an  important  part  of  any  test  for  determining  the  characterization  of  a  conditional 
 interest. 

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

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

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

 57.  The  test  we  have  set  forth  expressly  recognizes  that  some  relationships  will  result 
 in  conditional  interests  that  create  an  affiliate  relationship,  while  other  such  interests  may  not.  In 
 this  regard,  our  case-  specific  evaluation  bears  some  similarity  to  that  applied  under  the  MFJ.  In 
 examining  the  status  of  a  BOCs  acquisition  of  a  conditional  interest,  Judge  Greene  recognized 
 that  not  all  conditional  interests  would  create  relationships  that  would  thwart  the  BOC  line-  of-business 
 restrictions  with  which  he  was  concerned.  154  By  establishing  a  framework  for  BOC 

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

 154  In  Tel-  Optik,  for  example,  the  MFJ  Court  considered  whether  NYNEXs  purchase  of  a  conditional  right  to 

 acquire  100  percent  of  the  stock  of  an  undersea  cable  company  would  constitute  entry  into  a  restricted  line  of 
 (continued.) 
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 acquisitions  of  conditional  interests,  Judge  Greene  implicitly  recognized  that  some  conditional 
 interests  would  lead  to  an  affiliated  enterprise  relationship,  while  others  would  not.  155  While  we 
 consider  a  different  set  of  factors  than  those  evaluated  by  Judge  Greene,  our  goals  and  analyses 
 have  aspects  in  common.  Both  the  MFJ  regime  and  the  1996  Act  evidence  concerns  about  BOC 
 use  of  bottleneck  control  in  the  local  and  exchange  access  markets  to  obtain  an  unfair  advantage 
 in  the  long  distance  market.  Under  both  the  MFJ  test  and  our  own,  we  require  that  any  interests 
 be  truly  conditional,  with  genuine  contingencies;  and  we  give  serious  consideration  to  an 
 acquiring  carriers  ability  or  incentive  to  discriminate  so  as  to  advantage  the  target  company  or 
 disadvantage  that  companys  competitors.  In  the  context  of  construing  the  1996  Act  and  its 
 numerous  statutory  requirements,  however,  we  must  do  more,  and  accordingly  we  find  pivotal  to 
 our  analysis  consideration  of  whether  the  interest  furthers  the  purposes  of  the  Act,  including  the 
 particular  statutory  provision  where  the  term  affiliate  is  used. 

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

 2.  Analysis  of  the  Applicants  Spin-  off  Proposal 
 59.  In  applying  the  factors  to  the  Applicants  spin-  off  proposal,  we  find  on  this  record 
 that  the  merged  firms  Class  B  conversion  rights  are  not  an  equity  interest  (or  the  equivalent 

 (Continued  from  previous  page) 
 business.  Tel-  Optik,  1986  WL  11238  at  *1.  See  also  United  States  v.  Western  Electric  Co.,  894  F.  2d  430,  435  n.  9 
 (D.  C.  Cir.  1990)  (  even  the  appellees  concede  that  not  all  conditional-  interest  transactions  make  the  target  firm 
 into  an  affiliated  enterprise  under  Section  II(  D).). 

 155  Under  the  established  MFJ  procedures,  prior  to  acquiring  a  conditional  interest  in  a  prohibited  entity,  the  BOC 

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

 156  AT&  T  Mar.  22,  2000  Ex  Parte  Letter  at  3,  11.  See,  e.  g.,  supra  n.  153  (identifying  statutory  provisions  using 

 the  term  affiliate).  We  note  that  sections  273  and  274  of  the  Act  contain  section-  specific  definitions  of  the  term 
 affiliate.  47  U.  S.  C.    273,  274.  In  addition,  Title  VI  of  the  Act  contains  a  different  definition  of  affiliate  that 
 pertains  to  cable  communications.  47  U.  S.  C.    522(  2). 

 157  We  further  note  that  nothing  on  the  record  suggests  that  our  analysis  of  the  proposed  spin-  off  would  be 

 inconsistent  with  our  treatment  of  similar  interests  in  the  other  contexts  in  which  the  term  affiliate  is  used. 
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 thereof)  under  section  3(  1)  of  the  Act  because  (i)  their  conversion  rights  are  genuinely  in 
 question,  (ii)  their  interest  furthers  the  statutory  purposes  by  increasing  the  merged  entitys 
 incentive  to  achieve  section  271  compliance  throughout  the  Bell  Atlantic  territory,  and  (iii)  the 
 interest  will  not  increase  the  likelihood  that  the  merged  firm  would  discriminate  against  Genuitys 
 rivals. 

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

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

 62.  We  conclude  that  the  95-  percent  access  line  threshold  that  the  merged  firm  must 
 achieve  in  order  to  exercise  the  full  conversion  right  represents  a  genuine  contingency.  158  We 
 therefore  reject  AT&  Ts  argument,  premised  on  an  earlier  version  of  the  proposal,  that  the 
 conversion  right  lacks  the  element  of  speculation  that  characterizes  a  conditional  interest.  159  With 

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

 159  AT&  T  argued  under  an  earlier  version  of  the  proposal  that  the  conversion  of  the  Class  B  shares  would  be 

 certain  to  occur.  See  AT&  T  May  5,  2000  Comments,  Ex.  A  at  3  (Third  Declaration  of  John  C.  Coffee,  Jr.). 
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 respect  to  the  current  proposal,  nothing  in  the  record  suggests  that  obtaining  section  271 
 approvals  representing  95  percent  of  Bell  Atlantics  access  lines  within  five  years  will  be  an  easy 
 task.  160  In  this  regard,  we  observe  that  in  the  four  years  following  the  Act,  only  one  such 
 application  has  been  approved,  161  while  several  others  have  been  rejected.  162  While  we  agree  with 
 AT&  T  that  section  271  approval  in  any  given  state  is  primarily  within  Bell  Atlantics  control,  we 
 do  not  find  that  this  fact  requires  us  to  disregard  the  contingent  nature  of  the  95-  percent 
 threshold.  While  the  tools  for  satisfying  section  271  approval  rest  with  Bell  Atlantic,  a  great 
 variety  of  factors  can  impact  the  ultimate  timing  of  section  271  approval.  In  particular,  even 
 though  Bell  Atlantic  has  obtained  approval  in  one  state,  our  review  focuses  heavily  on  the 
 performance  of  a  BOCs  operations  support  systems,  and  Bell  Atlantic  does  not  use  the  same 
 systems  in  all  of  its  states.  In  addition,  technical  issues,  such  as  problems  with  its  systems  or  other 
 network  modifications  that  are  necessary  to  comply  with  the  BOCs  obligations  under  the  Act, 
 might  impede  the  progress  made  towards  compliance.  Further,  regulatory  entities  or  persons  in 
 addition  to  this  Commission  are  involved  in  the  section  271  process,  most  significantly  various 
 state  regulatory  entities  and  the  Attorney  General  (to  whose  evaluation  the  Commission  must 
 afford  substantial  weight).  Therefore,  while  a  BOC  does,  in  the  final  analysis,  hold  the  key  to 
 its  own  section  271  success,  a  number  of  external  or  technical  factors  continue  to  pose  challenges 

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

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

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

 161  See  Application  by  Bell  Atlantic  New  York  for  Authorization  under  Section  271  of  the  Communications  Act  to 

 Provide  In-  Region,  InterLATA  Service  in  the  State  of  New  York,  CC  Docket  No.  99-  295,  Memorandum  Opinion 
 and  Order,  15  FCC  Rcd  3953  (1999)  (granting  Bell  Atlantics  application  for  section  271  authority  in  New  York). 

 162  See  Application  of  BellSouth  Corporation,  BellSouth  Telecommunications,  Inc.,  and  BellSouth  Long  Distance, 

 Inc.,  for  Provision  of  In-  Region,  InterLATA  Services  in  Louisiana,  CC  Docket  No.  98-  121,  Memorandum  Opinion 
 and  Order,  13  FCC  Rcd  20599  (1998)  (BellSouth  Second  Louisiana  Order)  (denying  application);  Application  by 
 BellSouth  Corporation,  et  al.,  Pursuant  to  Section  271  of  the  Communications  Act  of  1934,  as  amended,  to 
 Provide  In-  Region,  InterLATA  Services  in  Louisiana,  CC  Docket  No.  97-  231,  Memorandum  Opinion  and  Order, 
 13  FCC  Rcd.  6245  (1998)  (denying  application);  Application  of  BellSouth  Corporation,  et  al.  Pursuant  to  Section 
 271  of  the  Communications  Act  of  1934,  as  amended,  to  Provide  In-  Region,  InterLATA  Services  in  South 
 Carolina,  CC  Docket  No.  97-  208,  Memorandum  Opinion  and  Order,  13  FCC  Rcd  539  (1997)  (denying 
 application);  Ameritech  Michigan  Order,  12  FCC  Rcd  20543  (denying  application);  Application  by  SBC 
 Communications  Inc.,  Pursuant  to  Section  271  of  the  Communications  Act  of  1934,  as  amended,  to  Provide  In-Region, 
 InterLATA  Services  in  Oklahoma,  CC  Docket  No.  97-  121,  Memorandum  Opinion  and  Order,  12  FCC  Rcd 
 8685  (1997)  (denying  application). 
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 Federal  Communications  Commission  FCC  00-  221 
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 to  good  faith  efforts  to  satisfy  the  statutory  standards  that  govern  section  271  approval  by  this 
 agency.  We  believe  that,  in  judging  the  nature  of  the  contingency,  the  fact  that  this  Commission 
 must  approve  section  271  applications  covering  95  percent  of  Bell  Atlantics  access  lines  prior  to 
 it  having  any  right  to  convert  makes  this  right  genuinely  contingent  as  to  Bell  Atlantic. 

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

 64.  We  also  find  unavailing  arguments  by  merger  opponents  that  because  the 
 conversion  right  could  be  sold  for  value  after  the  merged  entity  met  the  50-  percent  threshold,  it 
 should  therefore  be  characterized  as  equity.  That  argument  is  not  persuasive  in  light  of  the  terms 
 of  the  current  proposal.  165  Specifically,  under  the  proposal  that  we  consider  herein,  we  find  that,  if 
 the  conversion  right  were  exercised  between  50  and  95  percent,  it  would  most  properly  be 
 characterized  as  debt,  not  equity.  The  Commission,  in  other  contexts,  has  established  criteria  to 
 distinguish  bona  fide  debt  from  equity  that  examine  (1)  whether  there  is  a  written  unconditional 
 promise  to  repay  the  money  on  demand  and  to  pay  a  fixed  rate  of  interest;  (2)  whether  there  is 
 subordination  to  or  preference  over  any  indebtedness  of  the  company;  (3)  the  companys 
 debt/  equity  ratio;  (4)  whether  the  alleged  debt  is  convertible  to  stock;  and  (5)  the  relationship 
 between  holdings  of  stock  in  the  corporation  and  holdings  of  the  interest  in  question.  166  The 
 Applicants  proposal  provides  for  a  note  that  appears  to  satisfy  the  first,  second,  fourth  and  fifth 
 prongs.  The  note  must  be  payable  upon  demand  and  at  a  fixed  rate  of  interest  once  issued,  167 
 would  not  be  convertible  to  equity  and  would  be  unsubordinated  to  other  indebtedness  of 

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

 164  In  Richard  R.  Zaragoza,  for  example,  the  Mass  Media  Bureau  found  that  an  up-  front  payment  does  not 

 change  the  fact  that  the  option  may  not  be  exercised.  Richard  R.  Zaragoza,  File  Nos.  BRH-  970207YA,  BTCH-961029GI, 
 Letter,  14  FCC  Rcd  1732,  1737,  para.  20  (MMB  1998)  (rejecting  arguments  that  a  pre-  paid  option  with 
 only  a  nominal  payment  required  for  exercise  should  be  treated  as  perfected). 

 165  AT&  T  May  5,  2000  Opposition  at  23-  24;  Competition  Policy  Institute  May  5,  2000  Comments  at  6  (arguing 

 that,  under  an  earlier  version  of  the  proposal,  the  conversion  right  would  vest  once  Bell  Atlantic/  GTE  satisfies  the 
 50-  percent  access  line  threshold). 

 166  See  Fox  II,  11  FCC  Rcd  at  5720  ,  para.  16;  NextWave  Personal  Communications,  File  Nos.  00341CWL96  et 

 al.,  Memorandum  Opinion  and  Order,  12  FCC  Rcd.  2030,  2049,  para.  43  (1997)  (NextWave). 
 167  See  supra  n.  96. 
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 Genuity.  In  addition,  there  is  no  indication  that  the  debt  instrument  would  confer  any  of  the 
 benefits  normally  reflected  in  corporate  ownership.  168  While  satisfaction  of  the  criteria,  and  in 
 particular  the  third  factor,  can  be  assessed  conclusively  only  at  such  time  as  Genuity  may  choose 
 to  purchase  the  shares  from  the  merged  entity,  we  anticipate  that  Genuity  would  likely  finance  any 
 note,  or  arrange  to  pay  it  off  on  an  accelerated  basis,  by  raising  capital  through  such  measures  as  a 
 secondary  offering.  Under  that  circumstance,  we  would  expect  that  the  company's  debt-  equity 
 ratio  would  be  well  within  a  range  adequate  to  find  that  the  note  were  debt.  Consequently,  if  we 
 were  to  apply  these  factors  to  the  Applicants  potential  debt  instrument,  we  would  likely  find  that 
 the  debt  instrument  would  properly  be  considered  bona  fide  debt.  We  expect  the  Applicants  to 
 inform  the  Commission  if  this  contingency  arises  and  to  provide  the  Commission  with  any 
 agreements  between  the  Applicants  and  Genuity  or  the  liquidating  trustee. 

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

 168  NextWave,  12  FCC  Rcd  at  2057-  58,  para.  59. 
 169  The  proposal  therefore  differs  from  the  instruments  at  issue  in  Fox  I,  where  the  holders  of  the  preferred  stock, 
 representing  76  percent  of  voting  rights,  were  entitled  only  to  a  fixed  return  on  capital  investment,  whereas  all 
 other  profits  and  losses  of  the  company,  as  well  as  the  right  to  nearly  all  of  the  assets  upon  sale  or  dissolution, 
 flowed  to  the  holder  of  the  common  stock,  which  represented  24  percent  of  the  voting  rights.  Fox  Television 
 Stations,  Inc.,  File  No.  BRCT-  940201KZ,  Memorandum  Opinion  and  Order,  10  FCC  Rcd  8452,  8457-  58,  para.  13 
 (1995)  (Fox  I). 

 170  See  ALTS  May  5,  2000  Comments  at  9;  AT&  T  May  5,  2000  Opposition  at  15-  16,  Ex.  B  (Declaration  of  Dr. 

 Richard  N.  Clarke);  AT&  T  Mar.  22,  2000  Ex  Parte  Letter  at  1;  Competition  Policy  Institute  May  5,  2000 
 Comments  at  4-  5;  ITAA  May  5,  2000  Comments  at  7  (arguing  that  financial  markets  would  value  the  merged 
 firms  interest  in  Genuity  at  approximately  80  percent). 

 171  See  Letter  from  Patricia  E.  Koch,  Assistant  Vice  President  Federal  Regulatory,  Bell  Atlantic,  to  Magalie 

 Roman  Salas,  Secretary,  FCC,  CC  Docket  No.  98-  184  (filed  May  18,  2000)  (Bell  Atlantic/  GTE  May  18,  2000  Ex 
 Parte  Letter)  (Declaration  of  Mark  E.  Gaumond);  Letter  from  Steven  G.  Bradbury,  Kirkland  &  Ellis,  Counsel  for 
 GTE,  to  Magalie  Roman  Salas,  Secretary,  FCC,  CC  Docket  No.  98-  184  (filed  Apr.  14,  2000)  (Declaration  of 
 Frederic  V.  Salerno)  (explaining  the  merged  firms  planned  accounting  treatment  of  Genuity).  The  parties  initially 
 disagreed  over  the  treatment  of  contingent  interests  as  a  matter  of  accounting  practices,  with  AT&  T  arguing  that 
 (continued.) 
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 where  the  market  may  view  the  occurrence  as  not  contingent,  established  accounting  practices 
 support  that  these  assets  should  not  be  treated  as  equity  prior  to  actual  conversion. 

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

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

 (Continued  from  previous  page) 
 such  interests  would  be  treated  as  equity.  The  Applicants  countered,  however,  with  an  affidavit  from  an 
 accounting  firm,  that  this  transaction  would  not  be  treated  as  equity  for  accounting  purposes.  Bell  Atlantic/  GTE 
 May  18,  2000  Ex  Parte  Letter  (Declaration  of  Mark  E.  Gaumond).  In  response,  AT&  T  argued  in  effect  that  such 
 accounting  treatment  should  be  irrelevant  to  our  consideration  under  section  3(  1).  Letter  from  Peter  D.  Keisler, 
 Sidley  &  Austin,  Counsel  for  AT&  T,  to  Magalie  Roman  Salas,  Secretary,  FCC,  CC  Docket  No.  98-  184  (filed  May 
 30,  2000).  See  also  Letter  from  Patricia  E.  Koch,  Assistant  Vice  President  Federal  Regulatory,  Bell  Atlantic,  to 
 Magalie  Roman  Salas,  Secretary,  FCC,  CC  Docket  No.  98-  184  (filed  June  1,  2000);  Letter  from  Patricia  E.  Koch, 
 Assistant  Vice  President  Federal  Regulatory,  Bell  Atlantic,  to  Magalie  Roman  Salas,  Secretary,  FCC,  CC  Docket 
 No.  98-  184  (filed  June  14,  2000)  (illustrating  the  accounting  treatment  of  Bell  Atlantic/  GTEs  interest  in  Genuity). 
 We  therefore  rely  on  the  Applicants  assertions  that  the  conditional  interest  will  not  be  treated  as  equity  for 
 accounting  purposes,  and  find  that  such  treatment  is  consistent  with  our  findings  in  this  Order. 

 172  See,  e.  g.,  AT&  T  Corp.  v.  Ameritech,  File  No.  E-  98-  41,  Memorandum  Opinion  and  Order,  13  FCC  Rcd  21438, 

 at  para.  36  (1998)  (Qwest  Teaming  Order);  Ameritech  Michigan  Order,  12  FCC  Rcd  at  20551-  52,  para.  15. 
 173  See,  e.  g.,  Qwest  Teaming  Order,  13  FCC  Rcd  21438,  at  para.  36;  Ameritech  Michigan  Order,  12  FCC  Rcd  at 

 20553,  para.  17. 
 174  The  purpose  of  the  1996  Act  is  to  provide  for  a  pro-  competitive,  de-  regulatory  national  policy  framework 

 designed  to  accelerate  rapidly  private  sector  deployment  of  advanced  telecommunications  and  information 
 technologies  and  services  to  all  Americans  by  opening  all  telecommunications  markets  to  competition.  Joint 
 Statement  of  Managers,  S.  Conf.  Rep.  No.  104-  230,  104th  Cong.,  2d  Sess.  1  (1996).  See  also  Ameritech  Michigan 
 Order,  12  FCC  Rcd  at  20549-  56,  paras.  10-  23  (describing  the  purposes  of  section  271). 
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 of  long  distance  entry  as  an  incentive  to  prompt  the  BOCs  to  cooperate  in  facilitating  competition 
 in  their  local  markets.  175 

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

 69.  We  also  reject  arguments  by  merger  opponents  that  the  spin-  off  proposal  enables 
 Bell  Atlantic/  GTE  to  gain  impermissibly  the  appreciation  of  a  prohibited  entity  or  realize 
 substantial  material  benefits  prior  to  attaining  section  271  authorization.  Rather,  we  find  that,  by 
 requiring  the  merged  firm  to  ratably  disgorge  appreciation  attributable  to  the  period  before  it 
 obtains  section  271  approval  in  the  relevant  states,  the  proposal  gives  the  merged  firm  an  added 
 incentive  to  obtain  section  271  authorizations  as  quickly  as  possible.  In  particular,  AT&  T  and 
 others  criticized  an  earlier  version  of  the  Applicants  proposal  that  would  have  allowed  the 
 merged  entity,  if  and  when  it  obtained  the  requisite  approval  under  section  271,  to  convert  its 
 interests  into  shares  of  Genuity  that  would  fully  capture  any  prior  appreciation  in  the  value  of 

 175  See  BellSouth  Second  Louisiana  Order,  13  FCC  Rcd  at  20602,  para.  3;  Ameritech  Michigan  Order,  12  FCC 
 Rcd  at  20551,  para.  14. 
 176  We  note  that  under  the  Applicants  proposal,  the  Commission  has  discretion  to  grant  an  extra  year  in  the  event 

 that  the  merged  firm  obtains  90  percent  (or  95  percent  but-  for  one  state)  of  the  requisite  section  271  approvals. 
 177  The  requirement  that  Bell  Atlantic/  GTE  ratably  disgorge  appreciation  that  is  attributable  to  the  period  in  time 

 before  section  271  authorization  also  undercuts  AT&  Ts  argument  that  the  merged  firm  will  obtain  material 
 benefits  uniquely  associated  with  the  long  distance  market  prior  to  the  time  that  it  is  authorized  to  provide  those 
 services.  See  AT&  T  May  5,  2000  Opposition  at  5.  See  also  Qwest  Teaming  Order,  13  FCC  Rcd  21438,  at  para. 
 37. 
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 Genuity  shares,  including  appreciation  attributable  to  Genuitys  interLATA  activities  in  states  in 
 which  the  merged  entity  did  not  at  the  time  have  section  271  approval.  178  These  opponents 
 argued  that  the  potential  retroactively  to  capture  appreciation  attributable  to  what  were  at  the 
 time  prohibited  services  was  evidence  of  ownership  and  diminished  the  incentive  to  comply  with 
 section  271  prior  to  the  five-  year  deadline.  The  Applicants  revised  the  proposal  to  address  this 
 concern  by  excluding  from  the  benefits  captured  by  Genuity  upon  conversion  the  amount  of 
 appreciation  roughly  proportional  to  revenues  from  areas  in  which  section  271  approval  had  not 
 yet  been  obtained.  Thus,  rather  than  having  an  incentive  to  delay  section  271  approval,  the 
 merged  entity  will  have  an  incentive  to  obtain  approval  as  quickly  as  possible  so  that  it  may  fully 
 participate  in  any  appreciation  in  the  value  of  its  potential  interest. 

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

 71.  Although  we  have  no  doubt  that  incumbent  local  exchange  carriers  would  be  able 
 to  use  their  bottleneck  local  exchange  facilities  to  discriminate  in  the  provision  of  Internet  and 
 data  services,  for  the  reasons  set  forth  below,  we  find  that  any  attempt  by  the  merged  entity  to 
 discriminate  in  such  a  manner  would  be  readily  detectable.  At  the  same  time,  however,  we  note 
 the  weakness  of  the  argument  by  opponents  of  the  merger  that  the  Applicants  would  be  able  to 
 discriminate  in  favor  of  Genuity.  AT&  T,  for  example,  provides  only  a  limited  discussion  in 
 support  of  its  contention  that  the  merged  entity  can  plainly  discriminate.  180  Although  AT&  T 
 notes  Bell  Atlantics  continued  control  of  bottleneck  local  exchange  facilities,  the  Applicants 
 respond,  without  contradiction,  that  Genuity  does  not  currently  rely  to  any  significant  degree  on 
 Bell  Atlantics  core  LEC  facilities    Applicants  euphemism  for  bottleneck  facilities    to  provide 
 Internet  and  data  services.  181  Second,  AT&  T  argues  that  the  merged  firm  could  discriminate  in 
 favor  of  ISPs  that  resell  Bell  Atlantics  DSL  service  by  providing  superior  quality  of  transport 

 178  See  AT&  T  May  5,  2000  Opposition  at  4-  5  (contending  that  section  271  prohibits  a  BOC  from  obtaining 
 greater-  than-  10  percent  equity  returns  from  the  long  distance  market  from  the  period  before  the  effective  date  of 
 the  grant);  ITAA  May  5,  2000  Comments  at  1-  2,  6-  7  (alleging  that  Bell  Atlantic/  GTE  would  impermissibly  obtain 
 the  benefit  of  Genuitys  appreciation).  See  also  Letter  from  Jonathan  Jacob  Nadler,  Squire  Sanders  &  Dempsey 
 L.  L.  P.,  Counsel  for  Information  Technology  Association  of  America,  to  Magalie  Roman  Salas,  Secretary,  FCC,  CC 
 Docket  No.  98-  184  (filed  June  1,  2000)  (ITAA  June  1,  2000  Ex  Parte  Letter),  Att.  at  3. 

 179  We  note  that  because  section  3(  1)  allows  for  a  BOC  to  hold  a  10-  percent  equity  interest  in  a  prohibited  entity, 

 some  effect  on  a  BOCs  incentives  is  implicitly  allowed  under  the  statute. 
 180  AT&  T  Feb.  15,  2000  Opposition  at  29. 

 181  Bell  Atlantic/  GTE  Feb.  22,  2000  Reply  at  28. 
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 service  to  their  internet  backbone  provider.  182  However,  the  Applicants  respond,  again  without 
 contradiction,  that  traffic  from  Bell  Atlantics  DSLAMs  is  not  directly  connected  to  any  Internet 
 backbone  provider,  but  instead  is  aggregated  and  delivered  to  the  ISP  premises,  where  the  ISP 
 controls  the  link  to  the  Internet  backbone  provider.  183  In  any  event,  however,  we  conclude  for  the 
 reasons  stated  below  that  the  merged  entity  will  be  unlikely  to  discriminate  because  of  the 
 likelihood  that  any  such  discrimination  would  be  detected  and  appropriate  enforcement  action 
 would  be  taken. 

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

 73.  Moreover,  if,  as  ITAA  also  suggests,  the  merged  entity  were  to  attempt  to 

 182  AT&  T  Feb.  15,  2000  Opposition  at  30.  Specifically,  AT&  T  alleges  that  the  merged  entity  could  provide  better 
 throughput  to  Genuity,  meaning  that  it  would  transmit  packets  more  quickly  for  Genuity  than  for  its  competitors. 
 183  Bell  Atlantic/  GTE  Feb.  22,  2000  Reply  Tab  B  at  2  (Affidavit  of  Raymond  F.  Albers). 

 184  The  merged  entity,  therefore,  will  report  on  its  provision  of  these  services  to  all  companies,  including  Internet 
 service  providers,  Internet  backbone  providers  and  interexchange  carriers. 
 185  See  47  C.  F.  R.    43.21(  g);  ARMIS  43-  05  Service  Quality  Report,  Table  1  (establishing  reporting  requirements 

 for  special  access  provided  to  interexchange  carriers). 
 186  For  example,  these  reporting  requirements  attach  to  the  separate  advanced  services  affiliate  if  it  begins  to 

 provision  these  special  access  circuits  to  Genuity. 
 187  We  note  that  average  delay  days  due  to  lack  of  facilities  is  not  currently  reported  through  ARMIS.  This 

 measurement  tracks  average  calendar  days  from  due  date  to  completion  date  on  company  missed  orders  due  to  lack 
 of  facilities. 

 188  See  infra  Appendix  D  (Conditions)  at  para.  53.  As  provided  in  the  Conditions,  Bell  Atlantic/  GTE  shall,  in 

 consultation  with  the  Chief  of  the  Common  Carrier  Bureau,  modify  these  measurements  and  develop  any 
 applicable  performance  measurement  business  rules  to  the  extent  necessary.  Any  developed  business  rules,  once 
 approved  by  the  Chief  of  the  Common  Carrier  Bureau,  will  be  made  publicly  available. 

 189  See  infra  Appendix  D  (Conditions)  at  para.  56(  f). 

 190  See  ITAA  June  1,  2000  Ex  Parte  Letter  Att.  at  3  (alleging  that  the  merged  firm  could  discriminate  in  favor  of 
 Genuity  in  the  provision  of  high-  capacity  point-  to-  point  local  circuits). 
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 discriminate  in  favor  of  Genuity  by  providing  it  preferential  access  to  conditioned  copper  loops 
 used  to  provide  advanced  services,  191  we  find  that  this  behavior  would  be  readily  detectable  as 
 well.  Specifically,  to  the  extent  that  Genuity  purchases  loops  from  the  merged  entity  as 
 unbundled  network  elements  pursuant  to  section  251,  we  find  that  any  discrimination  in  the 
 provisioning  of  such  loops  would  become  apparent  in  the  section  271  approval  process.  In  this 
 respect,  we  note  that  Bell  Atlantic/  GTE  must  obtain  section  271  approval  with  respect  to  50 
 percent  of  its  access  lines  to  avoid  a  major  loss.  In  addition,  it  cannot  convert  its  interest  in 
 Genuity  until  it  receives  approval  with  respect  to  95  percent  of  its  access  lines,  and  will  lose  part 
 of  any  appreciation  of  Genuity  on  account  of  any  delay  in  obtaining  section  271  approval.  In 
 order  to  obtain  section  271  approval,  of  course,  Bell  Atlantic/  GTE  must  show  that  it  provides 
 nondiscriminatory  access  to  its  bottleneck  facilities.  192  In  these  circumstances,  any  attempt  to  use 
 its  bottleneck  facilities  to  discriminate  would  jeopardize  the  merged  firms  ability  to  reacquire 
 ownership  and  control  of  Genuity  193  or,  at  the  least,  subject  it  to  losses  due  to  delay  in  obtaining 
 section  271  approvals. 

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

 191  See  id.  (alleging  that  the  merged  firm  could  provide  preferential  access  to  copper  loops  used  in  the  provision  of 
 xDSL  service). 
 192  For  subsequent  section  271  applications,  we  expect  that  Bell  Atlantic/  GTE  will  submit  disaggregated  data 

 showing  its  performance  in  processing  orders  and  provisioning  unbundled  loops  to  Genuity  as  compared  with  its 
 performance  with  respect  to  other  carriers. 

 193  We  note  that  competitors  have  vigorously  pursued  allegations  of  discriminatory  conduct  in  prior  section  271 

 applications,  and  we  have  no  reason  to  suspect  that  such  vigor  will  diminish  in  the  future. 
 194  See  ITAA  June  1,  2000  Ex  Parte  Letter  Att.  at  3  (asserting  that  the  merged  firm  could  steer  its  large 

 business  customers  to  Genuity,  and  otherwise  provide  service  on  favorable  terms  to  customers  of  its  dial-  up 
 Internet  access  service  that  select  Genuity  as  their  Global  Service  Provider  or  to  its  unaffiliated  ISP  customers  that 
 hand-  off  traffic  to  Genuity). 

 195  47  U.  S.  C.    208. 
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 75.  We  note  that  this  conclusion  is  similar  to  Judge  Greenes  findings  in  Tel-  Optik.  In 
 that  case,  Judge  Greene  recognized  the  possibility  that  an  acquisition  of  a  conditional  interest 
 could  provide  a  BOC  with  substantial  incentive  and  ability  unfairly  to  impede  competition  by  use 
 of  its  monopoly  position  in  the  market  it  is  thus  entering.  196  He  concluded,  however,  that  if  the 
 BOC  would  attempt  to  use  its  monopoly  position  to  disadvantage  competitors,  that  attempt 
 would  almost  certainly  be  made  known  to  the  Court  during  any  subsequent  waiver  proceedings. 
 Similarly,  in  the  instant  case,  the  knowledge  that  discrimination  would  be  detected  either  by  the 
 independent  auditor  or  in  subsequent  section  271  proceedings,  and  possibly  deprive  the  BOC  of 
 its  ability  to  exercise  the  conversion  right,  reduces  the  likelihood  that  the  merged  entity  will 
 engage  in  such  behavior. 

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

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

 197  47  U.  S.  C.    153(  1). 

 198  In  this  case,  the  merged  entity  has  voting  rights  of  only  9.  5  percent,  which  we  find  insufficient  to  evidence  de 
 jure  control.  See,  e.  g.,  Lockheed  Martin  Corp.,  Memorandum,  Order  and  Authorization,  FCC  99-  237,  at  para.  30 
 (rel.  Sept.  15,  1999);  Fox  I,  10  FCC  Rcd  at  8513,  para.  151  (noting  that  de  jure  control  is  typically  evidenced  by 
 ownership  of  more  than  50  percent  of  an  entitys  voting  interests). 

 199  See,  e.  g.,  AT&  T  Corp.  v.  Ameritech  Corp.,  File  No.  E-  98-  41,  Memorandum  Opinion  and  Order,  13  FCC  Rcd 

 14508  (1998). 
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 77.  The  determination  as  to  whether  an  entity  is  in  de  facto,  or  actual,  control  of 
 another  entity  transcends  formulas,  for  it  involves  an  issue  of  fact  which  must  be  resolved  by  the 
 special  circumstances  presented.  200  Because  the  inquiry  is  inherently  factual  and  not  subject  to  a 
 precise  formula,  we  must  look  at  all  relevant  factors  and  the  totality  of  the  circumstances.  201  In 
 ascertaining  where  actual  control  resides,  we  are  governed  chiefly  by  the  demonstration  of  [the 
 shareholders]  power  to  dominate  the  management  of  corporate  affairs.  202  Although  the 
 percentage  of  voting  stock  held  by  a  minority  shareholder  is  relevant,  the  Commission  also  has 
 considered  as  important  factors  the  right  to  elect  members  of  the  companys  board  of  directors,  to 
 determine  the  manner  of  operation,  to  make  strategic  decisions,  and  to  control  personnel  and 
 financing  decisions.  203  The  Commission  has  recognized  that  spin-  off  situations  may  warrant 
 greater  flexibility  in  applying  these  factors.  204 

 78.  Having  reviewed  these  and  other  factors,  both  individually  and  cumulatively, 
 below,  we  are  persuaded  that  Bell  Atlantic/  GTE  would  not  exercise  de  facto  control  of  Genuity. 

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

 201  See  Lockheed  Martin  Corp.,  at  para.  30  (  Under  Commission  precedent,  a  de  facto  control  determination 

 involves  the  balancing  of  facts  and  is  based  on  the  totality  of  the  circumstances.  ). 
 202  Univision  Holdings,  Inc.,  File  Nos.  BTCCT-  920508KG-  KL  et  al.,  Memorandum  Opinion  and  Order,  7  FCC 

 Rcd  6672,  at  para.  15  (1992)  (quoting  Benjamin  L.  Dubb,  16  F.  C.  C.  274,  289  (1951)).  See  also  Fox  I,  10  FCC  Rcd 
 at  8414-  15,  paras.  154,  156. 

 203  See,  e.  g.,  id.;  Airgate  Wireless,  L.  L.  C.,  File  No.  0000002035,  Memorandum  Opinion  and  Order,  14  FCC  Rcd 

 11827,  11840,  para.  26  (1999);  Fox  I,  10  FCC  Rcd  at  8515,  para.  156;  Metromedia  Inc.,  Memorandum  Opinion 
 and  Order,  98  F.  C.  C.  2d  300  (1984)  (indicating  that  that  the  touchstone  of  control  is  the  ability  to  determine  a 
 companys  policies  and  conduct  its  affairs).  In  broadcast  cases,  for  example,  the  Commission  traditionally  has 
 relied  upon  six  factors,  established  in  Intermountain  Microwave,  to  ascertain  the  locus  of  control:  (1)  who 
 determines  and  carries  out  the  policy  decisions;  (2)  who  is  in  charge  of  the  payment  of  financing  obligations, 
 including  operating  expenses;  (3)  who  controls  daily  operations;  (4)  who  is  in  charge  of  employment,  supervision, 
 and  dismissal  of  personnel;  (5)  does  the  licensee  have  unfettered  use  of  all  facilities  and  equipment;  and  (6)  who 
 receives  the  monies  and  profits  from  the  operation  of  the  facilities.  See  Intermountain  Microwave,  Order,  24  Rad. 
 Reg.  (P&  F)  983,  984  (1963);  Airgate,  14  FCC  Rcd  at  11840,  para.  26. 

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

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

 WWOR-  TC,  Inc.,  BTCTT-  901127KE,  Memorandum  Opinion  and  Order,  6  FCC  Rcd  193,  201,  para.  16  (1990). 
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 Prior  to  any  potential  conversion  of  the  Class  B  shares,  the  public  shareholders  will  have  90 
 percent  of  the  voting  rights,  will  elect  twelve  of  the  thirteen  directors,  and  will  have  a  potential 
 right  to  acquire  Bell  Atlantic/  GTEs  shares  if  the  contingency  is  not  satisfied.  Nothing  on  the 
 record  undermines  the  public  shareholders  ability  to  manage  and  operate  Genuity  through  this 
 substantial  voting  control  and  board  participation.  Consequently,  as  described  below,  the  merged 
 firm  will  not  be  in  a  position  to  dominate  the  management  of  Genuity,  or  control  its  business 
 decisions,  personnel  practices  or  finances.  Although  we  do  not  dispute  that  the  merged  firm  may 
 have  limited  influence  over  Genuity,  we  find  that  this  limited  influence  will  not  exceed  the  degree 
 permitted  by  section  3(  1). 

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

 80.  Investor  Safeguards.  We  find  that  the  minority  investor  protections  afforded  to 
 the  Class  B  shareholder  or  Bell  Atlantic/  GTE,  as  the  case  may  be,  are  narrowly  tailored  and  do 
 not  rise  to  a  level  that  would  consistently  inject  the  merged  firm  into  Genuitys  business  and 
 policy  decisions.  207  Commission  precedent  recognizes  that  non-  controlling  shareholders  have  an 
 incentive  to  act  to  protect  their  investment  and  may  influence  the  operation  of  a  company.  208 
 Accordingly,  the  Commission  has  permitted  minority  shareholders  to  wield  significant  influence, 
 including  the  ability  to  affect  the  outcome  of  votes  or  the  day-  to-  day  operations  of  a  company,  so 
 long  as  that  influence  does  not  rise  to  a  consistent  level  of  dominance  at  which  the  minority 

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

 206  Although  Bell  Atlantic/  GTEs  maximum  voting  percentage  is  limited  to  9.  5  percent,  which  will  be  diluted  if 

 Genuity  issues  additional  shares,  other  entities  may  vote  up  to  20  percent  of  Genuitys  shares  at  any  time.  Given 
 the  merged  firms  limited  right  to  vote  and  the  other  circumstances  of  the  spin-  off  proposal,  we  reject  arguments 
 that  the  20-  percent  voting  restriction  evidences  control.  See  Competition  Policy  Institute  May  5,  2000  Comments 
 at  8-  9;  CompTel  Feb.  15,  2000  Comments  at  4-  5. 

 207  See  Competition  Policy  Institute  May  5,  2000  Comments  at  8;  CompTel  Feb.  15,  2000  Comments  at  5-  6; 

 NEXTLINK  Feb.  16,  2000  Comments  at  10-  11  (contending  that  the  investor  safeguards,  which  were  subsequently 
 narrowed,  restricted  the  public  shareholders  discretion  in  making  business  decisions). 

 208  See,  e.  g.,  Lockheed  Martin  Corp.,  at  para.  31;  NextWave,  12  FCC  Rcd  at  2042-  43,  para.  30  (explaining  that 

 minority  or  non-  voting  shareholders  may  be  given  a  decision-  making  role  in  major  corporate  decisions  that 
 fundamentally  affect  their  interests  as  shareholders,  such  as  issuance  of  stock,  expenditures  that  significantly  affect 
 market  capitalization,  incurrence  of  significant  debt,  sale  of  major  corporate  assets,  and  fundamental  changes  in 
 corporate  structure,  without  being  deemed  to  be  in  de  facto  control). 
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 shareholder  is  determining  how  the  company  runs  and  what  business  choices  it  makes.  209 
 Minority  investor  protections,  for  example,  are  commonly  used  to  induce  investment  and  ensure 
 that  the  basic  interests  of  minority  stockholders  are  protected.  210  Accordingly,  the  Commission 
 has  stated  that  the  right  to  vote  on  matters  involving  extraordinary  corporate  actions  does  not 
 ordinarily  undermine  the  nonattributable  character  of  otherwise  non-  cognizable  interests,  so  long 
 as  that  right  is  narrowly  circumscribed.  211 

 81.  We  find  that  the  minority  investor  protections  accorded  to  the  Class  B 
 shareholders  or  Bell  Atlantic/  GTE  are  narrowly  tailored  to  protect  the  companys  initial  equity 
 investment  and  its  potential  right  to  convert  the  Class  B  shares  upon  satisfaction  of  the  conditions.  212  By  leaving  room  for  Genuitys  management  to,  for  example,  enter  into  acquisitions 

 of  up  to  20  percent  of  Genuitys  fair  market  value  without  Bell  Atlantic/  GTEs  consent,  the 
 safeguards  do  not  enmesh  the  merged  firm  in  all  major  decisions  regarding  how  the  company  runs 
 it  operations  or  what  business  choices  it  makes.  Moreover,  through  its  veto  rights,  the  merged 
 firm  cannot  compel  Genuitys  officers  and  directors  to  pursue  any  particular  course  of  action. 
 Instead,  the  merged  firm  can  only  block,  by  withholding  its  consent,  certain  actions  contemplated 
 by  Genuitys  management. 

 82.  Officers  and  Directors.  We  find  that  the  selection  and  composition  of  Genuitys 
 officers  and  directors  do  not  evidence  control  of  Genuity  by  the  merged  firm.  In  particular,  we 
 note  that  the  board  structure  is  designed  to  minimize  concern  that  GTEs  initial  selection  of  board 
 members  will  result  in  Bell  Atlantic/  GTE  controlling  Genuity  or  its  board.  As  with  other  spin-  off 

 209  See  Lockheed  Martin  Corp.,  at  para.  31. 
 210  See  id.,  at  para.  39. 
 211  See  BBC  License  Subsidiary  L.  P.  and  SF  Green  Bay  License  Subsidiary,  Inc.,  File  Nos.  BALCT-  941014LH, 
 BALTT-  941014LI,  Memorandum  Opinion  and  Order,  10  FCC  Rcd  7926,  7933,  para.  41  (1995)  (BBC  License 
 Order).  See  also  Applications  of  Quincy  D.  Jones  and  Qwest  Broadcasting  L.  L.  C.,  File  No.  BTCCT-  941214KG, 
 Memorandum  Opinion  and  Order,  11  FCC  Rcd.  2481,  2487,  para.  29  (1995)  (clarifying  that,  whether  the  right 
 arises  in  the  form  of  an  investor  voting  right  derived  from  its  equity  interest  or  in  the  form  of  a  licensee  obligation 
 derived  from  its  debtor  status,  the  right  to  participate  in  extraordinary  corporate  actions  is  ordinarily  non-attributable 
 so  long  as  narrowly  circumscribed);  Roy  M.  Speer,  11  FCC  Rcd  at  14158,  para.  25  (finding  that  rights 
 accorded  to  a  nonvoting  stockholder  to  approve  certain  fundamental  matters  were  permissible  investor  protections 
 that  neither  substantially  restrict  [the  voting  entitys]  discretion  nor  rise  to  the  level  of  attributable  influence.). 

 212  In  Roy  M.  Speer,  for  example,  unanimous  approval  of  both  the  entity  with  voting  control  and  the  non-  voting 

 stockholder  were  required  for  certain  fundamental  matters  that  included:  (1)  any  transaction  not  in  the  ordinary 
 course  of  business;  (2)  the  acquisition  or  disposition  of  any  assets  or  business  with  a  value  of  10  percent  or  more  of 
 the  companys  market  value;  (3)  the  incurrence  of  any  indebtedness  with  a  value  of  10  percent  or  more  of  the 
 companys  market  value;  (4)  any  material  amendments  to  the  certificate  of  incorporation  or  bylaws;  (5)  engaging 
 in  any  line  of  business  other  than  media,  communications  and  entertainment;  (6)  the  settlement  of  any  litigation, 
 arbitration  or  other  proceeding  other  than  in  the  ordinary  course  of  business;  and  (7)  any  transaction  between  the 
 company  and  the  entity  with  voting  control,  other  than  those  of  a  certain  size  or  on  an  arms  length  basis.  Roy  M. 
 Speer,  11  FCC  Rcd  at  14155,  para.  18.  See  also  Lockheed  Martin  Corp.,  at  n.  90  (describing  restrictions  on 
 Comsats  ability  to  engage  in  certain  business  activities  without  the  consent  of  Lockheed  Martin),  at  n.  92 
 (describing  standard  minority  protections  approved  by  the  Commission). 
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 situations,  the  initial  board  of  Genuity  has  been  selected  by  GTE,  its  former  parent.  In  this  case, 
 however,  potential  concern  over  board  independence  stemming  from  GTEs  initial  selection  is 
 tempered  by  the  fact  that  shortly  after  the  IPO  a  majority  of  the  directors  will  be  individuals  who 
 were  not  selected  by  GTE  and  who  have  no  prior  affiliation  with  either  Bell  Atlantic  or  GTE.  213 
 Specifically,  within  90  days  of  the  IPO,  the  four  initial  independent  directors  selected  by  GTE  will 
 select  seven  other  independent  directors.  As  a  further  safeguard  against  any  potential  lack  of 
 independence,  rather  than  being  locked  in  for  specific  multi-  year  terms,  twelve  directors  (the  four 
 selected  by  GTE  plus  the  additional  independent  directors  selected  by  those  four,  as  well  as  the 
 Genuity  CEO)  will  stand  for  election  by  the  public  shareholders  within  9  months  of  the  IPO.  The 
 potential  for  board  turnover  substantially  mitigates  potential  concern  over  the  independence  of  the 
 initial  board  members. 

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

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

 214  See,  e.  g.,  GWI  PCS,  Inc.,  12  FCC  Rcd  at  6455,  para.  34  (finding  entity  did  not  have  de  facto  control  despite  its 

 ability  to  elect  two  of  13  members  of  the  board  of  directors);  WWOR-  TV,  Inc.,  BTCCT-  901127KE,  Memorandum 
 Opinion  and  Order,  6  FCC  Rcd.  6569,  6582,  para.  14  (1991)  (finding,  for  purposes  of  section  310(  b)(  4)  s  25- 
 percent  foreign  ownership  restriction,  that  even  assuming  that  the  two  directors  who  were  senior  officials  at  the 
 foreign-  controlled  organization  were  representatives  of  the  foreign  entity,  no  violation  would  exist  because  they 
 represented  only  25  percent  of  the  Board). 

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

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

 217  See  WWOR-  TV,  6  FCC  Rcd  at  200,  para.  14  (noting  that  in  the  CBS/  Viacom  spin-  off,  [  m]  ost  of  Viacoms 

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

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

 86.  Finances.  We  find  that  Bell  Atlantic/  GTE  will  not  have  control  of  Genuitys 
 finances.  At  the  time  of  the  spin-  off,  the  proceeds  of  the  IPO  will  represent  the  primary  source  of 
 financing  for  Genuity,  and  the  spun-  off  entity  will  not  be  obligated  to  Bell  Atlantic/  GTE  on  any 
 loan.  Genuity  retains  the  right  to  seek  additional  funding  through  arms-  length  loans  from  the 
 merged  firm,  but  is  not  obligated  to  do  so.  If  it  does  obtain  loans  from  Bell  Atlantic/  GTE,  these 
 cannot  amount  to  more  that  25  percent  of  the  total  outstanding  debt  of  Genuity.  Because  Genuity 
 is  under  no  obligation  to  obtain  funding  from  the  merged  firm,  and  Bell  Atlantic/  GTEs  ability  to 

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

 219  See  ALTS  May  5,  2000  Comments  at  4;  AT&  T  May  5,  2000  Opposition  at  6,  27;  AT&  T  Mar.  22,  2000  Ex 

 Parte  Letter  at  4,  19;  Competition  Policy  Institute  May  5,  2000  Comments  at  7;  Telecommunications  Resellers 
 Assoc.  Feb  15,  2000  Comments  at  12-  13. 

 220  See  NextWave,  12  FCC  Rcd  at  2038-  39,  para.  21  (finding  that  the  fact  that  some  of  NextWaves  management 

 have  been  associated  with  Qualcomm  does  not  support  a  finding  of  affiliation.). 
 221  See  Lockheed  Martin  Corp.,  at  para.  40  (finding  that  the  existence  of  second  stage  of  merger  agreements  was 

 not  sufficiently  influential  to  constitute  an  element  of  actual  control). 
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 loan  money  to  Genuity  is  restricted  in  any  event,  we  conclude  that  any  potential  financing 
 arrangements  with  the  merged  firm  will  not  vest  control  of  Genuitys  finances  in  Bell 
 Atlantic/  GTE.  Indeed,  as  a  public  corporation,  Genuity  has  the  ability  to  issue  additional  shares 
 to  finance  some  of  its  operational  needs.  In  addition  to  examining  the  source  of  the  funds,  we 
 also  assess  whether  the  locus  of  Genuitys  financing  decisions  remains  with  Genuity,  and  find  that 
 it  does.  Although  under  the  investor  safeguards  the  merged  firms  consent  is  required  for  Genuity 
 to  issue  debt  in  excess  of  $11  billion,  we  are  persuaded  that  the  size  of  this  restriction  leaves 
 sufficient  room  for  Genuity  to  control  major  decisions  regarding  financing.  Thus,  we  find  that  the 
 potential  right  to  obtain  arms-  length  loans  from  the  merged  entity  and  the  limited  role  of  the 
 merged  firm  in  approving  debt  beyond  $11  billion  do  not  vest  control  of  Genuitys  finances  in  Bell 
 Atlantic/  GTE. 

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

 88.  We  further  find  that  the  joint  marketing  agreement  between  the  merged  firm  and 

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

 223  Bell  Atlantic/  GTE  June  7,  2000  Glover  Ex  Parte  Letter  Att.  1. 

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

 225  See  Covad  May  5,  2000  Comments  at  11. 
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 Genuity  does  not  confer  control  over  Genuity.  Although  the  Purchase,  Resale  and  Marketing 
 Agreement  has  a  five-  year  term  and  obligates  Genuity  to  provide  most  favored  customer  pricing 
 to  Bell  Atlantic/  GTE,  the  Agreement  is  not  exclusive  and  does  not  apply  to  those  states  in  which 
 the  combined  entity  is  prohibited  from  providing  in-  region,  interLATA  services.  Genuity 
 therefore  has  the  right  to  market,  distribute  and  sell  its  services  nationwide,  either  directly  or 
 indirectly  through  other  dealers  or  distributors,  and  according  to  the  prices  and  volume  or  other 
 purchase  discount  arrangements  that  it  desires  to  make  available  to  its  other  customers.  In 
 addition,  we  find  that  the  agreement  specifies  that  the  prices  for  certain  Genuity  services  will  be 
 renegotiated  annually,  or  even  quarterly.  Moreover,  because  the  contract  specifies  that  the 
 merged  firm  will  not  provide  or  jointly  market  in  any  state  for  which  it  has  not  obtained  section 
 271  authority  any  Genuity  service  that  is,  or  includes  as  a  bundled  component,  an  interLATA 
 service,  we  also  conclude  that  Bell  Atlantic/  GTE  will  not  be  providing  in-  region,  interLATA 
 services  in  violation  of  section  271  through  the  joint  marketing  agreement  between  the  companies 
 following  the  spinoff.  226 

 89.  EDP  Distinctions.  AT&  T  further  suggests  that  various  attribution  rules  under  our 
 Cable  Attribution  Order  and  Broadcast  Attribution  Order  are  pertinent  to  the  control  analysis 
 and  support  a  finding  that  Genuity  would  be  an  affiliate  of  the  merged  entities.  227  We  disagree. 
 Both  the  broadcast  equity-  debt  plus  (EDP)  attribution  rule  and  the  cable  equity  plus  debt  rule 
 provide,  in  specific  circumstances,  for  attribution  of  certain  financial  investments  (including 
 options  and  warrants)  when  the  investor  holds  an  interest  in  excess  of  33  percent  of  the  total  asset 
 value  of  the  entity.  228  These  rules  focus  directly  on  those  financial  relationships  in  which  there  is 
 significant  incentive  and  ability  for  the  otherwise  nonattributable  interest  holder  to  exert  influence 
 over  the  core  operations  of  the  licensee.  As  we  explained  in  the  Broadcast  Attribution  Order, 
 [  t]  he  approach  of  focusing  on  specific  triggering  relationships  would  extend  the  Commissions 
 current  recognition  that  the  category  or  nature  of  the  interest  holder  is  important  to  whether  an 
 interest  should  be  attributed.  229  A  similar  equity-  debt  rule  arises  under  our  Cable  Attribution 
 Order.  We  stated  in  that  Order  that,  in  adopting  the  ED  rule,  [  w]  e  affirm  our  conclusion  in  the 
 Broadcast  Attribution  Order  that  there  is  the  potential  for  certain  substantial  investors  or 
 creditors  to  exert  significant  influence  over  key  decisions,  which  may  undermine  the  diversity  of 

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

 227  AT&  T  Mar.  22,  2000  Ex  Parte  at  2-  3  (citing  Implementation  of  the  Cable  Television  Consumer  Protection 

 and  Competition  Act  of  1992,  CS  Docket  No.  98-  82,  Report  and  Order,  FCC  99-  288  (rel.  Oct.  20,  1999)  (Cable 
 Attribution  Order);  and  Review  of  the  Commissions  Regulations  Governing  Attribution  of  Broadcast  and 
 Cable/  MDS  Interests,  MM  Docket  No.  94-  150,  Report  and  Order,  14  FCC  Rcd.  12559,  12582,  para.  47  (1999) 
 (Broadcast  Attribution  Order)). 

 228  See  47  C.  F.  R.    73.3555  Note  2(  j);  47  C.  F.  R.    76.503  Note  2(  i). 

 229  Broadcast  Attribution  Order  at  para.  47.  Attribution  is  triggered  under  the  broadcasting  debt-  equity-  plus  rule 
 only  when  the  requisite  financial  interest  is  coupled  with  one  of  two  triggering  relationships  (major  program 
 supplier  or  same  market  media  entity). 
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 voices  we  seek  to  promote.  230  Therefore,  reflecting  our  view  that  relationships  that  offer 
 potential  for  significant  influence  or  control  should  be  counted  in  applying  the  broadcast  and  cable 
 ownership  rules,  which  promote  diversity  and  competition,  we  adopted  a  targeted  prophylactic, 
 structural  rule  under  which  we  would  make  certain  interests  attributable  using  a  bright  line  test. 

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

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

 4.  Other  Issues 
 a.  Transfer  of  GTE  Telecom  Wholesale  Services  to  Genuity 
 92.  As  part  of  our  finding  that  the  proposed  spin-  off  of  GTEs  Internet  backbone  and 
 related  assets  will  not  result  in  a  violation  of  section  271,  we  also  approve  the  transfer  of  control 
 to  Genuity  of  certain  domestic  and  international  section  214  authorizations  and  cable  landing 
 licenses  currently  held  by  various  GTE  operating  subsidiaries,  including  GTE  Telecom.  232 

 230  Cable  Attribution  Order  at  para.  83. 
 231  Cable  Attribution  Order  at  para.  129. 
 232  These  authorizations  include:  (1)  File  No.  ITC-  214-  19990708-  00391  (global  facilities-  based  and  resale 
 authorization  held  by  GTE  Telecom  Incorporated);  (2)  File  No.  SCL-  98-  003/  SCL-  98-  003A  (submarine  cable 
 landing  license  for  AMERICAS-  II  Cable  to  be  held  by  GTE  Telecom  Incorporated  after  a  pro  forma  assignment 
 from  GTE  Communications  Corp.);  (3)  File  No.  SCL-  LIC-  19990303-  00004  (submarine  cable  landing  license  for 
 TAT-  14  Cable  from  GTE  Intelligent  Network  Services);  (4)  File  No.  SCL-  LIC-  19981117-  00025  (submarine  cable 
 landing  license  for  Japan-  U.  S.  Cable  from  GTE  Intelligent  Network  Services);  and  (5)  ITC-  98-  342/  ITC-  98-  342A 
 (international  section  214  authorization,  associated  with  the  AMERICAS-  II  Cable  landing  license,  to  be  held  by 
 GTE  Telecom  Incorporated  after  a  pro  forma  assignment  from  GTE  Communications  Corp.).  Pursuant  to  the 
 (continued.) 
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 Pursuant  to  domestic  and  international  section  214  authorizations,  GTE  Telecom  provides 
 domestic  interexchange  and  international  wholesale  services.  233  Although  GTE  Telecom  will 
 divest  its  private  line,  point-  to-  point  service  to  commercial  and  financial  customers  before  closing 
 the  merger,  234  the  Applicants  maintain  that  the  transfer  of  GTE  Telecoms  wholesale  services  is 
 necessary  to  preserve  the  integrity  of  Genuitys  business.  235  Because  supplying  private  line 
 services  on  a  wholesale  basis  to  other  carriers  is  integrally  related  to  Genuitys  business,  we  find 
 that  the  transfer  of  the  authorizations  associated  with  this  business  is  in  the  public  interest. 

 93.  With  respect  to  the  international  transfer,  we  modify  the  international  section  214 
 authorizations  that  will  be  transferred  to  Genuity,  and  held  by  its  international  carrier  subsidiary 
 GTE  Telecom,  to  reclassify  GTE  Telecom  as  a  nondominant  international  carrier  on  the  U.  S.  -Dominican 
 Republic  and  U.  S.-  Venezuela  routes.  After  the  spin-  off  to  Genuity,  GTE  Telecom 
 will  no  longer  have  an  affiliation,  within  the  meaning  of  section  63.  09  of  the  rules,  with  any 
 carrier  that  has  market  power  on  the  foreign  end  of  a  U.  S.  international  route.  236  Accordingly, 
 pursuant  to  section  63.10(  a)(  1)  of  the  rules,  we  find  no  basis  in  this  record  to  regulate  GTE 
 Telecom  as  a  dominant  international  carrier  to  the  Dominican  Republic  and  Venezuela.  237 

 (Continued  from  previous  page) 
 Cable  Landing  License  Act,  the  Department  of  State,  after  coordinating  with  the  National  Telecommunications 
 and  Information  Administration  and  the  Department  of  Defense,  approved  the  transfer  of  control  to  Genuity  of  the 
 AMERICAS-  II,  TAT-  14  and  Japan-  U.  S.  cable  landing  licenses  held  by  GTE  operating  subsidiaries.  See  Letter 
 from  Geoffrey  Chapman,  United  States  Coordinator,  Acting  International  Communications  and  Information 
 Policy,  United  States  Department  of  State,  to  Donald  Abelson,  Chief,  International  Bureau,  Federal 
 Communications  Commission  (filed  May  23,  2000). 

 233  See  GTE  Corporation,  Transferor,  Genuity,  Inc.,  Transferee,  Application  for  Transfer  of  Control  (filed  Apr. 

 28,  2000)  (Domestic  Section  214  Application),  at  1. 
 234  See  Letter  from  Alan  F.  Ciamporcero,  Vice  President  Regulatory  Affairs,  GTE,  to  Magalie  Roman  Salas, 

 Secretary,  FCC,  CC  Docket  No.  98-  184  (filed  Apr.  28,  2000),  attached  hereto  as  Appendix  F. 
 235  Domestic  Section  214  Application  at  5. 

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

 237  Section  63.10(  a)(  1)  of  the  rules  provides  that:  [  a]  U.  S.  carrier  that  has  no  affiliation  with,  and  that  itself  is 

 not,  a  foreign  carrier  in  a  particular  country  to  which  it  provides  service  (i.  e.,  a  destination  country)  shall 
 presumptively  be  considered  non-  dominant  for  the  provision  of  international  communications  services  on  that 
 route. 
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 b.  Waiver  of  Affiliate  Transactions  Rules 
 94.  We  also  decline  to  grant  the  Applicants  request  for  a  waiver  of  the  affiliate 
 transactions  rules.  238  Specifically,  the  Applicants  seek  permission  to  effectively  treat  Genuity  as  an 
 affiliate  for  accounting  purposes  so  that  the  merged  firms  provision  of  services  to  Genuity 
 through  a  separate  services  affiliate  would  not  alter  the  manner  in  which  the  separate  services 
 affiliate  provides  service  to  other  members  of  Bell  Atlantic/  GTEs  corporate  family.  239  By 
 ensuring  arms  length  transactions  between  a  dominant  incumbent  LEC  and  its  nonregulated 
 affiliate,  the  affiliate  transactions  rules  deter  potential  cost  misallocations  and  protect  ratepayers  of 
 regulated  services  from  bearing  the  costs  of  competitive  ventures.  240 

 95.  We  deny  the  Applicants  waiver  request  for  three  reasons.  First,  the  Applicants 
 fail  to  demonstrate  special  circumstances  that  warrant  a  waiver.  241  Although  they  claim  that  the 
 waiver  would  only  apply  for  a  limited  period  of  time,  we  note  that,  under  the  request,  the  separate 
 services  affiliate  would  provide  certain  services  for  up  to  a  year.  Similarly,  the  Applicants  do  not 
 persuasively  demonstrate  that  a  waiver  is  necessary  to  ensure  Genuity  meets  its  operational 
 schedule.  We  note  that  the  services  at  issue  (e.  g.,  human  resources,  accounting,  real  estate,  and 
 billing  and  collection)  are  readily  available  on  the  open  market  so  that  denying  the  Applicants 
 request  does  not  prevent  Genuity  from  obtaining  these  services  in  time  for  it  to  begin  operations. 
 Second,  granting  a  waiver  could  result  in  ratepayers  of  regulated  services  directly  or  indirectly 
 funding  a  portion  of  Genuitys  start-  up  costs.  242  Finally,  granting  the  request  could  have  some 

 238  Petition  of  GTE  Service  Corporation  and  GTE  Consolidated  Services,  Inc.  for  Waiver  of  47  C.  F.  R.    32.27(  c) 
 (filed  Apr.  25,  2000)  (GTE  Waiver  Request). 
 239  GTE  requests  permission  to  continue  providing  services  to  Genuity  while  at  the  same  time  receiving  favorable 

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

 240  The  affiliate  transactions  rules  prescribe  the  manner  in  which  incumbent  LECs  record  the  costs  of  transactions 

 between  regulated  and  nonregulated  affiliates  on  their  books  of  account,  and  thereby  help  ensure  that  such 
 transactions  occur  at  arm's  length.  See  47  C.  F.  R.    32.27.  See  Implementation  of  the  Telecommunications  Act  of 
 1996:  Accounting  Safeguards  Under  the  Telecommunications  Act  of  1996,  CC  Docket  96-  150,  Second  Order  on 
 Reconsideration,  FCC  00-  9  (rel.  Jan.  18,  2000). 

 241  See  47  C.  F.  R.    1.3,  32.18;  see  also  Aliant  Communications  Co.  Petition  for  Waiver  of  Section  32.  27  of  the 

 Commission's  Rules,  Order  on  Reconsideration,  14  FCC  Rcd  6231  (1999);  Puerto  Rico  Telephone  Co.  Petition  for 
 Waiver  of  Section  32.27  of  the  Commissions  Rules,  Memorandum  Opinion  and  Order,  DA  99-  2233  (rel.  Nov.  5, 
 1999). 

 242  See  AT&  T  May  5,  2000  Opposition  at  7  &  n.  4. 
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 bearing  on  our  overall  evaluation  of  Genuitys  ownership  and  control.  Our  affiliate  transactions 
 rules  apply  only  to  incumbent  LECs  and  their  affiliates,  and  not  to  unaffiliated  entities  like 
 Genuity.  For  these  reasons,  we  conclude  that  waiving  the  affiliate  transactions  rules  would  be 
 inconsistent  with  our  findings  in  this  order.  We  note,  however,  that  Bell  Atlantic/  GTE  may 
 continue  to  provide  such  services,  as  long  as  it  does  so  in  accordance  with  all  applicable 
 requirements.  243 

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

 B.  Loss  of  Competition  Between  Bell  Atlantic  and  GTE  in  the  Local  Market 
 1.  Background 
 97.  We  begin  our  review  of  the  proposed  merger  by  examining  the  transactions  likely 
 effects  on  interactions  between  the  merging  firms.  Until  1996,  carriers  seeking  to  compete  with 
 incumbent  LECs  in  most  geographic  markets  for  local  exchange  and  exchange  access  services  had 
 been  prevented  or  deterred  from  doing  so  due  to  legal,  regulatory,  economic,  and  operational 
 barriers.  As  in  the  SBC/  Ameritech  Order,  we  recognize  that  local  telecommunications  markets 
 are  evolving  into  markets  characterized  by  competitive  conditions  and,  therefore,  employ  an 

 243  For  example,  GTE  Service  Corp.  could  continue  to  provide  such  services  to  Genuity,  but  it  would  lose  its  status 
 as  a  separate  services  affiliate. 
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 analysis  that  accounts  for  the  transitional  nature  of  those  markets.  244 
 98.  As  explained  in  the  WorldCom/  MCI  Order,  our  framework  for  analyzing 
 transitional  markets  reflects  the  values  of,  but  does  not  attempt  to  replicate,  the  actual  potential 
 competition  doctrine  established  in  antitrust  case  law.  245  Under  the  actual  potential  competition 
 doctrine,  a  merger  between  an  existing  market  participant  and  a  firm  that  is  not  currently  a  market 
 participant,  but  that  would  have  entered  the  market  but  for  the  merger,  violates  antitrust  laws  if 
 the  market  is  concentrated  and  entry  by  the  nonparticipant  would  have  resulted  in  deconcentration 
 of  the  market  or  other  pro-  competitive  effects.  246  The  transitional  markets  framework  set  forth  in 
 the  Bell  Atlantic/  NYNEX  Order  identifies  as  "most  significant  market  participants"  not  only  firms 
 that  already  dominate  transitional  markets,  but  also  those  that  are  most  likely  to  enter  in  the  near 
 future,  in  an  effective  manner,  and  on  a  large  scale  once  a  more  competitive  environment  has  been 
 established.  247  The  Commission  seeks  to  determine  whether  either  or  both  of  the  merging  parties 
 are  among  a  small  number  of  these  most  significant  market  participants,  248  in  which  case  its 
 absorption  by  the  merger  could  harm  the  public  interest  in  violation  of  the  Communications  Act 
 unless  offset  by  countervailing  positive  effects. 

 99.  In  this  portion  of  the  Order,  we  conduct  an  analysis  of  the  probable  competitive 
 effects  of  the  merger  of  Bell  Atlantic  and  GTE  on  the  provision  of  local  exchange  and  exchange 
 access  services.  249  We  utilize  the  "transitional  markets"  analytical  framework  set  forth  in  the  Bell 
 Atlantic/  NYNEX  Order  to  determine  whether  the  proposed  merger  would  result  in  a  potential 

 244  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14744,  para.  63.  As  we  have  noted  previously,  such  a  transitional 
 market  analysis  is  relevant  to  the  examination  of  a  merger  under  the  Communications  Act  because  of  our  statutory 
 obligation  to  promote  the  development,  and  not  merely  prevent  the  lessening,  of  competition  in 
 telecommunications  markets.  Id. 

 245  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14744,  para.  64;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18038, 

 para.  20. 
 246 
 See  id.  (citing  United  States  v.  Marine  Bancorporation,  418  U.  S.  602  (1974);  ABA  Section  of  Antitrust  Law, 

 Antitrust  Law  Developments  (4th  ed.  1997)  at  346-  50  (Antitrust  Law  Developments)). 

 247  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14744,  para.  64.  In  addition,  the  transitional  markets  framework  is 

 well-  tailored  to  the  Commission's  unique  role  as  an  expert  agency  and  statutory  obligation  to  promote  competition 
 and  to  open  local  markets. 

 248 
 As  we  stated  in  the  AT&  T/  TCG  Order,  when  analyzing  a  merger  in  a  market  that  is  rapidly  changing,  the  best 

 way  to  assess  the  likely  effect  of  the  merger  is  to  isolate  the  mergers  effects  from  all  other  factors  affecting  the 
 development  of  the  relevant  market  over  time.  This  is  achieved  by  framing  the  analysis  in  a  way  that  holds 
 constant  the  effects  of  all  changes  in  the  market  conditions  other  than  those  directly  caused  by  the  merger.  To  do 
 this,  we  also  identify  as  market  participants  those  firms  that  have  been  effectively  precluded  from  the  market  that 
 is,  those  firms  that  are  most  likely  to  enter  (or  are  just  beginning  to  enter)  the  market  but  have  until  recently  been 
 prevented  or  deterred  from  participating  in  the  market  by  the  barriers  that  the  1996  Act  seeks  to  eradicate.  We  then 
 identify  the  most  significant  participants  based  on  an  assessment  of  capabilities  and  incentives  to  compete 
 effectively  in  the  relevant  market.  AT&  T/  TCG  Order,  13  FCC  Rcd  at  15245-  46,  para.  17. 

 249  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14745,  para.  65;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18036-  37, 

 para.  18;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20008-  10,  paras.  37-  38. 
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 harm  to  the  public  interest  by  diminishing  the  potential  for  competition  in  local  exchange  and 
 exchange  access  markets  in  Bell  Atlantics  or  GTEs  regions. 

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

 3.  Relevant  Markets 
 101.  We  begin  our  analysis  of  the  proposed  merger  by  defining  the  relevant  product  and 
 geographic  markets.  251  We  then  consider  whether  the  merger  frustrates  the  Communications 
 Acts  goal  of  encouraging  greater  competition  in  those  markets. 

 102.  Product  Markets.  We  analyze  the  competitive  effects  of  the  proposed  merger  on 
 the  provision  of  local  exchange  and  exchange  access  services.  252  Defining  relevant  product 

 250  Additionally,  we  note  that  our  analysis  of  these  competitive  issues  is  necessarily  truncated  in  this  portion  of  the 
 order.  Because  information  concerning  the  Applicants  business  plans  is  subject  to  a  Protective  Order,  much  of  the 
 evidence  on  which  we  rely  is  explained  in  Appendix  C,  to  which  access  must  be  restricted. 

 251  See  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20016,  para.  53;  see  also  SBC/  Ameritech  Order,  14  FCC  Rcd 

 at  14746,  para  67;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18119,  para.  164. 
 252  In  Sections  IX  and  X,  we  address  the  proposed  mergers  impact  upon  the  wireless  and  international  markets. 

 Additionally,  although  Bell  Atlantic  recently  entered  the  long  distance  market  in  New  York,  it  does  not  provide 
 interexchange  services  in  other  states.  Furthermore,  as  a  result  of  a  recent  divestiture,  GTE  no  longer  serves  long 
 distance  customers  in  either  the  larger  business  or  mass  markets  within  Bell  Atlantics  region,  with  the  exception 
 of  New  York.  Accordingly,  we  conclude  that  the  proposed  merger  will  not  result  in  a  loss  of  competition  in  the 
 domestic  market  for  long  distance  services.  See  supra  Section  V.  As  discussed  below,  however,  we  do  find  that  a 
 merged  Bell  Atlantic/  GTE  will  have  an  increase  ability  and  incentive  to  discriminate  in  the  provision  of  exchange 
 access  service.  See  infra  Section  VI.  D. 
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 markets  involves  identifying  and  aggregating  consumers  with  similar  demand  patterns.  For 
 purposes  of  analyzing  the  competitive  effects  of  this  merger  on  local  exchange  and  exchange 
 access  services  we  identify  two  distinct  relevant  product  markets:  (1)  residential  consumers  and 
 small  business  (mass  market)  and  (2)  medium-  sized  and  large  business  customers  (larger  business 
 market).  253 

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

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

 253  We  distinguish  mass  market  consumers  from  larger  business  customers  because  the  services  offered  to  one 
 group  may  not  be  adequate  or  feasible  substitutes  for  services  offered  to  the  other  group,  and  because  firms  need 
 different  assets  and  capabilities  to  target  these  two  markets  successfully.  See  generally  SBC/  Ameritech  Order,  14 
 FCC  Rcd  14746,  para.  68  &  n.  146;  WorldCom/  MCI,  13  FCC  Rcd  at  18119,  para.  164;  Bell  Atlantic/  NYNEX 
 Order,  12  FCC  Rcd  at  20016,  para.  53.  As  recognized  in  previous  merger  orders,  mass  market  customers  have  a 
 different  decision-  making  process  than  do  larger  business  customers.  For  example,  residential  and  small 
 businesses  are  served  primarily  through  mass  marketing  techniques  including  regional  advertising  and 
 telemarketing,  while  larger  businesses  tend  to  be  served  under  individual  contracts  and  marketed  through  direct 
 sales  contacts.  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14746,  para.  68. 

 254  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14746,  para.  69;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18120, 

 para.  167.  See  also  AT&  T/  TCG  Order,  13  FCC  Rcd  at  15248,  para.  21;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd 
 at  20017,  para.  54. 

 255  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18120,  para.  167. 

 256  See  id.  at  18120,  para.  168. 
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 in  the  relevant  markets  to  determine  the  competitive  impact  of  the  loss  of  one  of  the  Applicants  as 
 an  independent  entity.  257 

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

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

 257  The  Commission  previously  has  set  forth  the  various  capabilities  it  considers  in  identifying  the  most 
 significant  potential  competitors  in  local  exchange  and  exchange  access  markets.  Those  capabilities  include 
 whether  the  firm  possesses  the  following:  (1)  the  operational  ability  to  provide  local  telephone  service  (i.  e.,  know 
 how  and  operational  infrastructure,  including  sales,  marketing,  customer  service,  billing,  and  network 
 management);  (2)  the  ability  to  quickly  acquire  a  critical  mass  of  customers;  (3)  brand  name  recognition,  a 
 reputation  for  providing  high  quality  and  reliable  service,  an  existing  customer  base,  or  the  financial  resources  to 
 get  these  assets;  and  (4)  some  significant  unique  advantages,  such  as  a  cellular  presence  in  the  relevant  market.  See 
 Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20019,  paras.  58-  64;  see  also  SBC/  Ameritech  Order,  14  FCC  Rcd  at 
 14748,  para.  73;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18047-  48,  18051-  56,  18122,  paras.  36,  42-  51,  171. 

 258  See  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20021-  22,  para.  64.  We  also  noted  in  the  Bell 

 Atlantic/  NYNEX  Order  that  if  a  firms  internal  documents  demonstrate  serious  consideration  of  entry,  they  may 
 create  an  inference  of  a  capability  to  effect  the  market  without  a  detailed  examination  of  the  competitors 
 capabilities  and  incentives. 

 259  Firms  providing  one  service  may  choose  to  expand  their  offering  to  provide  a  whole  range  of  products  or 

 expand  to  other  geographic  regions.  For  instance,  as  noted  supra,  in  recent  merger  applications  before  the 
 Commission,  some  merging  parties  have  asserted  that  consumers  are  expressing  demand  for  one-  stop  shopping. 
 See  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18037,  para.  19;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20015, 
 para.  52.  According  to  the  Applicants,  this  demand  stimulated  in  part  their  merger  plans.  We  also  examine  the 
 activities  of  competitors  providing  similar  services;  if  a  competitor  branches  into  new  relevant  markets,  we  may 
 determine  that  a  firm  could  or  would  respond  to  such  a  competitive  challenge  by  serving  these  other  relevant 
 markets  as  well. 
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 GTEs  service  area. 
 107.  Capabilities  and  Incentives.  We  conclude  that  both  Bell  Atlantic  and  GTE  have 
 the  operational  capabilities  necessary  to  enter  out-  of-  region  markets.  In  general,  as  major 
 incumbent  LECs,  both  have  the  requisite  access  to  the  necessary  facilities,  know  how,  and 
 operational  infrastructure  such  as  customer  care,  billing,  and  related  systems  that  are  essential  to 
 the  provision  of  local  exchange  services  to  a  broad  base  of  residential  and  business  customers.  260 
 These  systems  are  required  whether  entry  occurs  through  resale,  use  of  UNEs,  or  some  other 
 form  of  facilities-  based  entry.  Similarly,  Bell  Atlantic  and  GTE  also  possess  special  expertise  that 
 they  could  bring  to  the  interconnection  negotiation  and  arbitration  process  when  entering  out-  of-region 
 markets  because  of  their  intimate  knowledge  of  local  telephone  operations  and  experience 
 negotiating  interconnection  agreements  with  new  entrants.  261 

 108.  Moreover,  as  was  the  case  in  the  merger  of  SBC  and  Ameritech,  Bell  Atlantic  and 
 GTE  have  the  additional  advantage  in  Pennsylvania  and  Virginia  of  adjacent  territories,  a  cellular 
 presence,  or  both.  262  In  Virginia,  for  instance,  each  of  the  areas  served  by  GTEs  incumbent  LEC 
 is  abutted  by  Bell  Atlantics  territory.  263  Additionally,  GTEs  substantial  wireless  presence  in 
 Virginia  is  largely  within  Bell  Atlantics  wireline  territory.  264  Each  company  has  an  array  of 
 switches  and  switching  locations  that  have  capacity  or  can  be  readily  upgraded  to  provide 
 switching  to  contiguous  territories,  and,  in  fact,  GTEs  own  local  entry  strategy  indicates  its  intent 
 to  leverage  upgraded  wireless  switches  to  provide  wireline  service  to  near-  franchise  areas.  265 
 Thus,  in  their  contiguous  service  areas  in  Pennsylvania  and  Virginia,  Bell  Atlantic  or  GTE  could 
 lease  or  build  transport  from  their  existing  switches  to  a  newly  entered  market  more  readily  than 
 other  potential  local  service  providers  because  of  their  proximity  to  the  newly  entered  market,  as 
 well  as  their  understanding  of  the  requirements  of  providing  local  exchange  services.  266  In 

 260  See  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  20020,  20040-  41,  paras.  62,  106-  08;  see  also  AT&  T  Mar.  1, 
 2000  Opposition  at  7-  8. 
 261  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  20040,  para.  107;  see  also  AT&  T  Mar.  1,  2000  Opposition  at  7-  8; 

 National  ALEC  Assoc.  Mar.  1,  2000  Comments  at  5. 
 262  See  Bluestar,  et  al.  Mar.  1,  2000  Comments  at  2;  National  ALEC  Assoc.  Mar.  1,  2000  Comments  at  6; 

 CompTel  Mar.  1,  2000  Comments  at  4-  5;  MCI  WorldCom  Nov.  23,  1998  Comments  at  22.  See  also 
 SBC/  Ameritech  Order,  14  FCC  Rcd  at  14753-  54,  paras.  85-  86  (adjacency  and  cellular  presence  or  both  evidence 
 that  merging  parties  are  significant  market  participants  in  each  others  operating  areas). 

 263  See  Appendix  C  (Summary  of  Confidential  Information). 

 264  See  id. 
 265  See  id.  In  this  regard,  we  find  GTEs  argument  that  it  intended  to  utilize  only  one  upgraded  wireless  switch  for 
 the  provision  of  wireline  services  to  be  contradicted  by  its  own  internal  documents.  See  id. 
 266  As  contiguous  incumbent  LECs  in  Pennsylvania  and  Virginia,  Bell  Atlantic  and  GTE  also  have  the  ability  to 

 use  remote  digital  loop  carriers  to  serve  out-  of-  region  end  users.  Such  technology  has  a  range  of  about  125  miles, 
 which  would  permit  it  to  be  used  in  conjunction  with  the  contiguous  providers  switch  in  its  nearby  in-  region 
 territory.  See  AT&  T  Nov.  23,  1998  Opposition  at  24. 
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 addition,  both  Bell  Atlantic  and  GTE  have  brand  recognition  in  contiguous  regions  because  of 
 extensive  advertising  in  media  markets  that  cross  these  regions,  as  well  as  nationally  recognized 
 brand  names  resulting  from  extensive  advertising  campaigns.  267  Finally,  the  wireless  assets  that 
 Bell  Atlantic  and  GTE  possess  in  Pennsylvania  and  Virginia  also  provide  unique  advantages  for 
 out-  of-  region  entry,  for  a  wireless  presence  can  provide  a  ready  customer  base  for  expanding  into 
 wireline  local  telephony.  268  As  discussed  below,  this  is  indicated  by  GTEs  own  entry  plans.  269 

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

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

 111.  Both  Bell  Atlantic  and  GTE  are  incumbent  LECs  in  substantial  geographic  areas 
 within  Virginia  and  Pennsylvania.  Internal  GTE  documents  indicate  that  GTE  had  long-  standing 

 267  As  discussed  below,  GTE  launched  a  national  advertising  campaign,  and  the  companys  traditional  advertising 
 strategy  has  emphasized  national,  strategic  branding.  See  Sprint  Nov.  23,  1998  Petition  at  19-  20. 
 268  See  Appendix  C  (Summary  of  Confidential  Information).  See  also  SBC/  Ameritech  Order,  14  FCC  Rcd  at 

 14754,  para.  85. 
 269  See  Appendix  C  (Summary  of  Confidential  Information). 

 270  Id. 
 271  See  id. 
 272  See  id. 
 273  See  SBC/  Ameritech  Order,  14  FCC  Rcd  14750,  para.  78. 
 274  See  Appendix  C  (Summary  of  Confidential  Information). 
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 plans  to  enter  Bell  Atlantics  local  markets  in  each  of  these  states.  275  For  instance,  GTEs 
 competitive  LEC  had  completed  interconnection  negotiations  with  Bell  Atlantic  and  submitted 
 interconnection  agreements  to  the  Pennsylvania  and  Virginia  state  utility  commissions  for 
 approval.  276  Significantly,  GTE  withdrew  its  request  for  approval  of  its  interconnection  agreement 
 with  Bell  Atlantic  in  Virginia  the  day  before  it  filed  its  application  for  approval  of  the  merger  with 
 this  Commission,  277  further  indicating  that  GTE  would  have  expanded  into  Bell  Atlantics  Virginia 
 market  but  for  its  merger  with  Bell  Atlantic. 

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

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

 114.  We  are  unpersuaded  by  GTEs  contentions  that  its  competitive  LEC  was  pursuing 

 275  See  id. 
 276  See  Appendix  C  (Summary  of  Confidential  Information).  We  reject  Applicants  argument  that  because  GTE 
 opted  into  an  existing  Bell  Atlantic  interconnection  agreement  in  Virginia  pursuant  to  section  252(  i)  of  the  Act,  its 
 plans  were  not  concrete.  See  Bell  Atlantic/  GTE  Dec.  23,  1998  Joint  Reply.  Adoption  of  a  previously  approved 
 interconnection  agreement  in  no  way  renders  the  subsequent  agreement  less  meaningful.  See  Sprint  Nov.  23,  1998 
 Petition  at  19. 

 277  See  id. 

 278  Appendix  C  (Summary  of  Confidential  Information). 
 279  See  Appendix  C  (Summary  of  Confidential  Information);  See  also  Sprint  Nov.  23,  1998  Petition  at  13-  16. 
 280  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing,  Attach.  B,  Tab  2,  para.  3. 
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 an  extremely  limited  out-  of-  region  presence  prior  to  the  merger.  Although  GTE  argues  that  its 
 competitive  LECs  initial  launch  in  California  demonstrated  stark  differences  between  its  business 
 plan  and  its  actual  commercial  results,  causing  it  to  prepare  to  enter  only  one  out-  of-  region  city  in 
 1999,  281  GTEs  internal  documents  indicate  that  it  in  fact  planned  to  enter  several  additional 
 markets  as  a  competitive  LEC  in  1999,  including  Bell  Atlantics  incumbent  LEC  markets  of 
 Pennsylvania  and  Virginia.  282  Similarly,  GTEs  argument  that  its  competitive  LECs  entry  plans 
 focused  nearly  exclusively  on  reselling  its  incumbent  LECs  services  to  customers  within  its  own 
 region  283  is  belied  by  the  evidence  indicating  that  GTE,  in  fact,  intended  to  offer  local  services  to 
 small  businesses  in  several  states  in  which  its  incumbent  LEC  has  no  presence.  284 

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

 116.  We  similarly  disagree  with  GTE  that  its  entry  into  the  mass  market  for  local 
 services  would  have  a  limited  impact  on  that  market  because  its  entry  was  resale-  based.  287 
 Relying  on  resale  operations  is  a  typical  initial  entry  strategy  employed  by  competitive  LECs.  As 
 we  recognized  in  the  SBC/  Ameritech  Order,  a  competitors  entry  by  resale  can  be  a  necessary  first 
 step  to  facilities-  based  competition,  not  a  per  se  disavowal  of  it.  288  Nor  do  we  find  credible 
 GTEs  assertion  that  it  lacks  brand  name  recognition  outside  of  its  region.  GTE  operates  in 
 twenty-  eight  states,  offers  long  distance,  wireless,  local,  and  Internet  services,  and  has  a  decidedly 

 281  See  Bell  Atlantic/  GTE  Dec.  23,  1998  Joint  Reply,  Attach.  B  at  6. 
 282  Appendix  C  (Summary  of  Confidential  Information). 
 283  Bell  Atlantic/  GTE  Dec.  23,  1998  Joint  Reply,  Attach.  B.  at  5  (  Consumers  were  not  targeted  out-  of-  franchise 
 because  acquisition  costs  were  too  high.) 
 284  See  Appendix  C  (Summary  of  Confidential  Information). 

 285  Id. 
 286  See  id. 
 287  Bell  Atlantic/  GTE  Dec.  23,  1998  Joint  Reply,  Attach.  B  at  5. 
 288  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14751,  para.  81. 
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 national  corporate  focus.  289  Moreover,  we  disagree  with  Applicants  contention  that  GTE  has 
 limited  name  recognition  in  Pennsylvania  and  Virginia.  290  Although  GTEs  brand  recognition  in 
 Pennsylvania  and  Virginia  on  a  statewide  basis  may  not  approach  that  of  the  three  largest 
 interexchange  carriers  that  also  provide  local  services,  it  is  likely  to  be  extremely  high  in  the  Bell 
 Atlantic  areas  adjacent  to  GTEs  incumbent  LEC  operating  areas  simply  because  of  advertising 
 spillover.  In  any  case,  GTEs  brand  recognition  nonetheless  is  greater  than  that  of  other 
 competitive  entrants  due  to  its  substantial  presence  in  those  states  as  an  incumbent  LEC  and 
 wireless  provider.  Additionally,  GTE  retained  the  services  of  a  national  advertising  agency  to 
 begin  implementing  a  national  campaign  to  assist  it  with  becoming  a  nationwide  integrated 
 provider  of  local,  long  distance,  wireless,  and  data  products.  291 

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

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

 289  See  Appendix  C  (Summary  of  Confidential  Information). 
 290  Bell  Atlantic/  GTE  Dec.  23,  1998  Joint  Reply  at  34. 
 291  See  Sprint  Nov.  23,  1998  Petition  at  19-  20. 
 292  See  Appendix  C  (Summary  of  Confidential  Information). 
 293  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14754,  para.  87;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 20029,  para.  82. 
 294  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14754,  para.  87. 
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 119.  Finally,  as  in  previous  merger  orders,  we  conclude  that  other  firms  currently 
 serving  or  planning  to  serve  the  mass  market  for  local  exchange  and  exchange  access  services  out-of- 
 region  are  not  yet  included  in  the  list  of  most  significant  market  participants.  295  Competitive 
 LECs  have  begun  serving  residential  markets  but  do  not  yet  have  the  existing  customer  base  and 
 brand  name  that  enable  AT&  T,  MCI  WorldCom,  and  Sprint,  as  well  as  certain  incumbent  LECs, 
 to  become  most  significant  competitors. 

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

 121.  Because  the  record  demonstrates  that  Bell  Atlantic  undertook  significant  efforts  to 
 win  large  business  customers  in  GTEs  region  in  Virginia,  we  conclude  that  Bell  Atlantic  is  one  of 
 the  more  significant  market  participant  in  the  larger  business  market  for  local  exchange  and 
 exchange  access  services  in  GTEs  service  area.  298  Similarly,  GTE  is  likely  to  have  pursued  a 
 number  of  its  large  business  customers  in  out-  of-  region  states  in  Bell  Atlantics  territory,  as 
 documented  by  GTEs  plans  to  offer  local  exchange  services.  299  Unlike  in  the  mass  market  for 
 local  exchange  and  exchange  access  services,  however,  a  large  number  of  other  firms  may  have 
 similar  capabilities  and  incentives  expanding  out-  of-  region  to  serve  larger  business  customers.  300 
 As  we  have  noted  previously,  the  larger  business  market  for  local  exchange  and  exchange  access 
 services  differs  from  the  mass  market.  301  Larger  business  customers  in  general  tend  to  be  more 

 295  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14755,  para.  88. 
 296  See  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18123,  para.  172;  AT&  T/  TCG  Order,  13  FCC  Rcd  at  15250,  para. 
 26. 
 297  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14755,  para.  89;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18123, 

 para.  172. 
 298  See  Appendix  C  (Summary  of  Confidential  Information). 

 299  See  id. 
 300  The  list  of  market  participants  with  the  capabilities  and  incentives  to  provide  local  exchange  services  to  larger 
 business  customers  includes  the  largest  interexchange  carriers. 
 301  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14755-  56,  paras.  89-  91;  See  also  WorldCom/  MCI  Order,  13  FCC 

 Rcd  18119,  para.  164;  AT&  T/  TCG  Order,  13  FCC  Rcd  15257,  para.  38.  AT&  T/  TCG,  with  its  combination  of 
 AT&  Ts  capital  resources  and  existing  base  of  business  long  distance  customers  along  with  TCGs  local  exchange 
 facilities  and  existing  base  of  business  local  exchange  customers,  is  a  significant  competitor  in  the  local  market  for 
 larger  business  customers.  Similarly,  with  its  combination  of  MCIs  business  customer  base  and  local  facilities 
 (continued.) 
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 sophisticated  and  knowledgeable  purchasers  of  telecommunications  services  than  mass  market 
 customers.  302  Finally,  broad-  based  brand  name  recognition  and  mass  advertising  are  less 
 important  in  attracting  larger  business  customers,  303  and,  as  a  result,  many  more  firms  are  entering 
 the  larger  business  market  successfully  than  are  entering  the  mass  market  for  local  exchange 
 services. 

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

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

 (Continued  from  previous  page) 
 along  with  WorldComs  competitive  LEC  assets  (including  Brooks  Fiber  and  MFS),  MCI  WorldCom  is  also  a 
 significant  competitor  in  the  larger  business  local  exchange  market. 

 302  A  significant  difference  between  the  mass  market  for  local  services  and  the  larger  business  market  for  local 

 services  is  that  larger  business  customer  purchases  are  not  limited  to  a  single  local  metropolitan  geographic  area; 
 rather,  they  purchase  simultaneously  in  numerous  local  markets. 

 303  See  AT&  T/  TCG  Order,  13  FCC  Rcd  at  15257,  para.  39;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20016, 

 para.  53. 
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 to  capitalize  on  their  brand  name  and  existing  customer  base.  304  We  thus  conclude  that  the  merger 
 will  eliminate  GTE  as  one  of  a  very  limited  number  of  most  significant  market  participants  in  the 
 mass  market  for  local  services  in  Pennsylvania  and  Virginia  and,  therefore,  will  result  in  a  public 
 interest  harm.  305 

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

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

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

 304  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14758,  para.  95;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 20024,  para.  70. 
 305  In  doing  so,  we  recognize  that  the  Department  of  Justice  did  not  find  any  basis  for  a  case  of  actual  potential 

 competition  with  regard  to  the  proposed  merger  of  Bell  Atlantic  and  GTE.  We  note,  however,  that  as  discussed 
 above,  the  public  interest  standard  that  governs  the  Commissions  review  is  broader  than  the  antitrust  analysis 
 undertaken  by  the  Department.  In  particular,  as  described  herein,  we  find  that  the  merger  may  contravene  the 
 intent  of  the  1996  Act  by  delaying  the  future  development  of  competition  or  lessening  its  eventual  impact. 

 306  See  Appendix  C  (Summary  of  Confidential  Information). 

 307  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14760,  para.  100;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 20022,  para.  65. 
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 business  customers.  308 
 C.  Comparative  Practices  Analysis 
 127.  In  this  section,  we  analyze  the  effect  of  the  proposed  merger  on  the  ability  of 
 regulators  and  competitors  to  use  comparative  analyses  of  the  practices  of  similarly  situated 
 independent  incumbent  LECs  to  implement  the  Communications  Act  in  an  effective,  yet  minimally 
 intrusive  manner.  As  the  Commission  explained  in  the  SBC/  Ameritech  Order,  comparative 
 practices  analyses,  also  referred  to  as  benchmarking,  provide  valuable  information  regarding  the 
 incumbents  networks,  operating  practices  and  capabilities  to  regulators  and  competitors  seeking, 
 in  particular,  to  promote  and  enforce  the  market-  opening  measures  required  by  the  1996  Act  and 
 the  rapid  deployment  of  advanced  services.  309  Without  the  use  of  this  tool,  regulators  would  be 
 forced,  contrary  to  the  goals  of  the  1996  Act  and  similar  state  laws,  to  engage  in  less  efficient, 
 more  intrusive  regulatory  intervention  in  order  to  promote  competition  and  secure  quality  service 
 at  reasonable  rates  for  customers.  310  We  find  that  the  proposed  merger  of  Bell  Atlantic  and  GTE 
 would  pose  a  significant  harm  to  the  public  interest  by  severely  handicapping  the  ability  of 
 regulators  and  competitors  to  use  comparative  practices  analysis  as  a  critical,  and  minimally 
 intrusive,  tool  for  achieving  the  objectives  of  the  1996  Act. 

 128.  The  Commissions  public  interest  test  considers,  among  other  things,  whether  the 
 merger.  .  .would  otherwise  frustrate  our  implementation  or  enforcement  of  the  Communications 
 Act  and  federal  communications  policy.  311  In  previous  incumbent  LEC  mergers,  the  Commission 
 has  recognized  that  the  declining  number  of  independently-  owned  major  incumbent  LECs  limits 
 the  effectiveness  of  benchmarking  for  regulators  in  carrying  out  the  competitive  goals  of  the 
 Communications  Act  in  a  less  regulatory  fashion.  312  In  the  SBC/  Ameritech  Order,  the 
 Commission  concluded  that  by  further  reducing  the  number  of  major  incumbent  LECs,  the 
 merger  increased  the  risk  that  the  remaining  firms  will  collude,  either  explicitly  or  tacitly,  to 
 conceal  information  and  hinder  the  benchmarking  efforts  of  regulators  and  competitors.  313 

 308  See  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18074,  para.  86;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 20022,  para.  65.  We  note,  further,  that  this  conclusion  undermines  the  Applicants  argument  that  a  potential  public 
 interest  benefit  would  result  post-  merger  from  Applicants  following  their  larger  business  customers  out-  of-  region. 
 Cite.  A  number  of  firms,  including  Bell  Atlantic  and  GTE,  are  already  providing  or  could  provide  local  exchange 
 and  exchange  access  services  to  these  customers. 

 309  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14760-  61,  para.  101. 

 310  Id.  at  14761,  para.  101. 
 311  Id.  at  14761,  para.  102;  AT&  T/  TCI  Order,  14  FCC  Rcd  at  3169,  para.  14. 
 312  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14761,  para.  102;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  19994, 
 para.  16;  SBC/  SNET  Order,  13  FCC  Rcd  at  21292,  para.  21. 
 313  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14762,  para.  104.  In  the  Bell  Atlantic/  NYNEX  Order,  the  Commission 

 stated  that  further  reduction  of  the  number  of  RBOCs  is  problematic  because  the  potential  for  coordinated 
 behavior  increases  and  the  impact  of  individual  company  actions  on  our  aggregate  measures  of  the  industrys 
 performance  grows.  Bell  Atlantic/  NYNEX  Order  12  FCC  Rcd  at  20062-  63,  para.  156. 
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 Consequently,  the  Commission  expressly  noted  that  the  SBC/  Ameritech  merger  posed  a 
 significant  harm  to  the  public  interest.  314  The  Commission  stated  that  the  SBC/  Ameritech 
 merger  would  result  in  dangerously  few  RBOC  and  major  incumbent  LEC  benchmarks,  315  and 
 posed  grave  harms  to  the  regulatory  processes  and  the  operation  of  the  1996  Acts 
 interconnection  requirements.  316 

 129.  Following  the  concerns  expressed  in  prior  merger  orders,  we  must  consider  the 
 effect  that  a  further  reduction  in  the  number  of  large  incumbent  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.  317  We  find,  as  the  Commission 
 concluded  in  the  SBC/  Ameritech  Order,  that  the  major  incumbent  LECs  (RBOCs  and  GTE), 
 because  they  face  similar  statutory  obligations  and  market  conditions,  remain  uniquely  valuable 
 benchmarks  for  assessing  each  others  performance.  318  Thus,  a  reduction  in  the  few  remaining 
 major  incumbent  LECs  would  restrict  the  flow  of  information  to  regulators  and  competitors  that 
 otherwise  could  be  used  to  promote  innovative  and  deregulatory  market-  opening  solutions  or  to 
 identify  and  curtail  unreasonable  and  discriminatory  behavior  that  frustrates  Congress  goal  of 
 encouraging  vibrant  competition.  319 

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

 314  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14761,  para.  101. 

 315  Id.  at  14792,  para.  179. 
 316  Id.  at  14795,  para.  185. 
 317  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14761,  para.  103;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 1994,  para.  16;  SBC/  SNET  Order,  13  FCC  Rcd  at  21292,  para.  21;  SBC/  PacTel  Order,  12  FCC  Rcd  at  2624,  para. 
 32. 

 318  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14761-  62,  para.  103. 

 319  Id.  at  14762,  para.  103. 
 320  Bell  Atlantic  and  GTE  state  that  their  merger  is  a  true  merger  of  equals  and  not  an  outright  acquisition. 
 Bell  Atlantic/  GTE  Jan.  2000  Supplemental  Filing  at  25. 
 321  See  also  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14762,  para.  104. 
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 the  proposed  merger  of  Bell  Atlantic  and  GTE  would  impede  the  ability  of  regulators  and 
 competitors  to  effectively  benchmark,  precipitating  more  intrusive,  more  costly  and  less  effective 
 regulatory  schemes,  contrary  to  the  deregulatory  aims  of  the  1996  Act  and  the  interests  of 
 regulated  firms,  consumers  and  taxpayers. 

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

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

 133.  In  the  SBC/  Ameritech  Order,  we  established  the  need  for  and  importance  of 
 comparative  practices  analyses.  325  Absent  the  ability  to  benchmark  among  major  independent 
 incumbent  LECs,  this  Commission  and  state  regulators  would  very  likely  have  to  engage  in  highly 
 intrusive  and  time  consuming  regulatory  practices,  such  as  investigating  the  challenged  conduct 
 directly  and  at  substantial  cost  to  make  an  assessment  regarding  its  feasibility  or  reasonableness.  326 
 The  increased  need  for  such  direct  regulation  would  not  only  be  more  costly,  but  would  clash 
 with  the  deregulatory  goals  of  the  1996  Act.  327  Furthermore,  these  more  intrusive,  time 

 322  Id.  at  14762-  63,  para.  106. 
 323  Id. 
 324  Id. 
 325  Id.  at  14762-  67,  paras.  106-  17 
 326  As  Sprint  points  out,  without  benchmarking,  the  Commission  would  have  to  employ  far  more  intrusive 
 measures,  including  document  and  in  personae  subpoenas,  more  after-  the-  fact  complaint  adjudication,  or  on-  the 
 record  hearings.  Sprint  Nov.  23,  1998  Petition  at  52-  53. 

 327  See  id.  at  53-  54. 
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 consuming,  and  costly  regulatory  alternatives  are  unlikely  to  be  as  effective  as  comparative 
 practices  analysis  in  implementing  the  pro-  competitive  mandates  of  the  1996  Act,  given  the  rapid 
 evolution  of  technology,  the  incumbent  LECs  informational  advantage  and  their  incentive  to 
 conceal  such  information. 

 2.  Effect  of  Reduction  in  Number  of  Benchmarks 
 134.  In  order  to  devise  a  variety  of  policies  and  practices  for  regulators  and  competitors 
 to  observe  and  analyze,  comparative  practices  analysis  requires  a  large  number  of  comparable 
 independent  sources  of  observation.  For  this  reason,  mergers  between  benchmark  firms 
 significantly  weaken  the  effectiveness  of  this  pro-  competitive,  deregulatory  tool.  Removing  a 
 benchmark  firm  through  a  merger  reduces  the  independence  of  the  sources  of  observation  at  three 
 levels:  (a)  the  holding  company  level,  as  policies  of  each  of  the  merging  firms  conflicts  with  the 
 others;  (b)  the  local  operating  company  level,  as  the  merged  companys  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  benchmarkings  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 
 135.  A  merger  of  two  large  incumbent  LECs  obviously  eliminates  an  independent 
 source  of  observation  at  the  holding  company  level.  The  combined  entity  is  unlikely  to  continue 
 with  two  sets  of  policies  and  practices  where  the  dual  policies  conflict  with  one  another.  Instead, 
 it  is  likely  to  eliminate  any  divergent  approaches  in  favor  of  a  standard  policy  (which  may 
 represent  a  choice  between  the  two  firms  positions,  or  a  compromise).  Consequently,  as  the 
 Commission  explained  in  the  Bell  Atlantic/  NYNEX  Order,  the  result  of  the  merger  may  be  a 
 reduction  in  the  level  of  experimentation  and  variety  of  approaches  observable  to  regulators  and 
 competitors.  328 

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

 328  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20060-  62,  paras.  152-  54. 
 329  See  id.  at  20062-  63,  para.  156. 
 330  The  Applicants  contend  that  in  many  instances,  a  merger  will  have  no  effect  on  a  best-  practices  benchmark. 
 Bell  Atlantic/  GTE  Dec.  23,  1998  Joint  Reply  App.  F,  Declaration  of  Kenneth  J.  Arrow  at  para.  37  (Bell 
 Atlantic/  GTE  Arrow  Decl.).  While  the  Applicants  contention  has  merit  in  theory,  the  argument  breaks  down 
 when  applying  it  to  the  present  merger.  The  Bell  Atlantic/  GTE  merger  will  reduce  the  number  of  major  incumbent 
 (continued.) 
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 observation  decreases,  deviations  from  average  practices  can  be  identified  less  confidently  as 
 unreasonable  and  punishable. 

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

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

 139.  Where  a  merger  creates  an  incumbent  LEC  of  sufficient  size  to  dominate  the 
 setting  of  industry  averages  and  standard  practices,  which  are  based  on  data  from  operating 
 companies,  the  merged  firm  acquires  an  incentive  to  impose  uniform  practices  in  order  to 
 influence  or  set  the  de  facto  average  benchmark.  An  incumbent  LEC  with  few  operating 
 companies,  for  example,  may  allow  its  local  operating  companies  to  set  the  non-  recurring  charge 
 (NRC)  associated  with  cutting  over  a  loop,  because  the  data  from  its  operating  companies  will 
 have  negligible  impact  on  the  industry  average.  If,  however,  as  a  result  of  a  merger,  the  holding 
 company  controlled  a  large  percentage  of  the  nations  local  loops,  then  it  would  have  a  strong 
 incentive  to  establish  a  uniform  NRC  in  order  to  influence  the  industry  average.  331  The  result  (Continued  from  previous  page) 

 benchmarks  from  five  to  four,  thus  significantly  reducing  the  sample  size  of  observations  available  for 
 benchmarking.  The  reduction  in  benchmarks  also  increases  the  ability  for  firms  to  either  tacitly  or  explicitly 
 engage  in  suboptimal  behavior  that  would  reduce  the  effectiveness  of  best  practices  benchmarking,  and  result  in  a 
 less  beneficial  best  practice.  See,  e.  g.,  Nov.  23,  1998  Petition  at  47-  49;  Letter  from  Michael  Jones,  Willkie  Farr 
 &  Gallagher,  Counsel  to  Sprint,  to  Magalie  Roman  Salas,  Secretary,  FCC  (filed  Apr.  12,  1999)  (Sprint  Apr.  12, 
 1999  Ex  Parte  Letter),  Farrell  &  Mitchell  Attachment  at  20. 

 331  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14768,  para.  120  &  n.  236. 
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 would  be  a  loss  of  independent  sources  of  observation  for  regulators  and  competitors  seeking  to 
 use  comparative  practices  analyses,  rather  than  intrusive  and  expensive  regulation,  to  promote 
 competition  and  rapid  deployment  of  advanced  services. 

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

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

 142.  By  reducing  the  number  of  benchmark  firms,  and  thereby  simplifying  coordination 
 of  operational  and  strategic  behavior,  a  merger  between  major  incumbent  LECs  facilitates  the 
 ability  of  the  remaining  firms  to  conceal  information  to  thwart  the  effectiveness  of  benchmarking.  334  The  remaining  firms  will  find  it  easier  to  coordinate  the  withholding  of  certain 

 332  See  F.  M.  Scherer  and  D.  Ross,  Industrial  Market  Structure  and  Economic  Performance  277-  315  (3  rd  Ed., 
 1990);  A.  Jacquemin  and  M.  Slade,  Cartels,  Collusion,  and  Horizontal  Merger,  published  in  R.  Schmalensee  and 
 R.  D.  Willig,  Handbook  of  Industrial  Organization,  Vol.  1  (1989). 

 333  Applying  these  principles,  the  Commission  has  recognized  that  the  markets  for  local  exchange  and  exchange 

 access  services,  traditional  monopolies  collectively  dominated  by  major  regional  holding  companies,  are  conducive 
 to  coordinated  interaction.  See  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20047,  para.  122  (concluding  that  the 
 risk  of  coordinated  interaction  is  particularly  high  in  the  markets  in  which  Bell  Atlantic  and  NYNEX  compete.). 

 334  Because  each  successive  reduction  in  the  number  of  benchmarks  will  reduce  the  utility  of  comparative 

 practices  analyses,  there  will  be  some  point  at  which  further  reduction  in  benchmark  firms  renders  such 
 comparisons  ineffective.  In  the  Horizontal  Merger  Guidelines,  the  Department  of  Justice  and  the  Federal  Trade 
 Commission  set  a  threshold  of  market  concentration  according  to  an  1800  HHI,  approximately  the  equivalent  of  six 
 equally-  sized  firms.  Where  the  post-  merger  HHI  exceeds  1800,  it  will  be  presumed  that  mergers  producing  an 
 increase  in  the  HHI  of  more  than  100  points  are  likely  to  create  or  enhance  market  power  or  facilitate  its  exercise. 
 In  such  a  market,  a  merger  that  reduces  the  number  of  competing  firms  from  six  to  five  is  therefore  likely  to  be 
 challenged  as  raising  serious  concern  regarding  unilateral  and  coordinated  effects.  A  merger  that  reduces  the 
 (continued.) 
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 types  of  information  and  the  elimination  of  divergent  operational  practices  that  regulators  and 
 competitors  could  use  in  comparative  practices  analyses.  For  example,  tacit  coordination  among 
 fewer  major  incumbent  LECs  may  make  it  easier  for  the  remaining  firms  to  agree  not  to  provide  a 
 certain  type  of  interconnection  or  access  arrangement  in  order  to  prevent  regulators  and 
 competitors  from  concluding  that  such  arrangement  is  technically  and  practically  feasible  because 
 another  major  incumbent  is  providing  it.  In  this  way,  further  consolidation  among  the  major 
 incumbent  LECs  could  severely  curtail  regulators  abilities  to  constrain  any  tacit  or  explicit 
 coordination  by  these  incumbents  to  impede  comparative  practices  analyses,  especially  as 
 regulators  seek  to  open  the  incumbents  markets  to  competition. 

 3.  Adverse  Effects  of  Bell  Atlantic/  GTE  Merger 
 143.  We  conclude  that  the  merger  of  Bell  Atlantic  and  GTE  will  have  an  adverse  impact 
 on  the  ability  of  regulators  and  competitors  to  employ  comparative  practices  analyses,  which 
 ultimately  would  force  regulators  to  substitute  more  intrusive,  more  costly,  and  less  effective 
 methods  of  regulation  to  the  detriment  of  the  public  interest.  We  now  examine  the  mergers  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. 

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

 145.  We  reject  the  Applicants  arguments  that  GTEs  service  areas  are  highly  dispersed 
 and  largely  rural,  thus  differentiating  GTE  from  Bell  Atlantic  for  benchmarking  purposes.  335  As  an 
 initial  matter,  we  note  that  GTE  has  been  selling  many  of  its  rural  exchanges  to  other  independent 

 (Continued  from  previous  page) 
 number  of  competing  firms  from  five  to  four  raises  even  greater  concerns.  Analogously,  using  a  market  which 
 consists  not  of  competing  firms  but  of  benchmark  firms,  reducing  the  number  of  benchmark  firms  from  five  to 
 four,  is  likely  to  raise  grave  concern  with  respect  to  coordinated  efforts  to  defeat  benchmarking,  which  are  more 
 likely  to  succeed  here  than  in  competitive  markets  where  each  firm  faces  potential  gain  from  unilateral  deviation. 
 Horizontal  Merger  Guidelines,  Department  of  Justice  and  Federal  Trade  Commission  (1997);  SBC/  Ameritech 
 Order,  14  FCC  Rcd  at  14769-  70,  n.  240. 

 335  Bell  Atlantic/  GTE  Mar.  16,  2000  Joint  Reply  at  8.  But  see  AT&  T  Mar.  1,  2000  Comments  at  12  (refuting 

 Applicants  claim  that  GTE  is  not  similarly  situated  with  the  RBOCs,  and  that  GTEs  service  area  is 
 predominantly  rural  by  stating  [  s]  uch  claims  are  unbelievable  on  their  face.  Indeed,  it  is  apparent  that  even 
 Applicants  themselves  do  not  believe  this,  for  later  in  their  filing  they  announce  that  this  is  a  true  merger  of 
 equals.). 
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 local  telephone  companies.  336  Thus,  on  a  going  forward  basis,  it  appears  that  GTEs  service  area 
 is  becoming  increasingly  less  rural  in  nature.  Similarly,  we  reject  the  Applicants  contentions  that 
 GTEs  value  as  a  benchmark  for  RBOCs  is  limited,  337  and  that  the  1996  Act  has  created  a  far 
 greater  number  of  benchmarks  than  the  seven  RBOCs  created  by  the  MFJ.  338  As  we  stated  above 
 and  in  license  transfer  proceedings  associated  with  other  RBOC  mergers,  the  major  incumbent 
 LECs  (RBOCs  and  GTE),  because  they  face  similar  statutory  obligations  and  market  conditions, 
 remain  uniquely  valuable  benchmarks  for  assessing  each  others  performance.  339  Instead,  we  find 
 that  the  dispersed  nature  of  GTEs  service  area  makes  it  much  more  valuable  as  a  benchmark, 
 because  it  operates  under  a  wide  range  of  geographic,  regulatory,  and  economic  conditions. 
 Moreover,  GTE  owns  about  11%  of  customer  loops  in  the  United  States,  far  more  than  any 
 smaller  independent  LEC  or  competitive  LEC,  and  comparable  to  the  other  major  incumbent 
 LECs.  340 

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

 336  See,  e.  g.,  Comments  Invited  on  GTE  Southwest  Incorporateds  Application  to  Discontinue  Local  Exchange 
 and  Exchange  Access  Service  for  Certain  Exchanges  in  New  Mexico,  Public  Notice,  NSD  File  No.  W-  P-  D-  457 
 (rel.  Mar.  24,  2000). 

 337  Bell  Atlantic/  GTE  Mar.  16,  2000  Joint  Reply  at  9;  Bell  Atlantic/  GTE  Dec.  23,  1998  Joint  Reply  at  40.  But  see 

 CoreComm  Mar.  1,  2000  Comments  at  13  (citing  Commission  orders  stating  that  the  Commission  has  consistently 
 relied  upon  GTE  in  establishing  benchmark  rates,  terms  and  conditions). 

 338  Bell  Atlantic/  GTE  Dec.  23,  1998  Joint  Reply  at  39.  See  also  Bell  Atlantic/  GTE  Arrow  Decl.  at  para.  6 

 (stating  that  the  1996  Act  and  the  widespread  deployment  of  facilities  and  services  by  competitive  LECs,  have 
 reduced  the  importance  of  the  traditional  types  of  benchmarks  relied  on  by  the  Commission  and  other  regulatory 
 bodies). 

 339  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14761-  62,  para.  103;  Bell  Atlantic/  NYNEX  Order  at  19994,  para. 

 16. 
 340  Trends  in  Telephone  Service,  March  2000,  Tables  20.2  &  20.3,  Industry  Analysis  Division,  Common  Carrier 

 Bureau,  Federal  Communications  Commission.  See  also  Sprint  Apr.  12,  1999  Ex  Parte  Letter,  Farrell  &  Mitchell 
 Attachment,  Table. 

 341  Bell  Atlantic/  GTE  Dec.  23,  1998  Joint  Reply  at  38. 

 342  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14781,  para.  146. 
 343  See  also  id.  at  14781,  para.  147  (stating  that  [  t]  he  record  from  prior  RBOC  mergers  shows  that,  after  both 
 mergers,  the  acquiring  firm  quickly  eliminated  certain  policies  of  the  acquired  company  that  were  in  conflict  with 
 those  of  the  acquiring  company.);  AT&  T  Mar.  1,  2000  Comments  at  15. 
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 b.  Loss  of  Independence  of  Operating  Companies 
 147.  We  find  that,  although  the  actual  number  of  operating  companies  may  not  diminish 
 following  the  merger  of  Bell  Atlantic  and  GTE,  the  combined  entity  will  have  greater  incentive  to 
 unify  the  practices  of  these  companies,  resulting  in  an  overall  loss  of  independence  at  the 
 operating-  company  level,  and  in  fewer  independent  points  of  observation  for  regulators  and 
 competitors. 

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

 c.  Increased  Risk  of  Coordination  Among  Remaining  Major 
 Incumbent  LECs 

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

 150.  Reducing  the  number  of  firms  also  increases  each  firms  incentive  to  coordinate  its 
 behavior  to  undermine  regulatory  processes.  348  Specifically,  the  merged  firm  will  have  a  greater 
 incentive  to  enter  into  tacit  agreement  with  the  remaining  firms  to  convey  minimal  information  to 

 344  Trends  in  Telephone  Service,  March  2000,  Tables  20.1,  20.2  &  20.3,  Industry  Analysis  Division,  Common 
 Carrier  Bureau,  Federal  Communications  Commission;  Bell  Atlantic/  GTE  May  22,  2000  Ex  Parte  Letter;  Bell 
 Atlantic  1999  Annual  Report  at  6.  See  also  Sprint  Apr.  12,  1999  Ex  Parte  Letter,  Farrell  &  Mitchell  Attachment   
 Table  2;  BlueStar,  et  al.  Mar.  1,  2000  Comments  at  2. 

 345  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14785,  para.  156. 

 346  Id. 
 347  Id. 
 348  Id.  at  14785,  para.  157. 
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 regulators  and/  or  competitors  and  to  eliminate  outlying  policies  and  practices  that  could  become 
 industry  benchmarks.  349  Moreover,  the  merger  will  create  a  demonstrably  large  incumbent  LEC 
 that  can  act  as  an  industry  leader  for  collusive  purposes.  350 

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

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

 153.  Comparative  practices  analyses  are  most  effective  when  the  firms  under 
 observation  are  similarly  situated,  including  the  size  of  the  firms  relative  to  the  size  of  the  market. 
 With  comparable  firms    e.  g.,  in  their  customer  base,  access  to  capital,  network  configuration, 

 349  Id. 
 350  Id. 
 351  See  id.  at  14785,  para.  158. 
 352  See  id. 
 353  See  id. 
 354  See  id. 
 355  See  id.  at  14785-  86,  para.  158. 
 356  See  id.  at  14786,  para.  158. 
 357  We  note  that  in  the  context  of  this  merger,  the  new  entity  may  have  new  practices,  policies  and  behaviors. 
 While  these  practices,  policies,  and  behaviors  evolve,  there  is  a  further  loss  of  benchmarking  capability. 
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 and  the  volume  and  type  of  demands  from  competitors    regulators  and  competitors  can  establish 
 more  effectively  that  approaches  and  rates  adopted  by  one  incumbent  would  be  equally  feasible 
 for  other  incumbents.  Significant  variation  between  the  major  incumbent  LECs  and  the  other 
 carriers  cited  by  the  Applicants  preclude  the  use  of  the  latter  categories  as  alternative  benchmarks 
 in  evaluating  the  major  incumbent  LECs  compliance  with  their  statutory  obligations. 

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

 a.  Inadequacy  of  Other  Firms  As  Benchmarks  Against  Major 
 Incumbent  LECs 

 155.  We  reject  the  Applicants  contention  that  other  types  of  firms  serve  as  adequate 
 benchmarks  to  the  major  incumbent  LECs.  361  We  are  not  persuaded  that  the  presence  of  small 
 incumbent  LECs  and/  or  competitive  LECs  eliminate  the  need  for  regulators  and  competitors  to 
 make  direct  comparisons  among  the  RBOCs  and  GTE.  The  Applicants  arguments  ignore  vital 
 differences  in  the  1996  Acts  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. 

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

 358  See  Bell  Atlantic/  GTE  Arrow  Decl.  at  paras.  6,  10,  14-  19. 
 359  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14786,  para.  161. 
 360  Id. 
 361  The  Applicants  repeatedly  assert  the  notion  that  adequate  alternative  benchmarks  can  be  found  among 
 independent  LECs  such  as  Sprints  operating  subsidiaries,  ALLTEL,  Frontier  and  Cincinnati  Bell.  Bell 
 Atlantic/  GTE  Arrow  Decl.  at  para.  20.  See  also  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14787,  para.  162  &  n.  313. 
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 157.  Equally  important,  we  find  a  pivotal  distinction  between  the  section  251 
 obligations  imposed  on  the  major  incumbent  LECs  versus  those  of  competitive  LECs.  In  contrast 
 to  the  major  incumbent  LECs  that  are  subject  to  section  251(  c)  s  market-  opening  requirements,  362 
 many  of  the  competitive  carriers  cited  by  the  Applicants  are  not  subject  to  full  section  251(  c) 
 obligations.  First,  by  definition,  competitive  LECs  do  not  fall  within  the  1996  Acts  definition  of 
 an  incumbent  local  exchange  carrier  for  the  given  service  area,  nor  do  such  carriers  own  the 
 operative  facilities  for  which  interconnection  and  access  is  sought.  363  Instead,  competitive  LECs 
 are  subject  to  the  lesser  requirements  of  section  251(  b)  that  are  applicable  to  all  LECs.  364 

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

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

 160.  Small  Incumbent  LECs.  We  find  that,  because  their  service  areas  include  fewer 
 large  metropolitan  areas  and  thus  tend  to  be  subject  to  less  competitive  entry  and  less  demand  for 
 budding  advanced  services,  smaller  incumbent  LECs  are  not  likely  to  provide  useful  benchmarks 

 362  See  47  U.  S.  C.    251(  c)  (requiring  incumbent  LECs  to  negotiate  in  good  faith  and  provide,  e.  g., 
 interconnection,  unbundled  access  to  network  elements,  resale,  and  collocation). 
 363  See  47  U.  S.  C.    251(  h). 

 364  47  U.  S.  C.    251(  b)  (requiring  all  LECs  to  allow  resale,  number  portability,  dialing  parity,  access  to  rights  of 
 way,  and  reciprocal  compensation). 
 365  Under  section  251(  f),  a  rural  incumbent  LEC  is  exempt  from  the  requirements  of  section  251(  c)  until  (i)  it  has 

 received  a  bona  fide  request  for  interconnection,  services,  or  network  elements,  and  (ii)  the  state  commission 
 determines  that  such  request  is  not  unduly  economically  burdensome,  is  technically  feasible,  and  is  consistent 
 with  section  254  universal  service  provisions.  47  U.  S.  C.    251(  f).  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at 
 14788,  para.  166  &  n.  319. 

 366  SBC/  SNET  Order,  13  FCC  Rcd  at  21302,  para.  21  (citing  Policy  and  Rules  Concerning  Rates  for  Dominant 

 Carriers,  CC  Docket  No.  87-  313,  Second  Report  and  Order,  5  FCC  Rcd  6786,  6818-  20  (1990);  47  U.  S.  C.   
 251(  f)(  2)). 

 367  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14788,  para.  166. 
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 for  measuring  the  market-  opening  performance  of  major  incumbent  LECs.  In  contrast  to  the 
 smaller  incumbents,  the  major  incumbents,  including  GTE,  often  operate  in  markets  characterized 
 by  high  population  density  or  a  large  number  of  business  lines,  which  generally  are  more  attractive 
 to  new  entrants.  The  level  of  competitive  activity  in  a  given  area  can  implicate  the  network 
 architecture  or  capability  required  of  certain  incumbent  facilities  such  as  OSS  and  physical 
 collocation.  A  small  incumbent  facing  little  demand  for  interconnection,  collocation  or  facilities 
 for  advanced  services  is  less  likely  to  have  traffic  levels  or  performance  measurements  that  would 
 render  meaningful  comparisons  with  a  large  incumbent  who  must  employ  more  sophisticated 
 management  systems  to  meet  greater  demand.  Moreover,  different  market  structures  may  result 
 in  different  network  configurations  that  limit  the  usefulness  of  comparisons.  For  example,  the  loop 
 costs  of  an  urban/  suburban  major  incumbent  LEC,  may  not  be  comparable  to  those  of  a  small  rural 
 incumbent  LEC  with  longer  average  loops  or  less  densely  concentrated  customers.  Finally,  in 
 average-  practices  benchmarking,  no  small  incumbent  LEC  could  provide  an  adequate 
 counterpoint  to  the  combined  entitys  control  of  one-  third  of  the  nations  access  lines. 

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

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

 163.  All  of  the  foregoing  factors  suggest  that  comparisons  between  a  major  incumbent 
 LEC  and  a  small  incumbent  or  a  competitive  LEC  are  less  likely  to  yield  the  kind  of  benefits  that 
 would  flow  from  comparisons  among  the  RBOCs  and  GTE.  In  this  regard,  we  note  that  the 
 Applicants  fail  to  provide  examples  where  a  regulator  or  competitor  has  relied  on  the  performance 

 368  Bell  Atlantic/  GTE  Arrow  Decl.  at  para.  20. 
 369  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14789,  para.  170. 
 370  See  Bell  Atlantic/  GTE  Arrow  Decl.  at  paras.  14-  19. 
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 of  these  claimed  benchmark  alternatives,  as  adequate  benchmarks  against  an  RBOC  or  GTE.  We 
 therefore  reiterate  our  conclusion  that  the  large  incumbent  LECs,  because  they  face  relatively 
 similar  market  conditions,  remain  the  principal  sources  of  benchmarks  for  their  own  behavior. 

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

 165.  We  certainly  agree  with  the  notion  that  an  incumbent  LECs  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  incumbents  performance.  373  As 
 Sprint  observes,  however,  implementation  of  a  parity  rule  itself  may  require  traditional 
 benchmarking  between  major  incumbent  LECs  374  --  e.  g.,  in  setting  mutually  acceptable 
 performance  standards  to  determine  if  an  incumbent  LEC  has  complied  sufficiently  with  the  parity 
 requirement. 

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

 371  Id.  at  paras.  7-  8. 
 372  Id.  at  para.  8. 
 373  See,  e.  g.,  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14791,  para.  175;  Local  Competition  Order,  11  FCC  Rcd  at 
 15614,  para.  224  (Section  251(  c)(  2)(  C)  requires  an  incumbent  LEC  to  provide  interconnection  between  its  network 
 and  that  of  a  requesting  carrier  at  a  level  of  quality  that  is  at  least  indistinguishable  from  that  which  the  incumbent 
 provides  itself  or  any  other  party).  See  Performance  Measurements  and  Reporting  Requirements  for  Operations 
 Support  Systems,  Interconnection,  and  Operator  Services  and  Directory  Assistance,  Notice  of  Proposed 
 Rulemaking,  13  FCC  Rcd  12817  (1998),  at  para.  14. 

 374  .Apr.  12,  1999  Ex  Parte  Letter,  Farrell  and  Mitchell  Attachment,  Response  to  Some  Criticisms  of 

 Benchmarking  Analysis,  at  2-  4. 
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 provision  of  innovative  services  to  the  public. 
 167.  For  the  foregoing  reasons,  we  conclude  that  parity  rules  complement,  but  do  not 
 supplant,  the  use  of  traditional  comparative  practices  analyses  by  regulators  and  competitors. 
 Indeed,  if  parity  alone  mattered,  as  the  Applicants  analysis  suggests,  then  all  the  remaining  major 
 incumbent  LECs  would  be  permitted  to  merge  into  one  entity,  leaving  regulators  and  competitors 
 unable  to  compare  distinct  practices  of  several  independently-  owned  firms. 

 c.  Sufficiency  of  Remaining  Benchmarks 
 168.  We  find  that  the  merger  would  result  in  dangerously  few  major  incumbent  LEC 
 benchmarks.  As  BlueStar,  DSLNET,  KMC  and  MGC  note  in  their  joint  comments,  after  this 
 merger,  there  will  be  three  giant  carriers  controlling  90%  or  more  of  the  nations  access  lines.  375 

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

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

 375  BlueStar,  et  al.  Mar.  1,  2000  Comments  at  2. 
 376  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14793,  para.  181. 
 377  Id.  at  14794,  para.  183;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20062-  63,  para.  156. 
 378  See  CompTel  Mar.  1,  2000  Comments  at  7. 
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 5.  Conclusion 
 171.  We  conclude  that,  by  further  reducing  the  number  of  separately-  owned  large 
 incumbent  LECs,  the  proposed  merger  of  Bell  Atlantic  and  GTE  would  significantly  harm  the 
 ability  of  regulators  and  competitors  to  rely  on  comparative  practices  analyses  to  carry  out  their 
 obligations  under  the  Communications  Act.  The  Commission  warned  in  the  Bell  Atlantic/  NYNEX 
 Order,  and  reiterated  in  the  SBC/  Ameritech  Order  that  future  applicants  bear  an  additional 
 burden  in  establishing  that  a  proposed  merger  will,  on  balance,  be  pro-  competitive  and  therefore 
 serve  the  public  interest,  convenience  and  necessity.  379  Bell  Atlantic  and  GTE  have  not 
 overcome  that  burden.  380 

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

 D.  Increased  Discrimination 
 1.  Overview 
 173.  In  the  preceding  section,  we  explained  why  this  merger  would  seriously  weaken 
 oversight  of  the  Applicants  behavior  toward  competitors,  thus  frustrating  the  Commissions 
 ability  to  achieve  two  of  the  key  public  interest  goals  of  the  Telecommunications  Act:  increased 
 competition  and  reduced  regulation.  In  this  section,  we  conclude  that  incumbent  LECs,  such  as 
 Bell  Atlantic  and  GTE,  have  the  incentive  and  ability  to  discriminate  against  competitors  in  the 
 provision  of  advanced  services,  381  interexchange  services,  and  circuit-  switched  local  exchange 
 services,  382  and  that  such  incentive  and  ability  will  increase  as  a  result  of  the  merger.  This 
 increased  incentive  and  ability  to  discriminate  potentially  creates  a  public  interest  harm  because  it 

 379  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14761,  para.  102;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  19994, 
 20061,  paras.  16,  153. 
 380  See  also  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14761,  para.  102. 

 381  For  purposes  of  this  Order,  we  define  the  term  "advanced  services"  as  we  did  in  the  Advanced  Services 
 Further  Notice,  to  mean  high  speed,  switched,  broadband,  wireline  telecommunications  capability  that  enables 
 users  to  originate  and  receive  high-  quality  voice,  data,  graphics  or  video  telecommunications  using  any 
 technology.  Advanced  Services  Further  Notice,  14  FCC  Rcd  at  4762,  n.  2.  The  Commission  there  stated:  [  t]  he 
 term  broadband  is  generally  used  to  convey  sufficient  capacity  --  or  bandwidth  --  to  transport  large  amounts  of 
 information.  As  technology  evolves,  the  concept  of  broadband  will  evolve  with  it:  we  may  consider  today's 
 broadband  services  to  be  narrowband  services  when  tomorrow's  technologies  appear.  Id.  For  a  further 
 description  of  xDSL  technology,  see  id.  at  paras.  9-  12. 

 382  Throughout  this  section,  local  exchange  service,  refers  to  circuit-  switched  local  exchange  service,  otherwise 

 known  as  Plain  Old  Telephone  Service  (POTS),  rather  than  services,  such  as  advanced  services,  based  on  digital 
 subscriber  line  technology  or  packet-  switched  technology  that  may  have  a  local  component. 
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 may  adversely  affect  national  competitors'  provision  of  services,  and  may  force  consumers  to  pay 
 more  for  retail  services,  with  reduced  quality  and  choice. 

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

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

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

 177.  In  many  cases,  discriminatory  conduct  by  an  incumbent  LEC  in  its  region  affects 
 competitors  in  areas  both  inside  and  outside  the  incumbent's  region.  The  resulting  effects  on 

 383  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14795,  para.  187. 
 384  Id.  at  14796,  para.  187. 
 385  Id.  at  14796,  para.  187,  n.  348. 
 386  See  Pub.  L.  104-  104,  Title  VII,    706,  Feb.  8,  1996,  110  Stat.  153,  reproduced  in  the  notes  under  47  U.  S.  C.   
 157. 
 387  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14796,  para.  188. 

 388  Id. 
 389  Id. 
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 competitors,  externalities  or  "spillover"  effects,  390  can  directly  or  indirectly  harm  customers, 
 whose  business  the  incumbent  LEC  is  seeking  to  gain.  Spillover  effects  directly  harm  customers 
 when  the  incumbent  LECs  discrimination  in  one  region  negatively  affects  a  customers 
 communications  between  that  region  and  another  region.  391  Spillover  effects  indirectly  harm 
 customers  when  an  incumbent  LECs  discrimination  in  one  region  increases  a  national  rivals 
 general  costs,  thereby  indirectly  impairing  the  ability  of  this  rival  to  provide  service  to  customers 
 in  other  regions.  392  Regardless  of  the  nature  of  the  spillover  effects,  the  intended  result  is  to 
 reduce  the  ability  of  competitors  to  acquire  and/  or  keep  customers.  393 

 178.  Because  after  the  merger  the  larger  combined  entity  would  realize  more  of  the 
 gains  from  such  external  effects,  the  marginal  benefit  and  corresponding  incentive  to  discriminate 
 in  each  area  would  increase.  394  As  a  result,  the  level  of  discrimination  engaged  in  by  the  combined 
 entity  in  each  region  within  the  combined  territory  would  be  greater  than  the  sum  of  the  level  of 
 discrimination  engaged  in  by  the  two  individual  companies  in  their  own,  separate  regions,  absent 
 the  merger.  395  Specifically,  the  combined  entity  will  be  better  able  to  discriminate  against 
 competitors  by  coordinating  its  formerly  separate  local  exchange  operations  and  controlling  both 
 ends  of  a  higher  percentage  of  calls,  which  is  relevant  to  the  provision  of  interexchange  services.  396  As  described  above,  regulators  will  have  greater  difficulty  monitoring  and  detecting 

 this  misconduct  because  of  the  reduction  in  the  number  of  benchmarks.  397  Therefore,  the 
 combined  company  not  only  will  have  more  incentive  to  discriminate  against  rivals,  but  also  will 
 have  a  heightened  ability  to  inhibit  competitors'  provision  of  services  within  the  combined  region 
 compared  with  the  ability  of  each  company  currently  to  discriminate  within  its  region.  398  We 
 explain  below  why  the  combined  entity  is  likely  to  increase  the  level  of  discrimination  that  rivals 
 must  overcome  to  provide  retail  advanced  services,  interexchange  services,  and  local  exchange 
 services. 

 390  Externalities,  or  spillovers,  arise  when  an  action  by  one  party  imposes  costs  or  benefits  on  another  party  or 
 parties.  See  Robert  S.  Pindyck  &  Daniel  L.  Rubinfeld,  Microeconomics  (Prentice  Hall,  4th  ed.  1998)  at  648.  A 
 classic  example  of  a  negative  externality  is  air  pollution. 

 391  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14797-  98,  para.  192  (for  a  more  detailed  discussion  of  spillover 

 effect). 
 392  See  id.  at  14797,  para.  192. 

 393  Id.  at  14798,  para.  192. 
 394  Id.  at  14798,  para.  193. 
 395  Id. 
 396  Id.  at  14798,  para.  194. 
 397  Id. 
 398  Id.  at  14798-  99,  para.  194. 
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 2.  Analysis 
 a.  Advanced  Services 
 179.  Although  the  Commission  issues  rules  to  prevent  discrimination,  it  is  impossible 
 for  the  Commission  to  foresee  every  possible  type  of  discrimination,  especially  with  evolving 
 technologies.  399  Within  the  past  year,  the  Commission  has  adopted  rules,  most  notably  the  UNE 
 Remand  Order,  and  the  Line  Sharing  Order,  that  should  enhance  competition  by  reducing  the 
 ability  of  an  incumbent  LEC  to  discriminate  in  the  provision  of  advanced  services.  400  It  is  too 
 early  for  the  Commission  to  discern  the  impact  of  these  rules.  Moreover,  the  advanced  services 
 market  is  still  a  nascent  industry.  Accordingly,  we  find  that  despite  certain  changes  in  the 
 regulatory  landscape,  the  increased  discrimination  theory  we  enunciated  in  the  SBC/  Ameritech 
 Order  still  holds  true  today.  401 

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

 399  Id.  at  14804,  para.  206. 
 400  See  In  the  Matter  of  Local  Competition  Provisions  of  the  Telecommunications  Act  of  1996,  CC  Docket  No. 
 96-  98,  Third  Report  and  Order  and  Fourth  Further  Notice  of  Proposed  Rulemaking,  FCC  99-  238  (rel.  Nov.  5, 
 1999)  (Third  Report  and  Order  and  Fourth  FNPRM  or  UNE  Remand  Order);  Deployment  of  Wireline  Services 
 Offering  Advanced  Telecommunications  Capability,  CC  Docket  Nos.  98-  147  and  96-  98,  Third  Report  and  Order 
 and  Fourth  Report  and  Order,  FCC  99-  355  (rel.  Dec.  9,1999)  (Line  Sharing  Order).  The  UNE  Remand  Order 
 specifies  which  network  elements  must  be  unbundled  by  incumbent  LECs.  For  example,  the  order  unbundles 
 subloops  and  packet  switching  in  limited  circumstances.  The  Line  Sharing  Order  requires  incumbent  LECs  to 
 unbundle  the  high  frequency  portion  of  the  loop  in  certain  circumstances. 

 401  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14800-  07,  paras.  197-  211. 

 402  See  Advanced  Services  Further  Notice,  14  FCC  Rcd  at  4762,  para.  1  and  n.  2  (citing  Joint  Statement  of 
 Managers,  S.  Conf.  Rep.  No.  104-  230,  104th  Cong.  2d  Sess.  1  (1996)  (Joint  Explanatory  Statement)). 
 403  See  Advanced  Services  Further  Notice,  14  FCC  Rcd  at  4762,  para.  2. 

 404  See  Section  706  (a),  47  U.  S.  C.    157  nt  (a)  (Stating  that  the  Commission  shall  encourage  the  deployment  on 
 a  reasonable  and  timely  basis  of  advanced  telecommunications  capability  to  all  Americans  (including,  in  particular, 
 elementary  and  secondary  schools  and  classrooms)  by  utilizing,  in  a  manner  consistent  with  the  public  interest, 
 (continued.) 
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 (ii)  Incentive  and  Ability  to  Discriminate 
 181.  We  find  that  incumbent  LECs  such  as  Bell  Atlantic  and  GTE  have  ample  ability 
 and  incentive  to  discriminate  against  advanced  services  providers,  and  that  the  increase  in  the 
 incentive  and  ability  to  discriminate  may  frustrate  substantially  the  realization  of  the  1996  Acts 
 and  the  Commissions  goals  to  encourage  the  deployment  of  advanced  services.  Specifically,  we 
 find  that  the  combined  entity  will  have  an  increased  incentive  and  ability  to  discriminate  against 
 competitors  providing  retail  services  that  rely  on  new  technology,  particularly  advanced  services 
 like  Sprint  ION.  405  Because  incumbent  LECs  either  currently  do,  or  in  the  future  will,  compete 
 with  other  providers  of  advanced  services,  they  have  an  incentive  to  discriminate  against 
 companies  that  depend  on  the  incumbents  for  evolving  types  of  interconnection  and  access 
 arrangements  necessary  to  provide  new  services  to  consumers.  406  They  also  have  the  incentive  to 
 limit  or  control  the  development  of  new  services,  to  the  extent  new  services  compete  with  their 
 current  offerings.  407  In  addition,  competitors  often  are  totally  dependent  on  incumbent  LECs  for 
 last  mile  wireline  access  to  end  users.  408 

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

 (Continued  from  previous  page) 
 convenience,  and  necessity,  price  cap  regulation,  regulatory  forbearance,  measures  that  promote  competition  in  the 
 local  telecommunications  market,  or  other  regulating  methods  that  remove  barriers  to  infrastructure  investment.). 

 405  Sprint  Nov.  23,  1998  Petition  at  34-  36.  Sprints  ION  service  integrates  voice,  internet,  frame  relay  and  other 

 data  traffic  on  one  customer  access  facility  and  carries  all  of  this  traffic  in  asynchronous  transfer  mode  (ATM)  data 
 format  through  the  Sprint  network.  Sprint  Brauer  Aff.  at  3.  Sprint  states  that  Sprint  ION  will  focus  customers  on 
 the  efficiency  gained  by  integrating  all  services  on  one  access  facility,  increased  functionality  provided  to 
 customers  through  increases  in  bandwidth,  and  innovations  in  customer  control  by  providing  the  customer  with 
 easy-  to-  use  service  configuration  functionality.  Id.  at  4. 

 406  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14802,  para.  202. 

 407  For  example,  Sprint  is  concerned  not  only  by  incumbent  LECs  ability  to  discriminate  against  competitors  or 
 potential  competitors  by  denying  access  to  necessary  inputs,  but  also  by  slow-  rolling  competitors  in  negotiations  for 
 such  inputs.  Sprint  Nov.  23  Petition  at  34-  35.  See  also  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14802-  05,  paras. 
 202,  204  &  n.  378. 

 408  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14802,  para.  202.  Sprint  states  that  its  ION  service  will  reach 

 customers  through  either  a  dedicated  access  line  purchased  by  Sprint  from  an  incumbent  LEC  (in  most  instances), 
 through  an  xDSL  loop  and  collocation  space  leased  from  an  incumbent  LEC  or  through  resale.  Sprint  Brauer  Aff. 
 at  14 

 409  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14804,  para.  205. 

 410  Id. 
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 by  regulators.  411 
 (iii)  Post-  Merger  Incentive  and  Ability  to  Discriminate 
 183.  We  find  that  the  instant  merger,  like  the  SBC/  Ameritech  merger,  increases  the 
 ability  and  incentive  of  the  merged  entity  to  discriminate  against  the  providers  of  advanced 
 services.  412  We  agree  with  Sprint  that  there  are  spillover  effects  to  discrimination  against  national 
 providers  of  advanced  services,  and  that,  post-  merger,  the  combined  entity  would  internalize 
 external  effects  to  some  extent,  thus  increasing  its  incentive  to  act  in  one  area  in  a  manner  that 
 produces  these  effects  in  another  area.  413  Economies  of  scale  and  scope,  and  network  effects 
 imply  that  when  incumbent  LECs  weaken  a  competitive  service  in  one  region,  this  weakens  it  in 
 other  regions  as  well.  414  For  services  with  multi-  market  dependence,  discrimination  in  one 
 market  will  have  a  ripple  effect  in  other  markets.  415  We  are  specifically  concerned  that  the 
 mergers  large  footprint  will  create  more  incentives  for  the  merged  entity  to  discriminate  against 
 competitors  whose  networks  become  more  attractive  with  more  customers.  416 

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

 185.  As  we  stated  in  the  SBC/  Ameritech  proceeding,  we  are  particularly  concerned 
 about  discrimination  in  the  advanced  services  market,  given  the  Commissions  obligations  under 

 411  Id. 
 412  Id.  at  14805,  para.  207. 
 413  See  Sprint  Nov.  23,  1998  Petition  at  29,  33-  36. 
 414  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14805,  para.  207,  n.  384. 
 415  Id.  at  14805,  para.  207. 
 416  Id. 
 417  Id.  at  14805,  para.  208. 
 418  Id. 
 419  Id. 
 420  Id.  at  14806,  para.  208.  See  also  id.  at  14806-  07;  paras.  209-  210  (for  a  more  detailed  discussion  about  the 
 merged  entitys  increased  incentive  and  ability  to  discriminate). 
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 section  706  to  encourage  the  deployment  on  a  reasonable  and  timely  basis  of  advanced 
 telecommunications  capability  to  all  Americans.  421  In  the  advanced  services  market,  there  is  a 
 continuing  shift  from  a  circuit  switched  to  a  packet  switched  environment,  combined  with  the 
 emergence  of  data  LECs  such  as  Rhythms  and  Covad,  that  are  using  advanced  technologies  to 
 provide  innovative  new  services.  422  Any  discrimination  against  these  competitors  will  likely  cause 
 a  significant  setback  to  current  and  future  efforts  to  encourage  competition  and  innovation.  423 

 b.  Long  Distance  Services 
 186.  In  this  section,  we  examine  potential  effects  of  the  merger  on  the  provision  of 
 interexchange  services.  Commenters  allege  that  discrimination  may  take  two  forms:  price  and 
 non-  price.  We  examine  these  cases  separately  and  conclude  that  the  merged  firms  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. 

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

 421  Id.  at  14806-  07,  para.  210. 
 422  Id.  at  14807,  para.  210. 
 423  Id. 
 424  See  Bell  Atlantic  271  Order. 
 425  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14808,  para.  214. 
 426  Id. 
 427  Trends  in  Telephone  Service,  March  2000,  Tables  20.1,  20.2  &  20.3,  Industry  Analysis  Division,  Common 
 Carrier  Bureau,  Federal  Communications  Commission;  Bell  Atlantic/  GTE  May  22,  2000  Ex  Parte  Letter;  Bell 
 Atlantic  1999  Annual  Report  at  6.  See  also  Letter  from  Michael  Jones,  Wilkie  Farr  &  Gallagher,  Counsel  to 
 Sprint,  to  Magalie  Roman  Salas,  Secretary,  FCC,  (filed  Apr.  12,  1999)  (Sprint  Apr.  12  Ex  Parte  Letter),  Farrell  & 
 Mitchell  attachment    Table  2  (citing  Federal  Communications  Commission,  1997  Statistics  of  Communications 
 Common  Carriers,  Table  1.1);  BlueStar,  et  al.,  Mar.  1,  2000  Joint  Comments  at  2  (  The  proposed  merger  would 
 create  a  gargantuan  ILEC  controlling  over  one-  third  of  the  nations  access  lines.). 
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 (a)  Incentive  and  Ability  to  Discriminate 
 188.  For  the  reasons  discussed  below,  we  conclude  that  the  merged  entity  has  the 
 incentive  and  ability  to  discriminate  against  competing  interexchange  carriers.  428  Specifically, 
 given  their  monopoly  control  over  exchange  access  services,  each  Applicant  currently  has  the 
 ability  to  discriminate  against  rivals  providing  interexchange  services,  in  favor  of  its  own 
 interexchange  operations,  by  denying,  degrading,  or  delaying  access  on  the  originating  and 
 terminating  ends.  429  We  focus  our  discussion  on  discrimination  with  respect  to  the  potential  for 
 terminating  access,  because  we  find  that  the  merged  entitys  incentive  to  engage  in  this  type  of 
 discrimination  will  increase  significantly  as  a  result  of  the  merger. 

 189.  As  we  found  in  the  SBC/  Ameritech  Order,  recent  developments  in  local  networks 
 have  enhanced  incumbents  ability  to  discriminate  operationally  and  technically  in  favor  of  their 
 long  distance  affiliates,  in  particular  with  respect  to  larger  business  customers.  430  The  specific 
 developments  in  the  local  network  that  have  enhanced  incumbents  ability  to  discriminate  against 
 rival  interexchange  providers  that  need  different  and  generally  more  complex  forms  of  network 
 interconnection  are:  (1)  the  deployment  of  common  channel  signaling  systems;  431  (2)  the 
 development  of  advanced  intelligent  networks  (AIN),  or  software  driven  networks;  and  (3) 

 428  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14808-  09,  para.  216.  We  note  that  GTE  has  not,  in  the  context  of 
 this  proceeding,  been  accused  of  any  pattern  of  discrimination  against  rivals  providing  interexchange  services.  But 
 see  Sprint  Brauer  Aff.  at  17-  18  (citing  GTEs  continued  billing  of  its  own  retail  interLATA  toll  to  Sprints 
 California  local  end  user  subscribers).  We  find,  however,  that  prior  to  the  merger,  GTEs  incentive  to  engage  in 
 such  behavior  was  minimal  due  to  its  insubstantial  share  of  the  long  distance  market,  which  dictated  that  any 
 rewards  GTE  gleaned  from  such  behavior  would  be  slight.  According  to  the  Trends  in  Telephone  Service,  GTE 
 has  less  than  a  1%  share  of  the  long  distance  market.  Trends  in  Telephone  Service,  March  2000,  Table  11.  2, 
 Industry  Analysis  Division,  Common  Carrier  Bureau,  Federal  Communications  Commission. 

 429  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14809,  para.  217.  The  incentive  to  discriminate  exists  because,  for 

 calls  originating  in  region,  an  incumbent  LEC  will  be  able  to  benefit  from  discrimination  by  securing  more 
 customers  on  the  originating  side.  An  incumbent  LEC  has  the  incentive  to  discriminate  against  termination  of  a 
 particular  call  only  to  the  extent  that  the  call  originated  in  the  same  incumbents  region.  If  an  incumbent  LEC 
 providing  terminating  access  to  an  interexchange  carrier  denies  or  degrades  that  access,  then  the  incumbent  LEC 
 competing  with  the  interexchange  carrier  at  the  originating  end  may  also  benefit.  Id.  at  14809,  para.  216. 

 430  Id.  at  14809,  para.  218,  n.  399. 

 431  These  systems  are  referred  to  as  out  of  band  signaling  networks,  and  they  simultaneously  carry  signaling 
 messages  for  multiple  calls.  In  general,  most  LECs  signaling  networks  adhere  to  a  Bellcore  standard  Signaling 
 System  7  (SS7)  protocol.  SS7  networks  use  signaling  links  to  transmit  routing  messages  between  switches,  and 
 between  switches  and  call-  related  databases  (such  as  the  Line  Information  Database,  Toll  Free  Calling  Database, 
 and  Advanced  Intelligent  Network  databases).  These  links  enable  a  switch  to  send  queries  via  the  SS7  network  to 
 call-  related  databases,  which  return  customer  information  or  instructions  for  call  routing  to  the  switch.  A  typical 
 SS7  network  includes  a  signaling  link  that  transmits  signaling  information  in  packets,  from  a  local  switch  to  a 
 signaling  transfer  point  (STP),  which  is  a  high-  capacity  packet  switch.  The  STP  switches  packets  onto  other  links 
 according  to  the  address  information  contained  in  the  packet.  These  additional  links  extend  to  other  switches, 
 databases,  and  STPs  in  the  incumbent  LECs  networks.  A  switch  routing  a  call  to  another  switch  will  initiate  a 
 series  of  signaling  messages  via  signaling  links  through  a  STP  to  establish  a  call  path  on  the  voice  network 
 between  the  switches.  See  Local  Competition  Order,  11  FCC  Rcd  at  15738-  41,  paras  479-  83. 
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 further  developments  in  multi-  media  applications  (such  as  applications  involving  combinations  of 
 voice,  data,  image,  and  video  traffic).  432  Incumbents  may  discriminate  against  interexchange 
 carriers  by,  among  other  things:  (1)  refusing  to  provide  interconnection  at  critical  points  in  their 
 intelligent  network  based  on  alleged  harm  to  the  network  or  refusing  to  convey  certain  types  of 
 control  messages  across  the  AIN;  or  (2)  slow  rolling  their  competitors  who  make  requests  for 
 interconnection  or  technical  information.  433 

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

 (b)  Post-  Merger  Incentive  and  Ability  to 
 Discriminate 

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

 192.  We  therefore  agree  with  parties  arguing  that,  with  respect  to  interexchange  calls, 
 the  merged  firm  will  have  an  increased  incentive  to  discriminate  in  terminating  the  calls  of 
 competing  interexchange  carriers,  stemming  from  the  fact  that  benefits  will  flow  from  controlling 
 both  ends  of  a  higher  percentage  of  interexchange  calls.  438  According  to  Sprint,  the  combined  Bell 

 432  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14809-  10,  para.  219. 

 433  Id.  at  14810,  para.  219. 
 434  See  id.  at  14810,  para.  220. 
 435  Id. 
 436  See  Sprint  Nov.  23,  1998  Petition  at  33.  An  incentive  to  discriminate  on  the  originating  end  is  not  a 
 significant  issue  in  this  proceeding  because  there  will  always  be  an  incentive  for  an  incumbent  offering 
 interexchange  services  to  discriminate  against  traffic  originating  in  its  region,  and  this  merger  will  not  create  a 
 greater  incentive.  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14812,  n.  419. 

 437  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14812,  para.  225. 

 438  See  AT&  T  Mar.  1,  2000  Comments  at  17,  n.  8;  Sprint  Nov.  23,  1998  Petition  at  31-  36;  see  also  MCI 
 WorldCom  Nov.  23,  1998  Comments  at  38. 
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 Atlantic/  GTE  entity  would  terminate  43  percent  of  minutes  that  the  combined  entity  controls  on 
 the  originating  end,  a  20  percent  increase  from  the  36  percent  weighted  average  of  minutes 
 controlled  cumulatively  by  the  companies.  439  Applicants  assert  that  this  increase  is  no  greater  an 
 increase  than  in  the  SBC/[  Pacific]  Telesis  merger,  where  the  Commission  found  that  an  increase 
 of  only  six  to  seven  percentage  points  did  not  pose  any  anticompetitive  risk.  440  As  we  stated  in 
 the  SBC/  Ameritech  Order,  the  Commission  reached  a  different  conclusion  in  the  SBC/  Pacific 
 Telesis  Order,  where  it  stated  that  there  was  no  anticompetitive  risk  from  the  increase  in  the 
 percentage  of  minutes  for  which  the  combined  entity  would  control  both  the  originating  and 
 terminating  end.  441  Here,  the  harm  would  be  significant  because  of  the  substantial  number  of 
 customers  that  will  be  affected  by  the  discrimination  made  possible  by  the  increase  in  the 
 percentage  of  interLATA  traffic  originating  and  terminating  in  Bell  Atlantics  and  GTEs  regions.  442  We  therefore  agree  with  MCI  WorldCom  that,  because  interexchange  carriers  would 

 be  more  dependent  on  a  single  entity  for  exchange  access  than  they  would  absent  the  merger, 
 hard-  to-  detect  methods  of  non-  price  discrimination  would  be  even  more  crippling  to  competing 
 long  distance  companies.  443 

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

 194.  We  recognize  that  the  Commission  concluded  in  the  Bell  Atlantic/  NYNEX  Order 
 that  given  existing  safeguards,  the  merger  between  Bell  Atlantic  and  NYNEX  would  not  result  in 
 an  increased  incentive  and  ability  to  engage  in  non-  price  discrimination  against  long  distance 
 competitors.  445  We  note,  however,  that  in  the  Bell  Atlantic/  NYNEX  Order,  the  Commission  did 

 439  See  Sprint  Nov.  23,  1998  Petition  at  33. 
 440  See  Bell  Atlantic/  GTE  Oct.  2,  1998  Application  at  46  (quoting  SBC/  PacTel  Order,  12  FCC  Rcd  at  2647, 
 paras.  46,53,57). 
 441  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14812-  13,  para.  226,  n.  423  (stating  that  [  t]  he  result  in  the 

 SBC/  PacTel  Order  was  correct,  however,  because  in  that  merger,  any  resulting  harm  from  that  increase  in 
 percentage  points  would  not,  in  and  of  itself,  have  been  fatal  to  the  merger.). 

 442  See  id.  at  14812-  13,  para.  226,  n.  424.  In  the  SBC/  Ameritech  merger,  we  reached  the  same  conclusion  and 

 agreed  with  Sprint  that  the  combined  entity  would  terminate  45  percent  of  minutes  that  the  combined  entity 
 controls  on  the  originating  end,  a  50  percent  increase  from  the  30  percent  of  minutes  for  which  Ameritech 
 currently  controls  both  the  originating  and  terminating  ends.  Id.  at  para.  226,  n.  420. 

 443  See  MCI  WorldCom  Nov.  23,  1998  Comments  at  38  (asserting  that  common  ownership  facilitates  Bell 

 Atlantics  and  GTEs  ability  to  focus  their  non-  price  discrimination  efforts  across  their  regions);  see  also 
 SBC/  Ameritech  Order,  14  FCC  Rcd  at  14813,  para.  226,  n.  425. 

 444  See  MCI  WorldCom  Nov.  23,  1998  Comments  at  38. 

 445  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14813,  para.  228. 
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 not  specifically  address  the  issue  of  discrimination  on  the  terminating  end  of  long  distance  calls,  an 
 issue  that  is  significant  here.  We  find  that  the  larger  scale  of  the  instant  merger  as  compared  to 
 that  merger,  however,  increases  the  risks  of  non-  price  discrimination.  446 

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

 (ii)  Price  Discrimination  (Price  Squeeze) 
 196.  In  addition  to  non-  price  discrimination,  opponents  of  the  proposed  merger  have 
 raised  arguments  about  a  particular  form  of  strategic  pricing  involving  the  Applicants'  leveraging 
 monopoly  control  over  bottleneck  local  loop  facilities  to  inhibit  competition  from  long  distance 
 rivals.  For  example,  MCI  WorldCom  argues  that  once  the  combined  entity  begins  selling  in-region 
 long  distance  service  through  an  interexchange  affiliate,  it  will  take  advantage  of  the  "high" 
 prices  for  interstate  exchange  access  services  (above  cost  prices),  over  which  it  has  monopoly 
 power  (albeit  constrained  by  regulation),  by  offering  "low"  prices  for  retail  long  distance  services 

 446  At  the  time  of  the  Bell  Atlantic/  NYNEX  merger,  the  two  firms  controlled  about  24%  of  customer  lines 
 nationwide,  while  the  merged  Bell  Atlantic/  GTE  entity  will  control  more  than  33%  of  customer  lines  nationwide. 
 See  1997/  1998  Statistics  of  Communications  Common  Carriers,  Tables  2.  3  &  2.  10,  Federal  Communications 
 Commission;  Trends  in  Telephone  Service,  March  2000,  Tables  20.1,  20.2  &  20.3,  Industry  Analysis  Division, 
 Common  Carrier  Bureau,  Federal  Communications  Commission;  Bell  Atlantic/  GTE  May  22,  2000  Ex  Parte 
 Letter;  Bell  Atlantic  1999  Annual  Report  at  6.  Non-  price  discrimination  is  a  violation  of  several  provisions  of  the 
 Communications  Act,  as  well  as  a  number  of  rules  adopted  by  the  Commission.  Section  272(  c)  of  the 
 Communications  Act  states  that  a  BOC,  in  dealing  with  its  long  distance  affiliate:  (1)  may  not  discriminate 
 between  that  company  or  affiliate  and  any  other  entity  in  the  provision  or  procurement  of  goods,  services,  facilities, 
 and  information,  or  in  the  establishment  of  standards;  and  (2)  shall  account  for  all  transactions  with  an  affiliate 
 described  in  subsection  (a)  of  this  section  in  accordance  with  accounting  principles  designated  or  approved  by  the 
 Commission.  47  U.  S.  C.    272(  c).  We  have  adopted  a  number  of  rules  implementing  these  provisions  and 
 otherwise  designed  to  prevent  non-  price  discrimination.  See  47  C.  F.  R.    53.200,  et  seq.  See  also  Implementation 
 of  the  Telecommunications  Act  of  1996:  Accounting  Safeguards  Under  the  Telecommunications  Act  of  1996, 
 Report  and  Order,  11  FCC  Rcd  17539  (1996)  (Accounting  Safeguards  Order);  Implementation  of  the  Non-Accounting 
 Safeguards  of  Sections  271  and  272  of  the  Communications  Act  of  1934,  as  amended,  First  Report  and 
 Order  and  Further  Notice  of  Proposed  Rulemaking,  11  FCC  Rcd  21905  (1996)  (Non-  Accounting  Safeguards 
 Order);  Regulatory  Treatment  of  LEC  Provision  of  Interexchange  Services  Originating  in  the  LECs  Local 
 Exchange  Area  and  Policy  and  Rules  Concerning  the  Interstate,  Interexchange  Marketplace,  Second  Report  and 
 Order  in  CC  Docket  No.  96-  149  and  Third  Report  and  Order  in  CC  Docket  No.  96-  61,  12  FCC  Rcd  15756  (1997) 
 (LEC  In-  Region,  Interexchange  Order). 

 447  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14814,  para.  229. 

 448  Id. 
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 in  competition  with  the  other  long  distance  carriers,  thereby  setting  up  a  price  squeeze.  449 
 Because  interstate  exchange  access  services  are  a  necessary  input  for  long  distance  services, 
 opponents  argue  that  the  relationship  between  the  combined  entity's  "high"  exchange  access  prices 
 and  its  affiliate's  "low"  prices  for  long  distance  services  forces  competing  long  distance  carriers 
 either  to  lose  money  or  to  lose  customers  even  if  they  are  more  efficient  than  the  combined 
 entity's  long  distance  affiliate  at  providing  long  distance  services.  450  For  the  reasons  discussed 
 below,  we  conclude  that  price  squeeze  tactics  are  likely  to  fail  under  the  circumstances  presented 
 here. 

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

 198.  We  find,  however,  that,  given  the  existing  regulatory  safeguards,  the  merged  entity 
 does  not  have  significant  ability  to  act  on  this  incentive.  453  Although  we  do  not  wish  to  rely  on 
 regulatory  safeguards  to  prevent  potential  public  interest  harms,  we  note  here  that  certain 
 safeguards  mitigate  against  harms  in  this  circumstance.  In  the  Access  Charge  Reform  Order,  the 
 Commission  addressed  the  contention  that  an  incumbent's  interexchange  affiliate  could  implement 
 a  price  squeeze  once  the  incumbent  began  offering  in-  region,  interexchange  toll  services,  and 
 concluded  that,  although  an  incumbent  LEC's  control  of  exchange  and  exchange  access  facilities 
 may  give  it  the  incentive  and  ability  to  engage  in  a  price  squeeze,  the  Commission  has  in  place 
 adequate  safeguards  against  such  conduct.  454  The  Commission  determined  in  that  order  that  the 

 449  See  MCI  WorldCom  Nov.  23,  1998  Comments  at  36-  38.  A  price  squeeze,  as  opponents  use  the  term,  refers  to 
 a  particular,  well-  defined  strategy  of  predation  that  would  involve  the  combined  entity  setting  high  prices  for 
 access  services  while  charging  relatively  low  prices  for  retail  services.  It  is  this  relationship  between  the  input 
 prices  and  the  affiliate's  prices,  and  not  the  absolute  levels  of  those  prices,  that  defines  a  price  squeeze.  See 
 SBC/  Ameritech  Order,  14  FCC  Rcd  at  14815,  para.  231,  n.  429;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 20044,  para.  116. 

 450  We  note  that  access  charges  already  are  above  cost.  Therefore,  in  order  to  implement  a  price  squeeze,  an 

 incumbent  need  only  offer  low  prices  for  its  long  distance  services.  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14815, 
 para.  231,  n.  430. 

 451  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14815,  para.  232. 

 452  See  id.  at  14815-  16,  para.  232. 
 453  We  reached  the  same  conclusion  in  both  the  Bell  Atlantic/  NYNEX  Order  and  the  SBC/  Ameritech  Order.  See 
 Bell  Atlantic/  NYNEX  Order  at  20045,  para.  117.  See  also  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14816,  para.  233. 
 454  Access  Charge  Reform  Order,  12  FCC  Rcd  at  16100-  04,  paras.  275-  282.  For  example,  the  Commission  noted 

 that  the  prohibition  on  joint  ownership  of  switching  and  transmission  facilities  reduces  the  risk  of  improper 
 allocations  of  the  costs  of  common  facilities  between  the  incumbent  and  its  interexchange  affiliate,  and  helps  deter 
 any  discrimination  in  access  to  the  incumbent's  transmission  and  switching  facilities  by  requiring  the  affiliates  to 
 follow  the  same  procedures  as  competing  carriers  to  obtain  access  to  those  facilities.  See  id.  at  16102,  para.  279 
 (continued.) 
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 existence  of  price  caps  reduces  the  ability  to  raise  prices  on  access.  455  We  also  note  that,  because 
 it  is  relatively  easy  to  compare  an  incumbent  LECs  access  charges  with  its  own  retail  prices,  price 
 discrimination  is  relatively  easy  for  the  Commission  and  others  to  detect,  and  therefore,  is  unlikely 
 to  occur.  456  Moreover,  important  non-  regulatory  safeguards  exist.  For  example,  as  the 
 Commission  noted  in  the  AT&  T/  TCI  Order,  the  presence  of  extensive  sunk  facilities  in  both  the 
 local  and  interexchange  markets  suggests  that  the  merged  firm  would  be  unable  to  successfully 
 raise  prices  if  any  competitors  were  driven  out  of  the  market  by  the  price  squeeze.  457  Thus, 
 because  existing  regulatory  and  non-  regulatory  safeguards  greatly  reduce  the  ability  of  incumbent 
 LECs,  to  engage  in  a  price  squeeze,  we  conclude  that  there  is  no  substantial  probable  public 
 interest  harm  resulting  from  the  increased  incentive  that  Bell  Atlantic  and  GTE  may  have  to 
 discriminate  against  the  termination  of  calls  through  a  price  squeeze  as  a  result  of  the  merger. 

 c.  Circuit-  Switched  Local  Exchange  Services 
 199.  For  the  reasons  discussed  below,  we  conclude  that  the  merger  will  increase  the 
 combined  entitys  incentive  and  ability  to  discriminate  against  competitive  LECs  seeking  to 
 provide  local  exchange  services  in  the  combined  region.  We  believe  that  this  increased 
 discrimination  particularly  will  be  aimed  at,  and  harmful  to,  competitive  providers  of  local 
 exchange  services  to  mass  market  customers  (smaller  businesses  and  residential  customers).  458 

 200.  We  also  note  that  the  local  exchange  market  is  just  that,  a  local  market.  For  the 
 most  part,  companies  competing  with  the  incumbent  LEC  in  the  provision  of  retail  local  exchange 
 service  compete  on  a  local  basis,  and  focus  on  a  particular  area  or  region.  459  For  other 
 competitive  LECs,  however,  competing  for  local  exchange  service  transcends  local  areas  and 
 takes  a  more  national  scope.  460  For  such  nationally  competitive  LECs,  reputation,  scale  and 
 scope,  and  technology  are  significant  for  their  national  strategy;  a  companys  reputation  in  one 
 (Continued  from  previous  page) 
 (citing  Non-  Accounting  Safeguards  Order,  11  FCC  Rcd  at  21982-  84,  paras.  159-  162).  The  Commission  also  noted 
 that  the  requirement  that  an  incumbent  LEC  offer  services  at  tariffed  rates,  or  on  the  same  basis  as  requesting 
 carriers  that  have  negotiated  interconnection  agreements  pursuant  to  section  251,  reduces  the  risk  of  a  price 
 squeeze  to  the  extent  that  an  affiliate's  long  distance  prices  would  have  to  exceed  its  costs  for  tariffed  services.  See 
 Access  Charge  Reform  Order,  12  FCC  Rcd  at  16102,  para.  279. 

 455  Id.  at  15993-  94,  para.  26  (stating  that  "price  caps  act  as  a  transitional  regulatory  scheme  until  the  advent  of 

 actual  competition  makes  price  cap  regulation  unnecessary.")  Price  caps  fundamentally  alter  the  process  by  which 
 incumbent  LECs  determine  the  revenues  they  are  permitted  to  obtain  from  interstate  access  charges  for  access 
 services. 

 456  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14816-  17,  para.  234,  n.  436. 

 457  See  AT&  T/  TCI  Order,  14  FCC  Rcd  at  3215-  16,  para.  118. 
 458  See  MCI  WorldCom  Nov.  23,  1998  Comments  at  29.  See  also  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14817, 
 para.  236  (noting  that  competitive  LECs  providing  local  services  to  larger  business  customers  may  still  be 
 discriminated  against,  but  that  these  LEC  generally  have  more  experience  negotiating  with  incumbent  LECs). 

 459  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14817,  para.  237. 

 460  See  id. 
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 region  may  affect  its  reputation  in  another  region,  and  experience  it  gains  with  a  new  technology 
 in  one  region  may  help  it  in  another  region.  461  It  is  this  group  of  local  exchange  service 
 competitors  with  a  national  scope,  with  which  we  are  especially  concerned.  462 

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

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

 203.  Discrimination  against  competitive  providers  of  local  exchange  services  is  more 
 461  See  id. 

 462  For  example  RCN  Corporation  is  currently  operating  in,  or  has  begun  building  in,  seven  of  the  top  ten  US 
 cities  as  measured  by  population  density    Boston,  New  York,  Philadelphia,  Washington,  DC,  San  Francisco,  Los 
 Angeles,  and  Chicago.  RCN  Press  Release    May  1,  2000. 

 463  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14818,  para.  238. 

 464  See  id. 
 465  See  Sprint  Nov.  23,  1998  Petition  at  25. 
 466  See  id. 
 467  See  MCI  WorldCom  Mar.  1,  2000  Comments  at  2. 
 468  See  id. 
 469  See  id. 
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 likely  to  occur  in  conjunction  with  services  to  mass  market  customers  as  opposed  to  larger 
 business  customers,  because  competitors  serving  larger  business  customers  generally  possess 
 more  experience  dealing  with  incumbents  for  provision  of  such  services.  470  Moreover, 
 competitive  providers  to  business  customers  are  better  able  to  absorb  the  costs  imposed  by  non-price 
 discrimination,  because  they  have  a  greater  profit  margin  than  providers  to  mass  market 
 customers.  471  In  addition,  because  competitive  LECs  have  little  experience  in  successful  provision 
 of  local  exchange  services  to  mass  market  customers,  there  exist  few  examples  of  incumbent 
 LECs  best  practices  in  provisioning  inputs  for  competitive  LECs  to  use  for  serving  mass  market 
 customers  that  could  be  used  as  benchmarks  to  detect  discriminatory  and  unreasonable  behavior.  472 

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

 (ii)  Post-  Merger  Incentive  and  Ability  to  Discriminate 
 205.  As  we  found  in  the  context  of  retail  advanced  services  and  interexchange  services, 
 there  are  external  effects  to  discrimination  in  the  provision  of  retail  local  exchange  services  on  a 
 multi-  region  basis.  The  merged  entity,  with  a  larger  local  footprint,  would  realize  more  of  the 
 gains  from  such  external  effects,  thus  increasing  its  incentive  to  act  in  a  discriminatory  manner  in 
 one  area,  to  produce  these  effects  in  another.  476  For  national  competitive  LECs,  such  as  large 
 interexchange  carriers,  that  plan  to  offer  local  service  on  a  large  scale  in  numerous  major  regions, 
 entry  into  various  areas  likely  will  entail  common  research,  product  development,  and  marketing 

 470  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14819,  para.  240.  We  note  that  this  is  changing  in  some  areas, 
 such  as  New  York  and  Texas,  where  there  is  increasing  residential  entry  via  the  unbundled  network  element 
 platform  (UNE-  P),  a  combination  of  the  loop,  transport  and  switching. 

 471  For  example,  if  the  cost  of  non-  price  discrimination  to  competitive  providers  is  $5.  00  per  customer,  it  is  easier 

 to  pass  that  cost  along  to  business  customers  than  mass-  market  customers.  The  $5.  00  represents  a  much  greater 
 portion  of  a  typical  mass-  market  customers  bill  than  it  does  of  a  typical  business  customers  bill. 

 472  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14819,  para.  240. 

 473  See  id.  at  14819,  para.  241. 
 474  See  id.  The  incumbent  LEC,  for  example,  may  fail  to  provision  enough  equipment  for  a  competing  LEC  so 
 that  a  higher  percentage  of  the  competitors  calls  are  blocked  from  terminating  in  the  incumbents  region.  When  a 
 competitor  orders  trunks  in  the  incumbents  end  office,  the  incumbent  may  fail  to  make  available  the  number  of 
 trunks  requested  by  competitor,  or  it  may  delay  installing  the  trunks  in  the  end  office.  Id. 

 475  See  id. 

 476  See  id.  at  14820,  para.  243. 
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 costs  that  must  be  covered  by  the  sum  of  the  competitive  LEC's  area-  specific  profits.  477  For  such 
 national  carriers,  the  discrimination  practiced  in  one  region  may  impair  the  competitors  national 
 or  multi-  regional  plans,  by  increasing  the  competitors  costs  and  rendering  it  unable  to  compete  as 
 effectively  or  comprehensively  as  it  would  absent  the  discrimination.  478  Therefore,  actions  that 
 decrease  the  profitability  of  the  competitive  LEC  in  one  area  may  make  it  forgo  entry  into  another 
 area,  or  make  it  a  less  effective  competitor  in  another  area.  479 

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

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

 477  See  id. 
 478  See  id. 
 479  See  id. 
 480  Bell  Atlantic/  GTE  Dec.  23,  1998  Joint  Reply,  Arrow  Decl.  at  23-  25. 
 481  See  Sprint  Apr.  2,  1999  Ex  Parte  Letter,  Hayes,  Jayaratne,  and  Katz  Report  at  21  (stating  that  incumbent 
 LECs  have  attempted  to  degrade  the  quality  of  interconnection  facilities  provided  to  their  local  cellular 
 competitor,  and  citing  that  it  is  clearly  incorrect  to  assert  there  is  no  evidence  of  exclusionary  behavior  by  ILECs 
 in  cellular  markets.  On  the  contrary,  the  history  of  cellular  competition,  like  the  history  of  intraLATA 
 competition,  shows  that  ILECs  will  work  hard  to  prevent  entry  when  they  can  capture  the  benefits  of  doing  so.). 

 482  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14821,  para.  244. 

 483  See  Sprint  Nov.  23,  1998  Petition  at  32  (noting  that  by  internalizing  the  anticompetitive  spillover  benefits  the 
 merger  makes  discrimination  more  profitable  and  thus  more  likely);  see  also  See  SBC/  Ameritech  Order,  14  FCC 
 Rcd  at  14821,  para.  244. 
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 d.  Conclusion 
 208.  For  the  reasons  discussed  above,  we  conclude  that,  as  a  result  of  the  merger,  the 
 post-  merger  Bell  Atlantic/  GTE  will  have  an  increased  ability  and  incentive  to  discriminate  against 
 rival  providers  of  advanced  services,  and  particularly  new  types  of  advanced  services,  in  the 
 combined  region.  We  also  conclude  that  the  combined  entity  will  have  an  increased  incentive  and 
 ability  to  discriminate  against  rival  providers  of  interexchange  services,  local  services,  and  bundled 
 local  and  long  distance  services.  Although  the  Commission  issues  rules  to  prevent  discrimination, 
 and  will  continue  to  do  so,  it  is  impossible  for  the  Commission  to  foresee  every  possible  type  of 
 discrimination,  especially  with  evolving  technologies;  therefore,  we  cannot  rely  on  a  regulatory 
 solution  to  address  unforeseeable  competitive  harms  that  may  arise  as  a  result  of  the  merger.  In 
 this  Order,  we  adopt  a  number  of  conditions  that  guard  specifically  against  the  discrimination 
 harms  identified  above,  without  imposing  cumbersome,  detailed  regulatory  oversight. 

 VII.  ANALYSIS  OF  PUBLIC  INTEREST  BENEFITS 
 A.  Background 
 209.  In  addition  to  assessing  the  probable  public  interest  harms  of  the  proposed  merger, 
 we  also  must  consider  whether  the  merger  is  likely  to  generate  redeeming  public  interest  benefits.  484  In  doing  so,  we  ask  whether  the  merged  entity  is  likely  to  pursue  business  strategies 

 resulting  in  demonstrable  and  verifiable  benefits  to  consumers  that  could  not  be  pursued  but  for 
 the  merger.  Public  interest  benefits  also  include  any  cost  saving  efficiencies  arising  from  the 
 merger  if  such  efficiencies  are  achievable  only  as  a  result  of  the  merger,  are  sufficiently  likely  and 
 verifiable,  and  are  not  deemed  the  result  of  anti-  competitive  reductions  in  output  or  increases  in 
 price.  485  Finally,  merger  specific  benefits  may  also  include  beneficial  conditions  proffered  by  the 
 Applicants  or  other  parties  or  imposed  by  the  Commission. 

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

 484  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14825,  para.  255;  AT&  T/  TCI  Order,  14  FCC  Rcd  at  3168,  para  13; 
 MCI/  WorldCom  Order,  13  FCC  Rcd  at  18134-  35,  para.  194. 
 485  1992  Horizontal  Merger  Guidelines  at  30. 

 486  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20063,  para.  157. 
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 degree  of  magnitude  and  likelihood  than  we  would  otherwise  demand. 
 211.  Applicants  assert  that  the  proposed  merger  will  provide  public  interest  benefits  that 
 are  sufficient  to  satisfy  our  public  interest  balancing  test.  487  To  satisfy  their  burden,  the  Applicants 
 must  demonstrate  that  their  merger  is  a  reasonably  necessary  means  to  enable  them  to  achieve  the 
 asserted  benefits,  i.  e.,  that  the  benefits  are  specific  to  the  merger.  488  Should  the  Applicants  be  able 
 to  pursue  the  strategies  identified  as  resulting  in  public  interest  benefits  without  merging, 
 consumers  could  achieve  the  claimed  benefits  without  suffering  the  harms  of  the  merger.  A  mere 
 recitation  by  the  Applicants  that  they  will  provide  some  benefit  only  if  their  license  transfer  is 
 approved  therefore  is  insufficient  to  show  that  a  particular  benefit  is  merger  specific.  489  Rather, 
 the  Applicants  must  point  to  specific  evidence  that  the  benefit  is  dependent  on  the  merger.  490 

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

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

 487  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  2. 
 488  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14829,  para.  267. 
 489  Id. 
 490  Id. 
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 B.  Internet  Backbone  Services 
 214.  We  first  conclude  that  the  Applicants  have  not  met  their  burden  of  demonstrating 
 that  the  proposed  merger  will  produce  a  public  interest  benefit  by  promoting  competition  in  the 
 provision  of  Internet  backbone  services.  491  First,  as  the  Applicants  themselves  point  out,  the 
 ultimate  recombination  of  GTEs  Internet  data  business  with  Bell  Atlantics  local  customers  is 
 entirely  speculative.  492  On  one  hand,  Applicants  argue  that  there  is  a  genuine  and  substantial 
 possibility  that  they  will  not  exercise  their  option  to  reacquire  Genuity,  493  while  at  the  same  time 
 they  claim  that  the  ultimate  recombination  of  the  merged  firm  with  Genuity  will  result  in  a 
 significant  benefit  to  the  Internet  and  data  services  market.  494  We  agree  with  AT&  T  that  the 
 Applicants  cannot  have  it  both  ways.  495  Indeed,  Applicants  themselves  recognize  that  their 
 strategy  of  bundling  long  distance  data  services  with  local  services  is  dependent  upon  obtaining 

 section  271  authority  in  Bell  Atlantics  region.  496  The  uncertainty  regarding  section  271  approvals 
 makes  the  claimed  benefits  speculative  at  best  and,  therefore,  difficult  to  evaluate.  497  Accordingly, 
 we  conclude  that  the  dependency  of  the  Applicants  recombination  strategy  upon  section  271 
 approvals  is  a  substantial  constraint  upon  the  implementation  and  success  of  such  a  plan,  and, 
 therefore  the  claimed  benefit  is  neither  likely  nor  credible.  498 

 215.  Second,  we  reject  the  Applicants  assertion  that  the  ultimate  recombination  of 
 Genuity  and  the  merged  firm  will  produce  a  public  interest  benefit  as  a  result  of  increased 

 491  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  4. 
 492  See  id.  at  3-  4.  See  also  AT&  T  Mar.  1,  2000  Opposition  at  19-  20. 
 493  See  Bell  Atlantic/  GTE  Feb.  22,  2000  Response  at  7.  As  described  above,  the  ultimate  recombination  of  GTEs 
 Internet  backbone  network  with  Bell  Atlantics  established  in-  region  local  customers  is  contingent  upon  the 
 merged  entity  obtaining  section  271  authority  covering  95  percent  of  the  access  lines  within  Bell  Atlantics  region. 
 See  supra  Section  V. 

 494  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  3-  4.  See  also  AT&  T  Mar.  1,  2000  Opposition  at 

 20. 
 495  See  AT&  T  Mar.  1,  2000  Opposition  at  20. 

 496  See  Ex  Parte  Letter  from  Michael  E.  Glover,  Associate  General  Counsel,  Bell  Atlantic,  to  Michael  Kende  and 
 To-  Quyen  Truong,  Federal  Communications  Commission  (filed  Jan.  15,  1999)  at  8  (Bell  Atlantic  Jan.  15,  1999  Ex 
 Parte  Letter)  ([  T]  he  merger  will  produce  significant  procompetitive  benefits  by  strengthening  GTEs  Internet 
 backbone  business  as  a  competitor  of  the  Big  Three  backbone  providers.  To  the  extent  this  business  is  subject  to 
 Section  271,  these  benefits  will  depend  on  obtaining  Section  271  relief.);  Letter  from  Steven  G.  Bradbury, 
 Counsel  for  GTE,  Kirkland  &  Ellis,  to  Michael  Kende  and  To-  Quyen  Truong,  Federal  Communications 
 Commission  (filed  Jan.  15,  1999)  at  13  (GTE  Jan.  15,  1999  Ex  Parte  Letter)  (  GTE-  Bell  Atlantic  would  not  be 
 able  to  realize  fully  the  benefits  of  integrating  both  companies  long  distance,  Internet,  and  data  traffic  onto  the 
 GNI  unless  Bell  Atlantic  receives  271  approval.  Without  the  ability  to  migrate  Bell  Atlantics  Northeast  traffic,  the 
 company  could  not,  for  example,  achieve  the  maximum  possible  unit  cost  reductions.). 

 497  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14842-  43,  paras.  303-  06. 

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

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

 217.  We  do  agree,  however,  that  the  merger  of  Bell  Atlantic  and  GTE  will  produce  the 
 public  interest  benefit  of  increasing  competition  in  Bell  Atlantics  local  markets  by  providing  the 

 499  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18025,  para.  148.  See  also  Bell  Atlantic/  GTE  Jan.  27,  2000 
 Supplemental  Filing  at  4. 
 500  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  3-  4. 

 501  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  5-  6. 
 502  See  id.  at  6. 
 503  Id. 
 504  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14842-  43,  paras.  303-  06. 
 505  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  5-  6. 
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 merged  company  with  a  strengthened  incentive  to  satisfy  section  271.  506  The  merged  entity  has 
 strong  incentives  to  make  reacquire  Genuitys  Internet  backbone  so  that  it  can  provide  bundled 
 services  to  its  large  business  customers  with  a  national  presence.  507  In  order  to  do  so,  however, 
 the  merged  firm  would  require  authorization  from  the  Commission  to  provide  interLATA  under 
 section  271.  Accordingly,  the  merged  firm  will  have  an  increased  incentive  to  pursue  and  receive 
 section  271  authority  in  Bell  Atlantics  in-  region  states.  As  a  result,  we  conclude  that  the  merged 
 entity  will  pursue  a  course  of  action  that  will  have  the  result  of  increasing  competition  and 
 benefiting  consumers  in  the  markets  for  local  telecommunications  services  in  those  states.  508 

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

 219.  In  their  initial  and  supplemental  applications,  the  Applicants  commit  that  within 
 eighteen  months  of  the  merger's  approval,  they  will  provide  a  complete  bundle  of  services 
 including  advanced  data  and  voice,  Internet,  long  distance,  and  local  services  to  large  business 

 customers  in  twenty-  one  cities  spanning  the  territories  of  every  other  BOC.  509  This  expansion 
 would  be  accomplished  by  providing  nationwide  bundled  services  to  the  out-  of-  region  offices  and 

 affiliates  of  Bell  Atlantics  anchor  customers.  510 

 1.  Entry  into  Out-  of-  Region  Local  Exchange  Markets 
 220.  We  conclude  that,  whatever  benefits  might  arise  from  the  Applicants  proposed 
 out-  of-  region  strategy,  they  cannot  be  used  to  justify  the  merger  because  the  merger  is  not  a 
 sufficiently  necessary  condition  to  pursuing  out-  of-  region  entry  into  local  and  bundled 
 telecommunications  markets.  We  find  that  each  of  the  Applicants  has  both  the  ability  and 
 incentive  to  implement  an  out-  of-  region  strategy  on  its  own.  The  Applicants  do  not  need  to 
 merge  to  become  successful  out-  of-  region  competitive  LECs,  nor  does  their  merger  increase  the 

 506  See  Qwest/  US  WEST  Order,  para.  56. 
 507  Id.  at  para.  57. 
 508  See  id.  at  para.  56. 
 509  Bell  Atlantic/  GTE  Dec.  23,  1998  Joint  Reply  at  18.  See  also  Bell  Atlantic/  GTE  Oct.  2,  1998  Application, 
 Attach.  A  at  1-  3,  6-  14;  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  9-  11. 
 510  Bell  Atlantic/  GTE  Dec.  23,  1998  Joint  Reply  at  19-  20. 
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 likelihood  that  either  or  both  will  seek  to  implement  an  out-  of-  region  strategy.  We  find  the  only 
 merger-  specific  benefit  to  be  the  speed  with  which  the  Applicants  can  reach  their  goal  of  entering 
 twenty-  one  markets  outside  of  their  traditional  regions. 

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

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

 223.  Moreover,  we  conclude  that  the  Applicants  have  failed  to  demonstrate  that  Bell 
 Atlantics  Fortune  500  customers  based  in  the  northeastern  United  States  are  necessary  to  a 
 successful  launch  of  an  out-  of-  region  strategy.  Applicants  claim  that  they  require  a  larger 

 511  See  Section  VI.  B. 
 512  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14833-  33,  paras.  278-  86. 
 513  Bell  Atlantic/  GTE  Kissel  Decl.,  4,  para.  7. 
 514  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing,  Exhibit  2,  Joint  Declaration  of  Geoffrey  C.  Gould  and 
 Edward  D.  Young,  III  (Bell  Atlantic/  GTE  Gould/  Young  Joint  Decl.),  paras  3-  4. 
 515  GTE  1999  Annual  Report  at  3. 

 516  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  10. 
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 customer  base  because  their  out-  of-  region  plans  involves  a  facilities-  based  entry  strategy  that 
 requires  a  broad  base  of  customer  relationships  to  support  the  large  capital  investments  necessary 
 to  deploy  new  switches  and  networks  and  that  neither  firm  by  itself  could  support  such 
 investments  without.  517  Although  we  recognize  that  spreading  costs  across  a  broader  number  of 
 customers  would  reduce  the  cost  per  customer  of  geographic  expansion,  we  question  the 
 Applicants  assertion  that  neither  company  individually  has  a  sufficiently  broad  and  large  customer 
 base  to  venture  out-  of-  region.  518  Moreover,  Bell  Atlantic  and  GTE  do  not  propose  to  bring  these 
 claimed  benefits  to  mass  market  consumers  of  local  and  bundled  services.  Accordingly,  the 
 asserted  benefit  would  be  confined  to  larger  business  markets,  further  demonstrating  the  limited 
 and  modest  nature  of  the  Applicants  claimed  benefit. 

 224.  We  also  reject  the  argument  that  Bell  Atlantic  cannot  reach  its  large  business 
 customers  alone  because  it  lacks  the  facilities,  platform  capability,  and  marketing  and  distribution 
 channels  required  to  reach  far  beyond  its  concentrated  franchise.  519  According  to  the  Applicants, 
 the  merged  entity  will  be  able  to  utilize  Bell  Atlantics  existing  relationship  with  Bell  Atlantics 
 large  business  customers  to  sell  through  to  their  subsidiaries  or  affiliates  in  out  of  region  locations.  520  Although  combining  with  GTE  may  well  enhance  Bell  Atlantics  ability  to  expand 

 out-  of-  region,  the  Applicants  have  failed  to  demonstrate  that  either  firm  lacks  the  ability  to  do  so 
 alone  and,  therefore,  that  the  merger  is  necessary  to  accomplish  such  an  expansion. 

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

 2.  Provision  of  Nationwide  Bundled  Services 
 226.  We  similarly  conclude  that  Bell  Atlantic  and  GTE  have  made  an  insufficient 
 showing  that  substantial  potential  public  interest  benefits  will  result  from  the  merged  firm  entry 
 into  the  nationwide  bundled  services  market.  Moreover,  any  benefits  that  might  accrue  from  the 
 merged  firms  entry  into  out-  of-  region  bundled  services  markets  are  dependent  upon  securing 

 517  Bell  Atlantic/  GTE  Kissel  Decl.,  paras.  8-  10. 
 518  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14835-  36,  para.  284. 
 519  Bell  Atlantic/  GTE  Kissel  Decl.,  para.  8. 
 520  Id.  at  para.  7. 
 521  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14842,  para.  301;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18138,  para. 
 199;  AT&  T/  TCG  Order,  13  FCC  Rcd  at  15262,  para.  48. 
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 section  271  authority  in  Bell  Atlantics  local  markets  and,  therefore,  remain  speculative  in  nature. 
 227.  The  Applicants  out-  of-  region  strategy  is  premised  upon  combining  the  local,  long 
 distance,  Internet,  and  wireless  businesses  of  Bell  Atlantic  and  GTE.  522  As  such,  this  strategy 
 requires  the  Applicants  to  obtain  authority  to  provide  long  distance  services  within  Bell  Atlantics 
 region.  Without  section  271  approval  to  offer  long  distance  voice  and  data  services,  the 
 Applicants  would  suffer  from  the  same  product  constraints  that  prevent  them  today  from 
 competing  for  all  of  the  voice  and  data  business  of  their  customers.  Indeed,  according  to  the 
 Applicants  own  reasoning,  if  the  merged  firm  is  not  able  to  provide  bundled  interLATA  services 
 to  Bell  Atlantic's  base  of  large  business  customers,  it  will  also  be  unable  to  follow  these  customers 
 into  any  of  the  twenty-  one  cities  targeted  for  out-  of-  region  expansion.  523  We  conclude,  therefore, 
 that  for  the  Applicants  out-  of-  region  strategy  to  be  implemented  successfully,  the  Applicants 
 own  evidence  indicates  that  they  must  possess  and  offer  a  full  suite  of  services,  which  is 
 dependent  not  on  the  merger,  but  on  the  Applicants  gaining  section  271  approval  in-  region. 

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

 229.  Although,  as  we  conclude  above,  the  merged  firm  will  have  the  incentive  to  pursue 
 section  271  authority  more  quickly  than  would  Bell  Atlantic  on  its  own,  the  timing  of  section  271 
 approval  in  the  entirety  of  Bell  Atlantics  region  remains  uncertain.  As  a  result,  it  is  difficult  to 

 522  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  11. 
 523  GTE  Jan.  15,  1999  Ex  Parte  Letter  at  13. 
 524  Id.  at  13.  Similarly,  the  Applicants  have  stated  that  [  T]  he  ability  of  the  combined  company  to  enter  the 
 markets  of  the  other  Bell  companies  on  an  economic  basis  will  be  enhanced  by  the  ability  to  offer  a  complete 
 bundle  of  services  to  customers  in  those  markets.  For  example,  a  major  multi-  location  business  customer 
 headquartered  in  New  York  would  be  more  likely  to  chose  Bell  Atlantic  if  it  can  provide  a  full  bundle  of  services, 
 including  long  distance  services  originating  from  the  customer's  headquarters  in  New  York.  Relief  in  one  or  more 
 states  would  permit  Bell  Atlantic  to  begin  offering  a  full  range  of  services  to  corporations  that  have  offices  in  both 
 regions,  and  thus  to  gain  more  quickly  the  geographic  footholds  necessary  to  provide  services  to  these  and  other 
 customers  on  an  economic  basis.  Bell  Atlantic  Jan.  15,  1999  Ex  Parte  Letter  at  13. 

 525  See  id. 

 526  Id. 
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 evaluate  the  extent  of  the  Applicants  claimed  benefits  from  attempting  to  compete  out-  of-  region 
 because  those  benefits  are  speculative  at  best.  527  Although  we  expect  that  the  Applicants  will 
 move  ahead  aggressively  to  meet  their  out-  of-  region  deployment  schedule,  it  is  impossible  to 
 predict  obstacles  they  may  encounter  in  obtaining  section  271  authority.  Any  delays  to  section 
 271  approvals  will  affect  implementation  of  the  merged  firms  bundled  services  strategy,  thereby 
 resulting  in  delayed  benefits  to  telecommunications  markets  and  consumers.  We  therefore 
 conclude  that  the  dependency  of  the  bundled  services  plan  upon  section  271  approvals  is  a 
 substantial  constraint  to  both  the  full  implementation  and  success  of  the  Applicants  plans. 

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

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

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

 233.  The  Applicants,  however,  have  provided  no  specific  evidence  demonstrating  either 
 that  these  claimed  benefits  are  likely  to  result  from  the  proposed  merger  or  that  the  merger  is  at  all 
 necessary  to  achieve  the  claimed  benefits.  530  With  respect  to  the  likelihood  of  the  claimed 

 527  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14842-  43,  paras.  303-  06. 

 528  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  7-  6. 
 529  Id. 
 530  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14830,  para.  270. 
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 benefits,  the  Applicants  have  presented  no  facts  indicating  that  the  merged  firms  addition  to  the 
 long  distance  market  would  result  in  any  potential  public  interest  benefit.  As  we  made  clear  in  the 
 SBC/  Ameritech  Order,  a  mere  recitation  by  the  Applicants  that  some  benefit  will  accrue  only  if 
 their  merger  is  consummated  is  insufficient  to  demonstrate  that  an  asserted  benefit  is  likely  or 
 merger  specific.  531  Although  we  do  believe  that  the  ability  of  the  merged  firm  to  provide 
 nationwide  long  distance  services  to  Bell  Atlantics  largest  New  York  business  customers  could 
 result  in  potential  public  interest  benefits  in  the  long  distance  market,  we  are  unable  to  evaluate 
 the  magnitude  of  the  asserted  benefits  because  of  the  lack  of  facts  and  evidence  supporting  the 
 Applicants  claims.  532  Because  the  merged  firm  would  be  permitted  to  utilize  Bell  Atlantics 
 customer  base  to  offer  nationwide  services  only  to  customers  in  New  York,  however,  we  suspect 
 that  such  benefits  would  be  modest. 

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

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

 531  Id.  at  14829,  para.  267. 
 532  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  6-  7. 
 533  Communications  Daily  (Mar.  30,  2000)  at  8. 
 534  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  6-  7. 
 535  In  this  regard,  we  also  note,  as  detailed  above,  that  many  of  the  claimed  benefits  in  the  market  for  long 
 distance  services  are  entirely  speculative  because  they  are  contingent  upon  the  merged  company  obtaining  section 
 271  relief  in  Bell  Atlantics  region. 
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 236.  In  their  applications,  Bell  Atlantic  and  GTE  claim  that  the  proposed  merger  will 
 provide  substantial  benefits  by  creating  a  stronger  and  more  efficient  wireless  competitor  with 
 coverage  that  would  better  enable  it  to  compete  with  other  nationwide  competitors.  536  The 
 Applicants  contend  that  this  transaction  enhances  the  overall  benefits  created  by  the  recent  merger 
 of  the  U.  S.  wireless  assets  of  Vodafone  and  Bell  Atlantic.  537  The  combination  of  the  three 
 businesses  will  create  a  wireless  entity  with  licenses  capable  of  serving  more  than  90  percent  of 
 the  U.  S.  population  and  49  of  the  top  50  wireless  markets.  According  to  the  Applicants,  the 
 combined  company  would  have  a  footprint  capable  of  serving  232  million  people.  538  Hence,  this 
 merger  would  advance  the  Applicants  competitive  position  vis-  -  vis  the  service  offerings  of 
 Sprint  PCS,  AT&  T,  Nextel,  and  VoiceStream.  Nextel  and  Sprint  PCS  each  have  nationwide 
 coverage  capabilities  reaching  over  275  million  people  through  their  respective  license  holdings, 
 AT&  T  can  serve  253  million  consumers  with  its  licenses,  and  VoiceStream  has  the  potential  to 
 provide  service  to  193  million  customers  given  its  current  license  footprint.  539 

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

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

 536  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  7,  Bell  Atlantic/  GTE  Oct.  2,  1998  Application, 
 Public  Interest  Statement  at  4,  20-  21. 
 537  Bell  Atlantic/  GTE  Jan.  27  2000  Supplemental  Filing,  Babbio  Decl.,  para.  2. 

 538  See  Letter  from  William  D.  Wallace,  Esq.,  Crowell  &  Moring  LLP,  to  Magalie  Roman  Salas,  Secretary, 
 Federal  Communications  Commission,  CC  Docket  No.  98-  184  (filed  May  4,  2000)  (Bell  Atlantic/  GTE  May  4, 
 2000  Ex  Parte  Letter);  see  also  Morgan  Stanley  Dean  Witter,  Urge  to  Merge  (May  22,  2000)  at  36. 

 539  Morgan  Stanley  Dean  Witter,  Urge  to  Merge  (May  22,  2000).  VoiceStreams  footprint  will  encompass  193 

 million  consumers  after  it  completes  its  acquisitions  of  Omnipoint  and  Aerial. 
 540  See  In  re  Vodafone  AirTouch,  Plc  and  Bell  Atlantic  Corporation,  Memorandum  Opinion  and  Order,  DA  00- 

 721  (WTB/  IB  Mar.  30,  2000)  at  para.  6. 
 541  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing,  Babbio  Decl.,  para.  3.  GTE  will  contribute  wireless 

 properties  in  Chicago,  San  Francisco,  Houston,  Indianapolis,  Richmond,  Norfolk,  Knoxville,  Nashville,  San  Jose, 
 Memphis,  Louisville,  Birmingham,  Greensboro,  Honolulu,  Raleigh-  Durham,  Fresno,  and  St.  Louis.  Id. 
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 F.  Efficiencies 
 239.  Based  upon  the  evidence  in  the  record,  we  conclude  that  the  Applicants  have  not 
 demonstrated  that  the  efficiencies  and  cost  savings  that  they  contend  will  result  from  the  merger 
 are  merger-  specific  or  will  mitigate  the  competitive  harms  discussed  above.  Bell  Atlantic  and 
 GTE  claim  that  their  merger  will  result  in  a  variety  of  efficiencies  in  the  form  of  revenue 
 enhancements  and  cost  savings.  In  their  initial  application,  Bell  Atlantic  and  GTE  claim  that  three 
 years  from  the  mergers  closing,  the  merged  entity  will  achieve  $2  billion  in  annual  expense 
 savings  and  $0.  5  billion  of  annual  capital  expenditure  savings.  542  The  Applicants  claim  an 
 additional  $2  billion  in  revenue  enhancements  from  creating  and  deploying  innovative  data  and 
 other  services,  improving  the  value  and  speeding  the  deployment  of  long  distance  services,  and 
 spreading  best  practices  to  more  efficient  market  existing  services.  543 

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

 241.  Although  we  recognize  that  the  merger  of  Bell  Atlantic  and  GTE  would  accelerate 
 the  realization  of  the  Applicants  claimed  efficiencies,  we  conclude  that  only  a  portion  of  these 
 efficiencies  are  merger-  specific.  Elimination  of  duplicative  or  redundant  administrative  functions 
 and  the  reduction  of  future  equipment  purchases,  for  instance,  are  direct  consequences  of  the 
 merger.  547  The  same  is  true  with  respect  to  some  types  of  best  practices,  such  as  when  superior 
 methods  of  provisioning  and  maintenance  operations  are  transferred  between  companies  or  when 
 economies  of  scale  are  achieved  as  a  result  of  the  merger.  548  Although  these  cost-  savings  may  be 
 merger-  specific,  they  may  nonetheless  be  the  result  of  decreases  in  output  or  reductions  in 

 542  Bell  Atlantic/  GTE  Oct.  2,  1998  Application,  Attach.  A  at  22;  Bell  Atlantic/  GTE  Oct.  2,  1998  Application, 
 Attach.  A,  Declaration  of  Doreen  Toben  at  1-  2  (Toben  Decl.). 
 543  Id. 

 544  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14847,  paras.  319-  20;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 20067,  para.  169. 
 545  Id. 

 546  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14847,  paras.  319-  20;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 20066-  67,  paras.  169-  70. 
 547  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14847,  para.  320. 

 548  See  id. 
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 product  differentiation.  549  In  the  Bell  Atlantic/  NYNEX  and  SBC/  Ameritech  Orders,  for  instance, 
 the  Commission  concluded  that  the  elimination  of  parallel  research  and  development  efforts  would 
 eliminate  a  form  of  non-  price  competition  in  which  firms  attempt  to  differentiate  products  in  either 
 function  or  quality.  550  As  was  the  case  with  those  transactions,  both  Bell  Atlantic  and  GTE 
 engage  in  research  and  development,  and  the  mergers  consolidation  of  functions  could  result  in  a 
 reduction  in  competitive  differentiation.  551 

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

 243.  Bell  Atlantic  and  GTE  also  claim  that  the  combination  of  their  wireless  properties 
 will  result  in  overall  cost  savings  totaling  $1.  9  billion,  net  of  integration  expenses,  measured  on  a 
 present  value  basis.  554  It  is  not  clear  from  parties  submissions  in  the  record  what  share  of  these 
 cost  savings  will  likely  be  passed  on  to  consumers  in  the  form  of  lower  prices.  555  However,  there 
 has  been  significant  new  entry  in  the  wireless  telephony  markets  over  the  past  few  years,  and 
 average  prices  have  declined  substantially,  556  suggesting  that  a  significant  proportion  of  these  cost 
 savings  may  be  passed  on  to  wireless  consumers  as  the  Applicants  compete  for  business.  For 
 example,  we  would  expect  that  after  the  merger,  some  Bell  Atlantic/  Vodafone  customers  will 
 experience  reduced  charges  when  placing  or  receiving  calls  while  traveling  in  GTEs  former 

 549  Id.  at14849,  para.  327;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20067,  para.  171. 
 550  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14849,  para.  328;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20067, 
 para.  171. 
 551  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14849,  para.  328;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20067, 

 para.  171. 
 552  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14849,  para.  328. 

 553  Id. 
 554  Id.  Specifically,  the  Applicants  claim  $2.  6  billion  of  expense  savings  and  $1.  6  billion  of  capital  savings.  Id. 
 555  The  Applicants  claimed,  prior  to  the  completion  of  the  Vodafone  transaction,  that  reduced  roaming  charges 
 resulting  from  the  merger  will  enable  the  merged  firm  to  offer  national,  one-  rate  wireless  services  at  minimum 
 monthly  charges  other  than  the  $159  per  month  being  charged  by  Bell  Atlantic  at  the  time.  Id. 

 556  In  the  Matter  of  Implementation  of  Section  6002(  b)  of  the  Omnibus  Budget  Reconciliation  Act  of  1993, 

 Annual  Report  and  Analysis  of  Competitive  Market  Conditions  with  Respect  to  Commercial  Wireless  Services,  14 
 FCC  Rcd  10145  (1999)  (Fourth  Annual  CMRS  Competition  Report). 
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 territory.  The  Applicants  estimate  of  prospective  cost  savings  corresponds  solely  to  the  addition 
 of  GTE  properties,  and  is  independent  of  a  separate  estimate  for  cost  savings  associated  with  the 
 Vodafone  transaction.  557 

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

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

 VIII.  CONDITIONS 
 246.  We  conclude  above  that  the  proposed  merger  of  Bell  Atlantic  and  GTE  poses 
 significant  potential  public  interest  harms  by:  (a)  removing  one  of  the  most  significant  potential 
 participants  in  local  telecommunications  mass  markets  both  within  and  outside  of  each  companys 
 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  Acts  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 
 transactions  potential  public  interest  benefits.  Thus,  if  our  analysis  ended  at  this  point,  we  would 
 have  to  conclude  that  the  Applicants  have  not  demonstrated  that  the  proposed  transaction,  on 
 balance,  will  serve  the  public  interest,  convenience  and  necessity. 

 247.  As  noted  above,  on  January  27,  2000,  the  Applicants  supplemented  their  initial 
 Application  to  include,  inter  alia,  a  package  of  voluntary  commitments  that  they  submit  are  likely 
 to  augment  the  benefits  of  their  proposed  merger  through  promoting  the  widespread  deployment 

 557  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing,  Babbio  Decl.,  para.  3. 
 558  Bell  Atlantic/  GTE  Nov.  23,  1998  Joint  Reply,  Toren  Reply  Decl.  at  5-  6. 
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 of  local  advanced  services,  spurring  local  competition,  and  helping  to  ensure  that  consumers 
 receive  high  quality  and  low  cost  telecommunications  services.  559  After  receiving  extensive  public 
 comment  on  their  proposed  conditions,  Bell  Atlantic  and  GTE  modified  their  commitments  on 
 April  14,  2000,  and  in  subsequent  filings.  560  We  believe  that  the  Applicants  package  of 
 conditions,  with  the  modifications  by  this  Commission,  alters  the  public  interest  balance  of  the 
 proposed  merger  by  mitigating  substantially  the  potential  public  interest  harms  while  providing 
 additional  public  interest  benefit.  Accordingly,  with  the  full  panoply  of  conditions  that  we  adopt 
 in  this  Order,  and  assuming  the  Applicants  ongoing  compliance  with  these  conditions,  we  find 
 that  the  Applicants  have  demonstrated  that  the  proposed  transfer  of  licenses  and  lines  from  GTE 
 to  Bell  Atlantic  will  serve  the  public  interest,  convenience  and  necessity. 

 A.  Adopted  Conditions 
 248.  The  package  of  conditions  that  the  Applicants  present  to  bolster  the  benefits  of 
 their  proposed  merger  is  patterned  closely  after  the  set  of  conditions  that  we  adopted  less  than  a 
 year  ago  in  the  SBC/  Ameritech  Order.  561  Of  the  30  separate  sections  of  the  SBC/  Ameritech 
 Conditions,  Bell  Atlantic  and  GTE  propose  to  retain  26.  562  As  we  did  in  reviewing  the  proposed 

 559  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  2.  See  also  Jan.  31,  2000  Public  Notice. 
 560  Bell  Atlantic/  GTE  Mar.  14,  2000  Ex  Parte  Letter.  The  Applicants  resubmitted  their  proposed  conditions  on 
 April  28,  2000,  encapsulating  the  revisions  that  they  proffered  on  April  14  in  addition  to  the  contents  of  errata  that 
 they  filed  on  April  17  and  April  28.  Bell  Atlantic/  GTE  Apr.  28,  2000  Ex  Parte  Letter.  See  also  Letter  from 
 Patricia  Koch,  Assistant  Vice  President,  Bell  Atlantic,  to  Magalie  Salas,  Secretary,  Office  of  the  Secretary,  Federal 
 Communications  Commission,  CC  Docket  No.  98-  184,  (filed  Apr.  17,  2000).  We  solicited  further  public  comment 
 on  the  proposed  conditions  as  clarified  and  modified  by  the  revisions  reflected  in  the  Applicants  April  28 
 submission.  See  Apr.  28,  2000  Public  Notice. 

 561  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  17;  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14854- 

 925,  paras.  348-  518  (section  of  the  order  discussing  the  conditions);  App.  C,  Conditions,  id.  at  14964-  15172 
 (SBC/  Ameritech  Conditions).  See  also  NEXTLINK  Mar.  16,  2000  Reply  at  2-  3,  5-  6;  BlueStar  et  al.  Mar.  1,  2000 
 Comments  at  3;  Comptel  Mar.  1,  2000  Comments  at  2;  IURC  Mar.  1,  2000  Comments  at  4,  13;  MCI  WorldCom 
 Mar.  1,  2000  Supplemental  Comments  at  7;  National  ALEC  Mar.  1,  2000  Comments  at  1;  NorthPoint  Mar.  1, 
 2000  Comments  at  3  (supporting  treatment  of  the  SBC/  Ameritech  Conditions  as  a  framework  for  our  analysis  of 
 Bell  Atlantics  and  GTEs  commitments).  But  see  AT&  T  May  5,  2000  Comments  at  3. 

 562  Sections  of  the  SBC/  Ameritech  Conditions  that  Bell  Atlantic  and  GTE  do  not  include  in  their  proffered 

 commitments  are:  Access  to  Loop  Information  for  Advanced  Services,  SBC/  Ameritech  Conditions  Section  IV; 
 Restructuring  OSS  Charges,  SBC/  Ameritech  Conditions  Section  IX;  Carrier-  to-  Carrier  Promotions:  UNE  Platform, 
 SBC/  Ameritech  Conditions  Section  XVI;  and  Shared  Transport  in  Ameritech  States,  SBC/  Ameritech  Conditions 
 Section  XIX.  See  SBC/  Ameritech  Conditions,  14  FCC  Rcd  at  14997-  98,  15009-  10,  15020-  24,  paras.  19-  20,  35, 
 50-  52,  55-  56.  See  also  infra  Section  VIII.  C  (refuting  comments  that  the  Applicants  in  this  merger  likewise  should 
 be  subject  to  conditions  relating  to  access  to  loop  information  for  advanced  services,  restructuring  of  OSS  charges, 
 and  carrier-  to-  carrier  UNE-  platform  promotions).  No  commenter  takes  issue  with  the  Applicants  omission  of 
 commitments  relating  to  shared  transport,  and  we  agree  with  the  Applicants  that  no  such  commitments  warrant 
 attachment  to  Bell  Atlantic  and  GTE  in  the  context  of  their  proposed  merger,  in  light  of  our  requirement  that 
 incumbent  LECs  provide  shared  transport  as  a  UNE.  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at 
 18  n.  12;  UNE  Remand  Order  at  para.  369.  See  also  infra  Conditions  at  para.  39  (commitment  to  continue  making 
 UNEs  available  until  the  date  of  a  final,  non-  appealable  judicial  decision  relieving  incumbent  LECs  of  UNE 
 provision  requirements).  The  Applicants  fold  components  of  one  other  separate  section  of  the  SBC/  Ameritech 
 (continued.) 
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 merger  of  SBC  and  Ameritech,  here  we  analyze  the  effect  of  the  conditions  on  the  public  interest 
 balance  of  the  proposed  merger,  including  the  prospects  for  mitigating  the  potential  public  interest 
 harms  that  we  identify  above. 

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

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

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

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

 (Continued  from  previous  page) 
 Conditions,  Section  III  relating  to  Advanced  Services  OSS,  into  a  comprehensive  section  of  OSS-  related 
 commitments.  See  Conditions  at  paras.  18-  25.  Compare  with  SBC/  Ameritech  Conditions,  14  FCC  Rcd  at  14992- 
 96,  paras.  15-  18. 

 563  The  specific  conditions  that  we  adopt  in  this  merger  proceeding  are  set  forth  in  Appendix  D  to  this  Order.  In 

 order  to  provide  guidance  to  the  industry  on  particular  interpretive  issues,  as  well  as  to  facilitate  implementation 
 and  enforcement  of  the  conditions,  in  some  instances  we  have  annotated  the  Applicants  proffered  conditions  with 
 explanatory  footnotes  that  further  reflect  and  clarify  the  intent  of  the  particular  condition. 

 564  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14857,  para.  356.  See  also  AT&  T  Mar.  1,  2000  Opposition  at  35; 

 Covad  Mar.  1,  2000  Comments  at  11-  12  (conditions  should  supersede  less  stringent  state  certification  requirements 
 on  the  merged  entitys  separate  advanced  services  affiliate);  MCI  WorldCom  Mar.  1,  2000  Supplemental 
 Comments  at  8. 
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 comply  with  any  applicable  Commission  orders  or  rules  in  addition  to  the  requirements  of  these 
 conditions.  565 

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

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

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

 256.  We  expect  that  Bell  Atlantic/  GTE  will  implement  each  of  these  conditions  in  full, 
 in  good  faith  and  in  a  reasonable  manner  to  ensure  that  all  telecommunications  carriers  and  the 
 public  are  able  to  obtain  the  full  benefits  of  these  conditions.  If  Bell  Atlantic/  GTE  does  not  fulfill 

 565  If  Bell  Atlantic/  GTE  is  unable  to  comply  simultaneously  with  both  the  requirements  of  any  condition  and  the 
 requirements  of  any  Commission  rule  or  order,  it  must  so  inform  the  Commission  and  seek  guidance  as  to  how  it 
 should  proceed. 

 566  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14857,  para.  357.  See  also  MCI  WorldCom  Mar.  1,  2000 

 Supplemental  Comments  at  8. 
 567  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14857,  para.  358.  See  also  MCI  WorldCom  Mar.  1,  2000 

 Supplemental  Comments  at  8. 
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 its  obligation  to  perform  each  of  the  conditions,  pursuant  to  our  public  interest  mandate  under  the 
 Communications  Act  we  must  take  action  to  ensure  that  the  merger  remains  beneficial  to  the 
 public.  We  intend  to  utilize  every  available  enforcement  mechanism,  including,  if  necessary, 
 revocation  of  the  merged  firms  section  214  authority,  568  to  ensure  compliance  with  these 
 conditions.  To  this  end,  should  the  merged  entity  systematically  fail  to  meet  its  obligations,  we 
 can  and  will  revoke  relevant  licenses,  or  require  the  divestiture  of  Bell  Atlantic/  GTE  into  the 
 current  Bell  Atlantic  and  GTE  companies.  569  Although  such  action  would  clearly  be  a  last  resort, 
 it  is  one  that  would  have  to  be  taken  if  there  is  no  other  means  for  ensuring  that  the  merger,  on 
 balance,  benefits  the  public. 

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

 258.  The  Commission  also  previously  has  expressed  concern  regarding  consolidation 
 among  the  major  incumbent  LECs,  and  how  such  consolidation  could  gravely  impair  our 
 implementation  of  Congresss  directive  to  open  all  telecommunications  markets  to  competition.  571 
 Indeed,  we  conclude  above  that  a  merger  between  Bell  Atlantic  and  GTE  presents  serious 
 potential  for  public  interest  harms  arising  out  of  the  loss  of  a  significant  benchmark,  greater 
 incentive  and  ability  for  the  companies  to  discriminate  against  competitors  as  a  merged  entity,  and 
 the  loss  of  a  prospective  competitor  in  each  others  markets.  572  In  the  SBC/  Ameritech  Order,  we 
 held  that  [  t]  he  instant  transaction,  approved  with  a  stringent  set  of  conditions,  removes  yet 
 another  independent  major  incumbent  LEC,  thereby  further  escalating  the  burden  on  any  future 
 major  incumbent  LEC  merger  applicants  in  establishing  that  a  proposed  merger  will,  on  balance, 
 be  pro-  competitive  and  therefore  serve  the  public  interest,  convenience  and  necessity.  573 

 568  See  CCN,  Inc.,  et  al.,  CC  Docket  No.  97-  144,  Order,  13  FCC  Rcd  13599  (1998)  (revoking  the  Fletcher 
 Companies  section  214  operating  authority  for  slamming  and  other  violations  of  the  Communications  Act  and 
 Commission  rules). 

 569  Cf.  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14858,  para.  360  (granting  section  214  application  of  SBC  to 

 acquire  Ameritech  subject  to  conditions,  but  stating  that  the  Commission  can  and  will  revoke  relevant  licenses  or 
 require  divestiture  should  the  merged  entity  fail  to  meet  its  obligation  to  perform  each  of  the  conditions). 

 570  See  id.  at  14858,  para.  361;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  19993,  para.  15. 

 571  See,  e.  g.,  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14858-  59,  para.  362;  Bell  Atlantic/  NYNEX  Order,  12  FCC 
 Rcd  at  19994,  para.  16. 
 572  See,  e.  g.,  CompTel  Mar.  1,  2000  Comments  at  2  (conditions  are  necessary  to  increase  competitive 

 opportunities  in  order  to  offset  the  loss  of  potential  competition  resulting  from  the  merger). 
 573  14  FCC  Rcd  at  14859,  para.  362. 
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 Likewise,  the  burden  on  any  major  incumbent  LEC  merger  applicants  subsequent  to  today  will  be 
 even  greater. 

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

 1.  Promoting  Equitable  and  Efficient  Advanced  Services  Deployment 
 260.  Separate  Affiliate  for  Advanced  Services.  Under  this  condition,  Bell  Atlantic  and 
 GTE  will  create,  prior  to  closing  the  merger,  one  or  more  separate  affiliates  to  provide  all 
 advanced  services  in  the  combined  Bell  Atlantic/  GTE  578  region  on  a  phased-  in  basis.  The 
 structural  and  non-  structural  safeguards  we  adopt  today  will  make  engaging  in  anticompetitive 
 misconduct  more  difficult.  579  In  addition,  the  separate  affiliate  condition  will  counterbalance  Bell 
 Atlantic/  GTEs  increased  incentive  to  degrade  services  and  facilities  furnished  to  competitors  by 
 making  such  behavior  readily  apparent  to  the  Commission  and  the  public.  580  We  therefore  expect 

 574  See  SBC/  SNET  Order,  13  FCC  Rcd  at  21302,  para.  21. 
 575  See,  e.  g.,  NEXTLINK  Mar.  16,  2000  Reply  at  16-  18;  Allegiance  Mar.  1,  2000  Comments  at  2;  BlueStar  et  al. 
 Mar.  1,  2000  Comments  at  16-  18;  CoreComm  Mar.  1,  2000  Comments  at  41. 
 576  See  Allegiance  Mar.  1,  2000  Comments  at  2;  AT&  T  Mar.  1,  2000  Opposition  at  27-  28  (so  as  to  offset  the 

 harms  from  lost  benchmarks);  CoreComm  Mar.  1,  2000  Comments  at  25-  26  (so  as  to  offset  the  lack  of  a  section 
 271  inducement  with  respect  to  GTE);  NEXTLINK  Mar.  16,  2000  Reply  at  10. 

 577  See,  e.  g.,  infra  paras.  296-  99. 

 578  We  use  the  term  Bell  Atlantic/  GTE  to  represent  the  entity  that  will  result  from  the  merger,  consisting  of 
 todays  Bell  Atlantic  Corporation,  GTE  Corporation,  and  each  companys  incumbent  LEC  telephone  subsidiaries. 
 579  For  example,  the  requirement  to  have  separate  officers,  directors,  and  employees,  as  well  as  the  requirements 

 to  operate  independently  and  to  deal  at  arms  length,  will  deter  a  Bell  Atlantic/  GTE  incumbent  LEC  and  its 
 separate  affiliate  from  coordinating  activities  to  discriminate  against  competitors. 

 580  For  example,  the  separate  affiliates  section  272(  b)(  5)  disclosure  requirements  will  ensure  that  all  dealings 

 between  the  Bell  Atlantic/  GTE  incumbent  LECs  and  their  separate  affiliates  will  occur  at  arms  length  and  in  the 
 (continued.) 
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 that  strict  compliance  with  the  separate  affiliate  condition  will  mitigate  the  substantial  risk  of 
 discrimination  faced  by  Bell  Atlantic/  GTEs  competitors  after  the  merger. 

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

 262.  We  expect  that  Bell  Atlantic/  GTEs  competitors  will  benefit  from  the  incumbents 
 incentive  to  assist  its  affiliate  because  the  nondiscrimination  safeguards  and  the  rigorous  audit 
 requirements  will  ensure  that  they  receive  the  same  treatment  as  the  separate  affiliate.  Because 
 Bell  Atlantic/  GTEs  Advanced  Services  Affiliate  will  have  to  order  line  sharing  arrangements  like 
 any  other  advanced  services  provider,  competitive  LECs  can  expect  Bell  Atlantic/  GTEs 
 incumbent  LECs  to  develop  improvements  and  import  best  practices  to  make  this  ordering 
 process  as  simple  as  possible.  Given  this  expectation,  we  anticipate  that  this  condition  will  greatly 
 accelerate  competition  in  the  advanced  services  market  by  lowering  the  costs  and  risks  of  entry 

 (Continued  from  previous  page) 
 public  eye.  The  relevant  disclosure  requirements  will  provide  competitors  the  information  needed  to  resolve 
 disputes.  See  Non-  Accounting  Safeguards  Order,  11  FCC  Rcd  at  22021,  para.  243.  Moreover,  we  note  that  the 
 Applicants  modified  their  proposal  to  allow  the  public  access  to  data  showing  the  performance  BA/  GTEs 
 incumbent  LECs  provide  to  their  Advanced  Services  Affiliate.  See  infra  Appendix  D  at  para.  9  (specifying  that 
 performance  measurements  regarding  the  separate  affiliate  shall  be  made  available  to  other  parties);  see  also  MCI 
 WorldCom  Mar.  1,  2000  Comments  at  8  (advocating  stricter  reporting  requirements).  In  addition,  we  note  that  the 
 rigorous  audit  requirements  that  apply  to  Bell  Atlantic/  GTE  will  further  increase  the  probability  of  detecting 
 discriminatory  practices. 

 581  See  Advanced  Telecom  Mar.  1,  2000  Comments  at  7-  9  (addressing  equal  treatment  for  collocation  of 

 DSLAMs  in  remote  terminals);  Covad  Mar.  1,  2000  Comments  at  7-  8;  see  also  SBC/  Ameritech  Order,  14  FCC 
 Rcd  at  14859,  n.  674  (summarizing  the  collocation  benefits  arising  out  of  the  separate  affiliate  nondiscrimination 
 safeguards). 

 582  See  Advanced  Telecom  Mar.  1,  2000  Comments  at  9-  10  (addressing  risk  of  incumbent  LEC  and  affiliate 

 collaborating  to  develop  a  network  that  limited  competitive  access);  Comptel  Mar.  1,  2000  Comments  at  8-  9 
 (pointing  out  that  competitors  can  opt  into  portions  of  the  interconnection  agreement  between  BA/  GTE  incumbent 
 LECs  and  their  Advanced  Services  Affiliate);  see  also  Non-  Accounting  Safeguards  Order,  11  FCC  Rcd  at  22003, 
 para.  210  (finding  that  the  section  272(  c)  nondiscrimination  safeguards  obligate  the  BOC  to  work  with 
 competitors  to  develop  new  services  if  it  cooperates  in  such  a  manner  with  its  section  272  affiliate)  &  22013,  para. 
 229. 
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 and  reducing  uncertainty,  while  prodding  all  carriers,  including  the  Applicants,  to  hasten 
 deployment.  583  Consumers  will  ultimately  benefit  from  this  deregulated  approach. 

 263.  The  separate  advanced  services  affiliate  will  be  distinct  from  Bell  Atlantic/  GTEs 
 in-  region  telephone  companies  and  operate  largely  in  accordance  with  the  structural, 
 transactional,  and  nondiscrimination  requirements  of  sections  272(  b),  (c),  (e),  and  (g).  584  The 
 condition  specifies  certain  activities  that  will  be  permitted  between  the  Bell  Atlantic/  GTE 
 incumbent  LEC  and  the  separate  affiliate,  some  of  which  differ  from  section  272s  requirements.  585 
 Specifically,  the  Bell  Atlantic/  GTE  incumbent  LEC  and  its  advanced  services  affiliate  may  jointly 
 market  the  others  services  and  perform  certain  customer  care  services.  586  In  addition,  the 
 incumbent  may  perform  certain  operation,  installation,  and  maintenance  (OI&  M)  functions,  587 
 pursuant  to  a  tariff,  written  affiliate  agreement,  588  or  approved  interconnection  agreement,  and 

 583  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14859-  60,  para.  363. 
 584  47  U.  S.  C.    272(  b),  (c),  (e),  and  (g);  see  also  Implementation  of  the  Accounting  Safeguards  Under  the 
 Telecommunications  Act  of  1996,  CC  Docket  No.  96-  150,  Report  and  Order,  11  FCC  Rcd  17539  (1996) 
 (Accounting  Safeguards  Order),  Second  Order  On  Reconsideration,  FCC  00-  9  (rel.  Jan.  18,  2000);  Non-Accounting 
 Safeguards  Order,  petition  for  review  pending  sub  nom.  SBC  Communications  v.  FCC,  No.  97-  1118 
 (filed  D.  C.  Cir.  Mar.  6,  1997)  (held  in  abeyance  May  7,  1997),  First  Order  on  Reconsideration,  12  FCC  Rcd  2297 
 (1997)  (First  Order  on  Reconsideration),  Second  Order  on  Reconsideration,  12  FCC  Rcd  8653  (1997)  (Second 
 Order  on  Reconsideration),  affd  sub  nom.  Bell  Atlantic  Telephone  Companies  v.  FCC,  131  F.  3d  1044  (D.  C.  Cir. 
 1997),  Third  Order  on  Reconsideration,  FCC  99-  242  (rel.  Oct.  4,  1999)  (Third  Order  on  Reconsideration);  but  see 
 Covad  Mar.  1,  2000  Comments  at  7-  14  (arguing  that  the  Applicants  proposal  does  not  adequately  incorporate  all 
 section  272  safeguards). 

 585  See  Conditions  at  paras.  3-  4.  As  CompTel  points  out,  the  conditions  prohibit  joint  ownership  of  advanced 

 services  equipment.  Comptel  Mar.  1,  2000  Comments  at  9.  Starting  30  days  after  the  merger  closing  date, 
 BA/  GTEs  incumbent  LECs  may  no  longer  buy  new  advanced  services  equipment.  Under  certain  conditions, 
 BA/  GTE  incumbent  LECs  may  continue  to  own  and  operate  advanced  services  equipment  bought  and  installed 
 prior  to  that  date.  See  Conditions  at  para.  4(  n). 

 586  The  customer  care  services  permitted  under  the  condition  on  an  exclusive  basis  are:  (1)  ongoing  customer 

 notification  of  service  order  progress;  (2)  response  to  a  customers  inquiry  regarding  the  status  of  an  order;  (3) 
 changes  to  customer  account  information;  and  (4)  receipt  of  customer  complaints  (other  than  receipt  and  isolation 
 of  trouble  reports). 

 587  The  OI&  M  functions  subject  to  these  conditions  encompass  the  deployment  and  operation  of  a  facilities-  based 

 telecommunications  network.  Many  competitive  carriers  contract  with  third  parties  for  some  or  all  of  these 
 functions,  and  the  conditions  permit  the  Bell  Atlantic/  GTE  separate  affiliate  to  contract  with  the  Bell  Atlantic/  GTE 
 incumbent  LEC  for  such  functions,  provided  that  the  incumbent  acts  in  a  nondiscriminatory  fashion.  The  OI&  M 
 activities  performed  by  an  incumbent  LEC  in  the  normal  course  of  providing  unbundled  elements,  services  or 
 interconnection  are  not  subject  to  these  conditions.  Such  normal  OI&  M  activities  will  not  be  affected  by  the 
 conditions  and  will  be  provided  and  priced  in  accordance  with  forward-  looking  rules  applicable  to  the  underlying 
 service,  unbundled  element  or  interconnection. 

 588  We  note  that,  in  accordance  with  the  Commissions  accounting  safeguards,  any  transactions  or  shared  services 

 performed  pursuant  to  this  written  affiliate  agreement  must  be  valued  in  accordance  with  the  affiliate  transactions 
 rules,  reduced  to  writing  and  posted  on  the  Internet,  and  made  available  to  competitors  on  the  same  rates,  terms 
 and  conditions.  See  Non-  Accounting  Safeguards  Order,  11  FCC  Rcd  at  21992,  para.  181. 
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 provide  billing  and  collection  services,  589  pursuant  to  a  written  agreement,  for  its  separate  affiliate 
 on  a  nondiscriminatory  basis.  The  incumbent  LEC  may  also  transfer  to  the  separate  affiliate 
 specified  advanced  services  equipment  590  on  an  exclusive  basis  during  a  limited  grace  period. 
 Starting  90  days  after  the  merger  closing,  all  new  advanced  services  equipment  must  be  purchased 
 and  owned  by  the  separate  affiliate.  591  The  affiliate  may  also  use  the  Bell  Atlantic/  GTE  incumbent 
 LECs  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  LECs 
 employees.  592  Moreover,  although  Bell  Atlantic/  GTE  will  comply  with  the  Commissions  section 

 589  The  billing  and  collection  services  that  the  incumbent  is  permitted  to  provide  on  a  nondiscriminatory  basis 
 include  payment  arrangements,  account  adjustment,  responding  to  account  balance  inquiries,  account  closure, 
 responses  to  legal  action  affecting  or  involving  the  customer,  and  receipt  and  resolution  of  customer  billing  and 
 collection  complaints.  Bell  Atlantic/  GTE  may,  for  example,  include  the  affiliates  and  other  carriers  bills  on  a 
 separate  page  in  the  same  envelope  with  its  bill,  or  it  may  choose  to  place  the  affiliates  and  other  carriers  bills  in 
 a  separate  envelope.  Either  way,  Bell  Atlantic/  GTE  must  offer  the  same  services  that  it  provides  to  its  affiliate  to 
 unaffiliated  carriers  at  the  same  rates,  terms  and  conditions,  and  on  a  disaggregated  basis  that  permits  the 
 unaffiliated  providers  to  select  the  particular  services  that  they  desire  from  the  incumbent. 

 590  For  purposes  of  this  condition,  the  equipment  that  may  be  transferred  consists  of:  (1)  DSLAMs  or  functionally 

 equivalent  equipment;  (2)  spectrum  splitters  that  are  solely  used  in  the  provision  of  advanced  services;  (3)  packet 
 switches  and  multiplexers  such  as  ATMs  and  frame  relay  engines  used  to  provide  advanced  services;  (4)  modems 
 used  in  the  provision  of  packetized  data;  and  (5)  DACS  frames  used  only  in  the  provision  of  advanced  services. 
 Spectrum  splitters  used  to  separate  the  voice-  grade  channel  from  the  advanced  services  channel  are  not  permitted 
 to  be  transferred.  Such  asset  transfers  must  take  place  in  accordance  with  the  Commissions  accounting 
 safeguards.  Consistent  with  the  Commissions  rules,  if  Bell  Atlantic/  GTE  transfers  to  its  separate  advanced 
 services  affiliate  a  facility  (e.  g.,  copper  loops,  dark  fiber,  switching  equipment)  that  is  deemed  to  be  an  unbundled 
 network  element  under  47  U.  S.  C.    251(  c)(  3),  the  Commissions  unbundling  requirements  will  attach  with  respect 
 to  that  element.  See  47  C.  F.  R.    53.207. 

 591  This  prohibition  against  joint  ownership,  as  per  the  section  272(  b)(  1)  non-  accounting  safeguards,  is  critical  for 

 ensuring  that  the  Bell  Atlantic/  GTE  incumbent  LECs  do  not  circumvent  the  nondiscrimination  safeguards  and  that 
 ratepayers  of  regulated  services  do  not  bear  the  costs  of  Bell  Atlantic/  GTEs  competitive  operations.  See  Comptel 
 Mar.  1,  2000  Comments  at  9.  Under  certain  conditions,  BA/  GTE  incumbent  LECs  may  continue  to  own  and 
 operate  advanced  services  equipment  bought  and  installed  prior  to  the  90  day  deadline.  See  Conditions  at  para. 
 4(  n). 

 With  respect  to  ownership  of  new  advanced  services  equipment,  we  note  that  several  parties  raise  concerns 
 about  competitive  access  to  the  BA/  GTE  incumbent  LEC  remote  terminals.  See,  e.  g.,  Letter  from  Patrick  J. 
 Donovan,  Counsel  for  Mpower  Communications  Corporation,  to  Magalie  Roman  Salas,  Secretary,  Federal 
 Communications  Commission,  CC  Docket  No.  98-  184  (filed  June  6,  2000);  Advanced  Telecom  Mar.  1,  2000 
 Comments  at  7-  10;  CompTel  Mar.  1,  2000  Comments  at  5.  These  concerns  stem  from  similar  issues  arising  in  the 
 context  of  the  SBC/  Ameritech  Conditions,  as  well  as  a  previous  description  of  the  Applicants'  proposal.  See  Bell 
 Atlantic/  GTE  May  19,  2000  Ex  Parte  Letter,  Attach.  at  para.  3d(  1);  Common  Carrier  Bureau  Seeks  Comment  on 
 SBCs  Request  for  Interpretation,  Waiver,  or  Modification  of  the  SBC/  Ameritech  Merger  Conditions,  Public 
 Notice,  DA  00-  335  (rel.  Feb.  18,  2000).  To  address  these  concerns,  the  Applicants  modified  their  proposal  to  state 
 that  they  will  comply  with  the  Commission's  resolution  of  this  issue  in  the  proceeding  related  to  SBC.  See 
 Conditions  at  para.  3d. 

 592  The  Commissions  nondiscrimination  and  accounting  safeguards  will  continue  to  apply  in  these  circumstances 

 in  order  to  protect  competition  from  potential  abuse. 
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 272  accounting  safeguards,  593  it  will  be  permitted  to  deviate  from  these  only  to  the  extent  that  it 
 will  not  have  to  comply  with  the  Commissions  transaction  disclosure  requirements  under  section 
 272(  b)(  5)  with  respect  to  transactions  conducted  pursuant  to  interconnection  agreements  between 
 a  Bell  Atlantic/  GTE  incumbent  LEC  and  its  advanced  services  affiliate.  To  ensure  that  all 
 transactions  between  the  advanced  services  affiliate  and  the  incumbent  are  conducted  on  an  arms-length 
 basis,  Bell  Atlantic/  GTEs  compliance  with  this  separate  affiliate  condition  will  be  subject 
 to  an  annual  audit. 

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

 593  See  Accounting  Safeguards  Order,  11  FCC  Rcd  at  17588-  618,  17652-  55,  paras.  111-  70,  251-  58. 
 594  To  ensure  Bell  Atlantic/  GTE  implements  its  separate  affiliate  in  a  timely  manner,  the  conditions  establish  a 
 deployment  schedule  for  interstate  and  intrastate  advanced  services.  The  deployment  schedule  varies  depending  on 
 the  type  of  customer,  i.  e.,  a  new  activation  or  an  embedded  customer.  See  Conditions  at  paras.  5-  6.  As  a  general 
 matter,  we  expect  Bell  Atlantic/  GTE  to  start  providing  interstate  advanced  services  through  the  separate  affiliate  as 
 quickly  as  possible,  even  though  the  separate  affiliate  may  continue  to  outsource  a  number  of  functions  during  the 
 transition  period.  See  id.  at  para.  5(  a)  (requiring  the  incumbent  LECs  and  the  separate  affiliate  to  operate  pursuant 
 to  an  interconnection  agreement  for  interstate  services  within  90  days  of  filing  such  agreement  with  a  state 
 commission).  The  Bell  Atlantic/  GTE  separate  affiliate  will  be  fully  operational  once  it  is  acting  in  accordance  with 
 the  Steady-  State  Provisioning  requirements  and  after  all  transition  periods  have  ended.  See  id.  at  para.  4. 

 595  By  network  planning,  engineering,  design,  and  assignment  services,  we  mean  those  functions  described  in 

 subparagraphs  4(  a),  4(  c),  and  4(  d).  Such  activities  are  to  be  narrowly  construed  and  do  not  include,  for  example, 
 ordering  any  services  or  facilities.  See  Conditions  at  para.  4(  f),  6(  g)(  3).  All  permissible  forms  of  network 
 planning,  engineering,  design,  and  assignment  services,  for  example,  end  no  later  than  180  days  after  the  merger 
 closing  date. 

 596  See  SBC/  Ameritech  Conditions,  14  FCC  Rcd  at  14983,  14984-  86,  paras.  5(  a),  6. 
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 closing.  597 
 265.  Bell  Atlantic/  GTEs  obligation  to  provide  all  advanced  services  through  a  separate 
 affiliate  will  sunset  after  either:  (a)  the  later  of  42  months  after  the  mergers  closing,  or  36  months 
 after  the  incumbent  ceases  to  process  trouble  reports  for  the  affiliate  on  an  exclusive  basis;  (b)  the 
 date  on  which  Congress  has  enacted  legislation  that  specifically  prohibits  the  Commission  from 
 requiring  an  incumbent  LEC  to  establish  a  separate  advanced  services  affiliate  and  the 
 Commission  has  modified  its  rules  and  regulations  in  a  manner  that  would  materially  alter  the 
 structure  or  interaction  between  the  incumbent  and  affiliate  from  that  set  forth  in  the  conditions;  598 
 or  (c)  nine  months  after  a  final,  non-  appealable  judicial  decision  determines  that  the  separate 
 advanced  services  affiliate  is  deemed  a  successor  or  assign  of  the  incumbent,  unless  that  decision 
 is  based  substantially  on  conduct  by  or  between  a  Bell  Atlantic/  GTE  incumbent  and  its  affiliate 
 that  was  not  expressly  permitted  by  these  conditions. 

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

 267.  As  in  the  SBC/  Ameritech  Order,  we  find,  on  the  basis  of  the  conditions  as  written, 
 that  the  affiliate  structure  creates  a  rebuttable  presumption  that  a  Bell  Atlantic/  GTE  advanced 
 services  affiliate  will  not  be  a  successor  or  assign  of  an  incumbent  LEC  under  section  251(  h)(  1) 
 or  a  BOC  under  section  3(  4)(  B)  of  the  Act.  600  At  the  same  time,  however,  we  note  that  if  a  Bell 

 597  See  Conditions  at  para.  6(  g)  (establishing  the  functional  equivalent  requirements  as  the  minimum  operating 
 standard).  We  further  note  that  the  functional  equivalent  requirements  guard  against  potential  delays  in  the 
 implementation  of  Bell  Atlantic/  GTEs  separate  affiliate.  Under  the  functional  equivalent  requirements,  the 
 separate  affiliate  must  order  all  facilities  and/  or  services  used  to  provide  advanced  services,  which  will  trigger 
 immediately  the  Bell  Atlantic/  GTE  incumbent  LECs  incentive  to  improve  their  processes  and  systems.  Consistent 
 with  the  scheme  laid  out  in  SBC/  Ameritech  Order,  however,  the  functional  equivalent  requirements  also  allow  the 
 Bell  Atlantic/  GTE  incumbent  LECs  to  process  orders  for  ADSL  service  and  order  the  necessary  facilities  until  the 
 Steady-  State  Provisioning  requirements  go  into  effect.  See  Conditions  at  para.  6(  g)(  2)-(  4). 

 598  Examples  of  such  a  material  change  would  be  if  the  Commission  prohibits  an  incumbent  LEC  from  providing 

 joint  marketing  or  operation,  installation  and  maintenance  services  to  an  advanced  services  affiliate.  See 
 SBC/  Ameritech  Order,  14  FCC  Rcd  at  14862  n.  685. 

 599  The  separate  office  or  division  will,  for  example,  wait  in  line  for  collocation  space  like  unaffiliated  carriers.  In 

 this  way,  unaffiliated  parties  will  continue  to  receive  the  benefits  of  the  separate  affiliate  condition. 
 600  47  U.  S.  C.    251(  h)(  1)  &  153(  4)(  B).  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14893,  para.  445. 
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 Atlantic/  GTE  incumbent  LEC  and  its  advanced  services  affiliate  behave  in  a  manner  inconsistent 
 with  the  intent  of  the  conditions  or  engage  in  activities  beyond  those  expressly  permitted  in  the 
 conditions,  the  company  bears  the  risk  that  the  affiliate  will  be  deemed  a  successor  or  assign  of 
 the  incumbent  LEC  and,  therefore,  subject  to  incumbent  LEC  regulation  under  section  251(  c). 
 Accordingly,  if  a  Bell  Atlantic/  GTE  advanced  services  affiliate  is  found  to  be  a  successor  or  assign  601  based  on  activities  that  are  expressly  permitted  in  these  conditions,  then,  nine  months 

 after  such  a  finding  becomes  final  and  non-  appealable,  Bell  Atlantic/  GTE  will  no  longer  be 
 obligated  under  the  conditions  to  provide  all  advanced  services  through  a  separate  affiliate, 
 although  it  may  choose  to  do  so,  but  will  continue  to  bear  certain  obligations.  602  If,  however,  the 
 separate  advanced  services  affiliate  is  deemed  to  be  a  successor  or  assign  based  substantially  on 
 conduct  by  or  between  a  Bell  Atlantic/  GTE  incumbent  and  its  affiliate  that  was  not  expressly 
 permitted  by  these  conditions,  then  Bell  Atlantic/  GTE  shall  continue  providing  advanced  services 
 through  the  affiliate,  operating  as  a  successor  or  assign,  for  the  full  duration  of  the  condition.  603 

 268.  We  reject  AT&  Ts  argument  that  the  separate  advanced  services  affiliate  created 
 under  these  conditions  necessarily  will  be  a  successor  or  assign  of  Bell  Atlantic/  GTE  incumbent 
 LECs  and  thereby  subject  to  incumbent  LEC  regulation  under  section  251(  c).  604  In  the 
 SBC/  Ameritech  Order,  we  addressed  these  same  issues  as  raised  by  the  commenters  there  relative 
 to  the  separate  advanced  services  affiliate  conditions  that  we  applied  to  the  combined 
 SBC/  Ameritech  entity.  Significantly,  we  note  the  separate  affiliate  conditions  in  the  instant 
 merger  and  those  that  we  adopted  in  the  SBC/  Ameritech  merger  are  identical  in  all  relevant 
 respects.  605  Thus,  our  analysis  in  rejecting  the  assertion  that  the  SBC/  Ameritech  separate 
 advanced  services  affiliate  is  a  successor  or  assign  of  an  SBC/  Ameritech  incumbent  LEC  applies 

 601  We  do  not  address  in  this  proceeding  the  potential  obligations  or  requirements  with  respect  to  third  parties  that 
 may  be  imposed  on  Bell  Atlantic/  GTE  in  the  event  that  its  advanced  services  affiliate  is  found  to  be  a  successor  or 
 assign. 

 602  Id.  We  note  that,  after  that  time,  if  Bell  Atlantic/  GTE  decides  to  no  longer  provide  advanced  services  through 

 a  separate  affiliate  in  a  particular  state,  it  will  provide  them  through  a  separate  division  that  will  comply  with 
 certain  obligations  until  48  months  after  the  merger  closing  date.  See  Conditions  at  para.  12. 

 603  See  Conditions  at  para.  11c. 

 604  47  U.  S.  C.    251(  c).  But  see  AT&  T  May  5,  2000  Comments  at  8-  15. 
 605  Compare  SBC/  Ameritech  Conditions,  14  FCC  Rcd  at  14969-  90,  paras.  1-  13  (SBC/  Ameritech  separate 
 advanced  services  affiliate  conditions)  with  Conditions  at  paras.  1-  12  (Bell  Atlantic/  GTE  separate  advanced 
 services  affiliate  conditions).  In  the  SBC/  Ameritech  Order,  we  concluded  that,  in  determining  whether  an 
 advanced  services  affiliate  is  a  successor  or  assign  of  an  incumbent  LEC,  we  must  consider  whether  substantial 
 continuity  exists  between  the  incumbent  LEC  and  the  affiliate.  We  identified  four  indicia  of  a  lack  of  substantial 
 continuity  between  an  incumbent  and  its  advanced  services  affiliate;  specifically,  whether:  (1)  there  is  identifiable 
 physical  separation  between  the  entities;  (2)  the  incumbent  LEC  has  not  transferred  to  its  affiliate  substantial  assets 
 or  assets  that  are  necessary  for  the  continuation  of  the  incumbent's  traditional  business  operations;  (3)  transactions 
 between  the  incumbent  and  affiliate  are  conducted  at  arms-  length  and  are  transparent;  and  (4)  the  affiliate  does  not 
 derive  unfair  advantage  from  the  incumbent.  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14899,  para.  457  (citations 
 omitted). 
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 equally  here.  We  hereby  incorporate  that  analysis  by  reference.  606 
 269.  We  find  that,  as  a  general  matter,  incumbent  LECs  have  no  market  power  in  the 
 advanced  services  market  independent  of  their  bottleneck  control  of  those  facilities,  such  as  local 
 loops,  that  are  necessary  to  provide  such  services.  607  As  described  above,  however,  we  find  that, 
 as  a  result  of  the  merger,  the  combined  entity  will  have  an  increased  incentive  and  ability  to 
 discriminate  against  other  providers  of  advanced  services.  608  In  view  of  this  finding,  we  conclude 
 that  the  merged  entity  has  the  ability  to  leverage  its  control  over  existing  bottleneck  facilities  to 
 gain  market  power  in  the  advanced  services  market. 

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

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

 272.  By  requiring  Bell  Atlantic/  GTE  to  provide  all  of  its  advanced  services  through  a 
 separate  affiliate,  we  are  not  permitting  the  incumbent  to  avoid  any  of  its  statutory  obligations. 

 606  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14893-  909,  paras.  444-  76. 
 607  Inquiry  Concerning  the  Deployment  of  Advanced  Telecommunications  Capability  to  All  Americans  in  a 
 Reasonable  and  Timely  Fashion,  CC  Docket  No.  98-  146,  Report,  14  FCC  Rcd  2398,  2423,  para.  48  (1999). 
 608  See  supra  Section  VI.  D. 

 609  We  note  that  Bell  Atlantic/  GTE  will  not  be  transferring  any  network  facilities  that  the  Commission  has  found 
 to  be  unbundled  network  elements  to  the  separate  affiliate.  Rather,  any  facilities  that  will  be  transferred  are  those 
 which  the  Commission  has  explicitly  declined  to  unbundle.  Of  course,  to  the  extent  the  incumbent  LEC  transfers  a 
 DSLAM  in  a  remote  terminal  in  which  there  is  no  collocation  space,  the  separate  affiliate  will  be  considered  to  be  a 
 successor  or  assign  with  respect  to  this  element.  See  47  C.  F.  R.    53.207. 
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 For  example,  the  incumbent  is  still  subject  to  all  of  the  obligations  of  section  251(  c)  for  the 
 services  and  facilities  that  the  incumbent  actually  provides.  The  Eighth  Circuit  has  stated, 
 however,  that  section  251(  c)  does  not  require  an  incumbent  to  offer  a  particular  service  or  a 
 particular  type  of  network  element  to  competitors  in  the  first  instance,  if  the  incumbent  is  not 
 providing  that  service  or  element  in  connection  with  its  own  operations.  610  Thus,  although  under 
 the  separate  affiliate  condition  the  incumbent  will  no  longer  be  providing  advanced  services 
 subject  to  the  discounted  resale  obligation  of  section  251(  c)(  4),  that  is  not  because  the  incumbent 
 is  being  relieved  of  the  requirements  of  section  251(  c)(  4),  but  because  the  incumbent  will  no 
 longer  be  offering  advanced  services  on  a  retail  basis.  611  Moreover,  as  discussed  above,  because 
 the  separate  advanced  service  affiliate  does  not  raise  the  competitive  concerns  regarding  the 
 leveraging  of  market  power  with  respect  to  advanced  services  that  would  exist  if  the  incumbent 
 continued  to  provide  those  advanced  services  on  an  integrated  basis,  the  affiliate  does  not  simply 
 step  into  the  shoes  of  the  incumbent  in  providing  such  services  so  as  to  become  a  "successor  or 
 assign"  of  the  incumbent.  Rather,  just  as  a  BOC  affiliate  under  section  272  would  offer  long-distance 
 services  (as  a  non-  incumbent)  free  of  the  obligations  of  section  251(  c)(  4),  the  advanced 
 services  affiliate  should  be  allowed  to  offer  advanced  services  free  of  such  obligations. 

 273.  Surrogate  Line  Sharing  Discount.  By  separating  a  line  into  a  voice  portion  and  an 
 advanced  services  portion  and  carrying  both  voice  and  advanced  services  traffic  simultaneously, 
 line  sharing  enables  each  service  to  be  provided  by  a  different  carrier.  Conditions  that  we  adopted 
 in  the  SBC/  Ameritech  Order  permitted  SBC/  Ameritech  to  provide  line  sharing  exclusively  to  its 
 advanced  services  affiliate  on  an  interim  basis,  subject  to  SBC/  Ameritech  offering  other  carriers  a 
 second  loop  at  a  substantial  discount  in  order  to  ensure  that  competitors  received  a  benefit 
 comparable  to  this  interim  line  sharing.  612  Subsequent  to  our  adoption  of  the  SBC/  Ameritech 
 Order,  however,  we  adopted  a  further  order  in  our  advanced  services  proceeding,  in  which  we 
 required  all  incumbent  LECs  to  provide  nondiscriminatory  unbundled  access  to  the  high  frequency 
 portion  of  the  local  loop,  thus  promoting  line  sharing  between  different  carriers.  613  Because 
 incumbent  LECs  were  expected  to  provide  the  high  frequency  portion  of  the  loop  UNE  to 
 competitors  by  June  6,  2000,  614  exclusive  line  sharing  between  an  incumbent  LEC  and  its  affiliate 

 610  See  Iowa  Utilities  Bd.  v.  FCC,  120  F.  3d  753,  812-  13  (8th  Cir.  1997),  aff'd  in  part  and  rev'd  in  part,  AT&  T 
 Corp.  v.  Iowa  Utilities  Bd.,  525  U.  S.  366  (1999),  proceedings  on  remand  pending,  Eighth  Circuit  Nos.  96-  3321,  et 
 al.  (Section  251(  c)  requires  incumbents  to  allow  access  only  to  their  "existing  network  --  not  to  a  yet  unbuilt 
 superior  one").  But  see  id.,  120  F.  3d  at  813  n.  33  (noting  that  ILECs  may  nevertheless  be  required  under  section 
 251(  c)  to  develop  more  limited  "modifications"  to  their  network  elements  that  are  necessary  to  accommodate 
 interconnection  or  access  to  network  elements). 

 611  See  47  U.  S.  C.    251(  c)(  4)  (imposing  discounted  resale  obligation  on  services  the  incumbent  "provides  at  retail 

 to  subscribers"). 
 612  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14861-  64,  paras.  365,  369-  70;  SBC/  Ameritech  Conditions,  14  FCC 

 Rcd  at  14987-  92,  paras.  8,  13a,  14. 
 613  See  Line  Sharing  Order. 

 614  Id.  at  20982-  85,  paras.  161-  68. 
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 is  no  longer  permissible.  615 
 274.  Thus,  these  provisions  shall  apply  to  the  merged  entity  only  if  our  line  sharing  rules 
 are  overturned  by  a  final  and  non-  appealable  judicial  decision.  616  In  this  manner,  the  conditions 
 require  Bell  Atlantic/  GTE  to  offer  unaffiliated  carriers  the  economic  equivalent  of  line  sharing  if 
 our  line  sharing  rules  are  rendered  ineffective.  This  safety  net  presents  the  benefit  of  putting 
 unaffiliated  advanced  services  providers  on  comparable  economic  footing  with  the  merged  firms 
 separate  advanced  services  affiliate,  and  allowing  these  carriers  to  obtain  reduced  loop  costs  that 
 otherwise  would  not  be  available  to  them  if  our  line  sharing  rules  are  overturned.  617 

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

 276.  In  light  of  the  ripening  of  incumbent  LECs  line  sharing  obligations,  we  disagree 
 with  commenters  that  suggest  that  the  applicability  of  this  discount  be  expanded  beyond  instances 

 615  The  line  sharing  compliance  audit  that  Bell  Atlantic  and  GTE  agree  to  undergo  will  help  to  identify  any  delays 
 on  the  part  of  Bell  Atlantic  and  GTE  in  implementing  line  sharing. 
 616  Cf.  NorthPoint  May  5,  2000  Comments  at  1  (the  proposed  interim  line  sharing  conditions,  in  effect,  would 

 appear  to  sanction  continued  delays  by  Bell  Atlantic/  GTE  in  implementing  the  provision  of  line  sharing  to 
 unaffiliated  advanced  service  providers,  and  thus  should  be  eliminated).  United  States  Telecom  Association  has 
 appealed  the  Line  Sharing  Order  to  the  United  States  Court  of  Appeals  for  the  District  of  Columbia  Circuit. 
 United  States  Telecom  Association  v.  FCC  &  USA,  No.  00-  1012  (D.  C.  Cir.  filed  Jan  18,  2000)  (held  in  abeyance, 
 per  order  issued  Apr.,  3,  2000,  pending  Commission  action  on  petitions  for  reconsideration  of  the  Line  Sharing 
 Order).  We  note  that  in  the  Offering  of  UNEs  Section  of  the  conditions,  Bell  Atlantic  and  GTE  commit  to 
 continue  making  UNEs,  including  the  high  frequency  portion  of  the  loop  UNE,  available  in  the  event  that  the 
 underlying  rules  are  stayed  or  vacated,  until  such  rules  are  overturned  by  a  final  and  non-  appealable  judicial 
 decision.  See  Conditions  at  para.  39. 

 617  This  condition  is  designed  to  promote  rapid  deployment  of  advanced  services  by  removing  any  cost  advantages 

 that  the  separate  advanced  services  affiliate,  which  exclusively  would  receive  line  sharing  capability  from  a  Bell 
 Atlantic/  GTE  incumbent  LEC,  would  have  over  other  advanced  services  providers  that,  because  line  sharing  would 
 no  longer  be  required,  would  have  to  provide  such  services  over  a  stand-  alone  line. 

 618  The  appropriate  state  commission  has  discretion  to  deny  a  carrier  the  surrogate  line  sharing  charges  on  any 

 loop  for  which  it  finds  the  use  restriction  or  audit  provision  violated,  and  to  remove  a  carriers  entitlement  to  any 
 future  surrogate  line  sharing  charges  only  upon  a  finding  of  an  intentional  and  repeated  violation. 
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 of  exclusive  line  sharing.  619  In  addition,  we  reject  Covads  request  to  tie  expanded  surrogate  line 
 sharing  discounts  to  a  line  sharing  provisioning  benchmark.  620  We  find  that  the  line  sharing 
 provisioning  performance  measurement  to  be  proposed  by  Bell  Atlantic/  GTE,  which  will  be 
 backed  by  payment-  based  incentives,  621  is  sufficient  to  ensure  nondiscriminatory  provisioning  of 
 line  sharing. 

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

 278.  Nondiscriminatory  Rollout  of  xDSL  Services.  As  a  means  of  ensuring  that  the 
 merged  firms  rollout  of  advanced  services  reaches  some  of  the  least  competitive  market  segments 
 and  is  more  widely  available  to  low-  income  consumers,  623  Bell  Atlantic  and  GTE  will  target  their 
 deployment  of  xDSL  services  to  include  low-  income  groups  in  rural  and  urban  areas.  Specifically, 
 for  each  Bell  Atlantic/  GTE  in-  region  state,  Bell  Atlantic/  GTE  will  ensure  that  at  least  10  percent 
 of  the  rural  wire  centers  where  it,  or  its  separate  advanced  services  affiliate,  deploys  xDSL  service 
 will  be  low-  income  rural  wire  centers,  meaning  those  wire  centers  with  the  greatest  number  of 
 low-  income  households.  Similarly,  at  least  10  percent  of  the  urban  wire  centers  where  the  merged 
 firm  or  its  separate  advanced  services  affiliate  deploys  xDSL  service  in  each  in-  region  state  will  be 
 low-  income  urban  wire  centers.  These  requirements  will  become  enforceable  for  any  given  state 
 180  days  after  the  merger  closes  and  after  Bell  Atlantic/  GTE  and/  or  its  advanced  services  affiliate 

 619  See  Covad  May  5,  2000  Comments  at  16-  17.  But  see  Bell  Atlantic/  GTE  Mar.  16,  2000  Reply  App.  C, 
 Response  to  Comments  on  Specific  Conditions  at  9-  10  (Bell  Atlantic/  GTE  Response  to  Conditions  Comments). 
 We  clarify  that  the  OSS  discounts  which  we  agree  should  apply  to  all  loops  used  to  provide  advanced  services,  and 
 not  just  loops  used  for  surrogate  line  sharing,  are  discounts  that  are  altogether  separate  from  and  complementary  to 
 the  surrogate  line  sharing  discounts.  See  Conditions  at  para.  25;  BlueStar  et  al.  Mar.  1,  2000  Comments  at  3,  5-  6; 
 CoreComm  Mar.  1,  2000  Comments  at  31-  33. 

 620  See  Covad  May  5,  2000  Comments  at  17. 

 621  See  Conditions  at  para.  9. 
 622  See  47  C.  F.  R.    51.501  et  seq.  (requiring  the  total  element  long-  run  incremental  cost  standard  for  the  pricing 
 of  network  elements). 
 623  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  19  (citing  SBC/  Ameritech  Order,  14  FCC  Rcd  at 

 14866,  para.  376). 
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 has  deployed  xDSL  service  in  that  state  in  at  least  20  urban  wire  centers  (to  activate  the  urban 
 requirement)  or  20  rural  wire  centers  (to  activate  the  rural  requirement).  After  the  respective 
 effective  date,  Bell  Atlantic/  GTE  will  provide  nondiscriminatory  deployment  of  xDSL  services  for 
 at  least  36  months  thereafter.  624  Bell  Atlantic/  GTE  will  consult  with  the  appropriate  state 
 commission,  within  90  days  of  the  mergers  closing,  to  classify  all  Bell  Atlantic/  GTE  wire  centers 
 in  that  state  as  urban  or  rural.  625  Furthermore,  to  assist  in  monitoring  the  merged  firms  equitable 
 deployment  of  xDSL,  Bell  Atlantic/  GTE  will  file  publicly  a  quarterly  report  with  the  Commission 
 describing  the  status  of  its  xDSL  deployment,  including  the  identity  and  location  of  each  urban 
 and  rural  wire  center  where  it  has  deployed  xDSL.  We  believe  that  the  public  interest  benefits  of 
 this  condition  speak  loudly  and  clearly  for  themselves,  and  the  commenters  resoundingly  support 
 it.  626 

 2.  Ensuring  Open  Local  Markets 
 279.  Carrier-  to-  Carrier  Performance  Plan.  As  a  means  of  ensuring  that  Bell 
 Atlantic/  GTEs  service  to  telecommunications  carriers  will  not  deteriorate  as  a  result  of  the 
 merger  and  the  larger  firms  increased  incentive  and  ability  to  discriminate,  and  to  stimulate  the 
 merged  entity  to  adopt  best  practices  that  clearly  favor  public  rather  than  private  interests,  627 
 Bell  Atlantic/  GTE  will  file  publicly  performance  measurement  data  for  each  of  its  in-  region  states 
 with  this  Commission,  and  make  such  data  available  over  the  Internet,  on  a  monthly  basis.  The 
 data  will  reflect  Bell  Atlantic/  GTE  incumbent  LECs  performance  of  their  obligations  toward 
 telecommunications  carriers  in  18  different  measurement  categories.  628  These  categories  cover 

 624  We  reject  IURCs  request  that  we  require  Bell  Atlantic/  GTE  to  deploy  xDSL  service  to  20  rural  wire  centers 
 and  20  urban  wire  centers  within  24  months  after  the  merger  closing  date,  subject  to  deployment  benchmarks.  See 
 IURC  Mar.  1,  2000  Comments  at  13-  14.  Given  the  high  market  demand  for  advanced  services,  and  that  a  number 
 of  other  conditions  are  designed  to  spur  deployment  of  advanced  services  and  to  benefit  low-  income  consumers,  we 
 decline  to  subject  Bell  Atlantic/  GTE  to  a  specific  timetable  for  advanced  services  deployment.  We  note,  however, 
 that  Bell  Atlantic/  GTE  will  report  the  status  of  its  xDSL  deployment,  including  deployment  to  low-  income  areas, 
 to  the  Commission  on  a  quarterly  basis.  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14909-  10,  para.  480. 

 625  We  further  reject  IURC  request  that  we  require  state  commission  approval  of  urban  and  rural  wire  center 

 classifications.  See  id.  at  14.  We  believe  that  the  condition  as  written  provides  state  commissions  with  a  sufficient 
 vehicle  for  input  into  such  classifications  where  they  choose  to  provide  it.  Moreover,  this  condition  (like  all 
 others)  does  not  prevent  a  state  from  imposing  additional  consistent  requirements. 

 626  See  APT  Mar.  16,  2000  Reply  at  6  (  these  commitments  are  a  genuine  step  towards  bridging  the  digital 

 divide);  APT  Mar.  1,  2000  Further  Comments  at  2;  American  Telemedicine  Association  Mar.  1,  2000  Comments 
 at  6;  CWA  Mar.  1,  2000  Comments  at  4;  IURC  Mar.  1,  2000  Comments  at  13;  United  States  Hispanic  Chamber  of 
 Commerce  Mar.  1,  2000  Comments  at  7  (these  commitments  will  have  a  positive  impact  on  Hispanic-  owned 
 businesses  and  consumers);  World  Institute  on  Disability  Mar.  1,  2000  Comments  at  4,  6. 

 627  Cf.  MCI  WorldCom  Mar.  1,  2000  Supplemental  Comments  at  18  ([  c]  omparative  practices  analysis,  which  the 

 merger  would  undermine,  dictates  use  of  the  best  practice  in  both  [Bell  Atlantic  and  GTE  legacy]  regions). 
 628  This  includes  the  line  sharing  provisioning  performance  measurement  (or  sub-  measurement)  that  Bell 

 Atlantic/  GTE  is  required  to  propose  and  implement  after  the  merger  closing  date.  See  Conditions  at  para.  9.  The 
 Applicants  added  this  commitment  in  response  to  comments  on  their  original  proposal.  See  MCI  WorldCom  Mar. 
 1,  2000  Supplemental  Comments  at  18.  As  we  did  with  the  line  sharing  performance  measurement  proposed  by 
 SBC  subsequent  to  its  merger  with  Ameritech,  see  http://  www.  fcc.  gov/  ccb/  mcot/  misc_  reports/,  we  will  place  Bell 
 (continued.) 
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 key  aspects  of  pre-  ordering,  ordering,  provisioning,  maintenance  and  repair,  and  billing  associated 
 with  UNEs,  interconnection,  and  resold  services.  Many  of  the  18  measurement  categories  are 
 divided  into  numerous  disaggregated  sub-  measurements,  thereby  tracking  Bell  Atlantic/  GTEs 
 performance  for  different  functions  and  different  types  of  service.  Furthermore,  the  list  of 
 measurements  reported  by  Bell  Atlantic/  GTE  under  this  condition  is  not  static.  This  list  is  subject 
 to  addition  or  deletion,  and  the  measurements  themselves  are  subject  to  modification,  by  the  Chief 
 of  the  Common  Carrier  Bureau,  through  a  joint  semi-  annual  review  with  Bell  Atlantic/  GTE.  629 

 280.  Under  this  condition,  Bell  Atlantic/  GTE  will  either  achieve  the  stated  performance 
 goal  for  the  agreed-  upon  measures  in  each  state  or,  if  Bell  Atlantic/  GTE  fails  to  provide  service 
 that  meets  the  stated  performance  goal,  make  a  voluntary  incentive  payment  to  the  U.  S.  Treasury 
 in  an  amount  varying  according  to  the  level  and  significance  of  discrimination  detected.  These 
 voluntary  incentive  payments  are  subject  to  monthly  state-  specific  caps  that  total,  across  all  states, 
 as  much  as  $259  million  in  the  first  year,  $389  million  in  the  second  year,  and  $516  million  in  the 
 third  year  (i.  e.,  a  total  of  up  to  $1.164  billion  over  three  years),  with  a  credit  for  amounts  paid  to 
 states  and  competitive  LECs  under  state-  imposed  performance  monitoring  plans  or  under 
 liquidated  damages  provisions  of  interconnection  agreements.  630  Bell  Atlantic/  GTEs  potential 

 (Continued  from  previous  page) 
 Atlantic/  GTEs  proposal  on  our  website,  thus  affording  competitive  LECs  the  opportunity  for  public  comment.  See 
 Covad  May  5,  2000  Comments  at  16.  But  see  Bell  Atlantic/  GTE  May  9,  2000  Response  App.  A,  Responses  to 
 Specific  Allegations  Regarding  Proposed  Conditions  at  A-  5  (Bell  Atlantic/  GTE  Responses  to  Specific  Conditions 
 Allegations)  (objecting  based  on  the  Applicants  assertion  that  the  new  performance  measurement  or  sub-measurement 
 will  be  based  on  measurements  developed  in  collaborative  proceedings  in  New  York  and  California, 
 in  which  competitive  LECs  participated,  such  that,  in  the  Applicants  view,  competitive  LECs  already  have  had 
 ample  input  into  the  development  of  the  new  measurement  or  sub-  measurement). 

 629  See,  e.  g.,  Conditions  Attach.  A,  Carrier-  to-  Carrier  Performance  Assurance  Plan  at  para.  4  (Performance  Plan). 

 Indeed,  the  scope  of  this  semi-  annual  review  is  broad,  and  it  encompasses  the  business  rules  associated  with  such 
 measurements.  Other  elements  of  the  plan  also  are  subject  to  periodic  review  and  modification  by  the  Chief  of  the 
 Common  Carrier  Bureau,  including  certain  aspects  of  the  payment  calculation  mechanism.  Thus,  we  agree  with 
 the  Applicants  that  AT&  Ts  contention  that  the  plan  submitted  by  the  Applicants  is  fixed  and  inalterable  is 
 incorrect.  See  Bell  Atlantic/  GTE  Response  to  Conditions  Comments  at  11.  But  see  AT&  T  Mar.  1,  2000 
 Opposition  at  29-  30.  See  also  MCI  WorldCom  Mar.  1,  2000  Supplemental  Comments  at  17  (maintaining  that  the 
 plan  should  allow  the  Commission  to  reallocate  remedies  to  address  severe  performance  deficiencies  or  add  new 
 measures  if  necessary  to  deter  discrimination). 

 630  The  payment  caps  proffered  by  the  Applicants  are  intended  to  be  directly  proportionate  to  those  that  we 

 adopted  with  respect  to  SBC  and  Ameritech  in  their  merger.  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental 
 Filing  at  24.  Cf.  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14868,  para.  378;  SBC/  Ameritech  Conditions,  14  FCC  Rcd 
 at  14999-  15000,  para.  23.  As  part  of  the  calculation  of  voluntary  payments,  Bell  Atlantic/  GTE  will  increase  the 
 payments  for  performance  measurements  where  observations  are  particularly  low,  as  well  as  for  specific  sub-measurements 
 representing  low-  volume,  nascent  services.  For  these  sub-  measurements,  the  per-  occurrence 
 payments  will  be  tripled.  The  Applicants  added  these  provisions  subsequent  to  their  initial  proposal,  in  response  to 
 comments  expressing  concern  regarding  a  lack  of  appropriate  remedies  for  metrics  with  typically  low  monthly 
 volumes.  See  MCI  WorldCom  Mar.  1,  2000  Supplemental  Comments  at  16.  We  find  that  this  low-  volume 
 multiplier  will  help  to  ensure  that  the  Applicants  proposed  incentive  mechanism  will  offer  meaningful  protections 
 where  service  volumes  are  low.  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14868  n.  706.  Particularly  in  light  of 
 these  modifications,  we  find  that  the  voluntary  payment  structure  and  cap  are  sufficient  to  address  the  limited 
 purposes  of  the  Carrier-  to-  Carrier  Performance  Plan    to  neutralize  the  merged  firms  increased  incentive  and 
 ability  to  discriminate  and  to  remedy  other  merger-  specific  potential  harms  such  as  the  loss  of  a  major  incumbent 
 (continued.) 
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 liability  may  be  reduced  by  up  to  $125  million  in  the  third  year  if  Bell  Atlantic/  GTE  completes  and 
 deploys  its  OSS  interface  and  business  rule  changes  before  their  target  date,  depending  upon  the 
 change  and  how  early  it  is  completed. 

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

 282.  These  limited  performance  measures  are  intended  to  offset  or  prevent  some  of  the 
 mergers  potential  harmful  effects;  they  are  not  designed  or  intended  as  anti-  backsliding  measures 
 for  purposes  of  section  271.  634  Indeed,  to  the  extent  that  GTE  legacy  service  areas  are  not  subject 
 to  the  market  opening  requirements  of  section  271  in  order  for  GTE  to  provide  in-  region, 
 interLATA  services  originating  from  those  areas,  these  performance  measures  constitute  a 
 significant  benefit  of  these  conditions  where  states  have  not  implemented  performance  plans  with 
 respect  to  GTE.  635  The  present  performance  plan  must  be  viewed  in  the  context  of  the  entire  set 
 of  proposed  safeguards  that  comprise  the  overall  merger  conditions  package.  In  this  regard,  we 
 (Continued  from  previous  page) 
 LEC  benchmark.  Thus,  we  disagree  with  WorldComs  contention  that  the  payment  caps  are  inadequate  to 
 discourage  the  merged  firm  from  providing  substandard  service  to  competitors.  But  see  MCI  WorldCom  Mar.  1, 
 2000  Supplemental  Comments  at  15-  17. 

 631  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  24.  As  lines  in  the  GTE  legacy  service  areas  in 

 Pennsylvania  and  Virginia  are  converted  to  achieve  network  and  OSS  uniformity  with  Bell  Atlantics  legacy 
 systems  in  those  states,  see  Conditions  at  para.  19f,  performance  for  those  lines  will  be  measured  using  the 
 performance  measurements  and  business  rules  that  apply  to  Bell  Atlantic  legacy  service  areas.  See  Conditions 
 Attach.  A-  1b,  BA/  GTE  Performance  Measurements  GTE  States.  Cf.  Allegiance  Mar.  1,  2000  Comments  at  8 
 (suggesting  that  Bell  Atlantic/  GTE  should  implement  Bell  Atlantic  systems  and  policies  in  GTEs  Pennsylvania 
 and  Virginia  service  areas  in  accordance  with  the  intervals  that  we  adopted  in  the  SBC/  Ameritech  Order). 

 632  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14868,  para.  379. 

 633  But  see  AT&  T  Mar.  1,  2000  Opposition  at  34-  36  (alleging  that  these  conditions  would  as  a  practical  matter 
 serve  as  a  de  facto  ceiling  on  state  performance  plans).  State  commissions  may  take  appropriate  actions  to  ensure 
 that  these  conditions  do  not  impede  state-  specific  performance  plans,  either  in  the  context  of  section  271 
 applications  or  outside  of  it. 

 634  See  MCI  WorldCom  Mar.  1,  2000  Supplemental  Comments  at  19  (citing  SBC/  Ameritech  Order,  14  FCC  Rcd 

 at  14868,  para.  380). 
 635  See  generally  CoreComm  Mar.  1,  2000  Comments  at  26  (asserting  that  [  t]  he  absence  of  the  Section  271 

 incentive  with  respect  to  GTE  is  a  significant  public  convenience  detriment). 
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 expect    and  we  encourage    each  state  to  adopt  rigorous  and  extensive  performance  monitoring 
 programs  in  connection  with  section  271  proceedings.  Under  these  conditions,  therefore,  Bell 
 Atlantic/  GTEs  obligations  under  the  plan  in  a  given  Bell  Atlantic  legacy  state  will  terminate  upon 
 the  companys  authorization  to  provide  in-  region,  interLATA  service  in  that  state.  636  In  a  similar 
 vein,  these  obligations  may  cease  to  be  effective  in  any  Bell  Atlantic/  GTE  state  as  determined  by 
 the  Common  Carrier  Bureau  Chief  where  the  state  commission  has  adopted  a  comprehensive 
 performance  plan  applicable  to  Bell  Atlantic/  GTE.  637  The  condition  will  expire  otherwise  36 
 months  after  the  payment  obligation  arises  in  the  state.  638 

 283.  We  reject  the  suggestion  of  a  number  of  commenters  that  we  impose  the  complete 
 list  of  measurements  adopted  by  the  New  York  commission  and  California  commission.  639  We 
 also  decline  to  adopt  other  specific  performance  measurements  advocated  by  certain  parties,  640  or 
 to  make  specific  changes  in  the  proposal,  such  as  altering  the  benchmarks  or  statistical 
 methodology.  641  We  reiterate  that  the  Performance  Plan  constitutes  the  Applicants  voluntary 
 proposal  for  monitoring  and  remedying  the  specific  potential  public  interest  harms  identified  in  the 
 instant  merger,  including  the  potential  for  increased  discrimination  by  the  larger  merged  entity  and 

 636  Cf.  Bell  Atlantic/  GTE  Response  to  Conditions  Comments  at  15  ([  t]  he  very  fact  that  Bell  Atlantic/  GTE  have 
 designed  the  performance  plan  to  sunset  in  a  particular  state  when  Bell  Atlantic  receives  Section  271  authority  for 
 that  state  demonstrates  that  the  plan  is  not  intended  as  an  anti-  backsliding  plan  for  Section  271  purposes). 
 Consistent  with  the  Applicants  sentiments  and  our  explicit  holding  above,  we  reject  CoreComms  argument  that 
 section  271  authority  should  not  relieve  Bell  Atlantic/  GTE  of  its  responsibility  to  meet  carrier-  to-  carrier 
 performance  standards  in  the  Bell  Atlantic  legacy  service  areas  subject  to  such  authority.  In  support  of  its 
 argument,  CoreComm  asserts  that  carrier-  to-  carrier  performance  standards  become  even  more  important  following 
 section  271  authority  in  order  to  prevent  against  backsliding.  See  CoreComm  Mar.  1,  2000  Comments  at  40. 
 Likewise,  we  reject  Covads  averment  that  Bell  Atlantic/  GTE  still  should  be  subject  to  the  Performance  Plan  in 
 New  York,  notwithstanding  Bell  Atlantics  section  271  authority  there.  But  see  Covad  Mar.  1,  2000  Comments  at 
 16. 

 637  The  Common  Carrier  Bureau  Chief  shall  determine  whether  a  state-  approved  performance  plan  is 

 comprehensive  for  the  purpose  of  these  conditions.  A  state-  approved  mechanism  may  be  determined  not  to  be 
 comprehensive  if,  for  example,  it  omits  a  particular  measurement  or  category  of  measurements  deemed 
 important  by  the  Common  Carrier  Bureau  Chief.  The  Common  Carrier  Bureau  Chief  may  decide  to  retain  part  of 
 the  reporting  and  penalty  obligations  associated  with  these  conditions  where  a  state-  approved  mechanism  is 
 determined  not  to  be  comprehensive.  Cf.  CoreComm  Mar.  1,  2000  Comments  at  41  (state  performance  plan 
 escape  only  should  be  permitted  if  the  state  plan  imposes  noncompliance  penalties  that  are  at  least  equal  to  those 
 in  the  Performance  Plan);  Covad  Mar.  1,  2000  Comments  at  16  (between  the  Performance  Plan  and  a  state  plan, 
 the  stronger  and  more  procompetitive  of  the  plans  should  control). 

 638  The  Applicants  initial  proposal  also  provided  for  termination  of  Bell  Atlantic/  GTEs  obligations  under  the 

 Performance  Plan  on  the  date  on  which  the  merged  firm  completes  50  percent  of  its  out-  of-  region  investment 
 commitment.  The  Applicants  subsequently  abandoned  this  facet  of  their  proposal.  See  CoreComm  Mar.  1,  2000 
 Comments  at  40. 

 639  But  see,  e.  g.,  NEXTLINK  Mar.  16,  2000  Reply  at  12;  AT&  T  Mar.  1,  2000  Opposition  at  33-  34;  CoreComm 

 Mar.  1,  2000  Comments  at  39-  40;  MCI  WorldCom  Mar.  1,  2000  Supplemental  Comments  at  17-  18. 
 640  But  see,  e.  g.,  BlueStar  et  al.  Mar.  1,  2000  Comments  at  17. 

 641  But  see,  e.  g.,  MCI  WorldCom  July  19,  1999  Comments  at  17-  19. 
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 the  loss  of  another  major  incumbent  LEC  benchmark.  The  adoption  of  these  measures  in  the 
 present  merger  context  does  not  signify  that  these  performance  measures  would  be  sufficient  in 
 the  context  of  a  section  271  application.  In  contrast,  performance  plans  that  are  being  developed 
 by  state  commissions  in  the  context  of  section  271  proceedings  serve  a  different  purpose,  and  may 
 be  designed  to  cover  more  facets  of  local  competition  and  to  prevent  a  BOC  from  backsliding  on 
 section  271  obligations.  642  The  Performance  Plan  that  we  adopt  today  serves  a  more  limited 
 purpose,  and  hence  has  a  more  limited  scope.  Moreover,  we  note  that,  to  account  for  necessary 
 revisions  or  updates,  the  plan  includes  a  semi-  annual  review  of  the  plans  measurements  by  the 
 Chief  of  the  Common  Carrier  Bureau  and  Bell  Atlantic/  GTE.  Significantly,  the  Performance  Plan 
 is  only  one  component  of  a  broad  package  of  voluntary  merger  safeguards  proposed  by  the 
 Applicants.  Measures  that  are  sufficient  as  part  of  a  comprehensive  package  of  safeguards  in  the 
 present  merger  context  may  not  be  adequate  in  the  section  271  context. 

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

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

 642  See  MCI  WorldCom  Mar.  1,  2000  Supplemental  Comments  at  19  (citing  SBC/  Ameritech  Order,  14  FCC  Rcd 
 at  14910,  para.  481). 
 643  But  see  NEXTLINK  Mar.  16,  2000  Reply  at  12;  Allegiance  Mar.  1,  2000  Comments  at  2,  6-  8  (asserting  that 

 Bell  Atlantic/  GTE  should  commit  to  implement  the  best  practices  of  Bell  Atlantics  carrier-  to-  carrier 
 performance  standards  throughout  the  combined  companys  service  territory);  BlueStar  et  al.  Mar.  1,  2000 
 Comments  at  3;  IURC  Mar.  1,  2000  Comments  at  11.  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14910-  11,  para. 
 482. 

 644  SBC/  Ameritech  Conditions,  14  FCC  Rcd  at  15001,  para.  25. 

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

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

 (Continued  from  previous  page) 
 final  enforcement  authority  over  Bell  Atlantic/  GTEs  implementation  of  the  OSS  commitments.  See 
 SBC/  Ameritech  Order,  14  FCC  Rcd  at  14912  n.  884. 

 646  Conditions,  Attach.  B-  1  (specifying  electronic  OSS  interface  functions  to  be  made  uniform  across  the 

 combined  Bell  Atlantic/  GTE  region);  Conditions,  Attach  B-  2  (specifying  a  region-  wide,  uniform  products  set 
 which  will  be  available  through  Bell  Atlantic/  GTEs  application-  to-  application  ordering  capability).  See  also 
 CoreComm  Mar.  1,  2000  Comments  at  35  (requesting  like  functionality  throughout  Applicants  combined  service 
 area). 

 647  Letter  from  Patricia  E.  Koch,  Assistant  Vice  President  Federal  Regulatory,  Bell  Atlantic,  to  Magalie  Roman 

 Salas,  Secretary,  Federal  Communications  Commission,  CC  Docket  No.  98-  184  (filed  Apr.  14,  2000),  Declaration 
 of  Paul  A.  Lacouture. 

 648  Id. 

 649  E.  g.,  WorldCom  May  5,  2000  Further  Supplemental  Comments  at  10-  11. 
 650  See  Allegiance  Mar.  1,  2000  Comments  at  8;  Z-  Tel  Mar.  1,  2000  Comments  at  4. 
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 competitors  with  one-  stop  shopping  within  large  areas  of  the  Applicants  region. 
 288.  We  find  that  Bell  Atlantic/  GTE  has  made  other  substantial  commitments  that, 
 among  other  things,  provide  assurances  competing  carriers  will  have  input  into  the  development 
 and  deployment  of  the  Applicants  OSS  through  collaboratives,  disputes  will  be  arbitrated  by  a 
 neutral  third-  party,  the  Applicants  will  make  incentive  payments  for  non-  compliance,  and 
 competing  carriers  will  have  a  role  in  the  change  management  process.  For  example,  prior  to 
 implementing  its  OSS  commitments,  the  merged  firm  first  will  prepare  a  plan  of  record  (  Plan) 
 outlining  the  steps  it  proposes  to  take  in  unifying  its  OSS  in  the  separate  Bell  Atlantic  and  GTE 
 legacy  service  areas,  or  in  the  combined  service  areas  (including  Pennsylvania  and  Virginia),  as 
 applicable.  651  Competitors  shall  have  the  opportunity  to  comment  on  the  Plan  and  its  scope, 
 including  the  procedures  for  a  collaborative  process.  652  Following  submission  of  the  Plan,  the 
 merged  firm  will  collaborate  with  participating  competitive  LECs  to  reach  agreement  on  the 
 interfaces,  enhancements,  business  rules,  data  format  specifications,  transport  and  security 
 protocols,  and  OSS  functions  and  product  ordering  capabilities  to  be  implemented.  653  The  merged 
 entity  must  ensure  that  it  makes  available  to  competing  carriers  all  information  necessary  for  them 
 to  fully  evaluate  the  Plan  (including,  but  not  limited  to,  information  about  its  back-  end  systems, 
 OSS  interfaces,  business  rules,  data  specifications,  and  hardware  capabilities)  and  to  participate 
 productively  in  collaborative  sessions.  Failure  to  provide  a  sufficient  Plan  will  be  considered  a 
 violation  of  these  commitments  and  this  order,  and  may  subject  the  merged  entity  to  penalties, 
 fines,  or  forfeitures  pursuant  to  general  Commission  authority. 

 289.  Bell  Atlantic/  GTE  and  the  participating  competing  carriers  shall  seek  to  reach  a 
 written  agreement  resolving  any  issues  raised  by  the  Plan  and  the  competing  carriers  comments 
 to  the  Plan.  To  the  extent  that  Bell  Atlantic/  GTE  and  the  competitors  cannot  reach  agreement,  or 
 have  disputes  about  the  scope  of  the  Plan,  including  the  procedures  governing  the  collaborative 
 process,  they  may  request  resolution  of  such  disputes  by  binding  arbitration  conducted  by  an 
 independent  third-  party.  654  We  expect  that  the  collaborative  and  arbitration  processes  will 

 651  In  attempting  to  comply  with  the  OSS  requirements  of  these  commitments,  Bell  Atlantic/  GTE  shall  not  reduce 
 the  existing  functionality,  products,  or  services  available  to  competing  carriers,  or  decrease  the  capability  to  flow 
 through  transactions  to  its  OSS  systems  because  these  conditions  are  intended  to  result  in  best  practices.  If  Bell 
 Atlantic/  GTE  believes  it  cannot  satisfy  these  commitments  without  doing  so,  this  may  be  discussed  in  the 
 collaborative  sessions  at  the  request  of  Bell  Atlantic/  GTE  or  participating  competing  carriers. 

 652  We  reject,  however,  the  other  more  specific  requirements  for  the  plan  of  record  suggested  by  commenters. 

 Letter  from  Karen  M.  Johnson,  Associate  Counsel,  MCI  WorldCom,  to  Magalie  Roman  Salas,  Secretary,  Federal 
 Communications  Commission,  CC  Docket  98-  184  (filed  Apr.  14,  2000)  at  2;  MCI  WorldCom  Mar.  1,  2000 
 Supplemental  Comments  at  11-  12;  NorthPoint  Mar.  1,  2000  Comments  at  9.  We  find  that  these  are  details  that 
 will  be  addressed  in  the  collaborative  process.  We  find  no  reason  to  prevent  the  voluntary  participants  in  the 
 collaboratives  from  attempting  to  determine  the  best  manner  in  which  to  implement  the  requirements  of  these 
 conditions. 

 653  If  the  Plan  of  Record  does  not  specify  a  collaborative  process  competitive  LECs  may,  nonetheless,  request  that 

 any  issues  they  raise  in  their  written  comments  to  the  Plan  be  addressed  in  a  collaborative  process. 
 654  Conditions  at  paras.  19(  b),  21;  see  also  SBC  /Ameritech  Order,  14  FCC  Rcd  at  15002-  04,  para.  28;  id.  at 

 14870,  para.  383. 
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 generally  function  in  the  same  way  as  the  processes  specified  in  the  conditions  attached  in  the 
 SBC/  Ameritech  Order.  After  completion  of  the  collaboratives  and  any  necessary  arbitrations,  Bell 
 Atlantic/  GTE  will  develop  and  deploy  the  agreed-  upon  or  arbitrated  OSS  requirements,  such  as, 
 but  not  limited  to,  interfaces,  enhancements,  and  business  rules,  within  specified  periods  of  time.  655 
 Once  deployed,  Bell  Atlantic/  GTE  will  maintain  these  OSS  requirements  for  not  less  than  36 
 months.  656 

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

 655  E.  g.,  Conditions  at  para.  19(  e).  We  agree  with  MCI  WorldCom  and  Bell  Atlantic,  however,  that  nothing  in 
 this  Order  or  these  Conditions  excuses  or  modifies  the  obligations  with  respect  to  uniform  interfaces  established 
 in  the  Bell  Atlantic/  NYNEX  Order  or  the  complaint  proceeding  referenced  in  paragraph  19  of  the  proposed 
 conditions.  Bell  Atlantic/  GTE  Response  to  Conditions  Comments  at  19,  n.  7  (citing  MCI  WorldCom  Mar.  1, 
 2000  Supplemental  Comments  at  12). 

 656  See  Conditions  at  para.  64  (each  condition  is  designed  to  yield  at  least  36  months  of  benefit).  Thus,  Bell 

 Atlantic/  GTE  may  not  claim  that  its  obligations  under  this  set  of  conditions  cease  36  months  after  the  merger 
 closing  date,  because  that  would  allow  for  Bell  Atlantic/  GTE  to  stop  providing  these  interfaces  and  enhancements 
 merely  six  months  after  the  two-  and-  a-  half  years  post-  merger  closing  that  it  has  afforded  itself  to  deploy  such 
 interfaces  and  enhancements. 

 657  We  disagree  with  Commenters  concerns  that  the  terms  up  to  and  substantial  compliance  inject 

 uncertainty  into  this  provision.  See  MCI  WorldCom  Mar.  1,  2000  Supplemental  Comments  at  13;  NorthPoint 
 Mar.  1,  2000  Comments  at  11.  Rather,  we  conclude  that  such  language  merely  permits  the  arbitrator  to  match  the 
 voluntary  payment  amount  to  the  nature  and  severity  of  the  violation. 

 658  The  Arbitrator  may  determine  that  more  than  one  violation  has  occurred  in  a  state  on  a  given  day.  The  total 

 of  all  voluntary  payments  relating  to  any  or  all  milestones  under  this  condition  may  not,  however,  exceed  $20 
 million.  Conditions  at  para.  24. 

 659  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14911-  12,  para.  485  (interpreting  same  language). 

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

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

 661  Conditions  at  para.  20;  See  Application  of  Bell  Atlantic  New  York  for  Authorization  Under  Section  271  of  the 
 Communications  Act  To  Provide  In-  Region,  InterLATA  Service  in  the  State  of  New  York,  CC  Docket  No.  99-  295, 
 Memorandum  Opinion  and  Order,  FCC  99-  404  (rel.  Dec.  22,  1999)  at  para.  104;  see  also  WorldCom  May  5,  2000 
 Further  Supplemental  Comments  at  14. 

 662  Despite  the  benefits  competing  carriers  derive  from  a  uniform  system  of  change  management,  the  condition 

 permits  a  state,  if  it  so  desires,  to  establish  its  own  change  management  plan. 
 663  Requesting  carriers  will  not  have  to  pay  for  the  costs  of  the  development  and  deployment  of  EBI  compliant 

 with,  but  not  exceeding,  industry  standards.  For  example,  a  requesting  carrier  will  not  have  to  pay  for  the 
 development  and  deployment  of  an  industry  compliant  EBI  in  a  service  area  previously  lacking  an  EBI  at  all. 

 664  Bell  Atlantic  must  continue  to  provide  the  discount  until  it  has  filed  an  ex  parte  letter  to  the  Chief  of  the 

 Common  Carrier  Bureau  certifying  that  it  has  reached  the  75%  threshold  and  specifying  the  evidence  upon  which 
 it  has  relied. 

 665  Covad  Mar.  1,  2000  Comments  at  13;  see  SBC/  Ameritech  Conditions,  14  FCC  Rcd  at  14992-  96,  paras.  15-  18. 
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 in  the  collaboratives,  advanced  services  OSS  enhancements  in  advance  of  industry  standards  and 
 expedited  milestones  for  the  development  and  deployment  of  advanced  services  OSS  and 
 enhancements  to  it. 

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

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

 666  See  NEXTLINK  Mar.  16,  2000  Reply  at  13;  BlueStar  et  al.  Mar.  1,  2000  Comments  at  16-  17;  CoreComm 
 Mar.  1,  2000  Comments  at  37-  39;  RCN  Mar.  1,  2000  Comments  at  2-  3. 
 667  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14912,  para.  486. 

 668  See  id.  But  see  BlueStar  et  al.  Mar.  1,  2000  Comments  at  16-  17;  CoreComm  Mar.  1,  2000  Comments  at  39. 
 669  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Proposed  Conditions  at  30-  31.  See  also  SBC/  Ameritech  Order,  14  FCC 
 Rcd  at  14871,  para.  385;  id.  at  15010,  para.  36.  The  revenue  restriction  includes  revenue  from  any  affiliates, 
 parents,  subsidiaries  and  telecommunications  joint  ventures  of  the  competitive  LEC,  but  excludes  revenues  from 
 wireless  services. 

 670  In  response  to  comments  on  their  initial  proposal,  the  Applicants  also  changed  the  language  of  their  proposal, 

 so  that,  like  in  the  SBC/  Ameritech  Conditions,  OSS  assistance  is  made  available  to  any  competitive  LECs  that  have 
 attended  any  OSS  training  required  by  their  interconnection  agreements,  rather  than  limiting  OSS  assistance  to 
 (continued.) 
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 competitive  LECs  that  are  eligible  to  take  advantage  of  such  special  OSS  assistance,  substantially 
 enhances  the  benefit  of  this  condition  by  further  reducing  barriers  to  new  local  competitive  entry. 

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

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

 (Continued  from  previous  page) 
 competitive  LECs  that  have  completed  any  available  Bell  Atlantic/  GTE  OSS  training.  See  CoreComm  Mar.  1, 
 2000  Comments  at  34. 

 671  See  BlueStar  et  al.  Mar.  1,  2000  Comments  at  3;  CoreComm  Mar.  1,  2000  Comments  at  33-  34.  Compare 

 SBC/  Ameritech  Conditions,  14  FCC  Rcd  at  15010,  para.  36b  (commencing  assistance  30  days  after  the  merger 
 closing)  with  Conditions  at  para.  26b  (commencing  assistance  90  days  after  the  merger  closing). 

 672  See  NEXTLINK  Mar.  16,  2000  Reply  at  14-  15;  BlueStar  et  al.  Mar.  1,  2000  Comments  at  4;  CoreComm  Mar. 

 1,  2000  Comments  at  42.  See  also  Deployment  of  Wireline  Services  Offering  Advanced  Telecommunications 
 Capability,  CC  Docket  No.  98-  147,  First  Report  and  Order  and  Further  Notice  of  Proposed  Rulemaking,  14  FCC 
 Rcd  4771-  94,  paras.  19-  60  (1999).  Though  the  D.  C.  Circuit  vacated  certain  rules  adopted  in  that  order,  most  of 
 the  collocation  rules  that  we  adopted  there  were  affirmed.  See  GTE  Service  Corporation  v.  FCC,  205  F.  3d  416 
 (D.  C.  Cir.  2000). 

 673  Bell  Atlantic  and  GTE  should  work  with  the  state  commission  in  each  Bell  Atlantic/  GTE  state  where  the 

 relevant  company  has  not  yet  filed  a  tariff  or  offered  to  amend  interconnection  agreements  to  demonstrate 
 compliance  with  the  Commissions  collocation  rules,  in  order  to  determine  which  method  of  demonstrating 
 compliance  is  preferred  by  the  commission  in  the  particular  state.  See  IURC  Mar.  1,  2000  Comments  at  19  n.  38. 

 674  We  decline  to  impose  the  requirement  sought  by  BlueStar  et  al.  that  the  merged  entity  maintain  uniform 

 collocation  practices  based  on  Bell  Atlantic  best  practices.  But  see  BlueStar  et  al.  Mar.  1,  2000  Comments  at  4. 
 An  attestation  report  resulting  in  a  positive  opinion,  with  few  or  no  exceptions  noted,  presumptively  would  be  an 
 indication  of  sufficient  collocation  practices  in  GTE  service  areas. 
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 commenters,  however,  675  the  Applicants  revised  their  proposal  such  that  the  attestation  report  will 
 be  filed  within  10  days  after  the  merger  closing.  676 

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

 298.  Also  in  response  to  public  comment  on  their  original  proposal,  680  the  Applicants 
 agreed  to  undergo  an  independent  audit  of  their  compliance  with  our  UNE  and  line  sharing 

 675  See,  e.  g.,  id.  (expressing  dismay[]  that  Bell  Atlantic  and  GTE  are  not  prepared  to  immediately  certify  that 
 they  are  in  compliance  with  the  Commissions  Collocation  Order);  MCI  WorldCom  Mar.  1,  2000  Supplemental 
 Comments  at  19. 

 676  See  SBC/  Ameritech  Conditions,  14  FCC  Rcd  at  15011,  para.  39.  We  decline  to  grant  the  request  of 

 CoreComm  and  NEXTLINK  that  we  require  the  attestation  report  to  be  filed  prior  to  the  merger  closing  date.  But 
 see  NEXTLINK  Mar.  16,  2000  Reply  at  15;  CoreComm  Mar.  1,  2000  Comments  at  42.  We  do  not  wish  to 
 suspend  the  timing  of  the  merger  closing  date  awaiting  arrival  of  the  attestation  report.  We  believe  that  permitting 
 the  filing  of  the  attestation  report  within  10  days  after  the  merger  closing  date  constitutes  sufficient  proximity  to 
 the  merger  closing  date  to  render  the  report  useful,  and,  in  any  event,  the  report  is  based  on  an  audit  conducted 
 prior  to  the  merger  closing. 

 677  The  auditor  will  take  into  account  any  collocation  audits  performed  within  the  18  months  prior  to  the  merger 

 closing  date. 
 678  Cf.  SBC/  Ameritech  Conditions,  14  FCC  Rcd  at  15012,  para.  40e  (requiring  that  final  audit  report  be  submitted 

 no  later  than  10  months  after  the  merger  closing  date).  We  believe  that  the  filing  date  for  the  final  collocation 
 audit  report  in  this  merger  presents  the  advantages  of  being  expedited  yet  still  covering  a  sufficient  period  to  yield 
 useful  data. 

 679  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14872,  para.  387.  The  Applicants  qualify  this  incentive  by  adding 

 that  the  merged  entity  would  not  be  required  to  waive  these  charges  if  it  can  demonstrate  that  the  missed  due  date 
 was  caused  solely  by  equipment  vendor  delay  beyond  Bell  Atlantic/  GTE  control.  Conditions  at  para.  27d.  This 
 exception  only  applies,  however,  where  Bell  Atlantic/  GTE  demonstrates  to  this  Commission  or  to  the  relevant 
 state  commission(  s)  that  no  alternative  vendor  reasonably  and  timely  could  provide  Bell  Atlantic/  GTE  with 
 necessary  equipment. 

 680  See,  e.  g.,  NEXTLINK  Mar.  16,  2000  Reply  at  14-  15;  BlueStar  et  al.  Mar.  1,  2000  Comments  at  4-  5,  7-  9; 

 CoreComm  Mar.  1,  2000  Comments  at  45. 
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 rules.  681  These  UNE  and  line  sharing  compliance  audit  provisions  take  virtually  the  same  form  as 
 the  collocation  audit  conditions.  682  One  difference,  however,  is  that  unlike  in  the  collocation 
 compliance  plan,  there  is  no  separate  audit  of  Bell  Atlantic  and  GTEs  UNE  and  line  sharing 
 methods  and  procedures  compliance.  683  In  addition,  the  independent  auditor  will  present  its  final 
 UNE  and  line  sharing  audit  report  to  the  Commission,  and  publicly  file  a  copy  with  the  Secretary, 
 no  later  than  180  days  after  the  merger  closing  date,  unlike  the  approximately  220  days  after 
 merger  closing  afforded  for  submission  of  the  final  collocation  audit  report.  Likewise  with  this 
 audit,  we  fully  expect  Bell  Atlantic/  GTE  to  implement  immediately  any  necessary  corrective 
 action  in  response  to  adverse  findings  by  the  auditor  or  we  may  take  any  necessary  and 
 appropriate  action.  This  additional  audit  of  Bell  Atlantic/  GTEs  compliance  with  our  UNE  and 
 line  sharing  rules  will  be  particularly  beneficial  in  assessing  Bell  Atlantic/  GTEs  adherence  to  these 
 important  procompetitive  requirements. 

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

 300.  Most-  Favored  Nation  Arrangements.  This  condition,  designed  to  facilitate  market 
 entry  throughout  Bell  Atlantic/  GTEs  region  as  well  as  the  spread  of  best  practices  (as  that  term  is 
 understood  by  Bell  Atlantic/  GTEs  competitors),  has  two  components.  First,  where  it  is  feasible 
 given  technical  limitations,  Bell  Atlantic/  GTE  will  offer  telecommunications  carriers  operating 
 within  its  service  area  any  interconnection  arrangement  686  or  UNE  that  Bell  Atlantic/  GTE,  as  a 
 competitive  LEC  outside  of  its  incumbent  service  area,  secures  from  the  incumbent  LEC  after  the 

 681  See  UNE  Remand  Order;  Line  Sharing  Order. 
 682  Compare  Conditions  at  para.  27c  (collocation  compliance  examination  engagement)  with  id.  at  para.  28a 
 (UNE  and  line  sharing  compliance  examination  engagement).  Consistent  with  the  overall  audit  requirements 
 contained  in  the  conditions,  these  audits  will  be  conducted  in  accordance  with  auditing  industry  standards.  See 
 American  Inst.  of  Certified  Pub.  Accountants,  ATTESTATION  ENGAGEMENTS,  AT    100;  COMPLIANCE 
 ATTESTATION,  AT    500.01. 

 683  Rather,  the  methods  and  procedures  audit  will  be  collapsed  into  the  comprehensive  compliance  audit.  See 

 Conditions  at  para.  28a(  6)  (the  independent  auditor  will  evaluate,  inter  alia,  the  sufficiency  of  Bell  Atlantic/  GTEs 
 methods,  procedures,  and  internal  controls  for  compliance  with  the  Commissions  UNE  and  line  sharing  rules); 
 see  also  American  Inst.  of  Certified  Pub.  Accountants,  CONSIDERATION  OF  INTERNAL  CONTROL  IN  A  FINANCIAL 
 STATEMENT,  AU    319;  COMPLIANCE  ATTESTATION,  AT    500.04  (addressing  examination  of  internal  controls). 

 684  See,  e.  g.,  BlueStar  et  al.  Mar.  1,  2000  Comments  at  4-  5. 

 685  See  Conditions  at  para.  27c(  5)  &  (7).  Pursuant  to  its  delegated  authority,  the  Common  Carrier  Bureau  will 
 work  closely  with  the  state  commissions  in  this  effort. 
 686  This  commitment  encompasses,  both  for  out-  of-  region  and  in-  region  agreements,  entire  interconnection 

 agreements  or  selected  provisions  from  them. 
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 merger  closing  date,  687  and  that  was  not  previously  made  available  by  the  incumbent.  688  Bell 
 Atlantic/  GTE  will  make  the  interconnection  arrangement  or  network  element  available  on  the 
 same  terms  and  conditions  as  the  incumbent,  with  prices  and  performance  measures  determined 
 on  a  state-  specific  basis. 

 301.  Second,  where  it  is  feasible  given  technical  limitations,  Bell  Atlantic/  GTE  will 
 make  available  to  any  requesting  telecommunications  carrier  in  any  of  its  in-  region  states  any 
 interconnection  arrangement  or  UNE  in  any  other  of  its  in-  region  states,  that  was  negotiated 
 voluntarily  subsequent  to  the  merger  closing  date  by  a  Bell  Atlantic/  GTE  incumbent  LEC,  subject 
 to  state-  specific  pricing  and  performance  measures.  In  addition,  Bell  Atlantic/  GTE  will  make  the 
 interconnection  arrangements  or  UNEs  available  on  the  same  terms  and  conditions  as  those  in  the 
 underlying  agreement,  provided  that  the  interconnection  arrangements  or  UNEs  will  not  be 
 available  beyond  the  last  date  that  they  are  available  in  the  underlying  agreement,  and  that  the 
 requesting  carrier  accepts  all  reasonably  related  terms  and  conditions  as  determined  in  part  by  the 
 nature  of  the  corresponding  compromises  between  the  parties  to  the  underlying  agreement.  689 

 687  We  decline  IURC  request  that  competing  carriers  in  the  Bell  Atlantic/  GTE  region  be  able  to  obtain 
 interconnection  agreements  and  UNEs  that  Bell  Atlantic  or  GTE  secured  as  an  out-  of-  region  competitive  LEC 
 prior  to  the  merger  closing  date.  But  see  IURC  Mar.  1,  2000  Comments  at  15-  16.  Given  the  unique  facts  and 
 circumstances  of  the  instant  merger,  we  believe  that  the  post-  merger  restriction  is  reasonable.  Furthermore,  as  we 
 stated  in  the  SBC/  Ameritech  Order,  the  merged  entity,  bearing  in  mind  its  commitment  to  implement  best 
 practices,  will  be  on  notice  as  to  which  systems  and  procedures  could  become  uniform  across  its  region.  14  FCC 
 Rcd  at  14914,  para.  492. 

 688  To  assist  competitive  LECs  in  exercising  their  options,  each  Bell  Atlantic/  GTE  out-  of-  territory  affiliate  will 

 post  on  the  Internet  all  of  its  relevant  interconnection  agreements.  We  agree  with  the  Applicants,  however,  that 
 these  conditions  need  not  be  expanded  to  encompass  Internet  posting  of  in-  region  interconnection  agreements.  But 
 see  NEXTLINK  Mar.  16,  2000  Reply  at  12;  CoreComm  Mar.  1,  2000  Comments  at  47-  48  (requesting  that  the 
 conditions  require  Bell  Atlantic/  GTE  to  publish  on  Bell  Atlantic/  GTE  websites  all  effective  Bell  Atlantic  and  GTE 
 interconnection  agreements  and  amendments  within  one  month  after  the  merger  closing,  and  detailing  other 
 associated  requirements).  As  the  Applicants  assert,  interconnection  agreements  are  available  publicly  in  each  state 
 in  which  they  are  effective,  and  no  commenter  has  claimed  that  it  has  any  difficulty  in  obtaining  access  to  such 
 agreements.  See  Bell  Atlantic/  GTE  Response  to  Conditions  Comments  at  25.  See  also  47  U.  S.  C.    252(  h) 
 (providing  for  Internet  posting  of  in-  region  interconnection  agreements  by  incumbent  LECs). 

 689  Several  commenters  take  issue  with  this  proviso  requiring  competitive  LECs  to  accept  all  reasonably  related 

 terms  and  conditions  of  the  underlying  agreement.  The  crux  of  their  concern  is  that  this  provision  will  encourage 
 Bell  Atlantic/  GTE  to  attach  extraneous  terms  and  conditions  to  requested  interconnection  arrangements  or  network 
 elements,  under  the  guise  of  Bell  Atlantic/  GTE  deeming  such  terms  and  conditions  reasonably  related.  The 
 inclusion  of  such  poison  pills,  these  commenters  assert,  then  will  deter  competitors  from  exercising  their  rights 
 under  the  most-  favored  nation  commitments,  or  will  force  competitors  to  undergo  the  substantial  costs  and  delays 
 of  going  to  arbitration  to  have  such  extraneous  terms  and  conditions  removed.  See  NEXTLINK  Mar.  16,  2000 
 Reply  at  11-  12;  Advanced  Telecom  Mar.  1,  2000  Comments  at  4-  5;  AT&  T  Mar.  1,  2000  Opposition  at  32;  MCI 
 WorldCom  Mar.  1,  2000  Supplemental  Comments  at  15.  In  response  to  these  comments,  a  footnote  has  been 
 added  to  the  Conditions,  clarifying  that  this  proviso  is  to  be  read  in  the  context  of  the  Local  Competition  Order,  11 
 FCC  Rcd  at  16137-  42,  paras.  1309-  23.  See  Conditions  at  para.  32.  Specifically,  the  Local  Competition  Order 
 stipulates  that  in  order  to  prevent  discrimination,  terms  and  conditions  that  an  incumbent  LEC  seeks  to  require  a 
 competitive  LEC  to  accept  must  be  legitimately  related  to  the  purchase  of  the  individual  [interconnection 
 arrangement  or  network]  element  being  sought.  By  contrast,  incumbent  LECs  may  not  require  .  .  .  agreement  to 
 terms  and  conditions  relating  to  other  interconnection,  services,  or  elements  in  the  approved  agreement.  11  FCC 
 (continued.) 
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 When  a  carrier  selects  an  interconnection  arrangement  or  network  element  for  an  in-  region  state 
 in  which  no  rate  for  a  comparable  arrangement  or  element  has  been  established,  Bell  Atlantic/  GTE 
 will  make  the  arrangement  or  element  available  at  the  rates  in  the  originating  state  on  an  interim 
 basis  until  the  requisite  rates  are  developed.  Disputes  regarding  the  availability  of  an 
 interconnection  arrangement  or  unbundled  element  will  be  resolved  through  negotiation  between 
 the  parties  or  by  the  relevant  state  commission  pursuant  to  section  252. 

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

 303.  This  approach  towards  arbitrated  agreements,  provisions,  and  UNEs  presents 
 several  potential  advantages.  First,  it  should  remove  any  disincentive  to  negotiate  that  the  bulk  of 
 the  commenters  fear  would  be  caused  by  most-  favored  nation  commitments  that  are  limited  to 
 interconnection  arrangements  and  UNEs  that  are  negotiated  voluntarily.  Second,  it  will  expedite 
 the  ability  of  competing  carriers  to  resolve  contested  issues  in  importing  states.  693  Third,  it 

 (Continued  from  previous  page) 
 Rcd  at  16139,  para.  1315.  We  believe  that  this  clarification,  to  the  extent  that  it  tracks  the  language  of  the  Local 
 Competition  Order,  disposes  of  the  matter. 

 690  See,  e.  g.,  Bell  Atlantic/  GTE  Mar.  14,  2000  Ex  Parte  Letter  at  2.  These  revisions  came  in  response  to  the 

 allegations  of  numerous  commenters  that  unless  arbitrated  agreements  are  included  in  this  condition,  the 
 Applicants  will  have  an  incentive  to  be  recalcitrant  in  negotiations,  in  order  to  prevent  extension  of  interconnection 
 arrangements  and  UNEs  that  Bell  Atlantic/  GTE  perceives  as  unfavorable  from  one  in-  region  state  to  another.  See 
 NEXTLINK  Mar.  16,  2000  Reply  at  11;  Advanced  Telecom  Mar.  1,  2000  Comments  at  3;  AT&  T  Mar.  1,  2000 
 Opposition  at  30-  33;  BlueStar  et  al.  Mar.  1,  2000  Comments  at  10;  CompTel  Mar.  1,  2000  Comments  at  7; 
 CoreComm  Mar.  1,  2000  Comments  at  26-  27,  46-  47;  Covad  Mar.  1,  2000  Comments  at  17;  IURC  Mar.  1,  2000 
 Comments  at  15;  MCI  WorldCom  Mar.  1,  2000  Supplemental  Comments  at  14. 

 691  We  observe  that  nothing  in  the  conditions  precludes  IURCs  argument  that  carriers  seeking  to  compete  in  Bell 

 Atlantic/  GTEs  incumbent  service  area  should  have  made  available  to  them  interconnection  arrangements  and 
 UNEs  resulting  from  an  arbitration  involving  Bell  Atlantic/  GTE,  as  a  competitive  LEC  outside  of  its  incumbent 
 service  area,  after  the  merger  closing  date.  See  IURC  Mar.  1,  2000  Comments  at  15.  In  fact,  SBC/  Ameritechs 
 original  out-  of-  region  most-  favored  nation  commitments  would  have  limited  the  out-  of-  territory  arrangements 
 available  to  in-  region  competitors  to  agreements  obtained  through  arbitration  initiated  by  SBC/  Ameritech.  Though 
 SBC/  Ameritech  subsequently  removed  that  limitation,  it  did  not  preclude  making  out-  of-  region  arbitrated 
 agreements  available  to  in-  region  competitors.  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14873  n.  723.  We  read 
 the  conditions  to  the  instant  merger  the  same  way. 

 692  See  47  U.  S.  C.    252(  b)(  1). 

 693  See  Covad  Mar.  1,  2000  Comments  at  17-  18  (expressing  that  the  conditions  should  provide  for  a  faster  means 
 than  negotiation  between  the  parties  to  resolve  disputes). 
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 addresses  the  concern  that  we  expressed  in  the  SBC/  Ameritech  Order  that  expanding  the 
 condition  to  encompass  arbitrated  arrangements  without  qualification  could  interfere  with  the 
 state  arbitration  process  under  sections  251  and  252  of  the  Communications  Act.  694  We 
 emphasize  that  Bell  Atlantic/  GTE  must  act  in  good  faith  in  determining  whether  to  agree 
 voluntarily  to  the  importation  of  such  arbitrated  agreements,  provisions,  or  UNEs  and  whether  to 
 submit  such  arbitrated  agreements,  provisions,  or  UNEs  to  immediate  arbitration  in  the 
 importing  state(  s).  695  Thus,  Bell  Atlantic/  GTE  may  be  subject  to  penalties,  fines  or  forfeitures 
 pursuant  to  general  Commission  authority  if  it  attempted,  in  bad  faith,  to  block  or  delay  adoption 
 in  a  Bell  Atlantic/  GTE  state  of  any  UNE,  whole  interconnection  agreement,  or  interconnection 
 agreement  provisions  arbitrated  in  any  other  Bell  Atlantic/  GTE  state  after  the  merger  closing  date. 

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

 305.  We  also  reject  the  argument  of  several  commenters  that  any  in-  region 
 interconnection  arrangement  or  UNE,  regardless  of  whether  it  was  made  available  prior  or 
 subsequent  to  the  merger  closing,  should  be  obtainable  by  requesting  carriers  in  any  other  in-region 
 service  area.  698  Similar  to  our  finding  in  the  SBC/  Ameritech  Order,  699  we  find  it  reasonable 
 for  this  condition  to  be  implemented  across  the  merged  firms  combined  region  on  a  going-forward 
 basis  only.  In  this  way,  Bell  Atlantic/  GTE  will  be  on  notice  as  to  which  systems  and 
 procedures  could  become  uniform  across  its  region.  Moreover,  under  the  conditions  to  this 
 merger,  any  voluntarily  negotiated,  in-  region  interconnection  arrangement  or  UNE  will  be  made 
 available  to  requesting  carriers  in  any  other  in-  region  service  area  of  the  particular  legacy 

 694  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14914,  para.  491.  We  also  noted  there,  however,  that  where  the 
 merged  entity  has  stipulated  in  arbitration  proceedings  that  specific  arrangements  have  been  determined  through 
 negotiation,  these  arrangements  will  be  available  for  most-  favored  nation  treatment.  Id. 

 695  For  example,  Bell  Atlantic/  GTE  generally  would  not  require  a  requesting  telecommunications  carrier  to 

 arbitrate  in  the  importing  state  a  provision  that  previously  was  arbitrated  and  decided  in  that  state. 
 696  But  see  NEXTLINK  Mar.  16,  2000  Reply  at  12;  NorthPoint  Mar.  1,  2000  Comments  at  12. 

 697  Bell  Atlantic/  GTE  Responses  to  Specific  Conditions  Allegations  at  A-  13;  Bell  Atlantic/  GTE  Response  to 
 Conditions  Comments  at  26. 
 698  But  see  NEXTLINK  Mar.  16,  2000  Reply  at  11;  Covad  Mar.  1,  2000  Comments  at  17;  IURC  Mar.  1,  2000 

 Comments  at  15-  16;  MCI  WorldCom  Mar.  1,  2000  Supplemental  Comments  at  14. 
 699  14  FCC  Rcd  at  14914,  para.  492. 
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 company  whose  interconnection  arrangement  or  UNE  is  being  extended.  Thus,  for  example, 
 interconnection  agreement  provisions  voluntarily  negotiated  by  Bell  Atlantics  incumbent  LEC  in 
 New  York  prior  to  the  merger  closing  date  will  be  made  available  to  a  requesting  carrier  seeking 
 to  compete  in  the  Bell  Atlantic/  GTE  service  area  in  Maryland,  which  is  a  legacy  Bell  Atlantic 
 service  area. 

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

 700  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14873,  para.  389. 

 701  A  multi-  state  agreement  under  this  condition  could  extend  to  any  in-  region  Bell  Atlantic/  GTE  state.  Even 
 though  Bell  Atlantic/  GTE  will  offer  to  negotiate  a  multi-  state  interconnection  agreement,  the  affected  Bell 
 Atlantic/  GTE  incumbent  LECs  may  separately  sign  the  agreement,  which  shall  constitute  a  separate  contract  for 
 section  252  purposes. 

 702  The  Applicants  original  proposal  contained  language,  both  with  respect  to  this  condition  and  the  most-favored 

 nation  conditions,  to  the  effect  that  interconnection  arrangements  and  UNEs  may  be  modified  to  reflect 
 differences  caused  by  state  regulatory  requirements,  product  definitions,  network  equipment,  facilities,  and 
 provisioning,  and  collective  bargaining  agreements.  Bell  Atlantic/  GTE  Jan.  27,  2000  Proposed  Conditions  at  35- 
 37,  paras.  32-  35.  In  response  to  WorldComs  objections  to  this  language,  however,  see  MCI  WorldCom  Mar.  1, 
 2000  Supplemental  Comments  at  15,  the  Applicants  removed  all  such  language,  and  replaced  it  with  language 
 clarifying  that  interconnection  arrangements  and  UNEs  are  subject  to  47  U.  S.  C.    251(  c)  (incumbent  LEC 
 interconnection  obligations),  Paragraph  39  of  the  Conditions  (commitment  to  continue  making  UNEs  available 
 until  the  date  of  a  final,  non-  appealable  judicial  decision  relieving  incumbent  LECs  of  UNE  provision 
 requirements),  and  provisions  in  applicable  collective  bargaining  agreements. 

 703  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14874,  para.  389. 

 704  See  47  U.  S.  C.    252(  f). 
 705  But  see  IURC  Mar.  1,  2000  Comments  at  16-  19. 
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 such  a  requirement  is  unnecessary  to  achieve  the  procompetitive  benefit  of  this  condition  and 
 would  pose  unnecessary  costs  on  Bell  Atlantic/  GTE.  706 

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

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

 706  Furthermore,  Bell  Atlantic  may  file  state-  specific  SGATs  for  its  legacy  service  areas.  See  47  U.  S.  C.    252(  f). 
 707  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14874-  75,  paras.  390-  92;  SBC/  Ameritech  Conditions,  14  FCC  Rcd 
 at  15015-  19,  paras.  45-  49. 
 708  See,  e.  g.,  BlueStar  et  al.  Mar.  1,  2000  Comments  at  3;  CoreComm  Mar.  1,  2000  Comments  at  3,  28-  29;  Covad 

 Mar.  1,  2000  Comments  at  18;  IURC  Mar.  1,  2000  Comments  at  4,  10-  11. 
 709  See  Access  Charge  Reform,  CC  Docket  No.  96-  262,  Fifth  Report  and  Order  and  Further  Notice  of  Proposed 

 Rulemaking,  14  FCC  Rcd  14,221  (1999). 
 710  These  factors  likewise  measure  the  duration  of  the  initial  period  for  the  promotional  resale  discount.  See  infra 

 paras.  310-  15. 
 711  See  Conditions  at  para.  38.  In  order  to  provide  competitive  LECs  with  advance  planning  information,  the 

 conditions  require  Bell  Atlantic/  GTE  to  provide  written  or  electronic  (e.  g.,  Internet)  notice  to  competitive  LECs 
 when  the  unbundled  loop  and  resale  promotions  reach  50  percent  and  80  percent  of  a  states  maximum  lines.  We 
 disagree  with  WorldComs  contention  that,  due  to  uncertainty  regarding  the  duration  of  the  promotions  in  a 
 specific  state,  competitive  LECs  cannot  make  reliable  business  plans  based  on  the  availability  of  a  discount.  But 
 (continued.) 
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 will  last  36  months  from  the  date  that  the  promotional  loop  or  resold  service  is  installed  and 
 operational,  or  for  the  duration  of  the  period  during  which  the  loop  or  resold  service  remains  in 
 service  at  the  same  location  and  for  the  same  carrier,  whichever  is  shorter. 

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

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

 311.  We  decline  to  increase  the  resale  discount.  713  As  we  found  in  the  SBC/  Ameritech 
 Order,  the  32  percent  discount  should  facilitate  competitive  entry  in  the  residential  market.  714  We  (Continued  from  previous  page) 

 see  WorldCom  May  5,  2000  Further  Supplemental  Comments  at  8.  WorldCom  cites  as  an  example  the  provision 
 allowing  the  unbundled  loop  discount  promotion  to  end  in  a  state  upon  Bell  Atlantic/  GTEs  receipt  of  section  271 
 authority  in  that  state.  We  believe  that  the  90  days  afforded  for  the  Commissions  processing  of  section  271 
 applications  provides  competitive  LECs  with  sufficient  notice  of  the  potential  cessation  of  the  unbundled  loop 
 discount  in  that  state. 

 712  We  decline  to  require  that  the  unbundled  loop  discount  also  apply  to  non-  recurring  charges.  But  see 

 WorldCom  May  5,  2000  Further  Supplemental  Comments  at  7-  8.  We  believe  that  the  discount  on  recurring 
 charges  for  unbundled  loops  is  sufficient  to  stimulate  further  competitive  LEC  penetration  into  the  residential  local 
 market. 

 713  But  see  National  ALEC  Mar.  1,  2000  Comments  at  6-  7  (requesting  a  discount  in  the  range  of  50-  60  percent). 

 714  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14915  n.  898  (citing  Local  Competition  Order,  11  FCC  Rcd  at 
 15955-  56,  15963-  64,  paras.  910,  932-  33). 
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 also  do  not  find  it  necessary  at  this  juncture  to  take  any  affirmative  steps  to  ensure  that  [Bell 
 Atlantic/  GTE]  does  not  attempt  to  offset  the  loss  in  revenue  resulting  from  .  .  .  [the]  residential 
 resale  discount  by  increasing  other  charges.  715  Any  potential  for  such  attempts  does  not 
 undermine  the  public  benefit  of  this  condition,  and  we  expect  that  state  commissions  will  catch 
 and  suppress  any  such  attempts  in  the  course  of  their  review  of  Bell  Atlantic/  GTEs  cost  studies. 

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

 313.  We  also  reject  AT&  Ts  arguments  that  the  carrier-  to-  carrier  promotions  are 
 discriminatory  and  therefore  unlawful.  722  First,  based  on  the  manner  in  which  Bell  Atlantic/  GTE 
 will  execute  its  obligations,  we  do  not  find  that  the  residential  and  voice  service  restrictions 

 715  National  ALEC  Mar.  1,  2000  Comments  at  7. 
 716  See  Covad  May  5,  2000  Comments  at  13-  14;  WorldCom  May  5,  2000  Further  Supplemental  Comments  at  8. 
 Both  Covad  and  WorldCom  seek  extension  of  the  applicability  of  the  unbundled  loop  discount  to  loops  used  for 
 advanced  services. 

 717  See  AT&  T  May  5,  2000  Comments  at  5,  7  (arguing  that  the  line  limitations  are  unlawful);  CoreComm  Mar.  1, 

 2000  Comments  at  29  (maintaining  that  the  promotions  likewise  should  apply  to  service  rendered  to  small 
 businesses). 

 718  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14914-  15,  para.  494;  (citing  S.  Conf.  Rep.  No.  104-  230  at  148) 

 (contemplating  that  the  1996  Act  would  promote  facilities-  based,  local  residential  competition). 
 719  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14915,  para.  494. 

 720  Id.  See  also  Bell  Atlantic/  GTE  May  9,  2000  Response  at  3  n.  3  (citing  SBC/  Ameritech  Order,  14  FCC  Rcd  at 
 14892,  para.  440). 
 721  See  Conditions  at  para.  25. 

 722  See  AT&  T  May  5,  2000  Comments  at  3,  4-  7. 
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 transgress  the  Act  or  corresponding  Commission  rules.  723  Specifically,  Bell  Atlantic/  GTE  will 
 implement  the  promotions  by  voluntarily  offering  to  amend  its  interconnection  agreements  with 
 telecommunications  carriers  to  incorporate  the  promotional  terms.  724  Moreover,  Bell 
 Atlantic/  GTE  will  make  this  offer  in  a  nondiscriminatory  manner  to  all  telecommunications 
 carriers  with  which  it  has  an  interconnection  and/  or  resale  agreement  in  any  Bell  Atlantic/  GTE 
 state. 

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

 723  See  47  U.  S.  C.    251(  c)(  3),  (4)(  B)  (nondiscrimination  requirements);  47  C.  F.  R.    51.313(  a)  (requiring 
 nondiscriminatory  access  to  network  elements);  47  C.  F.  R.    51.603(  a)  (requiring  nondiscriminatory  resale);  47 
 C.  F.  R.    51.503(  c)  (providing  that  an  incumbents  rates  shall  not  vary  on  the  basis  of  the  class  of  customers 
 served  by  the  requesting  carrier,  or  the  type  of  services  that  the  requesting  carrier  purchasing  such  elements  uses 
 them  to  provide).  See  also  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14915,  para.  495. 

 724  See  47  U.  S.  C.    252(  a)(  1).  With  Bell  Atlantic/  GTE  voluntarily  offering  to  amend  interconnection  agreements, 

 states  will  not  be  in  the  position  of  putting  the  discount  into  arbitrated  agreements.  Of  course,  the  amended 
 agreements  still  will  be  subject  to  state  commission  approval  of  voluntarily  negotiated  agreements  pursuant  to  47 
 U.  S.  C.    252(  e).  In  this  regard,  we  reject  the  proposal  of  the  Allegiance  Joint  Commenters  that  the  promotional 
 discounts  be  made  automatic,  without  amending  interconnection  agreements.  See  Allegiance  May  5,  2000  Joint 
 Comments  at  6-  7.  As  the  Applicants  aptly  respond,  section  252  requires  inter-  carrier  arrangements  for  UNEs  and 
 resale  to  be  embodied  in  interconnection  agreements.  See  Bell  Atlantic/  GTE  Responses  to  Specific  Conditions 
 Allegations  at  A-  14.  See  also,  e.  g.,  47  U.  S.  C.    252(  e)(  1),  (h),  (i). 

 725  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14915,  para.  496. 

 726  47  U.  S.  C.    252(  a)(  1).  See  Local  Competition  Order,  11  FCC  Rcd  at  15528,  paras.  54,  58  (stating  that 
 parties  that  voluntarily  negotiate  agreements  need  not  comply  with  the  requirements  we  establish  under  sections 
 251(  b)  and  (c),  including  any  pricing  rules  we  adopt). 

 727  47  U.  S.  C.    252(  e)(  2).  The  Supreme  Court  recognized  this  distinction  in  AT&  T  Corp.  v.  Iowa  Utilities  Board, 

 stating:  When  an  entrant  seeks  access  through  [resale,  leasing  of  unbundled  network  elements,  or 
 interconnection],  the  incumbent  can  negotiate  an  agreement  without  regard  to  the  duties  it  would  otherwise  have 
 under  251(  b)  or  (c).  But  if  private  negotiation  fails,  either  party  can  petition  the  state  commission  that  regulates 
 local  phone  service  to  arbitrate  open  issues,  which  arbitration  is  subject  to  251  and  the  FCC  regulations 
 promulgated  thereunder.  AT&  T  Corp.  v.  Iowa  Utilities  Bd.,  525  U.  S.  366,  372-  73  (1999)  (footnote  and  citation 
 omitted). 

 728  See  47  U.  S.  C.    252(  e)(  2)(  A)(  i);  AT&  T  May  5,  2000  Comments  at  7  n.  8. 
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 in  which  Bell  Atlantic/  GTE  will  offer  the  promotions  must  make  its  own  assessment  of  whether 
 the  promotions  are  discriminatory. 

 315.  AT&  T  also  contends  729  that  the  line  limitation  on  the  number  of  discounted  loops 
 and  resale  offerings  that  will  be  made  available  to  competitive  LECs  would  violate  the  pick  and 
 choose  rule  of  section  252(  i),  as  well  as  the  nondiscrimination  requirements  of  section  251(  c)(  3) 
 and  252(  d)(  1).  730  We  note  that,  under  the  specific  terms  of  the  merger  conditions,  these 
 promotions  are  being  offered  to  competitors  in  a  nondiscriminatory  fashion.  Specifically,  in  each 
 of  its  states,  Bell  Atlantic/  GTE  will  offer  the  promotion  simultaneously  to  all  telecommunications 
 carriers  that  have  an  existing  interconnection  and/  or  resale  agreement  with  Bell  Atlantic  and/  or 
 GTE.  This  should  ensure  that  all  competitive  LECs  operating  in  Bell  Atlantic/  GTEs  region  will 
 be  afforded  an  equal  opportunity  to  participate  in  the  promotions.  Moreover,  carriers  that  begin 
 operating  in  Bell  Atlantic/  GTEs  region,  or  decide  to  participate  in  the  promotions,  after  this 
 initial  offer  period  will  have  the  opportunity  to  participate  in  the  offerings,  and  Bell  Atlantic/  GTE 
 will  respond  to  inquiries  by  all  carriers  within  10  business  days.  Finally,  Bell  Atlantic/  GTE  will 
 notify  all  carriers  operating  in  the  state  when  50  percent  and  80  percent  of  the  maximum  lines  in 
 that  state  are  reached. 

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

 317.  Alternative  Dispute  Resolution  Through  Mediation.  As  a  means  of  streamlining 
 and  expediting  resolution  of  carrier-  to-  carrier  disputes,  Bell  Atlantic/  GTE  will  offer 
 telecommunications  carriers,  subject  to  the  appropriate  state  commissions  approval,  an  option  of 
 resolving  interconnection  agreement  disputes  through  an  alternative  dispute  resolution  mediation 
 process  that  may  be  state-  supervised.  This  mediation  process  supplements,  rather  than 
 supersedes,  any  other  options  at  the  carriers  disposal  for  addressing  interconnection  disputes  with 
 Bell  Atlantic  or  GTE,  including  negotiated  dispute  resolution  mechanisms.  We  note  that  no  state 

 729  AT&  T  May  5,  2000  Comments  at  5,  7. 

 730  See  47  C.  F.  R.    51.809(  a)  (implementing  pick  and  choose  rule  of  section  252(  i)).  See  also  47  C.  F.  R.   
 51.313(  a),  51.603(  a).  As  explained  above,  the  nondiscrimination  requirements  of  section  251(  c)  and 
 corresponding  Commission  rules  do  not  apply  to  voluntarily  negotiated  agreements. 
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 or  competitive  LEC  is  required  to  adopt  or  participate  in  this  process.  731  Furthermore,  nothing  in 
 this  condition  in  any  way  limits  the  ability  of  carriers  to  pursue  enforcement  remedies,  including 
 informal  mediation,  at  the  Commission  pursuant  to  section  208.  732 

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

 731  We  also  note,  on  the  other  hand,  that  states  may  choose  to  be  involved  in  multi-  state  mediations  of  similar  or 
 common  issues,  though  such  participation,  as  with  any  state  participation  under  this  condition,  is  completely 
 voluntary.  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14917,  para.  499. 

 732  Cf.  CoreComm  Mar.  1,  2000  Comments  at  49-  50  (Commission  should  establish  an  informal  staff  mediation 

 process  in  order  to  facilitate  resolution  of  interconnection  negotiation  disputes). 
 733  As  with  the  SBC/  Ameritech  Conditions,  the  Chief  of  the  Common  Carrier  Bureau  will  resolve  any  disputes 

 that  may  arise  regarding  the  trial.  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14877  n.  743;  SBC/  Ameritech 
 Conditions,  14  FCC  Rcd  at  15024-  25,  para.  57. 

 734  This  commitment  also  encompasses  new  cables  installed  or  controlled  by  Bell  Atlantic/  GTE  in  a  campus  of 

 garden  apartment  dwelling  units.  There  may  be,  however,  multiple  points  of  entry  where  a  property  owner 
 requests  diversity. 

 735  But  see  Covad  Mar.  1,  2000  Comments  at  19.  Compare  SBC/  Ameritech  Conditions,  14  FCC  Rcd  at  15024-  25, 

 para.  57  (SBC/  Ameritech  to  conduct  trials  in  five  large  cities  and  complete  them  within  two  years  after  the 
 merger  closing)  with  Conditions  at  para.  41. 

 736  See  Bell  Atlantic/  GTE  Response  to  Conditions  Comments  at  26.  The  Applicants  also  submitted  relevant 

 portions  of  the  publicly  available  New  York  tariff  to  Commission  staff,  and  these  submissions  were  placed  in  the 
 Commissions  record  for  this  proceeding  on  June  12,  2000. 

 737  Conditions  at  para.  41. 

 738  See  Bell  Atlantic/  GTE  Response  to  Conditions  Comments  at  26-  27. 
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 apartment  dwellings  will  further  significantly  competitors  access  to  cabling.  739  We  also  note  that, 
 in  addition  to  these  conditions,  Bell  Atlantic/  GTE  must  comply  with  the  rules  that  we  adopted  in 
 the  UNE  Remand  Order  regarding  competitive  LEC  access  to  cabling  at  a  single  point  of 
 interconnection,  located  at  the  minimum  point  of  entry.  740 

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

 320.  Bell  Atlantic/  GTE  will  be  subject  to  voluntary  payments  to  the  U.  S.  Treasury  in 
 the  amount  of  150  percent  of  any  shortfall  in  its  out-  of-  region  expenditure.  Similarly,  the  merged 
 entity  will  pay  150  percent  of  any  amount  by  which  it  falls  short  of  devoting  $250  million  to 
 facilities-  based  service,  though  this  payment  for  inadequate  facilities-  based  service  expenditures 
 will  be  offset  by  half  of  the  amount  of  any  payment  for  a  general  shortfall  in  its  out-  of-  region 
 expenditure.  Bell  Atlantic/  GTE  would  therefore  be  obligated  to  pay  $750  million  for  missing  all 
 of  its  out-  of-  region  entry  requirements.  In  addition,  the  Applicants  have  committed  to  annual 
 benchmarks  under  which  they  must,  pursuant  to  this  condition,  spend  $100  million  or  provide 
 service  over  at  least  50,000  customer  lines  between  the  merger  closing  date  and  the  end  of  the 
 first  year  thereafter,  and  spend  $300  million  or  provide  service  over  at  least  150,000  customer 
 lines  by  the  end  of  the  second  year.  Furthermore,  the  Applicants  have  undertaken  to  devote  at 

 739  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14917,  para.  500. 
 740  See,  e.  g.,  UNE  Remand  Order  at  paras.  168-  70,  226. 
 741  Customer  lines  are  defined  as  including  telephone  access  lines,  xDSL  or  other  lines  used  to  provide  Advanced 
 Services,  cable  lines,  or  other  lines  of  communications  used  to  provide  Competitive  Local  Service.  A  line  subject 
 to  line  sharing  will  be  considered  one  customer  line  even  if  Bell  Atlantic/  GTE,  its  affiliate,  or  the  venture  to  which 
 Bell  Atlantic/  GTE  has  contributed  is  providing  both  the  voice  and  advanced  services.  Where  Bell  Atlantic/  GTE 
 counts  cable  or  fixed  wireless  services  towards  satisfaction  of  the  out-  of-  region  commitment,  each  subscriber  will 
 be  deemed  to  have  one  customer  line. 
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 least  20  percent  of  their  expenditures  or  customer  lines  specifically  towards  providing  competitive 
 local  service  to  residential  customers  or  towards  providing  advanced  services.  These  benchmarks 
 likewise  are  backed  by  voluntary  payments  in  the  amount  of  150  percent  of  any  shortfall,  and 
 these  benchmark  voluntary  payments  will  offset  any  payments  that  the  merged  firm  is  obligated  to 
 make  for  not  completing  its  out-  of-  region  expenditure  by  the  end  of  the  36  month  period 
 following  the  merger  closing. 

 321.  Notwithstanding  the  differences  between  the  Applicants  out-  of-  region 
 competition  commitment  and  SBC/  Ameritechs  National-  Local  Strategy  for  out-  of-  territory 
 competitive  entry,  742  we  disagree  with  AT&  Ts  characterization  of  the  Applicants  commitment  as 
 a  sham.  743  We  believe  that  the  Applicants  out-  of-  region  competition  commitment  is  sufficient 
 to  ensure  that  residential  consumers  and  business  customers  outside  of  Bell  Atlantic/  GTEs 
 territory  will  benefit  from  meaningful,  facilities-  based  competitive  service.  744  We  also  anticipate 
 that  this  condition  will  stimulate  competitive  entry  into  the  Bell  Atlantic/  GTE  region  by  the 
 affected  incumbent  LECs.  Moreover,  the  Applicants  have  proposed  annual  expenditure 
 benchmarks  that  are  backed  by  payments  to  the  U.  S.  Treasury  for  failure  to  meet  the  benchmarks. 
 Although  the  Indiana  commission  maintains  that  it  will  be  difficult  to  ensure  compliance  with  the 
 expenditure  requirements,  745  we  are  confident  that  the  annual  audit  of  Bell  Atlantic/  GTEs 
 compliance  with  all  of  the  conditions  should  uncover  any  non-  compliance  with  the  out-  of-  region 
 expenditure  commitment.  746 

 322.  In  addition,  we  agree  with  the  Applicants  that  we  need  not  implement  the  Indiana 
 Commissions  prescription  that  at  least  half  of  the  out-  of-  region  expenditure  commitment  should 
 be  used  for  local  service.  747  Assuming,  as  the  Applicants  do,  that  by  local  the  Indiana 
 Commission  means  traditional  voice  services,  we  do  not  perceive  the  need  to  impose  such  a 
 restriction.  748  Indeed,  section  706  of  the  1996  Act  mandates  that  the  Commission  encourage 

 742  Compare  SBC/  Ameritech  Conditions,  14  FCC  Rcd  at  15026-  29,  para.  59  (National-  Local  Strategy)  with 
 Conditions  at  paras.  43-  48  (Bell  Atlantic/  GTE  out-  of-  territory  competitive  entry  commitment). 
 743  AT&  T  Mar.  1,  2000  Opposition  at  29.  See  United  States  Hispanic  Chamber  of  Commerce  Mar.  1,  2000 

 Comments  at  4  (  USHCC  considers  the  out-  of-  region  expenditure  condition  a  distinct  benefit  of  the  proposed  Bell 
 Atlantic/  GTE  merger);  World  Institute  on  Disability  Mar.  1,  2000  Comments  at  7  (  Bell  Atlantic  and  GTE  have 
 committed  to  spending  a  substantial  sum  on  out-  of-  territory  competitive  entry). 

 744  See  LCLAA  Mar.  1,  2000  Comments  at  2  (  LCLAA  believes  that  the  $500  million  out-  of-  region  commitment 

 of  the  post-  merger  company  will  open  the  door  to  exactly  the  kind  of  facilities-  based  competition  that  Congress 
 intended  when  it  enacted  the  Telecommunications  Act  of  1996). 

 745  IURC  Mar.  1,  2000  Comments  at  11. 

 746  See  Conditions  at  para.  56. 
 747  But  see  IURC  Mar.  1,  2000  Comments  at  11. 
 748  See  Bell  Atlantic/  GTE  Response  to  Conditions  Comments  at  29. 
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 widespread  deployment  of  advanced  services  nationwide,  749  and  the  Applicants  include  advanced 
 services  among  the  services  that  the  merged  firm  may  deploy  in  attempting  to  satisfy  the  out-  of-region 
 competition  commitment. 

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

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

 325.  Enhanced  Lifeline  Plans.  Designed  specifically  to  ensure  that  the  benefits  of  the 
 merger  extend  to  low-  income  residential  customers  throughout  all  of  Bell  Atlantics  and  GTEs 
 regions,  this  condition  requires  the  merged  firm  to  offer  each  of  its  in-  region  states  a  plan  to 

 749  See  Pub.  L.  104-  104,  Title  VII,    706,  Feb.  8,  1996,  110  Stat.  153,  reproduced  in  the  notes  under  47  U.  S.  C.   
 157  (Section  706). 
 750  But  see  AT&  T  Mar.  1,  2000  Opposition  at  29. 

 751  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  28. 
 752  See  Conditions  at  para.  43.  But  see  AT&  T  Mar.  1,  2000  Opposition  at  29. 
 753  The  Applicants  originally  proposed  to  extend  this  benefit  immediately  in  the  Bell  Atlantic  legacy  states,  and 
 in  the  GTE  legacy  states  only  after  AT&  T  ceased  to  apply  such  charges.  See  Bell  Atlantic/  GTE  Jan.  27,  2000 
 Proposed  Conditions  at  40.  In  response  to  commenters,  however,  the  Applicants  agreed  to  extend  the  benefit 
 throughout  their  combined  service  area  as  of  the  merger  closing  date.  See  Bell  Atlantic/  GTE  Mar.  14,  2000  Ex 
 Parte  Letter  at  2.  See  also  IURC  Mar.  1,  2000  Comments  at  12;  PUC  of  Texas  Mar.  1,  2000  Comments  at  3. 

 754  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14878,  para.  400.  This  requirement  does  not  prohibit  the  merged 

 firm  from  offering  its  customers  an  optional,  voluntary  pricing  plan  that  may  include  a  minimum  monthly  charge, 
 minimum  flat  rate  charge,  or  a  prepaid  calling  card. 
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 provide  discounts  on  basic  local  service  for  eligible  customers.  755  Bell  Atlantic/  GTE  will  offer  a 
 low-  income  Lifeline  universal  service  plan  modeled  after  the  Ohio  Universal  Service  Assistance 
 (USA)  Lifeline  plan  that  Ameritech  and  Ohio  community  groups  negotiated  in  1994  and  later 
 revised  to  adjust  to  the  1996  Act.  It  also  will  incorporate  elements  from  the  December  1998  Ohio 
 Commission  Order  addressing  the  Ohio  USA  plan.  756  Specifically,  Bell  Atlantic/  GTE  will  offer  to 
 provide  a  discount  equal  to  the  price  of  basic  residential  measured  rate  service,  excluding  local 
 usage,  in  each  state,  up  to  a  maximum  discount  of  $10.20  per  month  (including  all  federal,  state 
 and  company  contributions). 

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

 327.  We  reject  the  request  of  the  State  Advocates  that  we  expand  subscriber  eligibility 
 criteria  to  include  all  households  with  income  below  150  percent  of  the  federal  poverty  level,  and 

 755  See  id.  at  para.  401.  State  commissions  are  free  to  accept  or  reject  the  plan  outlined  in  these  conditions.  But 
 see  State  Advocates  Mar.  1,  2000  Comments  at  15-  17  (requesting  that  the  Commission  clarify  that  states  may 
 adopt  the  enhanced  Lifeline  plan  without  reducing  any  benefits  offered  under  existing  state  plans). 

 756  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14878,  para.  401. 

 757  We  note  that  Bell  Atlantic/  GTE  will  provide  these  forms  in  English  and  such  other  languages  as  are  prevalent 
 in  the  applicable  service  area. 
 758  See  Conditions  at  para.  50j  (providing  that  the  obligations  in  this  condition  will  not  take  effect  until  and  unless 

 the  enhanced  Lifeline  tariffs  are  accepted  and  approved  by  a  state  commission)  and  para.  64  (each  condition  is 
 designed  to  yield  at  least  36  months  of  benefit). 
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 that  we  remove  restrictions  on  the  purchase  of  optional  services.  759  As  the  Applicants  respond, 
 states  will  continue  to  have  the  right  to  establish  eligibility  requirements  for  lifeline  service  as  well 
 as  determine  whether  lifeline  customers  are  eligible  to  subscribe  to  optional  services.  760  As  for  the 
 subscriber  eligibility  requirements  themselves,  our  rules  establish  eligibility  criteria  for  states  that 
 have  not  established  their  own,  and  the  eligibility  criteria  in  our  rules  fall  within  the  criteria  in  the 
 Ohio  USA  Lifeline  plan.  761  Furthermore,  we  believe  that  the  eligibility  criteria  alternative 
 presented  by  the  State  Advocates  will  be  difficult  to  verify.  We  find  that  the  Applicants 
 commitment  to  offer  states  an  enhanced  Lifeline  plan  will  provide  substantial  direct  benefits  to 
 low-  income  residential  consumers,  and  thus,  we  see  no  need  to  add  further  requirements  to  the 
 condition.  762 

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

 329.  Bell  Atlantic/  GTE  will  also  file  reports  showing  the  service  quality  provided  to 

 759  But  see  State  Advocates  Mar.  1,  2000  Comments  at  4-  15. 
 760  Bell  Atlantic/  GTE  Response  to  Conditions  Comments  at  31. 
 761  See  47  C.  F.  R.    54.400(  a). 
 762  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14918,  para.  502. 
 763  See  id.  at  14879,  para.  403. 
 764  In  the  Preamble  to  the  Service  Quality  White  Paper,  NARUC  states  that  a  service  quality  reporting  program 
 will  allow  interested  parties  to  assess  current  service  quality  levels  among  the  states,  and  identify  increasing  or 
 decreasing  trends  over  time.  National  Association  of  Regulatory  Utility  Commissioners,  SERVICE  QUALITY  WHITE 
 PAPER  (Nov.  1998);  see  also  National  Regulatory  Research  Institute,  TELECOMMUNICATIONS  SERVICE  QUALITY 
 127-  60  (1996)  (noting  that  information  facilitates  competition  on  quality). 

 765  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14880,  para.  403. 

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

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

 331.  NRIC  Participation.  Through  this  condition,  we  expect  that  Bell  Atlantic/  GTE 
 will  demonstrate  and  further  its  commitment  to  maintain  reliable,  high-  quality  networks  and 
 services,  as  well  as  to  promote  the  deployment  of  advanced  services.  The  Applicants  will 
 continue  their  participation  in  the  Network  Reliability  and  Interoperability  Council  (NRIC),  a 
 committee  organized  to  make  recommendations  to  the  Commission  on  how  to  ensure  optimal 

 767  See  ARMIS  43-  05  Service  Quality  Report,  Table  1.  In  the  ARMIS  43-  05  Service  Quality  Report,  price  cap 
 incumbent  LECs  report  the  installation  and  maintenance  of  switched  access,  high  speed  special  access,  and  special 
 access  services  provided  to  interexchange  carriers. 

 768  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14880,  para.  404. 

 769  See  id. 

 770  The  merged  entity,  therefore,  will  report  on  its  provision  of  these  services  to  all  companies,  including  Internet 
 service  providers,  Internet  backbone  providers  and  interexchange  carriers. 
 771  See  47  C.  F.  R.    43.21(  g);  ARMIS  43-  05  Service  Quality  Report,  Table  1  (establishing  reporting  requirements 
 for  special  access  provided  to  interexchange  carriers). 
 772  For  example,  these  reporting  requirements  attach  to  the  separate  advanced  services  affiliate  if  it  begins  to 
 provision  these  special  access  circuits  to  Genuity. 
 773  We  note  that  average  delay  days  due  to  lack  of  facilities  is  not  currently  reported  through  ARMIS.  See  ARMIS 
 43-  05  Service  Quality  Report,  Table  1. 
 774  See  Conditions  at  para.  55(  f).  As  provided  in  the  Conditions,  Bell  Atlantic/  GTE  shall,  in  consultation  with 
 the  Chief  of  the  Common  Carrier  Bureau,  modify  these  measurements  and  develop  any  applicable  performance 
 measurement  business  rules  to  the  extent  necessary.  Any  developed  business  rules,  once  approved  by  the  Chief  of 
 the  Common  Carrier  Bureau,  will  be  made  publicly  available. 
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 reliability,  interoperability  and  interconnectivity  of,  and  accessibility  to,  the  public 
 telecommunications  networks,  and  also  to  advise  the  Commission  on  spectrum  compatibility 
 standards  and  spectrum  management  practices  for  the  deployment  of  advanced  services 
 technologies.  775  Bell  Atlantic/  GTEs  continued  participation  will  provide  assurance  that  the 
 merged  firm  will  review  the  causes  of  network  outages  and  advise  on  spectrum  compatibility 
 standards  and  spectrum  management  practices  in  a  timely  manner,  and  adopt  industry  best 
 practices  designed  to  promote  reliable,  high  quality  services. 

 5.  Ensuring  Compliance  with  and  Enforcement  of  these  Conditions 
 332.  The  Commission  is  firmly  committed  to  enforcing  the  Communications  Act  and  the 
 public  interest  standard  that  forms  its  foundation.  Attaching  conditions  to  a  merger  without  an 
 efficient  and  judicious  enforcement  program  would  impair  the  Commissions  ability  to  protect  the 
 public  interest.  776  The  conditions  therefore  establish  compliance  and  enforcement  mechanisms  that 
 not  only  will  provide  Bell  Atlantic/  GTE  with  a  strong  incentive  to  comply  with  each  of  its 
 requirements,  but  also  will  facilitate  the  Commissions  oversight  of  the  Applicants  obligations 
 under  these  conditions.  As  a  general  matter,  the  conditions  place  the  responsibility  of  taking 
 active  steps  to  ensure  compliance  on  Bell  Atlantic/  GTE  by:  (1)  establishing  a  self-  executing 
 compliance  mechanism;  (2)  requiring  an  independent  audit  of  the  Applicants  compliance  with  the 
 conditions;  and  (3)  providing  self-  executing  remedies  for  failure  to  perform  an  obligation. 

 333.  Compliance  Program.  For  the  benefits  of  the  conditions  to  outweigh  the  potential 
 public  interest  harms  of  the  merger,  Bell  Atlantic/  GTE  must  take  aggressive  steps  to  implement 
 every  aspect  of  these  conditions  and  to  comply  with  both  the  letter  and  the  spirit  of  its  obligations. 
 In  our  view,  the  benefits  of  these  conditions  depend  entirely  upon  the  Applicants  compliance. 
 Because  the  conditions  that  we  adopt  today  are  spelled  out  in  detail  with  their  satisfaction 
 measured  by  objective  criteria,  and  because  failing  to  comply  with  the  conditions  could  expose 
 Bell  Atlantic/  GTE  to  a  material  loss  of  revenue,  we  believe  that  Bell  Atlantic/  GTE  has  a  strong 
 incentive  to  implement  an  aggressive  and  effective  compliance  program.  777 

 775  Network  Reliability  and  Interoperability  Council,  NRIC  V  Goal  (visited  June  13,  2000)  http://  www.  nric.  org; 
 Revised  Network  Reliability  and  Interoperability  Council    V  Charter  (effective  Jan.  6,  2000).  The  NRIC  is  a 
 federal  advisory  committee  chartered  to  study  the  reliability  of  the  public  telecommunications  network.  See 
 Network  Reliability  and  Interoperability  Council,  NRIC  NETWORK  INTEROPERABILITY:  THE  KEY  TO  COMPETITION 
 (1997).  See  also  Line  Sharing  Order,  14  FCC  Rcd  at  20992-  93,  paras.  184-  85  (establishing  NRICs  advisory 
 function  on  advanced  services  spectrum  compatibility  and  spectrum  management  matters). 

 776  See  NEXTLINK  Mar.  16,  2000  Reply  at  8-  9;  Allegiance  Mar.  1,  2000  Comments  at  9-  10  (recommending 

 independent  audit  of  compliance);  CoreComm  Mar.  1,  2000  Comments  at  46  (supporting  an  audit);  MCI 
 WorldCom  Mar.  1,  2000  Supplemental  Comments  at  19-  20;  NorthPoint  Mar.  1,  2000  Comments  at  10.  See  also 
 SBC/  Ameritech  Order,  14  FCC  Rcd  at  14881,  para.  406. 

 777  A  corporate  compliance  program  is  a  well-  established  technique  for  ensuring  that  an  organization  takes  active 

 steps  to  comply  with  legal  and  regulatory  requirements.  The  Commission  and  others  have  used  compliance 
 programs  as  a  tool  for  addressing  potential  problem  areas.  See  id.  at  14881-  82,  paras.  407-  08.  See  also  SBC 
 Communications,  Order,  FCC  99-  153  (rel.  June  28,  1999);  U.  S.  v.  21  st  Century  Bidding  Corp.,  No.  98-  2752,  1999 
 WL  135165  (D.  D.  C.  Feb.  25,  1999). 
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 334.  As  part  of  the  conditions,  Bell  Atlantic  and  GTE  will  establish  a  corporate 
 compliance  program  to  identify  all  applicable  compliance  requirements,  establish  and  maintain  the 
 internal  controls  needed  to  ensure  compliance,  evaluate  the  merged  firms  compliance  on  an  on-going 
 basis,  and  take  any  corrective  actions  necessary  to  ensure  full  and  timely  compliance.  778  Bell 
 Atlantic/  GTE  will  appoint  a  Compliance  Officer  with  sufficient  rank  and  experience  to  supervise 
 its  corporate  operations  and  to  ensure  that  the  business  units  carry  out  their  responsibilities  under 
 the  conditions.  779  This  Compliance  Officer  will  prepare  and  publicly  file  with  the  Commission  an 
 initial  compliance  plan  and  an  annual  compliance  report  addressing  the  corporations  compliance 
 with  the  conditions  and  the  sufficiency  of  the  corporations  internal  controls  for  ensuring 
 continued  compliance.  780 

 335.  We  expect  that  Bell  Atlantic  and  GTE  will  put  into  place  a  reasonably  designed, 
 implemented,  and  self-  enforced  compliance  program  that  will  detect  potential  noncompliance  in 
 time  for  Bell  Atlantic/  GTE  to  notify  the  Commission  and  take  corrective  action  before  such 
 noncompliance  impairs  the  benefits  of  these  conditions.  To  provide  additional  assurances  to  the 
 public  regarding  Bell  Atlantic/  GTEs  compliance,  however,  the  Commission  plans  to  conduct 
 targeted  audits  of  various  aspects  of  the  Applicants  compliance  programs.  781  Only  a  strong 
 corporate  compliance  program,  in  conjunction  with  the  independent  audit  and  other  enforcement 
 mechanisms,  will  enable  consumers  to  realize  the  full  benefit  of  the  conditions. 

 336.  Independent  Auditor.  Because  the  public  interest  benefit  of  these  conditions 
 depends  entirely  upon  Bell  Atlantic/  GTEs  compliance,  the  conditions  also  establish  an 

 778  Corporate  compliance  programs  should  both  deter  potential  misconduct  within  the  corporation,  and  provide  a 
 method  for  internal  policing.  Components  of  a  corporate  compliance  program  include,  for  example,  corporate 
 conduct  codes,  employee  training,  record-  keeping,  standard  operating  procedures  followed  by  employees, 
 individual  work  assignments,  monitoring  programs,  and  internal  compliance  audits.  See  Richard  S.  Gruner, 
 Designing  Compliance  Programs,  Practicing  Law  Institute:  Corporate  Law  and  Practice  Course  Handbook  Series, 
 1100  PLI/  Corp  151  (1999);  Don  Zarin,  Doing  Business  Under  the  Foreign  Corrupt  Practices  Act:  Compliance 
 Programs,  Practicing  Law  Institute:  Corporate  Law  and  Practice  Course  Handbook  Series,  943  PLI/  Corp  525 
 (1996). 

 779  We  note  that,  as  an  additional  safeguard,  the  Board  of  Directors  of  Bell  Atlantic/  GTE  will  oversee  the 

 activities  of  the  Compliance  Officer.  See  In  re  Caremark  Internatl  Inc.  Derivative  Litigation,  698  A.  2d  959,  967- 
 70  (Del.  Ch.  1996)  (establishing  a  duty  for  corporate  directors  to  implement  an  effective  compliance  program);  see 
 also  Blue  Ribbon  Committee  on  Improving  the  Effectiveness  of  Corporate  Audit  Committees,  REPORT  AND 
 RECOMMENDATIONS  (1999)  (recommending  actions  by  corporate  boards  to  improve  oversight  and  monitoring  of 
 corporate  compliance). 

 780  The  Compliance  Plan  will  describe  Bell  Atlantic/  GTEs  plan  for  ensuring  compliance  with  the  separate 

 affiliate  requirements.  See  BlueStar  et  al.  Mar.  1,  2000  Comments  at  6-  7.  The  Compliance  Report  also  will 
 include  a  statement  of  the  cost-  savings  achieved  during  the  course  of  the  calendar  year  in  order  to  assist  the 
 Commission  and  the  public  in  assessing  any  efficiencies  arising  out  of  this  merger.  This  report  will  constitute,  as 
 required  by  industry  standards,  Bell  Atlantic/  GTEs  written  assertion  regarding  its  compliance  with  the  conditions 
 contained  herein  and  the  effectiveness  of  Bell  Atlantic/  GTEs  internal  control  structure  over  compliance.  See 
 American  Inst.  of  Certified  Pub.  Accountants,  COMPLIANCE  ATTESTATION,  AT    500.01. 

 781  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14882,  para.  409. 
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 independent  oversight  program.  Bell  Atlantic  and  GTE  will  retain  an  independent  auditor  to 
 conduct  an  annual  audit  to  provide  a  thorough  and  systematic  evaluation  of  Bell  Atlantic/  GTEs 
 compliance  with  the  conditions  and  the  sufficiency  of  Bell  Atlantic/  GTEs  internal  controls.  782  We 
 have  ample  experience  using  independent  audits  to  supplement  our  usual  investigative  authority,  783 
 and  have  extensive  experience  with  this  method  for  ensuring  compliance  with  our  rules. 
 Independent  audits,  combined  with  targeted  on-  site  audits  conducted  by  Commission  staff  and 
 thorough  reviews  of  the  auditors  working  papers,  have  proven  largely  successful  in  ensuring 
 compliance  with  the  Commissions  rules.  784 

 337.  Although  the  independent  audit  will  provide  a  systematic  means  of  evaluating  Bell 
 Atlantic/  GTEs  compliance,  we  are  aware  of  inherent  limitations  in  the  audit  process.  785  Most 
 notably,  an  independent  audit  does  not  guarantee  discovery  of  noncompliance  or  illegal  acts.  786 

 782  By  internal  control,  we  mean  the  process  implemented  by  a  companys  board  of  directors,  management,  and 
 other  personnel  designed  to  provide  reasonable  assurance  regarding,  in  this  instance,  the  companys  compliance 
 with  the  requirements  established  in  this  Order  and  all  applicable  laws  and  regulations.  See  American  Inst.  of 
 Certified  Pub.  Accountants,  CONSIDERATION  OF  INTERNAL  CONTROL  IN  A  FINANCIAL  STATEMENT,  AU    319.06 
 (1998);  COMPLIANCE  ATTESTATION,  AT    500.01,  n.  1  (1999).  The  independent  auditor  will  examine,  for  example, 
 Bell  Atlantic/  GTEs  compliance  with,  as  well  as  its  ability  to  administer,  the  requirements  of  the  Carrier-  to-  Carrier 
 Performance  Plan  to  report  accurate  and  relevant  performance  data.  See,  e.  g.,  U.  S.  GAO,  ASSESSING  THE 
 RELIABILITY  OF  COMPUTER-  PROCESSED  DATA,  GAO/  OP-  8.1.3  (Apr.  1991)  (providing  guidance  for  auditing 
 computer-  processed  data).  Strong  internal  controls  are  necessary  both  to  ensure  that  Bell  Atlantic/  GTE  takes 
 affirmative  steps  to  comply  with  the  conditions  and  to  counteract  its  incentive  to  delay  local  competition  in  its 
 region.  Managerial  philosophy,  commitment  to  employee  competence,  ethical  values,  oversight  by  the  board  of 
 directors,  assignment  of  authority,  and  human  resources  practices  work  together  to  provide  the  discipline  and 
 structure  necessary  for  ensuring  compliance  with  the  conditions.  See  American  Inst.  of  Certified  Pub. 
 Accountants,  ATTESTATION  ENGAGEMENTS,  AT    100.11-.  12,  .33-  40;  CONSIDERATION  OF  INTERNAL  CONTROL  IN  A 
 FINANCIAL  STATEMENT,  AU    319. 

 783  See  47  U.  S.  C.    220(  c)  (providing  that  the  Commission  may  obtain  the  services  of  any  person  licensed  to 

 provide  public  accounting  services  under  the  law  of  any  State  to  assist  with,  or  conduct,  audits).  See  also 
 SBC/  Ameritech  Order,  14  FCC  Rcd  at  14882-  84,  14918-  21,  paras.  410-  12,  503-  07;  Separation  of  Costs  of 
 Regulated  Telephone  Services  from  Costs  of  Nonregulated  Activities,  CC  Docket  No.  86-  111,  Report  and  Order,  2 
 FCC  Rcd  1298,  paras.  243-  73  (1987)  (  Joint  Cost  Order),  modified  on  recon.,  2  FCC  Rcd  6283  (1987)  (  Joint 
 Cost  Reconsideration  Order),  further  recon.,  3  FCC  Rcd  6701  (1988),  affd  sub  nom.,  Southwestern  Bell  Corp.  v. 
 FCC,  896  F.  2d  1378  (D.  C.  Cir.  1990).  47  C.  F.  R.    64.904  (requiring  independent  audits  of  cost  allocation 
 procedures),  69.621  (establishing  an  independent  audit  requirement  regarding  certain  universal  service  rules). 
 Besides  the  audits  noted  above,  the  Commission  has  additional  experience  with  independent  evaluations  of 
 structural,  transactional,  and  nondiscrimination  requirements  pursuant  to  the  provisions  of  section  274.  See  47 
 U.  S.  C.    274(  b)(  8);  Accounting  Safeguards  Order,  11  FCC  Rcd  at  17640-  43,  paras.  220-  26. 

 784  See  Computer  III  Remand  Order  at  para.  52.  See  also  Pacific  Bell,  Order  to  Show  Cause,  10  FCC  Rcd 

 5503  (1995),  Consent  Decree  Order,  11  FCC  Rcd  14813  (1996);  US  West  Communications,  Inc.,  Order  to  Show 
 Cause,  10  FCC  Rcd  5523  (1995),  Consent  Decree  Order,  11  FCC  Rcd  14822  (1996);  The  Bell  Atlantic  Telephone 
 Operating  Companies,  Order  to  Show  Cause,  10  FCC  Rcd  5099  (1995),  Consent  Decree  Order,  11  FCC  Rcd 
 14839  (1996). 

 785  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14920,  para.  505. 

 786  See  American  Inst.  of  Certified  Pub.  Accountants,  COMPLIANCE  ATTESTATION,  AT    500.28;  see  also  U.  S. 
 GAO,  GOVERNMENT  ACCOUNTING  STANDARDS    4.17  (1999)  (The  Yellow  Book). 
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 Accordingly,  an  auditors  report  that  fails  to  note  any  exceptions  does  not  preclude  potential 
 enforcement  action.  787 

 338.  Acting  pursuant  to  its  delegated  authority,  the  Common  Carrier  Bureau  will 
 approve  the  independent  auditor  and  oversee  the  conduct  of  the  independent  audit,  which  will 
 include  reviewing  the  scope  and  quality  of  the  auditors  work.  788  The  independent  auditors  final 
 report,  which  will  be  publicly  available,  will  contain  sufficient  detail  for  the  Commission  and  the 
 public  to  understand  the  extent  of  the  auditors  testing  and  evaluation  procedures.  In  addition, 
 the  findings  in  the  auditors  report,  or  the  review  of  the  auditors  working  papers,  could  form  the 
 basis  of  enforcement  actions.  789  Bell  Atlantic/  GTE  and  the  independent  auditor  also  will  meet  for 
 a  post-  audit  conference  to  assess  the  conduct  of  the  audit  and  the  need  for  any  modifications  to 
 the  audit  program.  Based  on  these  requirements,  we  find  that  the  conditions  provide  for  effective 
 Commission  oversight  of  the  audit  process  and  a  mechanism  for  revising  the  audit  programs  and 
 procedures  based  on  our  experience  over  time.  790 

 339.  In  addition  to  examining  compliance  with  the  market-  opening  conditions  described 
 in  this  section,  the  Applicants  proposal  also  calls  for  the  independent  auditor  to  examine  their 
 Internet  spin-  off  proposal.  In  particular,  the  auditor  will  examine  Bell  Atlantic/  GTEs 
 implementation  of  the  Internet  spin-  off  proposal,  as  well  as  their  post-  merger  dealings  with  the 
 spin-  off  entity,  Genuity.  791  In  this  way,  the  Applicants  proposal  ensures  that  the  Commission  and 
 the  public  receive  reasonable  assurances  that  the  spin-  off  will  occur  in  strict  accordance  with  the 
 terms  specified  herein,  and  that  the  merged  entity  will  not  engage  in  any  post-  merger  misconduct 
 that  could  undermine  our  conclusions  in  this  order. 

 340.  The  independent  auditor  will  conduct  its  examination  in  accordance  with  the 
 standards  of  the  American  Institute  of  Certified  Public  Accountants  (  AICPA).  792  Specifically, 

 787  See  MCI  WorldCom  Mar.  1,  2000  Supplemental  Comments  at  19  (noting  that  audits  do  not  guarantee 
 immediate  detection  of  noncompliance);  CompTel  Mar.  1,  2000  Comments  at  4. 
 788  See  47  C.  F.  R.    0.91;  Amendment  of  Parts  0,  1  and  64  of  the  Commissions  Rules  with  Respect  to  Delegation 

 of  Authority  to  the  Chief,  Common  Carrier  Bureau,  and  Technical  Corrections  and  Deletions,  Report  and  Order,  5 
 FCC  Rcd  4601  (1990). 

 789  See  Contel  Telephone  Operating  Companies,  Notice  of  Apparent  Liability  for  Forfeiture,  6  FCC  Rcd  1880 

 (1991)  (initiating  an  enforcement  action  based  on  the  review  of  an  independent  auditors  working  papers). 
 790  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14882-  83,  para.  410. 

 791  The  independent  auditor  will  examine,  for  example,  execution  of  the  contracts  the  Applicants  have  submitted 
 in  this  proceeding  to  ensure  that  the  parties  strictly  abide  by  the  terms  of  the  agreements.  In  addition,  the 
 independent  auditor  will  examine  the  full  relationship  between  Bell  Atlantic/  GTE  and  Genuity,  so  that  if  the 
 merged  entity  engages  in  any  prohibited  or  questionable  transactions,  we  can  expect  disclosure  of  the  pertinent 
 facts  and  potential  enforcement  action. 

 792  The  Commissions  rules  already  require  independent  auditors  to  use  generally  accepted  auditing  standards 

 (  GAAS)  for  conducting  audits  of  an  incumbent  LECs  compliance  with  our  accounting  safeguards.  47  C.  F.  R.   
 64.904(  a);  see  Computer  III  Remand  Proceedings:  Bell  Operating  Company  Safeguards  and  Tier  1  Local 
 (continued.) 
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 the  independent  auditor  will  conduct  a  compliance  attestation,  793  which  requires  issuing  a  report 
 that  expresses  a  conclusion  about  the  reliability  of  a  written  assertion  that  is  the  responsibility  of 
 another  party.  794  For  most  conditions,  the  independent  auditor  will  conduct  this  examination 
 using  the  examination  engagement  795  method  to  evaluate  Bell  Atlantic/  GTEs  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  796  to  evaluate  Bell 
 Atlantic/  GTEs  compliance  with  the  separate  advanced  services  affiliate  requirements.  In  this 
 way,  the  conditions  emulate  the  Federal-  State  joint  audit  required  by  section  272(  d).  797 

 341.  The  independent  audit  requirement  establishes  an  efficient  and  cost-  effective 
 mechanism  for  providing  reasonable  assurances  of  Bell  Atlantic/  GTEs  compliance  with  its 
 obligations  under  the  conditions.  798  Bell  Atlantic/  GTE  is  required  to  inform  the  auditor  of  its 
 progress  at  meeting  the  specific  deadlines  and  requirements  set  forth  in  the  conditions,  which  will 
 enable  the  independent  auditor  to  detect  potential  noncompliance  in  a  timely  manner.  Pursuant  to 
 its  obligations  as  the  designated  auditor,  the  independent  auditor  will  notify  the  Commission 
 immediately  of  the  problem  areas  and  any  corrective  action  undertaken.  799  By  requiring  Bell 
 Atlantic  and  GTE  to  pay  for  the  audit,  the  conditions  place  the  costs  of  compliance  on  the 
 Applicants  instead  of  their  competitors  or  taxpayers.  We  note  that,  pursuant  to  our  regulatory  fee 
 schedule,  Bell  Atlantic/  GTE  will  reimburse  the  U.  S.  Treasury  for  any  review  and  audit  work 

 (Continued  from  previous  page) 
 Exchange  Company  Safeguards,  Report  and  Order,  6  FCC  Rcd  7571,  7582-  83,  para.  24  (1991)  (Computer  III 
 Remand  Order). 

 793  American  Inst.  of  Certified  Pub.  Accountants,  COMPLIANCE  ATTESTATION,  AT    500. 

 794  Id.  at    100.01.  For  the  purposes  of  these  conditions,  we  consider  Bell  Atlantic/  GTEs  annual  Compliance 
 Report  to  be  its  written  assertion.  Consistent  with  AICPA  standards,  the  independent  auditors  report  does  not 
 provide  a  legal  determination  of  [Bell  Atlantic/  GTEs]  compliance  with  the  specified  requirements;  however,  the 
 auditors  findings  may  aid  the  Commission  in  making  such  a  determination.  American  Inst.  of  Certified  Pub. 
 Accountants,  COMPLIANCE  ATTESTATION,  AT    500.03;  see  also  American  Inst.  of  Certified  Pub.  Accountants, 
 ILLEGAL  ACTS  BY  CLIENTS,  AU    317.03. 

 795  See  American  Inst.  of  Certified  Pub.  Accountants,  COMPLIANCE  ATTESTATION,  AT    500.27;  ATTESTATION 
 ENGAGEMENTS,  AT    100.53  (noting  that  an  examination  engagement  is  used  to  reduce  the  attestation  risk  to  a  low 
 level). 

 796  See  American  Inst.  of  Certified  Pub.  Accountants,  COMPLIANCE  ATTESTATION,  AT    500.15-  20;  AGREED-UPON 
 PROCEDURES  ENGAGEMENTS,  AT    600.  An  agreed-  upon  procedures  engagement  is  more  thorough  than  an 
 examination  engagement  because  the  concept  of  materiality  does  not  apply  to  any  reported  findings.  See  American 
 Inst.  of  Certified  Pub.  Accountants,  AGREED-  UPON  PROCEDURES  ENGAGEMENTS,  AT    600.27. 

 797  See  47  U.  S.  C.    272(  d).  See  also  47  C.  F.  R.    53.209-  213;  Accounting  Safeguards  Order,  11  FCC  Rcd  at 

 17628-  32,  paras.  197-  205. 
 798  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14884,  para.  412. 

 799  AICPA  standards  recognize  occasions  in  which  an  independent  auditor  has  a  duty  to  notify  others,  including 
 regulatory  agencies,  of  problems  uncovered  during  an  audit.  See  American  Inst.  of  Certified  Pub.  Accountants, 
 ILLEGAL  ACTS  BY  CLIENTS,  AU    317.23-.  24. 
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 performed  by  the  Commission  staff.  800 
 342.  We  recognize  that  the  state  commissions  have  valuable  insight  into  on-  going  issues 
 and  problems  in  the  telecommunications  industry,  801  and  we  stress  that  the  Commission  will  work 
 closely  with  the  state  commissions  regarding  Bell  Atlantic/  GTEs  compliance  with  these 
 conditions.  Pursuant  to  long-  standing  delegated  authority,  we  expect  the  Common  Carrier 
 Bureau  to  cooperate  with  state  commissions  by  coordinating  compliance  and  enforcement 
 activities  and  sharing  information  gathered  in  the  course  of  audits.  802  Moreover,  we  note  that, 
 under  the  conditions,  Bell  Atlantic/  GTE  will  ensure  that  the  independent  auditor  provides  access 
 to  its  working  papers  to  state  commissions,  thereby  ensuring  that  state  commissions  can  perform 
 their  own  reviews  of  the  audit  work  concerning  the  conditions. 

 343.  Voluntary  Payment  Obligations.  For  many  of  the  conditions,  the  Applicants 
 proposed  a  voluntary  incentive  payment  structure,  which  could  expose  Bell  Atlantic/  GTE  to 
 significant  financial  liability,  if  the  merged  firm  fails  to  satisfy  an  obligation  in  a  timely  manner. 
 For  example,  as  described  above,  under  its  out-  of-  region  competition  commitment,  Bell 
 Atlantic/  GTE  will  make  voluntary  incentive  payments,  valued  at  a  maximum  of  $750  million,  for 
 missing  the  targets  specified  in  the  condition.  In  addition,  Bell  Atlantic/  GTE  will  incur  similar 
 voluntary  payment  obligations  for  failing  to  provide  service  to  competitive  LECs  that  meets  the 
 standards  of  the  Carrier-  to-  Carrier  Performance  Plan  (up  to  a  total  of  $1.  64  billion  over  three 
 years,  with  an  offset  for  early  OSS  deployment),  and  for  failing  to  meet  the  deployment  schedule 
 for  its  OSS  enhancements  (up  to  a  total  of  $20  million).  We  expect  that  the  size  and  scope  of 
 these  potential  voluntary  payments  will  provide  a  strong  incentive  for  Bell  Atlantic/  GTE  to  ensure 
 that  it  fully  complies  with  both  the  letter  and  the  spirit  of  the  conditions.  803  The  conditions 
 recognize  that  Bell  Atlantic/  GTE  is  strictly  liable  for  making  any  and  all  payments  arising  out  of 
 its  nonperformance.  804  Moreover,  failing  either  to  satisfy  the  underlying  obligation  or  to  make 
 timely  voluntary  payments  will  subject  the  Applicants  to  potential  liability  in  the  same  way  Bell 
 Atlantic/  GTE  would  be  liable  for  violating  any  other  Commission  order,  rule,  or  regulation. 

 800  47  C.  F.  R    1.1105. 
 801  See  47  U.  S.  C.    410(  b)  (authorizing  the  Commission  to  confer  with  State  commissions  regarding 
 telecommunications  policy  matters  and  to  avail  itself  of  such  cooperation,  services,  records,  and  facilities  as  may 
 be  afforded  by  any  State  commission). 

 802  See  47  C.  F.  R.    0.291(  b).  To  improve  operating  and  administrative  efficiency,  the  Commission  delegated 

 authority  to  the  Common  Carrier  Bureau  to  coordinate  compliance  and  enforcement  activities  with  state 
 commissions  when:  (i)  there  is  a  shared  policy  interest,  and  (ii)  the  states  have  processes  for  protecting  confidential 
 information.  Amendment  of  Parts  0,  1,  and  64  of  the  Commissions  Rules  with  Respect  to  Delegation  of  Authority 
 to  the  Chief,  Common  Carrier  Bureau,  Report  and  Order,  5  FCC  Rcd  4601  (1990);  Delegation  of  Authority  to  the 
 Chief,  Common  Carrier  Bureau,  Memorandum  Opinion  and  Order,  50  Fed.  Reg.  18487-  03  (1985),  on 
 reconsideration,  104  FCC  2d  733  (1986). 

 803  See  NEXTLINK  Mar.  16,  2000  Reply  at  19;  NorthPoint  Mar.  1,  2000  Comments  at  10  (advocating  monetary 

 penalties  to  ensure  compliance). 
 804  The  Commission  may,  however,  grant  a  waiver  of  Bell  Atlantic/  GTEs  voluntary  payment  obligation  if  Bell 

 Atlantic/  GTE  can  demonstrate  that  the  failure  was  due  to  an  Act  of  God. 
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 344.  We  expect  that  Bell  Atlantic/  GTE  will  take  all  necessary  measures,  such  as 
 amending  tariffs  and  interconnection  agreements,  to  give  the  conditions  their  full  legal  effect  in  a 
 timely  manner.  Although  we  note  that  the  Commission  may  grant  an  extension  of  time  for  a 
 requirement  under  the  conditions,  Bell  Atlantic/  GTE  bears  a  heavy  burden  of  demonstrating  good 
 cause.  805  We  expect  that  this  heavy  burden  of  persuasion,  coupled  with  the  compliance 
 mechanisms  and  significant  financial  exposure,  will  ensure  that  the  public  enjoys  the  full  benefits 
 of  these  conditions  in  a  timely  manner.  We  also  expect  that  the  self-  executing  remedial  measures, 
 such  as  Bell  Atlantic/  GTEs  voluntary  incentive  payment  obligations,  will  limit  any  delay  arising 
 from  extensive  litigation  arising  from  potential  violations. 

 345.  Other  Mechanisms.  We  emphasize  that  the  enforcement  and  compliance 
 programs  established  in  these  conditions  in  no  way  supersede  or  replace  the  Commissions 
 enforcement  and  investigative  powers,  but  merely  supplement  our  usual  processes.  The 
 Commission  may,  at  its  discretion  and  subject  to  its  normal  procedures,  take  additional 
 enforcement  action  against  Bell  Atlantic/  GTE  for  failing  to  comply  with  any  provision  of  this 
 Order,  including  extending  the  sunset  provisions,  imposing  fines  and  forfeitures,  806  issuing  cease-and- 
 desist  orders,  modifying  the  conditions,  807  awarding  damages,  808  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.  809  We  do  not  expect  that  any  enforcement  penalties  or 
 compliance  mechanisms  will  become  merely  an  acceptable  cost  of  doing  business,  and  we  note 
 that  the  conditions  require  all  such  costs  to  be  excluded  from  Bell  Atlantic/  GTEs  rates.  In  this 
 way,  the  enforcement  plan  rightly  ensures  that  consumers  will  not  be  forced  to  bear  the  costs  of 
 Bell  Atlantic/  GTEs  mistakes. 

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

 347.  Effect  of  The  Conditions.  As  discussed  above,  these  conditions  are  intended  to  be 
 a  floor  and  not  a  ceiling.  810  The  Applicants  must  abide  by  state  rules,  even  though  the  rules  may 

 805  See  47  C.  F.  R.    1.3. 
 806  47  U.  S.  C.    503. 
 807  47  U.  S.  C.    316,  416(  b). 
 808  47  U.  S.  C.    209. 
 809  See  CompTel  Mar.  1,  2000  Comments  at  4. 
 810  See  NorthPoint  Mar.  1,  2000  Comments  at  11. 
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 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  states  review 
 of  the  proposed  merger.  811  To  the  extent  that  a  requirement  in  these  conditions  duplicates  a 
 requirement  imposed  by  a  state  such  that  these  conditions  and  state  conditions  grant  parties 
 similar  rights  against  Bell  Atlantic/  GTE,  the  affected  parties  must  elect  either  to  receive  the 
 benefit  under  either  these  conditions  or  state  law.  For  example,  Bell  Atlantic/  GTE  will  not  be 
 required  to  provide  two  promotional  loop  discounts  simultaneously  for  the  same  loop.  If,  on  the 
 other  hand,  Bell  Atlantic/  GTE  fails  to  meet  a  stated  performance  standard  under  the  Carrier-  to-Carrier 
 Performance  Plan  for  a  measurement  that  is  replicated  in  a  state  performance  plan,  Bell 
 Atlantic/  GTE  would  face  repercussion  under  both  plans. 

 348.  Although  the  merged  firm  will  offer  to  amend  interconnection  agreements  or  make 
 certain  other  offers  to  state  commissions  in  order  to  implement  several  of  the  conditions,  nothing 
 in  the  conditions  obligates  carriers  or  state  commissions  to  accept  any  of  Bell  Atlantic/  GTEs 
 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. 

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

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

 351.  We  find  that,  while  not  substituting  fully  for  the  loss  of  direct  competition  between 
 Bell  Atlantic  and  GTE,  the  conditions  we  adopt  will  significantly  mitigate  any  potential  public 
 interest  harms.  After  the  merger,  these  conditions  require  the  merged  firm  to  open  its  markets  to 
 others  while  at  the  same  time  entering  markets  outside  of  its  region.  Specifically,  the  conditions 
 require  the  merged  Bell  Atlantic/  GTE  to  spend  at  least  $500  million  and/  or  provide  service  over 
 at  least  250,000  lines  as  a  competitive  LEC,  offering  voice  and/  or  advanced  services,  in  out-  of- 

 811  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14857,  para.  358. 
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 region  markets  starting  at  the  mergers  closing  at  completing  the  commitment  within  36  months 
 thereafter.  These  conditions  are  punctuated  by  annual  milestones  during  the  commitment  period, 
 under  which  Bell  Atlantic/  GTE  must  achieve  at  least  20  percent  of  each  milestone  through 
 providing  service  to  residential  customers  or  providing  advanced  services.  Furthermore,  the 
 Applicants  have  agreed  to  voluntary  incentive  payments  totaling  150  percent  of  any  shortfall  in 
 their  expenditures  under  these  conditions.  Thus,  the  merged  firm  will  face  notable  economic 
 repercussion  if  it  fails  to  achieve  a  certain  level  of  entry  into  out-  of-  region  residential  and/  or 
 advanced  services  markets  according  to  a  specified  implementation  schedule.  These  benefits  to 
 some  extent  counterbalance  the  loss  of  direct  competition  between  Bell  Atlantic  and  GTE, 
 particularly  if  the  outcome  of  Bell  Atlantic/  GTEs  implementation  of  the  conditions  is  faster 
 retaliation  within  its  home  region  by  the  incumbent  LECs  whose  home  territories  the  merged  firm 
 invades.  812 

 352.  Further,  by  reducing  the  risk  and  costs  associated  with  entry  into  Bell  Atlantic  and 
 GTE  territories,  particularly  with  respect  to  residential  and  advanced  services  markets,  other 
 conditions  stimulate  entry  into  these  markets,  thereby  offsetting  the  loss  of  potential  competition 
 between  the  Applicants  resulting  from  the  merger.  Several  conditions  lower  the  entry  barriers  in 
 the  Bell  Atlantic  and  GTE  regions,  especially  for  residential  competition.  For  example,  we 
 anticipate  that  the  carrier-  to-  carrier  promotions  for  residential  service  will  spur  other  entities  to 
 enter  these  markets  and  establish  a  presence  in  residential  markets  that  can  be  sustained  after 
 expiration  of  the  promotional  discounts.  813  In  addition,  Bell  Atlantic/  GTEs  most-  favored  nation 
 obligations,  which  cover  certain  arrangements  that  the  company  obtains  as  a  competitive  LEC 
 outside  its  region  as  well  as  arrangements  imported  from  other  in-  region  states,  and  its  agreement 
 to  enter  into  multi-  state  interconnection  agreements  should  assist  competitors  in  entering  new 
 markets  within  the  Bell  Atlantic/  GTE  region.  Similarly,  the  Carrier-  to-  Carrier  Performance  Plan 
 will  provide  competing  carriers  with  additional  protections  by  strengthening  Bell  Atlantic/  GTEs 
 incentive  to  provide  quality  of  service  at  least  equivalent  to  the  merged  firms  retail  operations  or 
 a  benchmark  standard.  These  conditions  and  others  make  competition  in  Bell  Atlantic/  GTEs 
 region  more  likely,  thereby  offsetting  in  part  the  competitive  threat  that  each  Applicant  posed  to 
 the  other. 

 2.  Mitigating  Harm  from  Loss  of  Benchmarks 
 353.  As  indicated  above,  by  removing  a  major  incumbent  LEC,  the  merger  of  Bell 
 Atlantic  and  GTE  would  result  in  fewer  sources  of  diversity  and  experimentation  at  the  holding 
 company,  operating  company,  and  industry  level  from  which  regulators  and  competitors  could 
 draw  comparisons  particularly  useful  in  implementing  the  1996  Acts  pro-  competitive  mandates. 
 We  doubt  that  any  set  of  conditions  could  substitute  fully  for  the  loss  of  one  of  the  few  remaining 
 major  incumbent  LEC  benchmarks.  The  harm  from  diminution  of  the  field  for  such  comparative 

 812  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14877,  14887,  paras.  398,  421. 
 813  Thus,  we  disagree  with  WorldComs  assessment  that  [  t]  he  low  caps  and  restrictions  associated  with  the 
 promotions  render  any  benefits  insignificant.  The  promotional  scheme  would  allow  [competitive  LECs]  to 
 compete  (for  a  limited  and  uncertain  time)  for  only  a  small  portion  of  the  market  using  the  promotional  rate  for 
 unbundled  local  loops  and  resold  services.  WorldCom  May  5,  2000  Further  Supplemental  Comments  at  7. 
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 practices  analyses,  however,  to  some  extent  is  mitigated  by  conditions  that  entail  the  spread  of 
 best  practices  throughout  the  merged  firms  service  areas,  or  that  require  the  reporting  of 
 information  regarding  the  incumbents  networks  and  performance  that  is  useful  to  regulators  and 
 competitors. 

 354.  We  anticipate  that  several  conditions  will  require  the  merged  firm  to  spread  best 
 practices  throughout  its  region,  viewed  as  a  whole  or  as  two  distinct  parts  based  on  legacy  Bell 
 Atlantic  and  GTE  service  areas.  Significantly,  best  practices,  as  we  use  the  phrase  here,  will  be 
 identified  in  full  or  in  part  by  the  Applicants  customers  and  regulators,  not  by  Bell  Atlantic  and 
 GTE.  In  this  regard,  by  affording  competitive  LECs  input  into  Bell  Atlantic  and  GTEs  ultimate 
 OSS  commitments  under  these  conditions,  the  OSS  collaborative  process  should  lead  to  an 
 agreement  that  represents  best  practices.  814  Specifically,  the  stipulation  in  the  conditions  that  Bell 
 Atlantic/  GTE  and  competitive  LECs  will  seek  to  reach  agreement  on  issues  raised  in 
 collaboratives,  and  that  competitive  LECs  can  request  a  collaborative  process  where  none  is 
 specified  in  the  Plan  of  Record,  offers  assurance  that  the  merged  firm  ultimately  will  take  into 
 account  practices  of  certain  operating  companies  that  other  carriers  have  found  useful  or 
 beneficial  in  establishing  the  substance  and  implementation  of  OSS.  In  addition,  the  Applicants 
 commitment  to  rely  on  OSS  industry  standards  for  application-  to-  application  interfaces,  data 
 formatting  specifications,  and  transport  and  security  protocols  entails  extending  best  practices,  as 
 determined  by  industry  consensus  standards  groups,  throughout  the  Bell  Atlantic/  GTE  region. 

 355.  The  conditions  requiring  Bell  Atlantic/  GTE  to  continue  participation  in  the  NRIC 
 similarly  will  encourage  best  practices  based  on  industry  concordance.  The  NRIC,  whose 
 composition  represents  a  balancing  of  industry  interests,  815  issues  periodic  reports  concerning  the 
 reliability  of  public  telecommunications  network  services,  and  regularly  compiles  detailed  lists  of 
 industry  best  practices  designed  to  reduce  the  number  and  scope  of  network  outages.  Through  its 
 continued  participation  in  the  NRIC,  we  fully  expect  Bell  Atlantic/  GTE  to  study  and,  to  every 
 extent  possible,  implement  the  industry  best  practices  for  network  reliability.  In  this  way,  we 
 anticipate  that  Bell  Atlantic/  GTE  will  be  able  to,  at  a  minimum,  maintain  a  high  state  of  reliability 
 after  the  merger  and  take  aggressive  steps  to  address  network  reliability  in  those  areas  where  the 
 company  may  need  improvement. 

 356.  Other  examples  of  conditions  that  we  anticipate  will  require  the  merged  entity  to 
 spread  best  practices  include  the  uniform  OSS  change  management  process,  most-  favored  nation 
 provisions,  and  Lifeline  plan.  Bell  Atlantic/  GTE  will  adopt  in  each  of  its  states  the  current  Bell 
 Atlantic  change  management  process  originally  developed  through  collaboratives  with 
 competitive  LECs  in  New  York.  As  we  note  above,  competitive  LECs  favor  implementation  of 
 this  change  management  process,  and  they  may  seek  to  improve  it  even  further  through  the 
 collaborative  process.  816  Both  the  out-  of-  region  and  in-  region  most-  favored  nation  requirements 

 814  As  we  discuss  above,  such  best  practices,  for  instance,  may  reflect  a  balance  between  maximizing  OSS 
 uniformity  and  not  diminishing  functionality  or  flow-  through.  See  supra  n.  651. 
 815  See  Line  Sharing  Order,  14  FCC  Rcd  at  20995,  para.  188. 

 816  See  supra  paras.  286-  88. 
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 are  designed  explicitly  to  assure  carriers  some  ability  to  obtain  beneficial  arrangements,  whether 
 specifically  requested  by  Bell  Atlantic/  GTE  as  an  out-  of-  region  competitor  or  simply  offered  by 
 the  firm  in  an  in-  region  state,  throughout  the  merged  firms  service  area.  And  the  merged  firm 
 will  offer  to  each  of  its  in-  region  states  a  Lifeline  plan  based  on  features  of  the  Ameritech  Ohio 
 plan. 

 357.  Aside  from  the  spread  of  best  practices,  the  conditions  also  help  ameliorate  any 
 potential  loss  of  observable  information  to  regulators  and  competitors.  In  particular,  the  Carrier-to- 
 Carrier  Performance  Plan  will  generate  valuable  information  for  regulators  and  competitors  for 
 use  in  implementing  and  enforcing  the  Communications  Act.  The  Performance  Plan  is  even  more 
 beneficial  with  respect  to  measuring  the  performance  of  the  GTE  legacy  companies  because,  as  a 
 non-  BOC,  GTE  is  not  subject  to  a  performance  plan  arising  typically  from  the  process  of  seeking 
 authority  to  provide  in-  region,  interLATA  services  under  section  271.  817  Moreover,  the  GTE-specific 
 performance  plan  in  California  notwithstanding,  GTE  may  not  otherwise  be  subject  to 
 performance  plans  at  the  state  level.  The  merged  firm  will  also  continue  to  report  ARMIS  data 
 separately  for  each  of  its  operating  companies,  and  will  now  report  such  data  on  a  quarterly  basis. 
 The  requirement  that  the  Applicants  develop  and  file  state-  by-  state  service  quality  reports  in 
 accordance  with  the  recommendations  of  the  NARUC  Technology  Policy  Subgroup  will  facilitate 
 comparative  practices  analysis  by  providing  additional  data  for  this  Commission  and  state 
 commissions  in  carrying  out  their  statutory  responsibilities  and  in  detecting  potential  violations  of 
 the  Communications  Act.  The  Applicants  also  are  obligated  under  the  conditions  to  provide 
 quarterly  state-  specific  service  quality  reports  regarding  the  quality  of  services  provided  to 
 interexchange  carriers,  and  to  file  a  statement  of  the  cost  savings  associated  with  the  merger. 

 358.  In  addition  to  spreading  best  practices  and  helping  to  redeem  potentially  lost, 
 valuable,  observable  information,  some  conditions  will  help  to  offset  the  potential  loss  of  future 
 diversity  and  experimentation  resulting  from  the  merger.  For  example,  through  their  out-  of-region 
 competitive  entry  commitment,  Bell  Atlantic  and  GTE  could  deploy,  and  experiment  in  the 
 provision  of,  different  forms  of  advanced  services.  818  Or,  Bell  Atlantic/  GTE  could  put  into  service 
 in  out-  of-  region  markets  some  of  the  $550  million  in  dark  fiber  that  Bell  Atlantic  has  committed 
 to  lease  from  Metromedia  Fiber  Network,  Inc.,  in  which  Bell  Atlantic  also  has  a  substantial  equity 
 investment.  819  Though  the  Applicants,  notwithstanding  the  aforementioned  examples  of  what  they 
 could  do,  do  not  specify  precisely  how  they  will  fulfill  their  out-  of-  region  competitive  entry 
 commitment,  this  lack  of  precision  is  due  to  their  wanting,  as  a  merged  firm,  to  be  able  to  invest 
 in  the  newest  technologies  available  to  compete  in  the  local  market  and  provide  innovative 

 817  See  generally  Application  by  Bell  Atlantic  New  York  for  Authorization  Under  Section  271  of  the 
 Communications  Act  to  Provide  In-  Region,  InterLATA  Service  in  the  State  of  New  York,  CC  Docket  No.  99-  295, 
 Memorandum  Opinion  and  Order,  15  FCC  Rcd  3953,  4164-  65,  para.  429  (1999). 

 818  See  generally  Line  Sharing  Order,  14  FCC  Rcd  at  20915,  20946,  21000,  paras.  3  n.  5,  71,  197. 

 819  See  Bell  Atlantic/  GTE  Response  to  Conditions  Comments  at  27-  28. 
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 services  and  options  to  its  new  customers.  820 
 3.  Mitigating  Harm  from  Potential  Increased  Discrimination 
 359.  We  find  that  several  commitments  will  alleviate  the  concern  that  the  merged  firm 
 will  use  its  combined  size  and  market  power  to  discriminate  more  effectively  against  its  rivals  in 
 its  in-  region  markets  for  local  services  as  well  as  advanced  services.  The  conditions  that  we  adopt 
 today  are  carefully  targeted  at  the  types  of  discrimination  the  merger  was  otherwise  most  likely  to 
 engender.  Moreover,  they  substantially  reduce  entry  barriers  to  the  merged  entitys  region. 

 360.  The  combined  entitys  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.  821  The  requirements  that  the  merged  firm 
 provide  such  services  through  a  separate  affiliate,  and  comply  with  reporting  and  performance 
 obligations,  decreases  the  ability  of  Bell  Atlantic/  GTE  to  discriminate  successfully,  and  thereby 
 neutralizes  some  of  Bell  Atlantic/  GTEs  increased  incentive  to  discriminate  with  respect  to 
 advanced  services.  Significantly,  the  merged  entity  will  have  to  treat  rival  providers  of  advanced 
 services  the  same  way  that  it  treats  its  own  separate  advanced  services  affiliate. 

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

 362.  The  Carrier-  to-  Carrier  Performance  Plan  also  partially  alleviates  the  Applicants 
 increased  incentive  and  ability  to  discriminate  against  rivals  following  the  merger.  By  requiring 
 the  merged  firm  to  report  results  of  18  performance  measures,  and  achieve  the  agreed-  upon 
 standard  or  voluntarily  make  incentive  payments,  the  plan  provides  heightened  incentive  for  the 
 company  not  to  discriminate  in  ways  that  would  be  detected  through  the  measures.  Competing 
 carriers  operating  in  or  contemplating  entry  into  Bell  Atlantic/  GTE  territory  will  have  an  increased 

 820  Id.  at  28.  LCLAA  also  comments  specifically  on  the  innovative  benefits  which  may  ensue  from  the 
 Applicants  out-  of-  region  competitive  entry  conditions: 

 Bell  Atlantic  and  GTEs  determination  to  enter  markets  nationwide  will  eventually  guarantee 
 countless  consumers  access  to  a  range  of  competitive  alternatives  for  local,  long  distance, 
 wireless  and  advanced  services  .  .  .  Additionally,  because  this  expansion  will  not  be  tied  to  the 
 use  of  a  specific  telecommunications  technology,  the  merged  company  will  be  free  to  implement 
 the  most  advanced  solutions  as  its  buildout  moves  forward  and,  thus,  provide  the  most  capable 
 systems  available  in  the  marketplace. 

 LCLAA  Mar.  1,  2000  Comments  at  2. 
 821  See  supra  Section  VI.  D.  2.  a  (increased  discrimination  in  provision  of  Advanced  Services). 
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 measure  of  confidence  that  the  company  will  not  engage  in  discrimination  that  would  be  detected 
 through  such  measures.  Moreover,  if  the  results  reveal  unequal  treatment,  the  voluntary  payment 
 scheme  will  create  a  direct  economic  incentive  for  Bell  Atlantic/  GTE  to  cure  performance 
 problems  quickly.  822 

 363.  The  Carrier-  to-  Carrier  Performance  Plan  is  designed  specifically  to  permit 
 monitoring  for  discriminatory  conduct  in  Bell  Atlantic/  GTEs  provision  of  elements  and  services 
 utilized  in  providing  advanced  services.  For  instance,  the  line  sharing  provisioning  measurement 
 or  sub-  measurement  that  Bell  Atlantic/  GTE  is  required  to  propose  and  implement  after  the  merger 
 closing  date  823  is  designed  specifically  to  address  the  needs  of  advanced  services  providers.  For 
 many  of  the  other  measures,  data  will  be  reported  distinctly  for  DSL  loops.  The  availability  of 
 this  information  will  assist  entities  that  are  contemplating  providing  advanced  services  in  the  Bell 
 Atlantic/  GTE  region,  as  well  as  helping  carriers  already  operating  in  the  region  to  monitor  and 
 address  any  potential  increased  discrimination. 

 364.  As  explained  above,  with  Bell  Atlantics  new  access  to  customer  accounts  in 
 GTEs  region  (e.  g.,  New  York  business  customers  with  branch  offices  in  Los  Angeles),  and  vice-versa, 
 the  merged  firm  gains  an  advantage  in  servicing  multi-  location  business  customers. 
 Allowing  competitors  to  import  most-  favored  nation  arrangements  across  Bell  Atlantic/  GTEs  in-region 
 states  helps  to  safeguard  against  this  increased  potential  for  discrimination  while  reducing 
 the  merged  firms  advantage  of  servicing  multi-  location  customers.  824  Furthermore,  the 
 Applicants  have  bolstered  the  strength  of  the  most-  favored  nation  commitments  themselves  by 
 permitting  carriers  to  opt  into  arbitrated  as  well  as  voluntarily  negotiated  agreements. 

 365.  The  enforcement  mechanisms  contained  in  these  conditions  also  will  aid  in  the 
 detection  of  discriminatory  behavior  by  Bell  Atlantic/  GTE.  In  particular,  the  conditions  require 
 the  more  thorough  type  of  audit,  an  agreed-  upon  procedures  engagement,  for  the  separate 
 advanced  services  affiliate  provisions.  Like  the  section  272(  d)  audit,  the  independent  auditor  will 
 conduct  a  systematic  and  thorough  examination  into  Bell  Atlantic/  GTEs  compliance  with  the 
 structural,  transactional,  nondiscrimination  and  other  requirements  of  the  separate  advanced 
 services  affiliate.  By  pushing  the  due  date  of  the  independent  auditors  separate  affiliate 
 compliance  report  to  four  months  earlier  than  the  due  date  committed  to  by  SBC/  Ameritech,  825 
 the  audit  provisions  in  Bell  Atlantic/  GTEs  conditions  yield  a  greater  benefit  in  that  they  expedite 
 the  availability  to  regulators  and  competitors  of  precious  information  for  detection  of 
 discriminatory  behavior. 

 822  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14890,  para.  432. 
 823  See  Conditions  at  para.  9. 
 824  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14891,  para.  434. 
 825  Compare.  id.  at  15034-  36,  paras.  66-  67  (September  1  annual  due  date  under  SBC/  Ameritech  conditions)  with 
 Conditions  at  para.  57  (May  1  annual  due  date  under  Bell  Atlantic/  GTE  conditions). 
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 4.  Additional  Benefits  from  Conditions 
 366.  While  these  conditions  mitigate,  in  many  important  ways,  the  potential  public 
 interest  harms  of  the  proposed  transaction,  we  also  find  that  the  conditions  will  result  in 
 affirmative  public  interest  benefits  that  tip  the  public  interest  balance  of  the  proposed  transaction 
 in  the  Applicants  favor.  Collectively,  these  conditions  will,  we  believe,  create  momentum  for 
 increasing  competition  and  choice  in  telecommunications  markets  inside  and  outside  Bell 
 Atlantics  and  GTEs  territories. 

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

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

 369.  Fostering  Out-  of-  Territory  Competitive  Entry.  GTE  already  has  an  established 
 and  operational  competitive  LEC  with  approximately  60,000  local  customers  outside  its  local 
 service  territory,  and  has  invested  significant  sums  in  OSS  and  other  assets  needed  to  compete 
 outside  its  traditional  local  service  areas.  826  While  these  conditions  thus  do  not  alter  the  basic  fact 
 that  the  parties  do  not  need  to  merge  in  order  to  form  out-  of-  region  competitive  LECs,  the 
 conditions  do,  however,  reinforce  the  likelihood  and  increase  the  magnitude  of  a  post-  merger  out-of- 
 region  entry  strategy.  These  certainly  enhance  the  public  interest. 

 370.  Lower  Entry  Barriers  for  Residential  Competition.  In  broad  terms,  we  anticipate 
 that  the  conditions  will  prove  beneficial  in  jumpstarting  residential  competition  by  lowering  entry 
 barriers  for  residential  competition.  For  instance,  the  carrier-  to-  carrier  promotions  are  designed 
 specifically  to  induce  more  entry  into  residential  markets  quickly.  Other  conditions,  such  as  those 
 regarding  collocation  and  UNE  compliance,  Carrier-  to-  Carrier  Performance  Plan,  most-  favored 
 nation  arrangements,  and  multi-  state  interconnection  agreements  will,  in  our  judgment,  greatly 
 reduce  the  costs  of  entry  over  the  long  run.  In  addition,  the  commitment  to  reform  the  process  of 

 826  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  10;  Bell  Atlantic/  GTE  Gould/  Young  Joint  Decl. 
 at  paras.  3-  4. 
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 cabling  new  multi-  tenant  dwellings  and  business  properties  will  increase  access  to  customers  by 
 competitors  not  otherwise  relying  on  the  incumbents  wireline  network. 

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

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

 C.  Other  Requested  Conditions  or  Modifications  to  Proffered  Conditions 
 373.  Access  to  Advanced  Services  Loop  Information.  In  approving  the  merger  between 
 SBC  and  Ameritech,  we  adopted  conditions  designed  to  promote  rapid  deployment  of  advanced 
 services  by  ensuring  that  carriers  have  nondiscriminatory  access  to  certain  specified  information 
 for  loop  qualification  purposes,  in  order  to  make  informed  decisions  about  whether  and  how  they 
 can  provide  advanced  services  to  a  customer  at  a  given  location.  827  Certain  commenters  request 
 that  we  adopt  the  same  requirements  with  respect  to  Bell  Atlantic/  GTE.  828  We  agree  with  the 
 Applicants,  however,  that  such  conditions  are  unnecessary  in  the  instant  merger  because, 
 subsequent  to  our  adoption  of  the  SBC/  Ameritech  merger,  we  addressed  this  issue  in  the  UNE 
 Remand  Order  and  imposed  appropriate  requirements.  829 

 827  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14865-  66,  paras.  373-  74;  SBC/  Ameritech  Conditions,  14  FCC  Rcd 
 at  14997-  98,  paras.  19-  20. 
 828  See  CoreComm  Mar.  1,  2000  Comments  at  45  (further  seeking  implementation  of  these  commitments  on  the 

 merger  closing  date);  Covad  Mar.  1,  2000  Comments  at  15-  16. 
 829  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  18  n.  12;  UNE  Remand  Order  at  paras.  426-  431. 
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 374.  Restructuring  of  OSS  Charges.  Other  conditions  that  we  adopted  in  approving  the 
 merger  between  SBC  and  Ameritech  included  requirements  that  the  merged  firm  recover 
 electronic  OSS  costs  on  a  strict  usage  basis  rather  than  through  a  flat  monthly  fee,  thereby 
 eliminating  any  flat-  rate,  up-  front  charge  for  the  right  to  use  the  companys  standard  electronic 
 interfaces  for  accessing  OSS.  We  explained  that  such  conditions  were  necessary  to  that  merger 
 because  SBC  charged  a  flat  monthly  fee  for  access  to  electronic  OSS,  and  commenting  parties 
 feared  that  SBC  would  spread  this  practice  to  Ameritechs  region  following  the  merger.  830 
 BlueStar  et  al.  and  NALA  request  that  such  conditions  likewise  be  applied  to  Bell  Atlantic/  GTE.  831  Because  those  factual  circumstances  are  not  present  in  the  instant  merger, 

 however,  we  find  that  such  conditions  are  not  warranted  here. 
 375.  UNE  Platform.  We  adopted,  in  approving  the  merger  between  SBC  and 
 Ameritech,  carrier-  to-  carrier  promotions  pursuant  to  which  SBC/  Ameritech  would  offer  end-  to-end 
 combinations  of  all  network  elements  required  to  be  unbundled  as  of  January  24,  1999 
 (including  the  UNE  platform)  to  competitive  LECs  providing  residential  local  service.  832  Some 
 commenters  maintain  that  the  conditions  to  the  instant  merger  likewise  should  include  these  UNE 
 platform  conditions.  833  We  agree  with  the  Applicants,  however,  that  we  need  not  attach  to  Bell 
 Atlantic/  GTE  conditions  relating  to  UNE  platform  promotions,  because  the  UNE  Remand  Order, 
 which  we  adopted  subsequent  to  our  approval  of  the  SBC/  Ameritech  merger,  confirms  that 
 incumbent  LECs  are  required  to  make  the  UNE  platform  available  to  competitive  LECs.  834 
 Moreover,  we  decline  to  adopt,  in  the  context  of  this  merger,  other  requirements  that  commenters 
 seek  for  us  to  impose  on  Bell  Atlantic/  GTE  relating  to  provision  of  the  UNE  platform.  835  We  note 
 that  the  comprehensive  UNE  compliance  audit  that  the  Applicants  have  agreed  to  undergo  as  a 
 condition  to  the  instant  merger  should  reveal  any  noncompliance  with  the  Commissions 
 unbundling  requirements. 

 830  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14870,  para.  384. 
 831  See  BlueStar  et  al.  Mar.  1,  2000  Comments  at  3;  National  ALEC  Mar.  1,  2000  Comments  at  7-  8. 
 832  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14875,  para.  393;  SBC/  Ameritech  Conditions,  14  FCC  Rcd  at 
 15020-  22,  paras.  50-  52. 
 833  See  BlueStar  et  al.  Mar.  1,  2000  Comments  at  3;  CoreComm  Mar.  1,  2000  Comments  at  29-  31  (adding  that 

 the  UNE  platform  promotion  should  incorporate  the  unbundled  loop  discount  and  not  be  limited  to  residential 
 POTS  or  ISDN  service);  IURC  Mar.  1,  2000  Comments  at  4,  10-  11. 

 834  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  18  n.  12;  UNE  Remand  Order  at  paras.  475-  490. 

 Cf.  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14875,  para.  393  (suggesting  that  disposition  of  issues  with  respect  to 
 the  UNE  platform  would  be  part  of  the  outcome  of  the  UNE  Remand  Order). 

 835  See  CoreComm  Mar.  1,  2000  Comments  at  30-  31  (alleging  that  Bell  Atlantics  UNE  platform  offerings  have 

 been  deficient  outside  of  states  where  it  seeks  or  has  sought  section  271  approval,  and  suggesting  therefore  that  the 
 Commission  require  Bell  Atlantic/  GTE  to  offer,  throughout  its  combined  region,  the  same  UNE  platform  offering 
 that  Bell  Atlantic  has  made  available  in  New  York);  Z-  Tel  Mar.  1,  2000  Comments  at  7-  11  (asserting  that  the 
 Commission  should  require  Bell  Atlantic/  GTE  to  implement  a  best  practices  UNE  platform  product  throughout 
 its  combined  service  areas,  at  least  some  of  which  Bell  Atlantic/  GTE  should  base  on  the  UNE  platform  offering  in 
 New  York,  which  is  perhaps  the  most  robust  UNE  Platform  offering  in  the  nation). 
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 IX.  MOBILE  COMMUNICATIONS  SERVICES 
 376.  We  find  that  the  proposed  merger  will  be  pro-  competitive  in  its  effects  on  wireless 
 communications  markets.  In  particular,  this  merger  will  promote  competition  in  markets  for 
 mobile  voice  telephone  services  by  extending  the  reach  of  a  major  nationwide  service  provider  in  a 
 business  in  which  national  coverage  is  becoming  more  vital  to  compete  effectively.  836  The 
 wireless  service  areas  of  the  merging  parties  are  largely  complementary,  837  and  the  companies 
 employ  compatible  technologies.  Upon  consummation  of  this  merger,  Verizon  Wireless 
 (consisting  of  the  U.  S.  wireless  properties  of  Bell  Atlantic,  GTE,  and  Vodafone)  will  have  a 
 licensed  footprint  potentially  serving  232  million  people  and  96  of  the  100  largest  U.  S.  cities.  The 
 new  entity  will  have  more  than  24  million  cellular  and  broadband  PCS  and  four  million  paging 
 customers.  838 

 377.  Moreover,  combining  these  wireless  businesses  will  likely  produce  cost  savings 
 and  operating  efficiencies  by  reducing  the  Applicants  collective  dependence  on  costly  roaming 
 agreements.  The  combination  should  also  produce  system-  wide  efficiencies  through  common 
 network  engineering,  management,  purchasing,  and  administrative  functions,  leading  to  earlier  and 
 broader  deployment  of  advanced  wireless  services.  839 

 A.  Licenses  and  Service  Offerings 
 378.  On  April  3,  2000,  pursuant  to  Commission  approval,  840  Bell  Atlantic  combined  its 
 domestic  cellular  and  other  wireless  businesses  with  most  of  the  U.  S.  wireless  and  paging 
 operations  of  Vodafone.  The  combined  entity,  doing  business  as  Verizon  Wireless,  operates 
 cellular  and  broadband  PCS  systems  in  48  states  and  the  District  of  Columbia  capable  of  serving 
 194  million  people.  Verizon  Wireless  also  provides  one-  way  and  two-  way  paging  services  in 
 numerous  states  and  holds  interests  in  fixed  point-  to-  point  microwave,  business  radio,  and 
 wireless  communications  service  (WCS)  licenses.  841 

 379.  GTE  operates  cellular  and  broadband  PCS  systems  in  18  states,  covering 

 836  This  merger  will  add  GTEs  wireless  assets  to  the  extensive  footprint  established  by  Bell  Atlantic  and 
 Vodafone  AirTouch  through  the  recent  formation  of  their  wireless  joint  venture,  now  providing  service  as  Verizon 
 Wireless.  The  other  nationwide  providers  are  AT&  T  Wireless  Services,  Inc.,  Sprint  PCS,  Nextel  Communications, 
 Inc.,  and  VoiceStream  Wireless  Corporation. 

 837  See  Application,  Wireless  Map,  Ex.  3.  We  note,  however,  that  this  map  does  not  include  the  properties  that 

 were  recently  contributed  by  Vodafone  to  the  Verizon  Wireless  venture. 
 838  See  Letter  from  William  D.  Wallace,  Esq.,  Crowell  &  Moring  LLP,  to  Magalie  Roman  Salas,  Secretary, 

 Federal  Communications  Commission  (filed  May  4,  2000)  (Bell  Atlantic/  GTE  May  4,  2000  Ex  Parte  Letter)  at  1. 
 839  See  Bell  Atlantic/  GTE  Jan.  27,  2000  Supplemental  Filing  at  9. 

 840  Vodafone  AirTouch,  Plc  and  Bell  Atlantic  Corporation,  Memorandum  Opinion  and  Order,  DA  00-  721 
 (WTB/  IB  rel.  Mar.  30,  2000)  (Vodafone/  Bell  Atlantic  Order). 
 841  See  Bell  Atlantic/  GTE  May  4,  2000  Ex  Parte  Letter  at  2. 
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 approximately  74  million  potential  subscribers.  842  GTE  also  holds  interests  in  licenses  for  other 
 wireless  services,  including  paging,  fixed  point-  to-  point  microwave,  business  radio,  experimental, 
 rural  radio,  air-  to-  ground,  and  telephone  maintenance  radio  service.  843  Applications  to  transfer 
 control  of  the  entities  holding  these  licenses  from  GTE  to  Bell  Atlantic  were  filed  with  the 
 Commission  on  October  2,  1998  and  March  1,  8,  and  9,  2000.  844 

 B.  Analysis  of  Potential  Competitive  Harms 
 1.  Overlapping  Ownership  Interests 
 380.  While  the  wireless  interests  held  by  Verizon  Wireless  and  GTE  are  to  a  large 
 degree  complementary,  their  respective  properties  overlap  in  numerous  areas.  Absent  divestiture, 
 many  of  these  overlaps  would  violate  certain  Commission  rules  and  raise  the  possibility  of 
 competitive  harms  in  mobile  voice  telephony,  in  particular.  845  In  19  markets,  absent  divestitures, 
 Verizon  Wireless  and  GTE  together  would  hold  a  financial  interest  in  both  channel  blocks  in 
 overlapping  cellular  service  areas,  implicating  the  Commissions  cellular  cross-  ownership  rule  in 
 those  markets  in  which  both  parties  ownership  interests  exceed  five  percent.  846  These  strictly 
 cellular  overlaps  are  concentrated  in  California,  Ohio,  South  Carolina,  and  a  fourth  group 
 spanning  several  southwestern  states. 

 381.  In  77  other  markets,  Verizon  Wireless  and  GTE  currently  hold  interests  in  cellular 
 and  PCS  licenses  covering  the  same  areas,  potentially  implicating  the  Commissions  CMRS 
 spectrum  aggregation  rule.  847  A  first  collection  of  these  overlaps  involves  cellular  properties  held 
 by  GTE  and  PCS  properties  formerly  operated  by  PrimeCo  Personal  Communications,  L.  P 
 (PrimeCo).  848  These  overlaps  principally  involve  properties  in  Florida,  Texas,  Virginia,  and  the 
 greater  metropolitan  Chicago  area,  as  well  as  one  in  Alabama.  Another  collection  of  overlaps 
 involves  GTEs  PCS  properties  and  cellular  businesses  formerly  operated  by  Vodafone  centered 
 in  Ohio  and  Washington  state.  Several  additional  overlaps  arise  out  of  Vodafones  recent 

 842  Id.  at  1. 
 843  Id. 
 844  See  Oct.  8,  1998  Public  Notice;  see  also  Commission  Seeks  Comment  on  Additional  Applications  Submitted  by 
 GTE  and  Bell  Atlantic,  CC  Docket  No.  98-  184,  Public  Notice  DA  00-  608  (rel.  Mar.  17,  2000)  (Mar.  17,  2000 
 Public  Notice). 

 845  We  find  no  basis  in  the  record  to  be  concerned  that  this  merger  will  harm  competition  in  markets  for  mobile 

 data  services.  These  markets  remain  in  the  early  stages  of  development,  with  service  or  new  entry  likely  via 
 numerous  platforms  and  spectrum  bands,  including  but  not  limited  to  narrowband  PCS,  700  MHz,  SMR  (220 
 MHz,  800  MHz,  and  900  MHz),  cellular  and  broadband  PCS,  WCS,  and  possibly  MMDS. 

 846  47  C.  F.  R.    22.942(  a)  (  A  direct  or  indirect  ownership  interest  of  5%  or  less  in  both  systems  is  automatically 

 excluded  from  the  general  rule  prohibiting  multiple  ownership  interests.). 
 847  47  C.  F.  R.    20.6. 

 848  At  the  time  of  its  dissolution,  PrimeCo  was  a  business  jointly  controlled  by  Bell  Atlantic  and  Vodafone. 
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 acquisition  of  certain  CommNet  Cellular  businesses  in  Idaho  and  Montana.  849 
 382.  As  discussed  in  detail  below,  the  parties  have  committed  to  eliminate  all  existing 
 overlaps  of  cellular  and/  or  PCS  properties  to  comply  with  the  Commissions  cellular  cross-ownership 
 and  spectrum  aggregation  rules  as  well  as  the  terms  of  a  court-  ordered  Consent  Decree 
 between  the  parties  and  the  U.  S.  Department  of  Justice  (  DOJ).  850 

 2.  Revised  Consent  Decree 
 383.  On  December  6,  1999,  the  DOJ  filed  with  the  United  States  District  Court  for  the 
 District  of  Columbia  a  Revised  Consent  Decree  negotiated  with  Bell  Atlantic,  Vodafone,  and 
 GTE  that  requires  the  divestiture  of  overlapping  wireless  businesses  in  96  markets  in  15  states.  851 
 On  April  18,  2000,  the  court  approved  the  Revised  Consent  Decree,  which  replaces  an  earlier 
 divestiture  agreement  reached  in  May  1999  among  DOJ,  Bell  Atlantic,  and  GTE.  The  Revised 
 Consent  Decree  requires  the  divestiture  of  one  wireless  business  in  any  market  in  which  the 
 companies  licenses  overlap,  even  in  cases  in  which  the  Commissions  rules  are  not  implicated.  852 

 384.  The  Revised  Consent  Decree  is  intended  to  ensure  that  the  creation  of  the 
 proposed  national  wireless  network  will  not  increase  concentration  in  any  geographic  market,  and 
 establishes  a  schedule  by  which  required  divestitures  are  to  be  consummated.  Where  overlaps 
 involve  strictly  cellular  properties,  businesses  (including  licenses  and  facilities)  are  to  be  divested 
 prior  to  or  concurrently  with  consummation  of  the  merger.  853  In  other  cases  involving 
 PCS/  cellular  overlaps,  businesses  are  to  be  divested  prior  to  or  concurrently  with  consummation 
 of  the  merger,  or  by  June  30,  2000,  whichever  is  later.  854  In  either  case,  the  Revised  Consent 
 Decree  requires  Applicants  to  divest  not  just  spectrum  but  facilities  sufficient  to  ensure  that  the 
 divested  wireless  businesses  remain  viable,  ongoing  businesses.  855  Under  the  terms  of  the 

 849  See  In  re  Applications  of  BCP  CommNet,  L.  P.,  Transferor,  and  Vodafone  AirTouch,  Plc,  Transferee,  For 
 Consent  to  Transfer  of  Control  of  Licenses,  file  nos.  0000018208  et  al.,  Memorandum  Opinion  and  Order,  DA  99- 
 3009  (WTB,  rel.  Dec.  27,  1999). 

 850  United  States  of  America  v.  Bell  Atlantic  Corporation,  GTE  Corporation,  and  Vodafone  AirTouch  Plc,  U.  S. 

 Dist.  Ct.  D.  C.  Circuit,  Civil  No.  1:  99CV01119  (LFO),  Final  Judgment,  filed  April  18,  2000  at  2  (Revised  Consent 
 Decree). 

 851  65  Fed.  Reg.  505  (Jan.  5,  2000). 

 852  Id.  at  508.  The  Revised  Consent  Decree  requires  more  extensive  divestitures  than  would  be  required  under  our 
 rules.  For  instance,  the  Revised  Consent  Decree  requires  divestitures  in  numerous  rural  markets  in  which  our 
 spectrum  cap  rule  permits  the  aggregation  of  spectrum  up  to  55  MHz.  In  five  urban  markets  within  the  Seattle 
 MTA,  furthermore,  divestitures  are  required  although  Applicants  would  jointly  hold  45  MHz.  In  addition,  there 
 are  several  cases  in  which  divestitures  are  required  although  one  applicant  holds  an  interest  that  is  not  attributable 
 under  our  rules  e.  g.,  Jacksonville,  Florida-  5,  Dallas-  Fort  Worth,  Sherman-  Denison  (TX),  Texas-  20,  and 
 Wisconsin-  8. 

 853  Revised  Consent  Decree  at  Section  IV.  A.  1. 

 854  Id.  at  Section  IV.  A.  2. 
 855  Id.  at  Section  II.  G. 
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 Revised  Consent  Decree,  the  Applicants  may  request,  and  DOJ  in  its  sole  discretion  may  grant, 
 limited  additional  time  to  complete  divestiture  transactions  involving  the  PCS/  cellular  overlap 
 properties.  856  Therefore,  it  is  contemplated  under  the  Revised  Consent  Decree  (without  reference 
 to  the  requirements  of  our  rules)  that  some  PCS/  cellular  overlap  divestitures  may  be  completed 
 after  consummation  of  the  merger,  perhaps  not  until  60  days  following  such  consummation. 

 3.  Compliance  with  CMRS  Ownership  Rules 
 385.  Cellular  Cross-  Ownership  Rule.  Our  rules  prohibit  an  entity  from  holding 
 attributable  interests  in  both  cellular  licenses  in  any  cellular  service  area  (or  portions  thereof).  857 
 Under  the  terms  of  the  Revised  Consent  Decree,  Bell  Atlantic,  Vodafone,  and  GTE  have 
 committed  to  eliminate  the  19  cellular-  cellular  overlaps  that  would  be  created  by  this  merger  prior 
 to,  or  concurrently  with,  consummation  of  the  merger  transactions.  858  Fulfillment  of  these 
 commitments  would  achieve  compliance  with  our  cellular  cross-  ownership  rule,  with  the  caveat 
 that,  under  that  rule,  the  divestitures  of  these  cellular  properties  must  be  consummated  before  the 
 Bell  Atlantic    GTE  merger  may  be  consummated.  859 

 386.  To  resolve  the  cellular-  cellular  overlaps,  the  parties  have  sold,  or  have  agreed  to 
 sell,  properties  in  13  cellular  markets  to  ALLTEL.  On  April  1  and  May  15,  2000,  Bell  Atlantic 
 and  Vodafone  consummated  the  assignment  of  six  cellular  properties  to  ALLTEL.  860  On  June  12, 
 2000,  we  granted  applications  to  assign  an  additional  seven  cellular  properties  to  ALLTEL.  861 
 Finally,  Applicants  have  filed  applications  to  transfer  into  a  divestiture  trust  the  remaining  six 
 cellular  licenses.  862  We  condition  grant  of  the  underlying  applications  to  transfer  control  of 

 856  Id.  at  Section  IV(  A)(  2)  (authorizing  DOJ  to  grant  up  to  two  30-  day  extensions). 
 857  47  C.  F.  R.    22.942.  For  purposes  of  the  cellular  cross-  ownership  rule,  direct  and  indirect  interests  of  more 
 than  five  percent  are  attributed.  Id.  at  (a). 
 858  Revised  Consent  Decree  at  12. 

 859  47  C.  F.  R.    22.942(  c). 
 860  See  Wireless  Telecommunications  Bureau  Grants  Consent  for  Transfer  of  Control  of  Cellular  and  Related 
 Microwave  Licenses  from  Bell  Atlantic  Corporation  and  Vodafone  AirTouch  Plc  to  ALLTEL  Corporation,  Public 
 Notice,  DA  00-  731  (rel.  Mar.  30,  2000);  Wireless  Telecommunications  Bureau  Action  Report  No.  523,  Public 
 Notice  (rel.  May  3,  2000);  Wireless  Telecommunications  Bureau  Action  Report  No.  546,  Public  Notice  (rel.  May 
 31,  2000).  The  divestiture  of  four  of  these  properties  Phoenix,  Tucson,  Arizona-  2,  and  Albuquerque  was 
 required  as  a  precondition  for  our  approval  of  the  Bell  Atlantic-  Vodafone  joint  venture  transaction.  Vodafone/  Bell 
 Atlantic  Order  at  n.  51.  Also  included  were  cellular  properties  providing  service  to  Las  Cruces,  NM  and  El  Paso, 
 TX.  These  transfers  were  consummated  on  April  1,  2000,  except  for  Las  Cruces,  which  was  consummated  on  May 
 15,  2000. 

 861  See  Wireless  Telecommunications  Bureau  Grants  Consent  to  Bell  Atlantic  and  GTE  for  Assignment  and 

 Transfer  of  Control  of  Certain  Cellular  and  Microwave  Licenses,  Public  Notice,  DA  00-  1273  (rel.  June  12,  2000). 
 These  seven  properties  are:  Anderson  and  Greenville,  SC;  and  Akron,  Canton,  Cleveland,  Lorain-  Elyria  and 
 Ashtabula,  OH. 

 862  See  Bell  Atlantic,  GTE  and  Vodafone  Seek  Consent  to  Transfer  Control  of  or  Assign  Properties  to  Divestiture 

 Trust,  Public  Notice,  DA  00-  1076  (rel.  May  12,  2000).  These  six  California  properties  are  Salinas-  Monterey-( 
 continued.) 
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 licenses  from  GTE  to  Bell  Atlantic  on  the  consummation  of  the  divestitures  of  these  remaining 
 thirteen  cellular  properties  prior  to  the  consummation  of  the  merger.  Further,  pursuant  to  our 
 rules,  we  delegate  to  the  Wireless  Telecommunications  Bureau  the  authority  to  review  the 
 divestiture  trust  agreement  for  compliance  with  our  rules.  863 

 387.  CMRS  Spectrum  Aggregation  Rule.  Under  our  CMRS  spectrum  aggregation  rule, 
 a  single  entity  is  generally  permitted  to  hold  an  attributable  interest  in  up  to  45  MHz  of  CMRS 
 spectrum  in  urban  areas;  in  rural  areas,  an  entity  is  generally  permitted  to  hold  up  to  55  MHz  of 
 spectrum.  864  The  PCS  licenses  involved  in  the  overlaps  that  are  created  by  the  proposed  merger 
 generally  provide  for  authority  over  30  MHz  of  PCS  spectrum,  865  while  the  cellular  properties 
 encompass  25  MHz  of  spectrum.  Further,  in  most  of  these  cases  involving  PCS-  cellular  overlaps, 
 the  Applicants  interests  in  these  overlapping  properties  are  attributable  under  our  spectrum 
 aggregation  rule.  866  Therefore,  in  the  majority  of  these  cases,  absent  divestitures,  the  merged 
 entity  would  have  attributable  interests  in  licenses  totaling  55  MHz  of  CMRS  spectrum,  which  in 
 most  of  the  cases  involved  here  would  exceed  our  spectrum  aggregation  limits. 

 388.  Under  the  terms  of  the  Revised  Consent  Decree,  Bell  Atlantic,  Vodafone,  and 
 GTE  have  committed  to  divest  one  wireless  license  and  its  associated  business  in  each  market  in 
 which  an  overlap  would  occur,  without  regard  to  the  size  or  nature  of  the  current  interests.  867  In 
 addition,  where  our  spectrum  aggregation  rule  would  permit  the  parties  to  keep  a  25  MHz  cellular 
 license  and  20  MHz  of  PCS  spectrum  in  the  same  market,  the  Revised  Consent  Decree  only 
 permits  the  merged  entity  to  keep  10  MHz  of  the  PCS  spectrum  if  it  retains  the  cellular  license.  868 

 (Continued  from  previous  page) 
 Seaside,  San  Diego,  San  Francisco,  San  Jose,  Santa  Rosa-  Petaluma  and  Vallejo-  Napa-  Fairfield.  These  applications 
 will  be  acted  on  separately  by  the  Wireless  Telecommunications  Bureau.  We  note  that  the  Revised  Consent  Decree 
 provides  for  the  possibility  of  divesting  to  a  trust  as  an  interim  measure.  Revised  Consent  Decree  at  Section  V. 

 863  See  In  the  Matter  of  1998  Biennial  Regulatory  Review  Spectrum  Aggregation  Limits  for  Wireless 

 Telecommunications  Carriers,  etc.,  WT  Dkt  Nos.  98-  205  and  96-  59,  GN  Dkt.  No.  93-  252,  Report  and  Order,  FCC 
 99-  244,  (rel.  Sept.  22,  1999)  (Spectrum  Cap  Order)  at  para.  117  (  Consistent  with  section  0.5(  c)  of  the 
 Commissions  rules,  we  delegate  authority  to  the  Wireless  Telecommunications  Bureau  to  review  proposed  trusts  to 
 ensure  that  they  comply  with  our  rules.  (footnote  omitted)). 

 864  47  C.  F.  R.    20.  6(  a).  Exceptions  to  the  general  rules  are  permitted  under  the  significant  overlap  provision  of 

 the  rule.  47  C.  F.  R.    20.6(  c). 
 865  In  the  Seattle  MTA,  GTE  currently  holds  only  20  MHz  as  a  result  of  a  prior  disaggregation  to  U  S  West. 

 866  47  C.  F.  R.    20.6(  d).  In  several  cellular  markets,  GTE  holds  a  non-  controlling,  minority,  and  otherwise  non-attributable 
 interest.  These  interests  are  in  cellular  licenses  for  service  to  Jacksonville,  Florida-  5,  Dallas-  Fort 
 Worth,  Sherman-  Denison  (TX),  Texas-  20,  and  Wisconsin-  8. 

 867  Revised  Consent  Decree  at  Section  IV.  A. 

 868  Id.  at  10.  Compliance  with  our  spectrum  aggregation  rule  does  not  necessarily  end  our  analysis.  See  Spectrum 
 Cap  Order.  We  find  here  that  the  terms  of  the  Revised  Consent  Decree  resolve  all  potential  instances  of 
 competitive  issues  going  beyond  the  terms  of  our  spectrum  aggregation  rule  and,  therefore,  that  we  need  not 
 conduct  further  market-  by-  market  inquiries. 
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 389.  The  parties  intend  to  divest  these  properties  directly  to  third  parties,  but  have  also 
 requested  authority  to  assign  or  transfer  control  of  properties  to  the  divestiture  trust  in  the  event 
 that  agreements  with  third-  party  buyers  cannot  be  completed  in  time  to  file  applications  with  us 
 before  consummating  the  underlying  merger  applications.  869  We  condition  grant  of  the  underlying 
 applications  to  transfer  control  of  licenses  from  GTE  to  Bell  Atlantic  on  compliance  with  our 
 spectrum  aggregation  rule.  The  Commission  will  separately  rule  on  the  parties  applications  to 
 divest  wireless  properties.  870 

 4.  Other  Competitive  Issues 
 a.  Triton  PCS  and  Sprint 
 390.  Triton  PCS,  Inc.  (Triton)  claims  that  Bell  Atlantic  Mobile  Services  has  behaved 
 anticompetitively  with  respect  to  Triton  by  filing  a  groundless  lawsuit  against  Triton.  871  Bell 
 Atlantic  states  that  it  filed  suit  against  Triton  to  protect  against  disclosure  of  confidential 
 competitive  information  by  former  high-  level  Bell  Atlantic  Mobile  employees  that  Triton  hired.  872 

 869  See  Bell  Atlantic,  GTE  and  Vodafone  Seek  Consent  to  Transfer  Control  of  or  Assign  Properties  to  Divestiture 
 Trust,  Public  Notice,  DA  00-  1076  (rel.  May  12,  2000).  Under  our  spectrum  aggregation  rule,  parties  must  divest 
 sufficient  spectrum  to  remain  in  compliance  with  the  aggregation  limit  before  consummating  an  assignment  or 
 transfer  of  control.  47  C.  F.  R.    20.6(  e)(  1).  However,  unlike  in  the  context  of  the  cellular  cross-  ownership  rule, 
 parties  are  considered  to  have  met  this  requirement  once  they  have  submitted  applications  to  the  Commission  for 
 the  transfer  of  control  or  assignment  of  license(  s)  such  that,  if  consummated,  the  parties  would  not  exceed  the 
 spectrum  aggregation  limit.  47  C.  F.  R.    20.6(  e)(  4)(  A).  We  note  that  several  of  the  divestitures  to  which  the  parties 
 have  committed  may  be  accomplished  without  filing  an  application  or  a  subsequent  notification  with  the 
 Commission  because  the  ownership  change  would  not  involve  a  controlling  interest. 

 The  parties  have  indicated  to  the  Commission  that  they  may  seek  approval  to  modify  one  or  more  divestiture 
 applications  currently  on  file,  but  that  any  amendments  would  not  affect  the  ultimate  divestiture  of  those  properties. 
 We  note  that,  with  the  exception  of  the  San  Antonio  MSA,  consummation  of  the  transactions  that  are  the  subject  of 
 divestiture  applications  already  on  file  would  achieve  compliance  with  our  CMRS  ownership  rules.  However, 
 because  the  Applicants  prefer  to  sell  directly  to  third  parties  and  are  continuing  to  negotiate  such  transactions,  we 
 anticipate  that  a  number  of  additional  divestiture  applications  may  be  filed.  Further,  the  Applicants  have  requested 
 a  waiver  of  our  spectrum  aggregation  rule  to  permit  them  to  continue  to  file  divestiture  applications  after 
 consummation  of  the  merger.  See  Wireless  Telecommunications  Bureau  Seeks  Comment  on  Vodafone  AirTouch 
 Plc,  Bell  Atlantic  Corporation,  and  GTE  Corporation  Request  for  Temporary  Waiver  of  Section  20.6  of  the 
 Commissions  Rules,  Public  Notice,  DA  00-  953  (rel.  May  2,  2000);  Petition  for  Temporary  Waiver  of  CMRS 
 Spectrum  Cap  Rule,  filed  April  6,  2000,  by  Vodafone  AirTouch  Plc,  Bell  Atlantic  Corporation,  and  GTE 
 Corporation,  at  Attach.  1.  To  the  extent  not  rendered  moot  by  additional  divestiture  applications  filed  prior  to 
 closing  of  the  merger,  this  request  will  be  addressed  by  separate  order. 

 870  In  addition  to  the  applications  currently  on  file  to  divest  to  the  trust,  an  application  is  currently  on  file  to  divest 

 20  MHz  of  former  PrimeCo  PCS  spectrum  in  Richmond  to  VA  RSA  6  Limited  Partnership.  See  PrimeCo  PCS,  LP 
 and  Virginia  RSA  6  Cellular  Limited  Partnership  Seek  FCC  Consent  for  Assignment  or  Transfer  of  Control  of 
 Wireless  Licenses  to  Comply  with  Spectrum  Cap  Rules  and  Department  of  Justice  Consent  Decree  Regarding 
 Pending  Applications  of  Bell  Atlantic,  GTE,  and  Vodafone  AirTouch,  Public  Notice,  DA  00-  1138  (rel.  May  23, 
 2000). 

 871  See  Triton  Nov.  23,  1998  Comments  at  12-  14. 

 872  Bell  Atlantic/  GTE  Dec.  23,  1998  Joint  Reply  at  17. 
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 This  action  is  currently  pending  in  the  New  Jersey  Superior  Court.  873  We  find  that  this  is  a  civil 
 dispute  not  relevant  to  our  analysis  under  section  310(  d)  authority  and  best  resolved  in  a  state 
 court  of  competent  jurisdiction.  874 

 391.  Triton  and  Sprint  Communications  Company  (Sprint)  both  complain  that  Bell 
 Atlantic  has  engaged  in  anticompetitive  roaming  negotiations.  875  We  are  currently  considering  in  a 
 separate  docket  whether  any  action  is  necessary  with  respect  to  automatic  roaming  agreements 
 between  PCS  and  cellular  carriers.  876  Accordingly,  we  decline  to  consider  that  issue  in  this 
 proceeding. 

 b.  Commonwealth  of  the  Northern  Mariana  Islands 
 392.  The  Commonwealth  of  the  Northern  Mariana  Islands  asserts  that  Bell  Atlantic 
 affiliates  have  opposed  the  application  of  rate  integration  policy  to  CMRS  carriers,  and 
 proposes  that  the  Commission  require  Bell  Atlantic/  GTE  to  maintain  rate  integration  across  all 
 subsidiaries  and  services,  including  wireless  services.  877  In  a  separate  proceeding,  we  are  currently 
 considering  whether  to  forbear  from,  or  reconsider,  rate  integration  for  CMRS  carriers.  878 
 Therefore,  we  decline  to  consider  this  issue  in  this  proceeding. 

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

 873  Cellco  Partnership  d/  b/  a  Bell  Atlantic  Mobile  v.  Triton  Communications,  Inc.  et  al.,  Docket  No.  ESX-  C-  238- 
 98  (Superior  Ct.  NJ). 
 874  See,  e.  g.,  Listeners  Guild,  Inc.  v  FCC,  813  F.  2d  465,  469  (D.  C.  Cir.  1987);  Applications  of  Centel  Corp., 

 Sprint  Corp,  and  FW  Sub  Inc.,  8  FCC  Rcd  1829,  1831  (1993).  The  Commission  has  consistently  refused  to 
 interject  itself  into  private  matters,  finding  that  a  court,  and  not  the  Commission,  is  the  proper  forum  for  resolving 
 such  disputes.  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18148,  para.  214;  PCS  2000,  L.  P.,  12  FCC  Rcd  1681,  1691 
 (1997)  (citing  United  Tel.  Co  of  Carolinas  v.  FCC,  599  F.  2d  720,732  (D.  C.  Cir.  1977)). 

 875  Id.;  Sprint  Nov.  23,  1998  Petition  at  48. 

 876  Interconnection  and  Resale  Obligations  Pertaining  to  Commercial  Mobile  Radio  Services,  CC  Docket  No.  94- 
 54,  Second  Report  and  Order  and  Further  Notice  of  Proposed  Rulemaking,  11  FCC  Rcd  9462  (1996). 
 877  See  Commonwealth  of  Northern  Mariana  Islands  Nov.  23,  1998  Petition. 

 878  Policy  and  Rules  Concerning  the  Interstate,  Interexchange  Marketplace,  Order,  12  FCC  Rcd  15739  (1997); 
 Policy  and  Rules  Concerning  the  Interstate,  Interexchange  Marketplace,  Memorandum  Opinion  and  Order,  DA 
 98-  1763  (WTB,  rel.  Sept.  1,  1998). 
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 X.  INTERNATIONAL  ISSUES 
 A.  General 
 394.  Consistent  with  our  conclusion  above  that  the  proposed  merger  will  not  impact  in 
 any  significant  way  the  market  for  domestic  long  distance  services,  and  under  the  same  reasoning, 
 we  conclude  that  the  proposed  merger  will  not  impact  in  any  significant  way  the  market  for 
 international  long  distance  services. 

 395.  Our  conclusion  that  the  proposed  merger  will  not  impact  in  any  significant  way  the 
 market  for  international  long  distance  services  is  further  supported  by  the  absence  of  any  evidence 
 in  the  record  to  demonstrate  that  the  proposed  merger  would  affect  competition  adversely  in  any 
 input  market  that  is  essential  for  the  provision  of  international  services,  including  the  market  for 
 international  transport  services.  879 

 396.  For  purposes  of  determining  whether  the  merger  would  affect  competition 
 adversely  in  any  input  market  that  is  essential  for  the  provision  of  international  services,  we  focus 
 our  analysis  on  submarine  cable  facilities.  880  Bell  Atlantic  currently  does  not  own  any  submarine 
 cable  capacity  in  the  Pacific  Region  or  between  the  U.  S.  and  the  Caribbean  and/  or  South  America.  881  Therefore,  Bell  Atlantics  merger  with  GTE  will  not  increase  market  concentration  in 

 those  regions,  regardless  of  the  number  of  cable  facilities  GTE  owns  in  those  regions.  882  In  the 
 879  See  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18071,  para.  81  (stating  that  the  Commission  appropriately  has 
 tended  to  focus  its  analysis  on  particular  inputs  in  considering  competitive  effects  on  international  routes"). 
 880  See  id.  at  18072-  73,  paras.  82-  83  (finding  submarine  cable  capacity,  but  not  satellite  capacity,  to  be  the 
 transport  medium  that  warranted  review  in  that  merger  proceeding).  Many  other  inputs  are  essential  for  the 
 provision  of  international  services,  but  there  is  no  evidence  in  the  record  to  demonstrate  that  the  proposed  merger 
 would  affect  competition  adversely  in  any  of  these  markets.  See  generally  WorldCom/  MCI  Order,  id.  at  18091- 
 093,  paras.  115-  17.  As  discussed  in  Section  VI,  supra,  we  concluded  that,  on  balance,  any  potential 
 anticompetitive  effects  of  the  proposed  merger  in  the  domestic  local  exchange  and  exchange  access  markets  would 
 be  outweighed  by  the  accompanying  benefits  of  the  conditions  we  impose  on  the  merger. 

 881  See  Letter  from  Karen  Corbett  Sanders,  Bell  Atlantic,  to  Magalie  Roman  Salas,  Federal  Communications 

 Commission,  CC  Docket  No.  98-  184  (filed  May  3,  2000)  (Bell  Atlantic  May  3,  2000  International  Cable  Capacity 
 Ex  Parte  Letter). 

 882  Compaia  Dominicana  de  Telfonos,  C.  por  A.  (CODETEL),  a  GTE  subsidiary,  owns  22  percent  of  a  segment 

 of  the  TCS-  1  submarine  cable  system  (the  segment  that  extends  from  Puerto  Rico  to  the  Dominican  Republic).  See 
 TCS-  1  Construction  and  Maintenance  Agreement  Revised  Schedules  at  Schedule  C  at  2  (effective  Aug.  1,  1997); 
 Letter  from  Gordon  Maxson,  GTE,  to  Magalie  Roman  Salas,  Federal  Communications  Commission,  CC  Docket 
 No.  98-  184,  Attachment  2  (filed  May  11,  2000)  (GTE  May  11,  2000  International  Ex  Parte  Letter).  In  addition, 
 CODETEL  owns  approximately  22  percent  of  the  ANTILLAS  I  cable,  which  links  Puerto  Rico  and  the  Dominican 
 Republic.  See  GTE  May  11,  2000  International  Ex  Parte  Letter  at  Attachment  2.  Compaia  Annima  Nacional 
 Telfonos  de  Venezuela  (CANTV)  owns  a  relatively  large  portion  of  cable  segments  from  the  U.  S.  Virgin  Islands 
 to  Venezuela  on  the  Americas  I  cable  and  the  Pan  American  Cable  (ownership  varies  from  19  percent  to  56  percent 
 on  these  two  cables  sub-  segments).  See  GTE  May  11,  2000  International  Ex  Parte  Letter  at  Attachment  1.  A 
 review  of  GTEs  percentage  ownership  interests  in  other  cables  in  the  Caribbean  region  demonstrates  that  GTEs 
 ownership  of  other  cables  in  that  region  is  de  minimis.  See  Letter  from  Gordon  Maxson,  GTE,  to  Magalie  Roman 
 Salas,  Federal  Communications  Commission,  CC  Docket  No.  98-  184  (filed  May  3,  2000)  at  Attachment  (GTE 
 (continued.) 
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 Atlantic  region,  Bell  Atlantic  currently  owns  a  de  minimis  amount  of  total  available  cable 
 capacity,  and  we  project  it  will  continue  to  own  a  de  minimis  amount  of  total  available  cable 
 capacity  in  the  Atlantic  region  through  2001.  883  GTEs  current  and  projected  (through  2001) 
 ownership  of  cable  capacity  in  the  Atlantic  region  is  also  de  minimis.  884  Therefore,  upon 
 consummation  of  the  proposed  merger,  the  merged  entitys  combined  current  and  projected  share 
 in  the  Atlantic  region  is  de  minimis,  and  the  merger  will  not  increase  significantly  market  power 
 concentration  in  that  region. 

 397.  Only  one  party  filed  comments  related  to  the  effect  of  the  proposed  merger  on  the 
 U.  S.  international  services  market.  TRICOM  USA,  Inc.  (TRICOM),  a  U.  S.  carrier  licensed  to 
 provide  local  exchange  service,  long  distance  service,  and  international  services,  complains  that 
 the  combined  facilities  of  the  merged  company  would  give  it  the  potential  to  serve  as  a 
 bottleneck  to  and  from  those  overseas  points  where  GTE  and  Bell  Atlantic  control  the  dominant 
 carrier.  885  According  to  TRICOM,  therefore,  the  merged  company  would  not  only  control 
 facilities  on  the  domestic  end  in  the  largest  metropolitan  areas  of  the  United  States,  but  also  on 
 the  foreign  and  territorial  end,  particularly  the  Dominican  Republic,  Venezuela,  and  Puerto  Rico 
 in  this  Hemisphere.  886  TRICOM  asks  the  Commission  to  require  both  GTE  and  Bell  Atlantic  to 
 make  affirmative  showings  that  each  of  their  overseas  affiliates  or  subsidiaries  do  not  presently 
 control  and  have  no  potential  to  control  bottleneck  facilities  by  virtue  of  the  merger  or 
 otherwise.  887 

 398.  Both  GTE  and  Bell  Atlantic  have  provided  the  Commission  with  all  the 
 information  required  under  our  rules,  namely  Sections  63.11  and  63.18(  e),  regarding  investments 

 (Continued  from  previous  page) 
 May  3,  2000  International  Ex  Parte  Letter)  (listing  GTEs  U.  S.  international  carrier  subsidiaries  ownership 
 interests  in  all  cables).  Likewise,  a  review  of  GTEs  percentage  ownership  interests  in  cables  in  the  Pacific  region 
 shows  that  GTEs  ownership  of  cables  in  that  region  also  is  de  minimis.  See  GTE  May  3,  2000  International  Ex 
 Parte  Letter  at  Attachment. 

 883  We  forecast  supply  for  two  years  in  accordance  with  the  Department  of  Justice  Merger  Guidelines.  See  United 

 States  Department  of  Justice  Horizontal  Merger  Guidelines,  57  Fed.  Reg.  At  41562,    3.2,  n.  27.  Bell  Atlantic 
 currently  owns  a  .0248  percent  interest  in  the  TAT-  12/  TAT-  13  cable  system  (three  E-  1  circuits,  translating  to  three 
 circuits  with  a  speed  of  2.048  megabits  per  second).  Bell  Atlantic  owns  14.5  percent  of  the  FLAG  Atlantic-  1  cable 
 system,  but  has  acquired  only  12  STM-  1  circuits  (translating  to  12  circuits  with  a  speed  of  155.52  megabits  per 
 second).  See  Bell  Atlantic  May  3,  2000  International  Cable  Capacity  Ex  Parte  Letter. 

 884  GTE  Corporation,  including  several  of  its  international  carrier  subsidiaries,  will  own  a  very  small  percent  of 

 total  available  cable  capacity  in  the  Atlantic  region  by  the  end  of  2001.  After  the  spin-  off  of  GTE  Intelligent 
 Network  Services  Inc.,  the  projected  GTE  ownership  of  total  available  cable  capacity  in  the  Atlantic  region  will  be 
 even  smaller  because  GTE  Intelligent  Network  Services  Inc.  owns  most  of  GTEs  Atlantic  cable  capacity.  See 
 GTE  May  3  International  Ex  Parte  Letter,  Attachment;  FCC  International  Bureau  1998  Section  43.82  Circuit 
 Status  Data  Report  at  33  (Intl  Bur.,  Dec.  17,  1999). 

 885  See  TRICOM  Nov.  23,  1998  Comments  at  6. 

 886  See  id. 
 887  Id.  at  7. 
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 in  or  by  foreign  carriers.  888  Our  rules  recognize  that  U.  S.  carriers  may  have  investments  in  or  by 
 foreign  carriers,  or  may  themselves  be  foreign  carriers,  and  we  have  adopted  a  regulatory 
 framework  to  address  concerns  about  anticompetitive  behavior  by  U.  S.  carriers  and  their  foreign 
 carrier  affiliates.  Indeed,  in  terms  of  control  of  bottleneck  facilities  on  the  foreign  ends,  TRICOM 
 is  most  concerned  about  the  Dominican  Republic  and  Venezuela.  As  discussed  in  detail  below  in 
 the  foreign  carrier  affiliation  section,  currently  we  regulate  GTE  as  a  dominant  international 
 carrier  both  on  the  U.  S.-  Dominican  Republic  route  and  on  the  U.  S.-  Venezuela  route.  889  Not  only 
 will  approval  of  the  merger  not  disturb  these  classifications,  but,  as  discussed  below  in  approving 
 the  international  license  transfers  that  are  part  of  the  merger,  we  amend  Bell  Atlantic's 
 authorizations  to  provide  service  on  those  routes  to  regulate  them  as  dominant,  where  appropriate 
 under  our  rules.  890 

 399.  TRICOM  also  requests  that  we  require  GTE  and  Bell  Atlantic  to  demonstrate  that 
 all  overseas  affiliates  or  subsidiaries  are  now  treating,  and  will  continue  to  treat,  all  nonaffiliated 
 U.  S.  carriers  in  a  nondiscriminatory  manner.  891  Section  63.  14  of  the  Commission's  rules,  to  which 
 every  U.  S.  international  carrier  is  subject,  specifically  addresses  TRICOM's  concerns.  That 
 section  prohibits  any  U.  S.  international  carrier  from  agreeing  to  accept  from  any  foreign  carrier 
 that  possesses  market  power  on  a  particular  route  special  concessions  of  specified  types.  892  With 
 respect  to  TRICOM's  concerns  about  the  merged  entity's  control  of  bottleneck  facilities  on  the 
 U.  S.  end  of  international  routes,  893  as  discussed  above,  we  already  have  concluded  that,  on 
 balance,  any  potential  anticompetitive  effects  of  the  proposed  merger  in  the  domestic  local 
 exchange  and  exchange  access  markets  would  be  outweighed  by  the  accompanying  benefits  of  the 
 conditions  we  impose  on  the  merger.  Moreover,  the  Commission  previously  has  addressed  the 
 proper  regulatory  treatment  of  incumbent  local  exchange  carrier  provision  of  U.  S.  international 
 services.  894 

 888  See  47  C.  F.  R.    63.11,  63.18(  e). 
 889  See  47  C.  F.  R.    63.10(  c),  (e)  (setting  forth  international  dominant  carrier  safeguards). 
 890  See  47  C.  F.  R.    63.10(  a). 
 891  See  TRICOM  Nov.  23,  1998  Comments  at  8. 
 892  See  47  C.  F.  R.    63.14. 
 893  TRICOM  expresses  concern,  for  example,  that  GTE  successfully  bid  on  the  purchase  of  control  of  PRTC. 
 See  TRICOM  Nov.  23,  1998  Comments  at  8.  We  note  that,  since  TRICOM  filed  its  comments,  GTE  has  actually 
 purchased  the  Puerto  Rico  Telephone  Company  (PRTC). 

 894  See  Regulatory  Treatment  of  LEC  Provision  of  Interexchange  Services  Originating  in  the  LEC's  Local 

 Exchange  Area  and  Policy  and  Rules  Concerning  the  Interstate,  Interexchange  Marketplace,  CC  Docket  Nos.  96-149, 
 96-  61,  Second  Report  in  CC  Docket  No.  96-  149  and  Third  Report  and  Order  in  CC  Docket  No.  96-  61,  12 
 FCC  Rcd  15756,  15850  and  15858,  paras.  163  and  179  (LEC  Classification  Order),  Order  on  Reconsideration,  12 
 FCC  Rcd  8730  (1997)  (LEC  Classification  Order  on  Reconsideration),  Order,  13  FCC  Rcd  6427  (Comm.  Car. 
 Bur.  1998)  (LEC  Classification  Partial  Stay  Order);  Second  Order  on  Reconsideration  and  Memorandum  Opinion 
 and  Order,  FCC  99-  103  (rel.  June  30,  1999)  (LEC  Classification  Second  Reconsideration  Order)  (deciding  to 
 classify  BOCs  section  272  interLATA  affiliates  as  nondominant  in  their  provision  of  in-  region,  interstate, 
 (continued.) 
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 B.  Foreign  Affiliation 
 400.  In  considering  the  effects  of  the  proposed  merger  in  U.  S.  international  services 
 markets,  we  consider  whether:  (1)  as  a  result  of  its  acquisition  by  Bell  Atlantic,  GTE  (and  its 
 operating  subsidiaries)  895  would  become  affiliated  with  a  foreign  carrier  that  has  market  power  on 
 the  foreign  end  of  a  U.  S.  international  route  that  GTE  is  authorized  to  serve;  and  (2)  as  a  result  of 
 its  acquisition  of  GTE,  Bell  Atlantic  (and  its  international  carrier  subsidiaries)  896  would  become 
 affiliated  with  a  foreign  carrier  that  has  market  power  on  the  foreign  end  of  a  U.  S.  international 
 route  that  Bell  Atlantic  is  authorized  to  serve.  897 

 (Continued  from  previous  page) 
 domestic,  interLATA  services  and  concluding  that  it  should  apply  the  same  regulatory  classification  to  the  BOC 
 interLATA  affiliates'  provision  of  in-  region,  international  services).  See  also  Nynex  Long  Distance  Co.,  et  al., 
 Application  for  Authority  Pursuant  to  Section  214  of  the  Communications  Act  of  1934,  as  amended,  to  Provide 
 International  Service  from  Certain  Parts  of  the  United  States  to  International  Points  Through  Resale  of 
 International  Switched  Services,  GTE  Telecom  Incorporated,  Application  for  Authority  Pursuant  to  Section  214  of 
 the  Communications  Act  of  1934,  as  Amended,  and  Section  63.01  of  the  Commission's  Rules  and  Regulations  for 
 International  Resale  Switched  Service  and  Facilities-  Based  Service  to  Various  Countries,  File  Nos.  ITC-  96-  125, 
 96-  272,  96-  181,  95-  443,  Memorandum  Opinion  and  Order,  12  FCC  Rcd  11654,  11660,  paras.  11-  12  (Int'l  Bur. 
 1997)  (International  Out-  of-  Region  Nondominance  Order)  (Bureau  finding,  consistent  with  the  Commissions 
 finding  regarding  BOC  provision  of  in-  region  international  services,  that  BOCs  should  be  treated  as  nondominant 
 in  their  provision  of  out-  of-  region  international  services). 

 895  GTEs  international  carrier  subsidiaries  that  hold  international  authorizations  that  Bell  Atlantic  would  control 

 are:  GTE  Communications  Corporation,  GTE  Hawaiian  Tel  International  Incorporated,  GTE  Pacifica 
 Incorporated,  GTE  Wireless  Incorporated,  GTE  Airfone  Incorporated,  GTE  Railfone  Incorporated,  Codetel 
 International  Communications  Incorporated,  GTE  Telecommunication  Services  Incorporated,  TELUS 
 Communications  (B.  C.)  Inc.,  and  Celulares  Telefnica,  Inc.  See  GTE  May  3  International  Ex  Parte  Letter  at  1. 
 GTE  notes  that  TELUS  Communications  (B.  C.)  Inc.  is  the  correct  name  for  the  entity  holding  the  section  214 
 authorization  originally  granted  to  BC  TEL.  See  GTE  May  3,  2000  International  Ex  Parte  Letter  at  1  &  n.  1.  GTE 
 states  that  the  Commission  was  notified  of  the  name  change  by  letter  dated  November  18,  1999,  from  counsel  for 
 BCT.  TELUS  Communications,  Inc.  (the  parent  of  TELUS  Communications  (B.  C.)  Inc.)  and  that  the  control  of  BC 
 TEL  was  transferred  to  BCT.  TELUS  Communications,  Inc.  in  File  No.  ITC-  T/  C-  19990114-  00023.  See  GTE  May 
 3,  2000  International  Ex  Parte  Letter  at  n.  1.  GTE  points  out  that  BCT.  TELUS  Communications,  Inc.  is 
 incorrectly  shown  as  holding  that  authority  in  the  list  of  GTE  subsidiaries  holding  Section  214  authorizations 
 attached  to  the  GTE  Letter  of  March  8,  2000,  which  amended  the  original  list  of  entities  holding  international 
 section  214  authorizations.  See  Letter  from  Gordon  Maxson,  GTE,  to  Magalie  Roman  Salas,  Federal 
 Communications  Commission,  CC  Docket  No.  98-  184  (filed  May  4,  2000)  (correcting  part  of  footnote  1  in  GTE 
 May  3,  2000  International  Ex  Parte  Letter).  We  refer  hereinafter  to  TELUS  Communications  (B.  C.)  Inc. 

 896  Bell  Atlantics  international  carrier  subsidiaries  are  Bell  Atlantic  Communications,  Inc.  (BACI)  and  NYNEX 

 Long  Distance  Company,  Inc.  (NYNEX-  LD).  In  addition,  Cellco  Partnership  is  an  international  carrier  affiliate  of 
 Bell  Atlantics. 

 897  We  do  not  address  in  this  section  the  applications  filed  by  GTE,  pursuant  to  section  214  of  the 

 Communications  Act  and  the  Cable  Landing  License  Act  (in  conjunction  with  the  spinoff  of  GTE  Internetworking 
 into  a  separate  corporation)  requesting  Commission  approval  to  transfer  control  to  Genuity  of  certain  international 
 section  214  authorizations  and  cable  landing  licenses  currently  held  by  various  GTE  subsidiaries.  We  address 
 those  applications  above.  See  supra  Section  V.  We  also  note  that  GTE,  both  as  part  of  an  application  to  transfer 
 control  of  an  international  section  214  authorization  to  Genuity,  and  in  a  recent  letter,  has  relinquished  certain 
 international  214  authorizations  that  are  subsumed  by  later  authorizations.  See  GTE  Corporation,  Transferor, 
 (continued.) 
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 401.  Both  Bell  Atlantic  and  GTE  have  ownership  interests  in  carriers  that  operate  on 
 the  foreign  end  of  U.  S.  international  routes  that  create  affiliations  within  the  meaning  of  section 
 63.09  of  the  Commissions  rules.  898  Subsidiaries  of  Bell  Atlantic  are  authorized  under  section  214 
 of  the  Act  899  to  provide  out-  of-  region  U.  S.  international  service  terminating  at  all  international 
 points.  900  Subsidiaries  of  Bell  Atlantic  also  are  authorized  to  provide  in-  region  international 
 service  originating  in  New  York  and  terminating  at  all  international  points  except  Gibraltar.  901 
 Subsidiaries  of  GTE  are  authorized  under  section  214  of  the  Act  to  provide  U.  S.  international 
 service  originating  from  points  in  the  United  States  and  terminating  at  various  international  points.  902  We  note  that,  upon  consummation  of  the  proposed  merger,  except  for  services 

 originating  in  the  State  of  New  York,  section  271  of  the  Act  will  prohibit  any  of  Bell  Atlantic's  or 
 GTE's  international  carrier  subsidiaries  from  providing  international  services  originating  in  any 
 Bell  Atlantic  "in-  region  State,"  as  that  term  is  defined  in  section  271(  i)  of  the  Act.  903  With  the 
 exception  of  New  York,  Bell  Atlantic  has  not  yet  obtained  permission  to  provide  long  distance 
 services  within  any  of  the  in-  region  States  it  currently  serves.  Therefore,  upon  consummation  of 
 the  merger,  in  order  to  comply  with  section  271,  GTE  and  its  subsidiaries  must  cease  originating 
 international  long  distance  traffic  in  Bell  Atlantic's  current  in-  region  States  other  than  New  York. 

 (Continued  from  previous  page) 
 Genuity  Corporation,  Transferee,  Application  for  Transfer  of  Control  of  Global  International  Section  214 
 Authorization,  ITC-  214-  19990708-  00391  at  n.  1(  filed  Apr.  28,  2000)  (relinquishing  authorizations  held  by  GTE 
 international  carrier  subsidiaries  in  File  Nos.  ITC-  94-  237,  ITC  94-  357-  TC,  ITC-  95-  443,  ITC-  96-  313,  ITC-  96- 
 314,  and  ITC-  97-  438);  see  GTE  May  3,  2000  International  Ex  Parte  Letter  (relinquishing  the  authorizations  held 
 by  GTE  international  carrier  subsidiaries  in  File  Nos.  ITC-  97-  372,  ITC-  95-  242,  ITC-  92-  150,  ITC-  91-  180,  and 
 ITC-  91-  037). 

 898  See  47  C.  F.  R.    63.09(  e).  Section  63.09(  e)  provides,  in  relevant  part,  that:  [t]  wo  entities  are  affiliated  with 

 each  other  if  one  of  them,  or  an  entity  that  controls  one  of  them,  directly  or  indirectly  owns  more  than  25  percent  of 
 the  capital  stock  of,  or  controls,  the  other  one."  47  C.  F.  R.    63.09(  e). 

 899  47  U.  S.  C.    214. 

 900  For  a  complete  listing  of  Bell  Atlantics  international  section  214  authorizations,  see  Letter  from  Karen 
 Corbett  Sanders,  Bell  Atlantic,  to  Magalie  Roman  Salas,  Federal  Communications  Commission,  CC  Docket  No. 
 98-  184,  Attachment  (filed  May  3,  2000)  (Bell  Atlantic  May  3,  2000  International  214  Ex  Parte  Letter). 

 901  See  Bell  Atlantic  Communications,  Inc.  and  NYNEX  Long  Distance  Company,  Applications  for  Global 

 Authority  Pursuant  to  Section  214  of  the  Communications  Act  of  1934,  as  Amended,  to  Provide  all  Authorized 
 Facilities-  Based  Services  Between  the  United  States  and  all  International  Points  Except  Gibraltar,  Bell  Atlantic 
 Communications,  Inc.  and  NYNEX  Long  Distance  Company,  Applications  for  Authority  Pursuant  to  Section  214  of 
 the  Communications  Act  of  1934,  as  Amended,  to  Resell  International  Services  of  U.  S.  Carriers  to  Provide  all 
 Authorized  Services  Between  the  United  States  and  all  International  Points  Except  Gibraltar,  FCC  File  Nos.  ITC-214- 
 19971223-  00813  (previous  File  No.  ITC-  98-  002)  and  ITC-  214-  19971223-  00811  (previous  File  No.  ITC-  98- 
 003),  Order,  Authorization  and  Certificate,  DA  99-  2989  (rel.  Dec.  22,  1999)  (BACI/  NYNEX-  LD  New  York 
 International  214  Order). 

 902  For  a  complete  listing  of  GTEs  international  section  214  authorizations,  see  filings  in  CC  Docket  No.  98-  184. 

 903  Section  271(  i)  defines  in-  region  State  as  follows:  "[  t]  he  term  'in-  region  State'  means  a  State  in  which  a  Bell 
 operating  company  or  any  of  its  affiliates  was  authorized  to  provide  wireline  telephone  exchange  service  pursuant 
 to  the  reorganization  plan  approved  under  the  AT&  T  Consent  Decree,  as  in  effect  on  the  day  before  the  date  of 
 enactment  of  the  Telecommunications  Act  of  1996."  47  U.  S.  C.    271(  i). 
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 By  this  Order,  we  modify  GTEs  international  section  214  authorizations  to  exclude  the  provision 
 of  international  service  originating  in  Bell  Atlantics  in-  region  states  other  than  New  York.  904 

 1.  Standards 
 402.  We  welcome  foreign  participation  in  the  U.  S.  market  for  telecommunications 
 services.  In  the  Foreign  Participation  Order,  the  Commission  adopted  an  open  entry  policy  for 
 carriers  from  World  Trade  Organization  (WTO)  members.  As  part  of  this  policy,  the  Commission 
 adopted  an  open  entry  standard  for  applicants  that  request  authority  to  serve  a  WTO  member  in 
 which  the  applicants  have  a  foreign  carrier  affiliate.  Previously,  the  Commission  had  applied  an 
 "effective  competitive  opportunities  (ECO)  test  to  certain  applicants  that  sought  to  provide 
 service  on  routes  where  an  affiliated  foreign  carrier  possessed  market  power.  905  In  the  Foreign 
 Participation  Order,  the  Commission  eliminated  the  ECO  test  in  favor  of  a  rebuttable 
 presumption  that  requests  for  international  section  214  authority  from  applicants  affiliated  with 
 foreign  carriers  in  WTO  members  do  not  pose  concerns  that  would  justify  denial  of  the 
 application  on  competition  grounds.  906  The  Commission  retained  the  ECO  test  for  certain 
 applicants  that  seek  to  serve  non-  WTO  countries  in  which  the  applicant  has  an  affiliation  with  a 
 foreign  carrier  possessing  market  power  in  such  countries.  907 

 403.  In  the  Foreign  Participation  Order,  however,  the  Commission  observed  that  the 
 exercise  of  foreign  market  power  in  the  U.  S.  market  could  harm  U.  S.  consumers  through 
 increases  in  prices,  decreases  in  quality,  or  a  reduction  in  alternatives  in  end-  user  markets.  908 
 Generally,  this  risk  occurs  when  a  U.  S.  carrier  is  affiliated  with  a  foreign  carrier  that  has  sufficient 

 904  See  supra  Section  V  for  an  extensive  discussion  of  section  271  issues  as  they  relate  to  domestic  long  distance 
 service  provided  by  the  merged  entity. 
 905  The  ECO  analysis  was  developed  and  discussed  in  Market  Entry  and  Regulation  of  Foreign-  Affiliated  Entities, 

 IB  Docket  No.  95-  22,  Report  and  Order,  11  FCC  Rcd  3873  (1995)  (the  Foreign  Carrier  Entry  Order). 
 906  See  Rules  and  Policies  on  Foreign  Participation  in  the  U.  S.  Telecommunications  Market,  Market  Entry  and 

 Regulation  of  Foreign  Affiliated  Entities,  IB  Docket  Nos.  97-  142,  95-  22,  Report  and  Order  and  Order  on 
 Reconsideration,  12  FCC  Rcd  23891  23906-  10,  paras.  33-  43,  23913-  17,  paras.  50-  58  (1997)  (Foreign 
 Participation  Order),  recon.  pending;  In  the  Matter  of  the  Merger  of  MCI  Communications  Corporation  and 
 British  Telecommunications  plc,  12  FCC  Rcd  15351,  15409-  10,  paras.  154  55. 

 907  See  Foreign  Participation  Order,  12  FCC  Rcd  at  23944-  46,  paras.  124-  29;  23949-  50,  paras.  139-  42.  Section 

 63.18(  j)-(  k)  of  the  Commission's  rules  applies  the  ECO  test  in  situations  in  which:  an  applicant  is  a  foreign  carrier 
 in  a  non-  WTO  country;  an  applicant  controls  a  foreign  carrier  in  a  non-  WTO  country;  any  entity  that  owns  more 
 than  25  percent  of  the  applicant,  or  controls  the  applicant,  controls  a  foreign  carrier  in  a  non-  WTO  country;  or,  in 
 specified  circumstances,  more  than  25  percent  of  an  applicant  is  owned  by  two  or  more  foreign  carriers.  See  47 
 C.  F.  R.    63.18(  j)-(  k). 

 908  See,  Foreign  Participation  Order,  12  FCC  Rcd  at  23951-  954,  paras.  144-  46  (1997);  Thomas  G.  Krattenmaker 

 &  Steven  C.  Salop,  Anticompetitive  Exclusion:  Raising  Rivals'  Costs  to  Achieve  Power  Over  Price,  96  Yale  L.  J. 
 209  (1986). 
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 market  power  on  the  foreign  end  of  a  route  to  affect  competition  adversely  in  the  U.  S.  market.  909 
 404.  Entry  Standard.  In  a  merger  analysis,  to  determine  whether  the  public  interest  is 
 served  by  permitting  the  merged  entity  to  provide  U.  S.  international  service  on  each  affiliated 
 route,  we  apply  the  entry  standard  adopted  in  the  Foreign  Participation  Order.  The  Commission 
 also  considers  other  public  interest  factors  that  may  weigh  in  favor  of,  or  against,  granting  an 
 international  section  214  application,  including  national  security,  law  enforcement,  foreign  policy 
 and  trade  concerns.  910 

 405.  Regulatory  Status.  If  we  determine  that  the  public  interest  would  be  served  by 
 permitting  the  merged  entity  to  provide  U.  S.  international  service  on  its  affiliated  routes,  we  next 
 decide  the  terms  under  which  the  merged  entity  will  provide  service  on  these  routes.  Specifically, 
 we  examine  whether  it  is  necessary  to  impose  the  Commission's  international  dominant  carrier 
 safeguards  on  the  merged  entitys  international  operating  subsidiaries  in  their  provision  of  service 
 on  the  affiliated  routes.  911  The  standard  for  determining  the  regulatory  status  of  the  merged  entity 
 on  affiliated  routes  also  is  governed  by  the  Foreign  Participation  Order.  Under  rules  adopted  in 
 that  order,  the  Commission  regulates  U.  S.  international  carriers  as  dominant  on  routes  where  an 
 affiliated  foreign  carrier  has  sufficient  market  power  on  the  foreign  end  to  affect  competition 
 adversely  in  the  U.  S.  market.  912  A  U.  S.  carrier  presumptively  is  classified  as  nondominant  on  an 
 affiliated  route  if  the  carrier  demonstrates  that  the  foreign  affiliate  lacks  50  percent  market  share 
 in  the  international  transport  and  local  access  markets  on  the  foreign  end  of  the  route.  913 

 2.  Specific  Affiliations 
 406.  We  consider  first  Bell  Atlantics  foreign  carrier  affiliations  and  the  issues  raised  by 
 those  affiliations  in  this  transfer  proceeding.  We  then  consider  GTEs  foreign  carrier  affiliations 
 and  issues  raised  by  those  affiliations.  On  April  11,  2000,  Bell  Atlantics  and  GTEs  international 
 carrier  subsidiaries  notified  the  Commission,  pursuant  to  sections  63.11(  a)(  1)  and  (a)(  2)  of  the 
 Commissions  rules,  that  they  will  become  affiliated  with  foreign  carriers  upon  consummation  of 
 the  pending  merger  between  Bell  Atlantic  and  GTE.  914  The  Foreign  Carrier  Notification  included 

 909  See  Foreign  Participation  Order,  12  FCC  Rcd  at  23954,  para.  147. 
 910  See  id.  at  23919-  21,  paras.  61-  66. 
 911  The  Commission's  international  dominant  carrier  safeguards  are  set  forth  in  section  63.10(  c),  (e)  of  the 
 Commission's  rules  (as  amended  in  International  Settlement  Rates,  IB  Docket  No.  96-  261,  Report  and  Order  on 
 Reconsideration  and  Order  Lifting  Stay,  14  FCC  Rcd  9256  (1999)),  47  C.  F.  R.    6310(  c),  (e). 

 912  See  Foreign  Participation  Order,  12  FCC  Rcd  at  23951-  52,  para.  144;  47  C.  F.  R.    63.10(  a)(  3). 

 913  See  47  C.  F.  R    63.10(  a)(  3).  Section  63.18  of  the  rules  requires  an  applicant  to  demonstrate  that  it  qualifies  for 
 nondominant  classification  on  any  affiliated  route  for  which  it  seeks  to  be  regulated  as  a  nondominant  international 
 carrier.  47  C.  F.  R.    63.18. 

 914  See  Bell  Atlantic  Communications,  Inc.  and  NYNEX  Long  Distance  Company,  and  the  GTE  International 

 Carriers,  Notification  of  Foreign  Affiliations,  Notification  of  Affiliation  and  Request  for  Waiver,  FCN-  NEW-20000411- 
 00019  (filed  Apr.  11,  2000)  (April  2000  Foreign  Carrier  Notification).  The  International  Bureau  put  this 
 (continued.) 
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 a  description  of  the  foreign  affiliations  of  both  Bell  Atlantics  and  GTEs  international  carrier 
 subsidiaries. 

 a.  Bell  Atlantic  Foreign  Carrier  Affiliations 
 407.  As  a  result  of  the  merger,  GTEs  international  carrier  subsidiaries  will  become 
 affiliated  with  all  of  Bell  Atlantics  foreign  carrier  affiliates.  Bell  Atlantics  foreign  carrier 
 affiliates  operate  in  Mexico  (Iusacell)  and  Gibraltar  (Gibraltar  NYNEX  Communications,  Ltd).  915 
 GTEs  international  carrier  subsidiaries  currently  are  authorized  to  provide  resold  and  facilities-based 
 international  telecommunications  services  to  Gibraltar  and  Mexico  (among  other  countries).  916  Applicants  request  that  we  authorize  a  transfer  of  control  of  GTEs  international 

 section  214  authorizations  to  Bell  Atlantic.  917  Thus,  approval  of  the  merger  Application  would 
 permit  Bell  Atlantic-  controlled  GTE  subsidiaries  to  serve  these  affiliated  routes. 

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

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

 (Continued  from  previous  page) 
 Notification  of  Foreign  Affiliations  on  public  notice  on  April  14,  2000.  See  Foreign  Carrier  Affiliation 
 Notification,  Applications  Accepted  for  Filing,  Report  No.  FCN-  00020  (Apr.  14,  2000). 

 915  See  April  2000  Foreign  Carrier  Notification  at  4. 

 916  See  id.  at  5. 
 917  See  Oct.  2,  1998  International  214  Application  at  1;  April  2000  Foreign  Carrier  Notification  at  Exhibit  A 
 (listing  authorizations  of  GTEs  international  carrier  subsidiaries).  See  also  Oct.  2,  1998  International  214 
 Application  at  Exhibit  1  (listing  GTEs  international  authorizations);  Amendment  to  Application  for  Commission 
 Consent  to  Transfer  Control  of  Entities  Holding  International  Section  214  Authorizations  and  Cable  Landing 
 Licenses  From  GTE  Corporation  to  Bell  Atlantic  Corporation,  CC  Docket  No.  98-  184  (filed  Mar.  8,  2000)  (adding 
 new  authorizations);  Commission  Seeks  Comment  on  Supplemental  Filing  Submitted  by  Bell  Atlantic  Corporation 
 and  GTE  Corporation,  CC  Docket  No.  98-  184,  Public  Notice,  DA  00-  608  (rel.  Mar.  17,  2000). 
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 410.  Gibraltar.  Regarding  Gibraltars  status  with  respect  to  the  WTO,  we  note  that  an 
 opinion  provided  to  us  by  the  U.  S.  Department  of  State  concludes  that  the  1994  Marrakesh 
 Agreement  Establishing  the  World  Trade  Organization  applies  to  Gibraltar.  918  We  also  note  that 
 the  United  Kingdom  maintains  a  different  view,  specifically,  that  the  territorial  application  of  the 
 WTO  Convention  does  not  extend  to  the  United  Kingdom's  overseas  territories.  919  We  defer  to 
 the  opinion  provided  to  us  by  the  U.  S.  Department  of  State  and  therefore  treat  Gibraltar  as  a 
 WTO  Member  for  purposes  of  applying  the  proper  entry  standard  to  this  transfer  of  control 
 application.  920  Accordingly,  we  find  that  Bell  Atlantic  is  entitled  to  a  presumption  that  its  foreign 
 carrier  affiliation  with  Gibraltar-  NYNEX  does  not  raise  competition  concerns  that  would  warrant 
 denial  of  its  request  to  serve  the  U.  S.-  Gibraltar  route  through  its  acquisition  of  control  of  GTEs 
 international  section  214  certificates. 

 (ii)  Regulatory  Status 
 411.  We  next  examine  whether  it  is  necessary  to  impose  our  international  dominant 
 carrier  safeguards  on  the  merged  entitys  international  carrier  subsidiaries  in  their  provision  of 
 service  on  these  affiliated  routes. 

 412.  Mexico.  Applicants  request  continued  classification  as  nondominant  on  the  U.  S.  -Mexico 
 route,  asserting  that  the  Commission  previously  has  determined  under  section  63.10(  a)(  3) 
 of  its  rules  that  Bell  Atlantics  foreign  affiliate  in  Mexico,  Iusacell,  lacks  sufficient  market  power 
 in  Mexico  to  affect  competition  adversely  in  the  U.  S.  market.  921  Applicants  certify  further  that 
 GTE  has  does  not  have  any  ownership  interest  in  a  foreign  carrier  in  Mexico,  and  the  GTE 
 international  carriers  will  not  be  affiliated  with  any  foreign  carrier  in  Mexico  other  than  Iusacell. 
 Thus,  they  argue,  the  merger  will  not  result  in  any  increase  in  Iusacells  market  power  in  Mexico 
 or  give  Iusacell  any  greater  ability  to  affect  competition  in  the  U.  S.  market  than  Iusacell  currently 
 has.  922  As  Applicants  point  out,  we  previously  have  found  that  Iusacell  does  not  control 
 bottleneck  services  or  facilities  in  Mexico,  and  therefore  lacks  the  ability  to  discriminate  against 
 unaffiliated  U.  S.  international  carriers  terminating  traffic  in  Mexico.  923  We  therefore  found  Bell 

 918  See  Letter  from  Robert  E.  Dalton,  Assistant  Legal  Adviser  for  Treaty  Affairs,  United  States  Department  of 
 State,  to  Rebecca  Arbogast,  Chief,  Telecommunications  Division,  International  Bureau,  Federal  Communications 
 Commission  at  1  (Feb.  16,  2000)  (State  Department  WTO  Letter). 

 919  See  Letter  from  Simon  Towler,  First  Secretary  (Trade  Policy),  British  Embassy,  Washington,  to  Rebecca 

 Arbogast,  Chief,  Telecommunications  Division,  International  Bureau,  Federal  Communications  Commission  at  1 
 (Jan.  20,  2000)  (British  Embassy  WTO  Letter). 

 920  See,  e.  g.,  Cable  and  Wireless  USA,  Inc.,  Application  for  Authority  to  Operate  as  a  Facilities-  based  Carrier  in 

 Accordance  with  the  Provisions  of  Section  63.18(  e)(  4)  of  the  Rules  between  the  United  States  and  Bermuda,  File 
 No.  ITC-  214-  19990709-  00412,  Order,  Authorization  and  Certificate,  DA  00-  311,  at  para.  7  (Tel.  Div.  rel.  Feb.  18, 
 2000)  (deferring  to  the  opinion  of  the  U.  S.  Department  of  State  in  treating  Bermuda  as  a  WTO  member  for 
 purposes  of  applying  the  proper  entry  standard). 

 921  See  April  2000  Foreign  Carrier  Notification  at  8. 

 922  See  id.  at  8. 
 923  See  BACI/  NYNEX-  LD  Out-  of-  Region  Facilities  Order,  12  FCC  Rcd  at  1889,  para.  20. 
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 Atlantic  Communications,  Inc.  (BACI),  one  of  Bell  Atlantics  international  carrier  subsidiaries,  to 
 be  nondominant  on  the  U.  S.-  Mexico  route.  924  We  find  no  basis  to  conclude  that  the  merger  will 
 result  in  an  increase  in  Iusacells  market  power.  We  therefore  conclude  that,  after  the  merger 
 with  GTE,  Bell  Atlantic  subsidiaries  are  entitled  to  continued  classification  as  nondominant  on  the 
 U.  S.-  Mexico  route. 

 413.  Gibraltar.  BACI  is  classified  as  a  dominant  international  carrier  on  the  U.  S.  -Gibraltar 
 route  due  to  its  affiliation  with  Gibraltar  NYNEX  Communications  Ltd.  (GNCL),  the 
 only  carrier  authorized  to  provide  domestic  wireline  telecommunications  services  in  Gibraltar.  925 
 Applicants  assert  that  dominant  carrier  regulation  does  not  apply  to  BACI  at  this  time,  however, 
 because  BACI  serves  Gibraltar  solely  through  resale  of  unaffiliated  U.  S.  carrier  international 
 switched  services.  926  Section  63.  10  of  the  Commission's  rules  specifically  establishes  a 
 presumption  of  nondominance  for  carriers,  in  their  provision  of  switched  services  on  affiliated 
 routes  where  they  provide  such  services  solely  through  the  resale  of  an  unaffiliated  U.  S.  facilities-based 
 carrier's  international  switched  services.  927  Although  BACI  is  dominant  on  the  U.  S.  -Gibraltar 
 route,  it  has  not  needed  to,  and  need  not  in  the  future,  comply  with  the  Commissions 
 dominant  carrier  safeguards  in  its  provision  of  switched  services  solely  through  the  resale  of  an 
 unaffiliated  U.  S.  facilities-  based  carrier's  international  switched  services. 

 414.  GTE  subsidiaries,  like  Bell  Atlantic  subsidiaries,  are  authorized  to  provide  multiple 
 types  of  service  (including,  but  not  limited  to,  facilities-  based,  resale  of  private  line,  and  resale  of 
 switched  services  of  unaffiliated  facilities-  based  U.  S.-  authorized  carriers).  Upon  consummation 
 of  the  merger  with  Bell  Atlantic,  GTEs  international  carrier  subsidiaries  will  be  treated  the  same 
 as  Bell  Atlantics  international  carrier  subsidiaries  currently  are  treated  with  respect  to  service  to 
 Gibraltar.  Therefore,  upon  consummation  of  the  merger,  GTEs  international  carrier  subsidiaries 
 will  be  classified  as  dominant  on  the  U.  S.-  Gibraltar  route.  As  with  BACI,  however,  when  they 
 are  only  reselling  the  switched  services  of  unaffiliated  facilities-  based  U.  S.-  authorized  carriers, 
 they  will  not  be  subject  to  the  Commissions  international  dominant  carrier  safeguards  on  the 
 U.  S.-  Gibraltar  route.  Because  several  of  GTEs  international  authorizations  that  include  service 
 to  Gibraltar  are  not  limited  to  the  resale  of  switched  services,  we  must  amend,  effective  upon 
 consummation  of  the  proposed  merger  with  Bell  Atlantic,  those  authorizations  of  the  GTE 
 international  carrier  subsidiaries  that  include  service  to  Gibraltar  and  are  not  limited  to  the  resale 

 924  See  id.;  47  C.  F.  R.    63.10(  a)(  3). 
 925  See  Bell  Atlantic  Communications,  Inc.,  Notification  Pursuant  to  Section  63.11  of  Foreign  Carrier  Affiliates, 
 FCN-  97-  011,  Order,  14  FCC  Rcd  1934,  para.  5  (Tel.  Div.  1998),  Order  on  Reconsideration,  14  FCC  13418  (Int. 
 Bur.  1998)  (BACI/  Gibraltar  Dominance  Reconsideration  Order). 

 926  See  April  2000  Foreign  Carrier  Notification  at  7. 

 927  See  BACI/  Gibraltar  Dominance  Reconsideration  Order  at  para.  4  and  n.  10,  citing  47  C.  F.  R.    63.10(  a)(  4); 
 see  also  Cable  and  Wireless,  Inc.,  Application  for  Authority  Pursuant  to  Section  214  of  the  Communications  Act, 
 as  Amended,  to  Provide  Resold  and  Facilities-  Based  Switched  and  Private  Line  Service  between  the  United  States 
 and  China,  File  No.  ITC-  214-  19980515-  00326  (previous  File  No.  ITC-  98-  380),  Order,  Authorization,  and 
 Certificate,  DA  98-  2498  at  para.  19  (Tel.  Div.  rel.  Dec.  8,  1998). 
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 of  switched  services  to  classify  them  as  dominant  on  the  U.  S.-  Gibraltar  route.  928  These 
 modifications  of  authorizations  will  require  that  these  subsidiaries  of  the  merged  entity  comply 
 with  appropriate  dominant  carrier  safeguards  if  the  GTE  international  carrier  subsidiaries  elect  to 
 provide  services  on  the  U.  S.-  Gibraltar  route  other  than  by  the  resale  of  the  switched  services  of  an 
 unaffiliated  facilities-  based  U.  S.-  authorized  carrier. 

 b.  GTE  Foreign  Carrier  Affiliations 
 415.  GTE  has  investment  interests  in  several  foreign  carriers  that  rise  to  the  level  of  an 
 affiliation  under  section  63.  09  of  the  Commissions  rules.  929  GTE  identifies  the  following  foreign 
 carriers  (or  holding  companies  of  such  carriers)  with  which  it  has  such  investment  interests:  (1) 
 BCT.  TELUS  Communications,  Inc.  (Canada/  British  Columbia  and  Alberta);  (2)  Quebec-Telephone 
 (Canada/  Quebec);  (3)  Compaia  Dominicana  de  Telfonos,  C.  por  A.  (CODETEL) 
 (Dominican  Republic);  (4)  Compaia  Annima  Nacional  Telfonos  de  Venezuela  (CANTV) 
 (Venezuela);  930  (5)  CTI  Compaia  de  Telfonos  del  Interior  S.  A.  and  CTI  Norte  Compaia  de 
 Telfonos  del  Interior  S.  A.  (collectively  CTI)  (Argentina);  and  (6)  GTE  Far  East  (Services) 
 Limited  ("  GTEFE")  (Japan).  931  As  a  result  of  the  proposed  merger,  Bell  Atlantic  would  acquire 
 indirectly  GTEs  ownership  interests  in  the  above-  named  foreign  carriers.  Applicants  state  that 
 two  of  Bell  Atlantics  subsidiaries,  BACI  and  NYNEX-  LD,  currently  are  authorized  to  provide 
 resold  and  facilities-  based  international  telecommunications  services  originating  in  New  York  and 
 outside  of  the  Bell  Atlantic  in-  region  states  to  each  of  these  countries  (among  others).  932 

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

 417.  Argentina.  Applicants  request  continued  classification  as  nondominant  on  the 

 928  Specific  amendments  appear  in  the  ordering  clauses  below. 
 929  See  47  C.  F.  R.    63.09. 
 930  Applicants  state  that  GTE  Corporation  owns  100  percent  of  GTE  International  Telecommunications 
 Incorporated,  which  owns  100  percent  of  GTE  Venezuela  Incorporated,  which  owns  51  percent  of  VenWorld 
 Telecom  C.  A.,  a  consortium  that  owns  40  percent  of  CANTV,  which  provides  domestic  and  international 
 telecommunications  services  in  Venezuela.  See  April  2000  Foreign  Carrier  Notification  at  3. 

 931  See  id. 

 932  See  id.  at  3-  4. 
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 U.  S.-  Argentina  route.  933  They  argue  that  all  of  their  international  carrier  subsidiaries  are  entitled 
 to  a  presumption  of  nondominance  under  Rule  63.10(  a)(  3)  because  GTEs  foreign  carrier  affiliate, 
 CTI,  is  a  cellular  carrier  and  a  new  entrant  in  the  international  services  market  and,  indeed,  has 
 not  yet  begun  to  provide  international  long  distance  service.  Applicants,  assert,  therefore,  that 
 CTI  lacks  international  transport  and  local  access  market  power  in  Argentina.  934  We  find  that 
 Applicants  have  submitted  sufficient  information  to  demonstrate  that,  upon  consummation  of  the 
 proposed  merger,  each  of  Bell  Atlantics  international  carrier  subsidiaries  will  warrant  continued 
 regulation  as  nondominant  carriers  on  the  U.  S.-  Argentina  route.  As  we  have  previously  found  in 
 our  1998  Biennial  Regulatory  Review  of  international  common  carrier  regulations,  foreign 
 carriers  that  have  only  mobile  wireless  (and  no  wireline)  facilities  are  unlikely  to  raise  market 
 power  concerns.  935  Moreover,  there  is  no  evidence  in  the  record  that  suggests  that  CTI,  as  a  new 
 entrant  in  Argentinas  international  long  distance  market,  possesses  market  power. 

 418.  Canada.  Applicants  request  continued  classification  as  nondominant  on  the  U.  S.  -Canada 
 route.  936  Applicants  note  that  the  Commission  previously  has  found  GTE  subsidiaries 
 nondominant  on  this  route.  937  They  note  that  Bell  Atlantics  international  carrier  subsidiaries 
 currently  are  authorized  to  operate  on  the  U.  S.-  Canada  route  as  nondominant  carriers  for  the 
 provision  of  resold  and  facilities-  based  services  originating  in  New  York  and  outside  of  the  other 
 in-  region  states  served  by  Bell  Atlantics  local  operating  telephone  companies.  938  Applicants  also 
 assert  that,  other  than  the  interests  in  BCT.  TELUS  Communications,  Inc.,  and  Quebec-  Telephone 
 that  Bell  Atlantic  will  acquire  in  the  merger,  Bell  Atlantic  has  no  ownership  interest  in  a  foreign 
 carrier  in  Canada,  and  Bell  Atlantics  international  carrier  subsidiaries  have  no  affiliation  with  any 
 foreign  carrier  in  Canada.  939  According  to  Applicants,  therefore,  the  merger  will  not  result  in  any 
 increase  in  the  foreign  affiliates  market  power  in  Canada  or  give  them  any  greater  ability  to  affect 
 competition  in  the  U.  S.  market  than  they  currently  have.  940  The  International  Bureau,  in  a  1996 
 order,  classified  a  GTE  subsidiary,  GTE  Hawaii,  as  nondominant  on  the  U.  S.-  Canada  route.  941 
 We  find  no  basis  in  the  record  in  this  proceeding  not  to  extend  this  nondominant  treatment  to  the 

 933  See  id.  at  6. 
 934  See  id.  at  6. 
 935  See  1998  Biennial  Regulatory  Review  --  Review  of  International  Common  Carrier  Regulations,  IB  Docket  No. 
 98-  118,  Report  and  Order,  14  FCC  Rcd  4909,  4922,  para.  29  (1999),  recon.  pending  (1998  International  Common 
 Carrier  Biennial  Regulatory  Review  Order). 

 936  See  April  2000  Foreign  Carrier  Notification  at  6-  7. 

 937  See  id.  at  6,  citing  Petition  of  GTE  Hawaiian  Telephone  Company,  Inc.,  for  Reclassification  as  a 
 Nondominant  IMTS  Carrier,  Order,  11  FCC  Rcd  20354  (1996)  (GTE  Hawaii  Order). 
 938  See  April  2000  Foreign  Carrier  Notification  at  6. 

 939  See  id.  at  6-  7. 
 940  See  id.  at  7. 
 941  See  GTE  Hawaii  Order,  11  FCC  Rcd  at  20383,  para.  63. 
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 merged  entity's  international  carrier  subsidiaries.  We  conclude,  therefore,  that,  upon 
 consummation  of  the  proposed  merger,  the  merged  entity's  international  carrier  subsidiaries  will 
 be  classified  as  nondominant  on  the  U.  S.-  Canada  route.  As  with  any  finding  of  nondominance  on 
 a  particular  route,  this  finding  is  without  prejudice  to  future  Commission  action. 

 419.  Japan.  Applicants  request  continued  classification  as  nondominant  on  the  U.  S.  -Japan 
 route.  942  According  to  Applicants,  all  of  the  international  carrier  subsidiaries  are  entitled  to 
 a  presumption  of  nondominance  under  section  63.10(  a)(  3)  of  the  Commissions  rules  because 
 GTEs  foreign  affiliate  in  Japan,  GTEFE,  is  a  start-  up  company  that  currently  operates  as  a 
 reseller  and  lacks  market  power  in  Japan.  943  As  we  have  previously  found  in  our  1998  Biennial 
 Regulatory  Review  of  international  common  carrier  regulations,  foreign  carriers  that  have  only 
 resale  facilities  are  unlikely  to  raise  market  power  concerns.  944  On  this  basis,  we  find  that 
 Applicants  have  provided  sufficient  information  to  demonstrate  that  GTEFE  lacks  market  power 
 in  Japan  and  that  the  merged  entitys  international  carrier  subsidiaries  warrant  nondominant 
 treatment  on  the  U.  S.-  Japan  route. 

 420.  Dominican  Republic  and  Venezuela.  Applicants  acknowledge  that  CODETEL,  a 
 foreign  carrier  affiliate  of  GTEs  in  the  Dominican  Republic,  and  CANTV,  a  foreign  carrier 
 affiliate  of  GTEs  in  Venezuela,  have  been  found  to  have  market  power  in  their  respective 
 countries.  945  Applicants  assert,  however,  that  Bell  Atlantics  international  carrier  subsidiaries  are 
 entitled  to  a  continued  presumption  of  nondominance  on  the  U.  S.-  Dominican  Republic  and  U.  S.  -Venezuela 
 routes  under  section  63.10(  a)(  4)  of  the  Commissions  rules  because  they  provide 
 switched  service  solely  through  the  resale  of  the  international  switched  services  of  unaffiliated 
 U.  S.  carriers.  946  Applicants  assert  that  the  GTE  carriers  have  accepted  dominant  regulation  on  the 
 U.  S.-  Dominican  Republic  route  for  facilities-  based  service,  because  GTEs  foreign  affiliate, 
 CODETEL,  has  been  found  to  have  market  power  in  the  Dominican  Republic.  947  Applicants 
 assert  that  the  GTE  carriers  have  accepted  dominant  regulation  on  the  U.  S.-  Venezuela  route  for 
 facilities-  based  service  because  GTEs  foreign  affiliate,  CANTV,  has  been  found  to  have  market 
 power  in  Venezuela.  948 

 421.  In  the  GTE  Venezuela/  Dominican  Republic  Order,  the  International  Bureaus 
 Telecommunications  Division  determined  that  a  GTE  subsidiary,  GTE  Telecom,  would  be  subject 
 to  the  Commissions  international  dominant  carrier  regulations  for  the  provision  of  facilities-  based 

 942  See  April  2000  Foreign  Carrier  Notification  at  7-  8. 
 943  See  id.  at  3,  7-  8.  Applicants  assert  that  GTEFE  has  a  Special  Type  2  license  in  Japan.  See  id.  at  3. 
 944  See  1998  International  Common  Carrier  Biennial  Regulatory  Review  Order,  14  FCC  at  4922,  para.  29. 
 945  See  April  2000  Foreign  Carrier  Notification  at  7  (Dominican  Republic),  8  (Venezuela). 
 946  See  id.  at  7  (Dominican  Republic),  8  (Venezuela). 
 947  See  id.  at  7. 
 948  See  id.  at  8. 
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 services  and  resold,  non-  interconnected  private  line  services  to  the  Dominican  Republic  and 
 Venezuela.  949  In  so  determining,  the  Telecommunications  Division  noted  that  GTE  Telecom  had 
 limited  its  request  for  nondominant  status  to  its  resale  of  switched  services.  950  The 
 Telecommunications  Division  noted,  however,  that  the  presumption  of  nondominance  for 
 switched  resale  in  section  63.10(  a)(  4)  of  the  Commissions  rules  does  not  apply  where  a  resale 
 carrier  also  provides  switched  services  on  the  affiliated  route  as  a  facilities-  based  carrier.  951  The 
 Telecommunications  Division  stated,  therefore,  that  GTE  Telecom  would  be  subject  to  dominant 
 carrier  regulation  in  its  provision  of  switched  service  to  the  Dominican  Republic  and  Venezuela 
 upon  initiation  of  facilities-  based  services  to  each  country.  952 

 422.  Bell  Atlantic  subsidiaries  are  authorized  to  provide  multiple  types  of  service 
 (including,  but  not  limited  to,  facilities-  based,  resale  of  private  line,  and  resale  of  switched  services 
 of  unaffiliated  facilities-  based  U.  S.-  authorized  carriers).  Upon  consummation  of  the  merger  with 
 GTE,  Bell  Atlantics  international  carrier  subsidiaries  will  be  treated  the  same  as  GTEs 
 international  carrier  subsidiaries  currently  are  treated  with  respect  to  service  to  the  Dominican 
 Republic  and  Venezuela.  Therefore,  upon  consummation  of  the  merger,  Bell  Atlantics 
 international  carrier  subsidiaries  will  be  classified  as  dominant  on  the  U.  S.-  Dominican  Republic 
 and  U.  S.-  Venezuela  routes.  However,  when  they  are  only  reselling  the  switched  services  of 
 unaffiliated  facilities-  based  U.  S.-  authorized  carriers,  Bell  Atlantic  subsidiaries,  like  GTE 
 subsidiaries,  will  not  be  subject  to  the  Commissions  international  dominant  carrier  safeguards  on 
 the  these  routes.  953  Because  several  of  Bell  Atlantics  authorizations  that  include  service  to  the 
 Dominican  Republic  and  Venezuela  are  not  limited  to  the  resale  of  switched  services,  we  must,  as 
 we  are  doing  with  respect  to  several  of  GTEs  authorizations  to  serve  Gibraltar,  amend,  effective 
 upon  consummation  of  the  proposed  merger,  several  of  the  authorizations  of  the  Bell  Atlantic 
 international  carrier  subsidiaries  or  affiliates  that  include  service  to  the  Dominican  Republic  and 
 Venezuela  to  make  them  dominant  on  those  routes.  954  These  modifications  of  authorizations  will 
 require  that  subsidiaries  or  affiliates  of  the  merged  entity  comply  with  appropriate  dominant 
 carrier  safeguards  if  these  carriers  elect  to  provide  services  on  the  U.  S.-  Dominican  Republic  and 

 949  See  GTE  Telecom  Incorporated,  Application  for  Authority  Pursuant  to  Section  214  of  the  Communications 
 Act  to  Provide  International  Switched  Resale,  Facilities-  Based  Switched,  Private  Line  Voice  and  Data  Services 
 and  Resold  Non-  interconnected  Private  Lines  to  Venezuela  and  the  Dominican  Republic,  ITC-  95-  443,  ITC-  96- 
 313,  ITC-  96-  314,  GTE  MobilNet  Incorporated,  on  Behalf  of  Itself  and  Certain  of  its  Corporate  Affiliates, 
 Application  for  Authorization  Pursuant  to  Section  214  of  the  Communications  Act  to  Operate  as  an  International 
 Resale  Carrier  for  International  Switched  Voice  Services  to  the  Dominican  Republic  and  Venezuela,  ITC-  95-  561, 
 Order,  Authorization  and  Certificate,  13  FCC  Rcd  4378,  4390-  92,  paras.  29-  34  (1998)  (GTE  Venezuela/  Dominican 
 Republic  Order). 

 950  Id.  at  4390-  91,  para.  31. 

 951  Id.  at  4390-  91,  para.  31. 
 952  Id  .at  4391,  para.  31. 
 953  Upon  consummation  of  the  merger,  however,  Bell  Atlantics  international  carrier  subsidiaries  will  be  required 
 to  file  quarterly  reports  of  their  switched  resale  traffic  on  these  routes.  See  47  C.  F.  R.    43.61(  c). 
 954  Specific  amendments  appear  in  the  ordering  clauses  below. 
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 U.  S.-  Venezuela  routes  other  than  by  the  resale  of  the  switched  services  of  an  unaffiliated 
 facilities-  based  U.  S.-  authorized  carrier. 

 3.  Cable  Landing  Licenses 
 423.  As  part  of  the  merger  application,  Applicants  request  authority  to  transfer  control 
 of  several  submarine  cable  landing  licenses  held  by  GTEs  international  carrier  subsidiaries.  955 

 424.  Prior  to  the  Foreign  Participation  Order,  the  Commission  had  evaluated  cable 
 landing  license  applications  filed  by  foreign  carriers  or  their  affiliates  under  the  analysis  set  forth  in 
 its  ECO  test.  956  In  the  Foreign  Participation  Order,  the  Commission  concluded  that  it  would  no 
 longer  require  applicants  with  market  power  in  WTO  members  (or  applicants  affiliated  with  such 
 carriers)  to  demonstrate  that  the  foreign  markets  offer  effective  competitive  opportunities  to 
 obtain  section  214  authority  to  serve  those  countries,  or  a  cable  landing  license  to  land  or  operate 
 a  cable  in  those  countries.  957  The  Commission  determined  that  it  would  analyze  foreign  affiliation 
 in  the  context  of  an  application  for  a  cable  landing  license  in  the  same  manner  it  evaluated  section 
 214  authorizations.  958  To  that  end,  the  Commission  concluded  that,  where  the  applicant  is  a 
 foreign  carrier,  or  affiliated  with  a  foreign  carrier,  that  has  market  power  in  a  WTO  member 
 where  the  cable  lands,  the  application  is  evaluated  under  a  strong  presumption  that  it  should  be 
 granted.  959 

 955  GTEs  international  carrier  subsidiaries  are  licensees  on  the  following  16  submarine  cable  systems  for  which 
 Applicants  request  authority  to  transfer  control  to  Bell  Atlantic:  Japan-  U.  S.  (GTE  Hawaiian  Tel  International 
 Incorporated),  Guam-  Philippines,  MTC  Interisland  Cable  System,  TAT-  8,  HAW-  4/  TPC-  3,  G-  P-  T,  PacificRimEast, 
 HAW-  5,  TAT-  10,  TAINO  CARIB,  TPC-  5,  COLUMBUS  II,  AMERICAS-  1,  HTC  Interisland,  TAT-  12/  TAT-  13, 
 and  ANTILLAS  I.  GTE  Intelligent  Network  Services,  Inc.  also  holds  a  license  on  the  Japan-  U.  S.  cable  system. 
 Applicants  request  authority  to  transfer  control  of  this  license  to  Genuity.  GTE  Intelligent  Network  Services, 
 Incorporated  also  holds  a  license  in  the  TAT-  14  cable  system,  which  Applicants  request  to  transfer  control  to 
 Genuity,  as  well  as  the  license  that  GTE  Telecom  Incorporated  holds  in  the  Americas  II  Cable.  As  noted  above,  we 
 do  not  address  in  this  section  the  applications  filed  by  GTE,  pursuant  to  section  214  of  the  Communications  Act 
 and  the  Cable  Landing  License  Act  (in  conjunction  with  the  spinoff  of  GTE  Internetworking  into  a  separate 
 corporation)  requesting  Commission  approval  to  transfer  control  to  Genuity  of  certain  international  section  214 
 authorizations  and  cable  landing  licenses  currently  held  by  various  GTE  subsidiaries.  We  address  those 
 applications  above.  See  supra  Section  V. 

 956  See,  e.  g.,  Telefonica  Larga  Distancia  de  Puerto  Rico,  Inc.,  Review  of  Nondiscrimination  Safeguards  Imposed, 

 Application  for  Submarine  Cable  Landing  License  for  the  COLUMBUS  II  Cable  System,  Section  214  Application 
 to  Provide  Service  to  Spain  on  the  COLUMBUS  II  Cable  System,  File  Nos.  I-  T-  C-  92-  116-  AL,  S-  C-  L-  93-  001,  I-  T-C- 
 93-  029,  Memorandum  Opinion  and  Order,  12  FCC  Rcd  5173  (1997).  The  "effective  competitive  opportunities" 
 analysis  was  developed  and  discussed  in  the  Foreign  Carrier  Entry  Order.  See  Market  Entry  and  Regulation  of 
 Foreign-  Affiliated  Entities,  RM-  8355,  RM-  8392,  IB  Docket  No.  95-  22,  Report  and  Order,  11  FCC  Rcd  3873 
 (1995)  (Foreign  Carrier  Entry  Order). 

 957  Foreign  Participation  Order,  12  FCC  Rcd  at  23932-  35,  paras.  87-  96. 

 958  Id. 
 959  Id. 
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 425.  In  the  Foreign  Participation  Order,  the  Commission  found  that,  because  of  the 
 implementation  of  the  WTO  Basic  Telecom  Agreement,  foreign  carriers  from  WTO  members 
 would  rarely  be  able  to  harm  competition  in  the  U.  S.  market  by  acting  anticompetitively.  The 
 Commission  further  noted  that,  [  e]  ven  if  a  particular  application  presents  unusual  risks  to 
 competition,  most  potential  problems  can  be  addressed  by  imposing  conditions  on  the  license,"  960 
 and  discussed  examples  of  the  kinds  of  conditions  the  Commission  has  imposed  on  cable  landing 
 licenses.  For  example,  the  International  Bureau  has  imposed  recordkeeping  requirements  on  a 
 licensee  where  it  was  deemed  necessary  to  address  anticompetitive  concerns  specific  to  one 
 proposed  submarine  cable  system.  961  The  Commission  also  stated  that,  when  considering  an 
 application  to  land  and  operate  a  submarine  cable  that  will  connect  to  a  non-  WTO  member,  it 
 would  consider  whether  the  applicant  is,  or  is  affiliated  with,  a  carrier  that  has  market  power  in  a 
 market  where  the  cable  lands,  and  if  so,  would  consider  whether  that  destination  market  offers 
 effective  competitive  opportunities  for  U.  S.  companies  to  land  or  operate  a  submarine  cable  in 
 that  country.  962  The  Commission  stated  that  it  would  also  continue  to  consider,  in  addition  to  the 
 de  jure  and  de  facto  ECO  criteria,  other  factors  consistent  with  the  Commission's  discretion  under 
 the  Cable  Landing  License  Act  that  may  weigh  in  favor  of  or  against  grant  of  a  license.  963 

 426.  In  seeking  authority  to  transfer  control  of  a  cable  landing  license,  a  carrier  must 
 comply  with  criteria  similar  to  what  is  required  of  a  carrier  seeking  section  214  authorization. 
 Specifically,  pursuant  to  sections  1.767  and  63.18  of  the  Commissions  rules,  the  carrier  must 
 certify  whether  it  is  affiliated  with  a  foreign  carrier  and  provide  information  as  to  whether  the 
 foreign  carrier  has  market  power  in  a  country  where  the  cable  lands.  We  find  that  the  proposed 
 merger  will  not  result  in  Bell  Atlantics  acquiring  an  affiliation  with  a  foreign  carrier  (i.  e.,  a  GTE 
 foreign  carrier)  that  has  market  power  on  the  foreign  end  of  a  submarine  cable  for  which  Bell 
 Atlantic  holds  a  license.  We  also  observe  that  the  proposed  merger  will  not  result  in  GTEs 
 acquiring  an  affiliation  with  a  foreign  carrier  (i.  e.,  a  Bell  Atlantic  foreign  carrier)  that  has  market 
 power  on  the  foreign  end  of  a  submarine  cable  for  which  GTE  holds  a  license.  Accordingly,  we 
 conclude  that  the  transfer  of  control  of  the  submarine  cable  landing  licenses  from  GTE  to  Bell 
 Atlantic  is  consistent  with  our  rules  and  with  the  Cable  Landing  License  Act.  964 

 960  Id.  at  23934,  para.  94. 
 961  See  id.  at  23934,  para.  95  &  n.  188,  citing  General  Communication,  Inc.,  Application  for  a  License  to  Land 
 and  Operate  in  the  United  States  a  Digital  Submarine  Cable  System  Extending  Between  the  Pacific  Northwest 
 United  States  and  Alaska,  File  No.  SCL-  97-  003,  Cable  Landing  License,  12  FCC  Rcd  18292  (I.  B.,  T.  D.,  1997). 

 962  See  Foreign  Participation  Order,  12  FCC  Rcd  at  23946,  para.  130. 

 963  See  id. 
 964  Pursuant  to  the  Cable  Landing  License  Act,  the  Department  of  State,  after  coordinating  with  the  National 
 Telecommunications  and  Information  Administration  and  the  Department  of  Defense,  approved  the  transfers  of 
 control.  See  Letter  from  Geoffrey  Chapman,  United  States  Coordinator,  Acting  International  Communications  and 
 Information  Policy,  United  States  Department  of  State,  to  Donald  Abelson,  Chief,  International  Bureau,  Federal 
 Communications  Commission  (filed  May  23,  2000). 
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 XI.  OTHER  ISSUES 
 A.  Service  Quality  Issues 
 427.  A  number  of  commenters  raise  concerns  regarding  potential  service  quality 
 problems  resulting  from  the  merger.  965  These  parties  generally  argue  that  service  quality  data  and 
 anecdotal  evidence  regarding  Bell  Atlantics  and  GTEs  performance  demonstrate  that  mergers 
 among  large  incumbent  LECs  adversely  affect  the  public  interest  by  hampering  the  delivery  of 
 service  to  consumers.  The  Applicants  respond  by  asserting  that  these  allegations  are  beyond  the 
 scope  of  this  proceeding  and  submitting  facts  in  an  attempt  to  rebut  commenters  claims.  966 

 428.  We  reject  claims  that  we  should  prohibit  these  license  transfers  because  of 
 speculation  that  service  quality  in  the  merged  companys  service  areas  will  deteriorate  as  a  result 
 of  the  merger.  We  conclude  that  the  commitments  proffered  by  Bell  Atlantic  and  GTE  in 
 supplementing  their  application  sufficiently  mitigate  the  service  quality  concerns  raised  in  the 
 record.  These  voluntary  commitments  include  several  measures  designed  to  prevent  potential 
 service  quality  degradation  after  the  merger.  967  Moreover,  we  anticipate  that  the  quarterly 
 reporting  requirements  contained  in  the  merger  conditions  will  provide  the  Commission,  state 
 public  service  commissions,  and  the  public  with  key  service  quality  data  in  a  timely  manner.  We 
 expect  that  these  conditions  will  assist  the  states  in  promoting  a  high  quality  telecommunications 
 service  by  and  assist  this  Commission  in  detecting  any  potential  post-  merger  degradation  in  service  quality. 

 B.  Character  Issues 
 429.  Among  the  factors  that  the  Commission  considers  in  its  public  interest  inquiry  is 
 whether  the  applicant  for  a  license  has  the  requisite  "citizenship,  character,  financial,  technical, 
 and  other  qualifications."  968  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.  969  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.  970  In  prior 

 965  See,  e.  g.,  New  Jersey  Coalition  Nov.  23,  1998  Comments  at  3;  PUCT  Nov.  23,  1998  Comments  at  3-  4. 
 966  Bell  Atlantic/  GTE  Dec.  23,  1998  Joint  Reply,  Attach.  K  at  17-  21. 
 967  See  supra  Section  VIII. 
 968  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14948,  para.  568;  SBC/  SNET  Order  13  FCC  Rcd  at  21305,  para  26. 
 969  See  Bell  Atlantic/  NYNEX  Order  12  FCC  Rcd  at  20092-  93,  para.  236. 
 970  Policy  Regarding  Character  Qualifications  in  Broadcast  Licensing,  102  FCC  2d  1179,  1209-  10  at  para.  57 
 (1986)  (Character  Qualifications),  modified,  5  FCC  Rcd.  3252  (1990)  (Character  Qualifications  Modification), 
 recon.  granted  in  part,  6  FCC  Rcd  3448  (1991),  modified  in  part,  7  FCC  Rcd  6564,  (1992)  (Further  Character 
 (continued.) 
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 incumbent  LEC  merger  orders,  the  Commission  has  used  the  Commission's  character  policy  in  the 
 broadcast  area  as  guidance  in  resolving  similar  questions  in  license  transfer  proceedings.  971 

 430.  A  number  of  commenters  maintain  that  Bell  Atlantic  has  a  history  of  resisting 
 competition  in  its  existing  monopoly  markets.  Commenters  argue,  for  instance,  that  Bell  Atlantic 
 does  not  offer  services  throughout  its  region  that  would  block  directory  assistance  calls  and  toll 
 calls  on  resold  lines,  972  does  not  compensate  competitive  carriers  for  the  termination  of  traffic 
 bound  for  Internet  service  providers,  973  fails  to  provide  nondiscriminatory  access  to  OSS,  974  and 
 fails  to  provide  xDSL  services  to  customers  that  choose  to  subscribe  to  another  carriers  local 
 voice  service.  975  Additionally,  AT&  T  argues  that  Bell  Atlantic  has  failed  to  comply  with  the 
 conditions  imposed  by  the  Commission  on  the  Bell  Atlantic/  NYNEX  merger.  976 

 431.  Similarly,  the  record  in  this  proceeding  contains  allegations  by  commenters  that 
 GTE  has  been  extremely  slow  to  implement  the  local  competition  provisions  of  the  1996  Act  and 
 has  delayed  competitive  entry  into  its  service  areas.  977  For  example,  many  competitive  LECs 
 maintain  that  GTE  does  not  provide  collocation  as  provided  in  the  Act  and  the  Commissions 
 rules.  978  In  addition,  commenters  make  claims  relating  to  the  availability  of  unbundled  network 
 elements,  979  OSS  issues,  980  delivery  of  unbundled  loops,  981  implementation  of  line  sharing,  982  resale, 

 (Continued  from  previous  page) 
 Qualification  Modification);  MCI  Telecommunications  Corp.,  3  FCC  Rcd  509  (1998)  (stating  that  character 
 qualifications  standards  adopted  in  the  broadcast  context  can  provide  guidance  in  the  common  carrier  context). 
 The  Commission  has  also  determined  that  allegations  that  an  applicant  has  engaged  in  unreasonable  or 
 anticompetitive  conduct  is  relevant  to  the  Commission  public  interest  analysis.  SBC/  SNET  Order  13  FCC  Rcd  at 
 21306-  07,  paras.  28-  30. 

 971  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14948,  para.  568;  SBC/  SNET  Order  13  FCC  Rcd  at  21305,  para. 

 26;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20092-  93,  para  236. 
 972  National  ALEC  Nov.  23,  1998  Comments  at  8-  9. 

 973  Focal  Nov.  23,  1998  Comments  at  2-  4. 
 974  CoreComm  Nov.  23,  1998  Comments  at  48-  49;  MCI  WorldCom  Nov.  23,  1998  Comments  at  2. 
 975  MCI  WorldCom  Nov.  23,  1998  Comments  at  5,  n.  7;  CompTel  Nov.  23,  1998  Comments  at  3-  4  &  App.  B. 
 976  AT&  T  Nov.  23,  1998  Comments  at  25-  26. 
 977  See  RCN  Nov.  23,  1998  Comments  at  1-  2;  AT&  T  Nov.  23,  1998  Comments  at  15;  Allegiance  Nov.  23,  1998 
 Comments  at  5-  6;  MCI  WorldCom  Nov.  23,  1998  Comments  at  2. 
 978  See  Bluestar,  et  al.  Mar.  1,  2000  Comments  at  18;  MCI  WorldCom  Nov.  23,  1998  Comments  at  2;  Covad 

 Nov.  23,  1998  Comments  at  4;  CoreComm  Nov.  23,  1998  Comments  at  41. 
 979  Bluestar,  et  al.  Mar.  1,  2000  Comments  at  17. 

 980  Covad  Nov.  23,  1998  Comments  at  13;  Bluestar,  et  al.  Mar.  1,  2000  Comments  at  17-  18. 
 981  Allegiance  Nov.  23,  1998  Comments  at  5. 
 982  Covad  Nov.  23,  1998  Comments  at  4. 
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 interconnection,  983  reciprocal  compensation,  984  number  portability,  985  advanced  services,  986 
 universal  service,  987  and  billing.  988  Additionally,  SCC  Communications  claims  that  both  Bell 
 Atlantic  and  GTE  currently  violate  their  statutory  obligations  under  Section  222(  g),  which 
 requires  incumbent  LECs  to  provide  subscriber  list  information  to  providers  of  emergency 
 services  and  emergency  support  services.  989 

 432.  We  conclude  that  none  of  the  foregoing  allegations  provides  a  basis  for  finding 
 that  Applicants  lack  the  fitness  to  acquire  licenses  and  authorizations  currently  held  by  GTE.  The 
 Applicants  respond  to  each  of  these  allegations  by  citing  facts  rebutting  commenters  claims  or  by 
 arguing  that  many  of  the  allegations  concern  matters  that  are  currently  being  addressed  by  this 
 Commission  or  a  state  regulatory  agency  in  other  proceedings.  Allegations  concerning,  for 
 instance,  certain  obligations  with  respect  to  advanced  services,  collocation,  and  the  Bell 
 Atlantic/  NYNEX  conditions  relate  to  matters  addressed  in  separate  Commission  proceedings.  990 
 In  this  regard,  the  Commission  has  previously  stated  that  typically  it  will  not  consider  in  merger 
 proceedings  "matters  that  are  the  subject  of  other  proceedings  before  the  Commission  because  the 
 public  interest  would  be  better  served  by  addressing  the  matter  in  the  broader  proceeding  of 
 general  applicability.  991  Alternatively,  some  of  these  allegations  are  best  addressed  in 
 enforcement  proceedings  brought  by  aggrieved  parties  under  section  208  of  the  Act. 
 Accordingly,  we  do  not  consider  such  issues  in  determining  whether  the  proposed  transfers  are  in 
 the  public  interest. 

 433.  Thus,  we  decline  to  consider  these  allegations  as  part  of  our  analysis  of  Bell 
 Atlantics  fitness  to  acquire  licenses  and  authorizations  currently  held  by  GTE.  In  reaching  this 
 conclusion,  we  emphasize  that  we  are  in  no  way  condoning  actions  by  an  incumbent  LEC  that 
 have  the  potential  to  impede  the  1996  Act's  goal  of  facilitating  competition  in  all 
 telecommunications  markets.  Indeed,  as  noted  above,  without  the  Applicants  voluntary 

 983  See  IURC  Nov.  23,  1998  Comments  at  6-  9. 
 984  See  Cox  Nov.  23,  1998  Comments  at  1-  3;  Focal  Nov.  23,  1998  Comments  at  2-  3. 
 985  See  Comments  of  Peggy  Arvanitas  at  1-  2. 
 986  See  NorthPoint  Nov.  23,  1998  Comments  at  9-  10;  MCI  WorldCom  Nov.  23,  1998  Comments  at  2;  IURC  Nov. 
 23,  1998  Comments  at  13-  14. 
 987  See  IURC  Nov.  23,  1998  Comments  at  6-  7. 

 988  National  ALEC  Nov.  23,  1998  Comments  at  15. 
 989  Letter  from  James  L.  Casserly,  Mintz  Levin  Cohn  Ferris  Glovsky  and  Popeo  PC,  Counsel  for  SCC 
 Communications  Corp.,  to  Magalie  Roman  Salas,  Secretary,  FCC,  CC  Docket  No.  98-  141  (filed  Apr.  14,  2000) 
 (SCC  Apr.  14,  2000  Ex  Parte  Letter)  at  Attachment. 

 990  See  Bell  Atlantic/  GTE  Mar.  16,  2000  Joint  Reply,  Ex.  D  8  at  &  Ex.  E  at  4-  5;  Bell  Atlantic/  GTE  Dec.  23, 

 1998  Joint  Reply,  Ex.  J  at  1-  4. 
 991  SBC/  SNET  Order,  13  FCC  Rcd  at  21306,  para.  29.  See  also  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14950, 

 para.  571. 
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 commitments  aimed  at  opening  its  local  markets  to  competition,  the  public  interest  benefits  of  the 
 proposed  merger  would  not  outweigh  the  significant  public  interest  harms.  We  believe  that  the 
 Applicants  commitments  on  issues  such  as  collocation,  OSS  enhancements,  shared  transport,  and 
 offering  of  UNEs,  and  performance  measurements  should  facilitate  the  development  of 
 competition  in  the  combined  Bell  Atlantic/  GTE  region.  992 

 C.  Requests  for  Evidentiary  Hearing 
 434.  We  deny  commenters  requests  that  the  Commission  designate  the  proposed 
 merger,  or  specific  issues  raised  by  the  merger,  for  a  trial-  type  evidentiary  hearing  before  an 
 administrative  law  judge  to  determine  whether  approval  of  the  transfer  of  control  request  resulting 
 from  the  proposed  merger  would  serve  the  public  interest.  993  Under  the  Communications  Act,  the 
 Commission  is  required  to  hold  an  evidentiary  hearing  on  transfer  of  control  applications  in 
 certain  circumstances.  994  Parties  challenging  an  application  to  transfer  control  by  means  of  a 
 petition  to  deny  under  section  309(  d)  must  satisfy  a  two-  step  test.  995  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];  .  996  Second,  the  petition  must  present 
 a  substantial  and  material  question  of  fact.    997  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).  998 

 435.  To  satisfy  the  first  prong  of  the  test,  a  petitioning  party  must  set  forth  allegations, 
 supported  by  affidavit,  that  constitute  specific  evidentiary  facts,  not  ultimate  conclusionary  facts 
 or  mere  general  allegations  .  .  ..  999  The  Commission  determines  whether  a  petitioner  has  met  this 
 threshold  inquiry  in  a  manner  similar  to  a  trial  judges  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.  1000  If  the  Commission 

 992  See  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14950,  para.  571. 

 993  See  CTC  Nov.  23,  1998  Comments  at  iii,  33;  CoreComm  Nov.  23,  1998  Comments  at  25;  RCN  Feb.  26,  1999 
 Petition  for  Evidentiary  Hearing  at  5. 
 994  See  47  U.  S.  C.    309.  See  also  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14951,  para.  575. 

 995  47  U.  S.  C.    309(  d). 
 996  47  U.  S.  C.    309(  d)(  1);  Gencom  Inc.  v.  FCC,  832  F.  2d  171,  181  (D.  C.  Cir.  1987);  see  Astroline 
 Communications  Co.  v.  FCC,  857  F.  2d  1556,  1562  (D.  C.  Cir.  1988). 
 997  47  U.  S.  C.    309(  d)(  2);  Gencom,  832  F.  2d  at  181;  see  Astroline,  857  F.  2d  at  1562. 

 998  47  U.  S.  C.    309(  e).  See  also  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18139-  40,  para.  202. 
 999  United  States  v.  FCC,  652  F.  2d  72,  89  (D.  C.  Cir.  1980)  (en  banc)  (quoting  Columbus  Broadcasting  Coalition 
 v.  FCC,  505  F.  2d  320,  323-  24  (D.  C.  Cir.  1974)). 
 1000  Gencom,  832  F.  2d  at  181. 
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 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.  1001  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).  1002 

 436.  In  evaluating  whether  a  petitioner  has  satisfied  the  two-  part  test  established  in 
 section  309(  d),  1003  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.  1004  Moreover,  in  deferring  to  the 
 Commissions  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.  1005  In  that  case,  the  D.  C.  Circuit 
 deferred  to  the  Commissions  conclusion  that  the  potential  benefits  of  such  a  hearing  would  be 
 outweighed  by  the  delay  and  its  attendant  costs.  1006 

 437.  As  an  initial  matter,  we  note  that  some  parties  seeking  an  evidentiary  hearing  in 
 this  merger  proceeding  did  not  satisfy  the  procedural  requirements  of  section  309(  d)(  1).  1007  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.  1008 

 1001  47  U.  S.  C.    309(  d)(  2).  See  also  Gencom,  832  F.  2d  at  181;  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14951,  para. 
 577. 
 1002  Serafyn  v.  FCC,  No.  95-  1385,  149  F.  3d  1213,  1216  (D.  C.  Cir.  1998)  (quoting  Citizens  for  Jazz  on  WRVR  Inc. 

 v.  FCC,  775  F.  2d  392,  395  (D.  C.  Cir.  1985)).  A  court  may  disturb  the  Commissions  decision  to  deny  an 
 evidentiary  hearing  only  if,  upon  examination  of  the  Commissions  statement  of  reasons  for  denial,  the  court 
 determines  the  Commissions  decision  to  be  arbitrary  and  capricious.  Astroline,  857  F.  2d  at  1562. 

 1003  47  U.  S.  C.    309(  d). 

 1004  SBC  Communications,  Inc.  v.  FCC,  56  F.  3d  at  1496-  97  (D.  C.  Cir.  1995)  (quoting  United  States  v.  FCC,  652 
 F.  2d  at  89-  90)  (affirming  the  Commissions  decision  in  the  AT&  T/  McCaw  Order  not  to  hold  a  full  evidentiary 
 hearing  before  approving  the  merger).  See  AT&  T/  McCaw  Order,  9  FCC  Rcd  5836  at  5927-  28,  paras.  172-  74. 

 1005  United  States  v.  FCC,  652  F.  2d  at  88-  99. 

 1006  The  court  deferred  to  the  Commissions  judgment  not  to  hold  a  hearing  when  the  Commission  had  on  two 
 different  occasions,  invited  interested  parties  to  submit  whatever  written  material  they  wanted  the  Commission  to 
 consider,  and  on  one  occasion  heard  oral  argument  en  banc  on  the  antitrust  issues  of  the  SBS  venture.  The  court 
 further  noted  that,  all  of  the  business  parties  to  this  case,  and  others,  participated  in  the  argument,  and  submitted 
 materials  were  voluminous.  Id.  652  F.  2d  at  92.  Similarly,  in  this  proceeding  we  note  the  voluminous  record 
 before  us,  including  the  numerous  comments  and  ex  parte  filings  we  have  received  and  the  public  forums  we  have 
 conducted. 

 1007  See  47  U.  S.  C.    309(  d)(  1). 

 1008  See  id. 
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 Additionally,  in  many  instances  commenters  failed  to  support  any  of  their  allegations  with 
 affidavits.  Finally,  and  most  importantly,  the  issues  raised  by  commenters  do  not  reflect  disputes 
 over  material  facts,  but  rather  focus  on  issues  concerning  the  competitive  impact  of  the  merger 
 and  the  public  interest.  These  types  of  issues  manifestly  do  not  require  a  live  hearing.  1009 

 438.  We  conclude  that  none  of  the  requests  for  evidentiary  hearing  has  raised  a 
 substantial  and  material  question  of  fact  that  would  require  an  evidentiary  hearing.  1010  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.  1011 
 Accordingly,  we  find  that  no  party  has  satisfied  the  two-  step  test  set  forth  in  section  309(  d),  1012 
 either  procedurally  or  substantively.  We  disagree  with  RCN,  for  instance,  that  there  is  a  material 
 issue  of  fact  as  to  whether  Bell  Atlantic  is  implementing  policies  and  positions  that  do  not  comply 
 with  section  251  of  the  Act.  As  discussed  above,  we  conclude  that  such  allegations  should  be 
 properly  raised  before  in  an  enforcement  proceeding  and  are  not  a  basis  for  denying  the 
 Applicants  proposed  transfers.  In  addition,  the  voluminous  record  before  us  in  this  proceeding, 
 including  the  numerous  comments  and  ex  parte  filings  we  have  received  and  the  public  forums  we 
 have  conducted,  has  provided  sufficient  evidence  to  conclude  no  substantial  and  material  question 
 of  fact  has  been  raised  and  that  grant  of  the  Applicants  applications,  as  supplemented  with  the 
 conditions  imposed  in  this  Order,  serves  the  public  interest,  convenience  and  necessity.  1013 

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

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

 1009  See  SBC  Communications,  56  F.  3d  at  1496-  97. 
 1010  See  47  U.  S.  C.  309(  d).  See  also  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14952,  para.  580. 
 1011  See  SBC  Communications,  56  F.  3d  at  1496.  See  also  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14953,  para.  580. 
 1012  47  U.  S.  C.    309(  d). 
 1013  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14953,  para.  580;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18141,  para. 
 205. 
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 a)  any  authorization  issued  to  GTEs  subsidiaries  and  affiliates  during  the  Commissions 
 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. 

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

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

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

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

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

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

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

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

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

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

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

 452.  IT  IS  FURTHER  ORDERED  that,  as  part  of  our  approval  of  the  merger,  we 
 approve  the  transfer  of  control  to  Genuity  of  the  following  international  section  214 
 authorizations  and  cable  landing  licenses  held  by  various  GTE  international  operating  subsidiaries, 
 subject  to  the  modifications  described  below:  (1)  File  No.  ITC-  214-  19990708-  00391  (global 
 facilities-  based  and  resale  authorization  held  by  GTE  Telecom  Incorporated);  (2)  File  No.  SCL- 
203
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 204 
 98-  003/  SCL-  98-  003A  (submarine  cable  landing  license  for  AMERICAS-  II  Cable  to  be  held  by 
 GTE  Telecom  Incorporated  after  a  pro  forma  assignment  from  GTE  Communications  Corp.);  (3) 
 File  No.  SCL-  LIC-  19990303-  00004  (submarine  cable  landing  license  for  TAT-  14  Cable  from 
 GTE  Intelligent  Network  Services);  (4)  File  No.  SCL-  LIC-  19981117-  00025  (submarine  cable 
 landing  license  for  Japan-  U.  S.  Cable  from  GTE  Intelligent  Network  Services);  and  (5)  ITC-  98-342/ 
 ITC-  98-  342A  (international  section  214  authorization,  associated  with  the  AMERICAS-  II 
 Cable  landing  license,  to  be  held  by  GTE  Telecom  Incorporated  after  a  pro  forma  assignment 
 from  GTE  Communications  Corp.). 

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

 454.  IT  IS  FURTHER  ORDERED  that  pursuant  to  section  212  of  the  Communications 
 Act,  all  of  Bell  Atlantics  and  GTEs  post-  merger  carrier  subsidiaries  will  be  commonly  owned 
 carriers  as  that  term  is  defined  in  the  Commissions  rules. 

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

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

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

 FEDERAL  COMMUNICATIONS  COMMISSION 

 Magalie  Roman  Salas 
 Secretary 
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 Appendix  A 
 List  of  Commenters 
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 APPENDIX  A:  LIST  OF  COMMENTERS,  CC  DOCKET  NO.  98-  184 

 BELL  ATLANTIC/  GTE  OCTOBER  2,  1998  APPLICATION  FOR 
 TRANSFER  OF  CONTROL 

 Petitions/  Comments  (filed  November  23,  1998): 
 1.  AT&  T 
 2.  Alliance  for  Public  Technology  (APT) 
 3.  Bear  Stearns  &  Co.,  Inc. 
 4.  CTC  Communications  Corp.  (CTC) 
 5.  Cablevision  LightPath,  Inc.  (Cablevision) 
 6.  Communications  Workers  of  America  (CWA) 
 7.  Competitive  Enterprise  Institute  (CPI) 
 8.  Consumers  Union  and  the  Consumer  Federation  of  America 
 9.  CoreComm  Ltd.  (CoreComm) 
 10.  EMC  Corp.(  EMC) 
 11.  Focal  Communications  Corporation  (FOCAL) 
 12.  Freedom  ring  Communications,  LLC  d/  b/  a  BayRing  Communications  (BayRing) 
 13.  GST  Telecom  Inc.  (GST) 
 14.  Hyperion  Telecommunications,  Inc.  (Hyperion) 
 15.  Indiana  Utility  Regulatory  Commission  (IURC) 
 16.  Keep  America  Connected 
 17.  KMC  Telecom  (KMC) 
 18.  Level  3 
 19.  MCI  WorldCom,  Inc.  (MCI  WorldCom) 
 20.  National  Consumers  League 
 21.  Pactec  Communications  (Pactec) 
 22.  Pilgrim  Telephone  (Pilgrim) 
 23.  Public  Utility  Commission  of  Texas  (PUC  of  Texas) 
 24.  RCN  Telecom  Services,  Inc.  (RCN) 
 25.  Rainbow/  Push  Coalition 
 26.  Sprint 
 27.  Supra  Telecommunications  &  Information  Systems  (Supra) 
 28.  Telecommunications  Resellers  Association  (TRA) 
 29.  The  Commonwealth  of  Northern  Mariana  Islands 
 30.  The  Consumer  Groups 
 31.  Tricom  USA  (Tricom) 
 32.  Triton,  PCS,  Inc.  (Triton) 
 33.  United  States  Cellular  Corporation 
 34.  WorldPath  Internet  Services  (WorldPath) 
 35.  XChange,  L.  L.  C.  (XChange) 
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 Oppositions/  Reply  Comments  (filed  December  23,  1998): 
 1.  Bell  Atlantic  Corporation  and  GTE  Corporation  (Bell  Atlantic/  GTE) 
 2.  Campaign  for  Telecommunications  Access 
 3.  Commonwealth  of  the  Northern  Mariana  Islands 
 4.  Competition  Policy  Institute  (CPI) 
 5.  Consumer  Groups 
 6.  CTC  Communications,  Corp  (CTC) 
 7.  Hyperion  Telecommunications,  Inc.  (Hyperion) 
 8.  Keep  America  Connected,  et,  al. 
 9.  MCI  WolrdCom,  Inc.  (MCI  WorldCom) 
 10.  National  Hispanic  Council  on  Aging,  et,  al. 
 11.  Progress  &  Freedom  Foundation 
 12.  Public  Utilities  Commission  of  Ohio  (PUC  of  Ohio) 
 13.  RCN  Telecom  Services,  Inc  (RCN) 
 14.  Tricom  USA,  Inc.  (Tricom) 

 BELL  ATLANTIC/  GTE 
 January  27,  2000  SUPPLEMENTAL  FILING 

 Petitions/  Comments  on  Internet  Backbone  Proposal  (filed  February  15,  2000): 
 1.  Arvanitas,  Peggy 
 2.  Association  For  Local  Telecommunications  Services  (ALTS) 
 3.  AT&  T 
 4.  Communications  Workers  of  America  (CWA) 
 5.  Competitive  Telecommunications  Associations  (Comptel) 
 6.  Covad  Communications  Company  (Covad) 
 7.  Lowenhaupt,  Thomas,  Vice  Chair,  Community  Board  3Q 
 8.  NEXTLINK  Communications,  Inc.  (NEXTLINK) 
 9.  Progress  &  Freedom  Foundation 
 10.  Telecommunications  Resellers  Association  (TRA) 

 Oppositions/  Reply  Comments  on  Internet  Backbone  Proposal 
 (filed  February  22,  2000): 

 1.  Bell  Atlantic/  GTE 
 2.  Cable  &  Wireless 
 3.  Competition  Policy  Institute  (CPI) 
 4.  Pimmitt  Run  Research,  Inc. 
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 3 
 Petitions/  Comments  on  All  Other  Issues  (filed  March  1,  2000): 
 1.  Advanced  Telecom  Group,  Inc.  (Advanced  Telecom) 
 2.  Allegiance  Telecom,  Inc.  (Allegiance) 
 3.  Alliance  for  Public  Technology  (APT) 
 4.  American  Telemedicine  Association 
 5.  AT&  T  Corp. 
 6.  BlueStar  Communications,  Inc,  DSL.  net  Inc.,  KMC  Telecom,  Inc.,  and  MGC 
 Communications,  Inc.  (BlueStar  et  al.) 
 7.  Commonwealth  of  Northern  Mariana  Islands 
 8.  Communications  Careers  for  Latinos 
 9.  Communications  Workers  of  America  (CWA) 
 10.  Competitive  Telecommunications  Association  (CompTel) 
 11.  CoreComm,  Inc.  (CoreComm) 
 12.  Covad  Communications  Company  (COVAD) 
 13.  Focal  Communications  (FOCAL) 
 14.  Indiana  Utility  Regulatory  Commission  (IURC) 
 15.  Labor  Council  For  Latino  American  Advancement  (LCLAA) 
 16.  MCI  WorldCom 
 17.  National  ALEC  Association/  Prepaid  Communications  Association 
 (National  ALEC) 
 18.  National  Puerto  Rican  Coalition,  The  Cuban  American  National  Council,  MANA,  The 
 American  G.  I.  Forum,  The  Hispanic  Association  of  Colleges  and  Universities,  ASPIRA 
 Association,  The  League  of  United  Latin  American  Citizens,  and  The  National 
 Association  of  Hispanic  Publications  (National  Puerto  Rican  Coalition  et  al.) 
 19.  NorthPoint  Communications,  Inc.  (NorthPoint) 
 20.  Office  of  Consumer  Advocate,  Pennsylvania 
 21.  RCN  Telecom  Services  (RCN) 
 22.  Texas  Office  of  Public  Utility  Counsel  (Texas  OPC) 
 23.  United  States  Hispanic  Chamber  of  Commerce 
 24.  World  Institute  on  Disability 
 25.  Z-  Tel  Communications  (Z-  Tel) 

 Oppositions/  Reply  Comments  on  All  Other  Issues  (filed  March  16,  2000): 
 1.  Bell  Atlantic/  GTE 
 2.  NEXTLINK  Communications,  Inc.  (NEXTLINK) 
 3.  Telecommunications  Advocacy  Project  (TAP) 

 Comments  on  Applicants  Further  Submissions  (filed  May  5,  2000): 
 1.  Allegiance  Telecom,  Inc.,  Bluestar  Communications,  Inc.,  CoreComm,  Inc.,  DSLNET, 
 Inc.,  MGC  Communications,  Inc.,  d/  b/  a  MPower  Communications  Corporation 
 2.  Association  For  Local  Telephone  Services  (ALTS) 
 3.  AT&  T 
 4.  Cavalier  Telephone,  LLC.  (Cavalier) 
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 5.  Competition  Policy  Institute  (CPI) 
 6.  COVAD  Communications  Company  (COVAD) 
 7.  Fred  Goldstein 
 8.  Information  Technology  Association  of  America  (ITAA) 
 9.  NorthPoint  Communications  (NorthPoint) 
 10.  SCC  Communications  Corp.  (SCC) 
 11.  WorldCom 

 Reply  Comments  on  Applicants  Further  Submissions  (filed  May  9,  2000): 
 1.  Alexis  Rosen 
 2.  BA/  GTE  (correction,  filed  May  10,  2000) 
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 Appendix  B 
 Genuity  Conditions 
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 APPENDIX  B 
 CONDITIONS  FOR  ESTABLISHMENT  OF  GENUITY  AS  A  SEPARATE  CORPORATION 

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

 XIII.  IPO  OF  GENUITY 
 459.  Genuitys  existing  nationwide  data  business  will  be  established  as  a 
 separate  corporation  that  will  be  publicly  owned  and  controlled.  Before  merging  with  Bell 
 Atlantic,  GTE  will  exchange  its  common  stock  of  Genuity  for  shares  of  a  new  class  of 
 common  stock,  the  Class  B  common  stock,  and  Genuity  will  sell  90.  5%  of  its  equity  to 
 public  shareholders  through  an  initial  public  offering  (  IPO).  Following  these 
 transactions,  the  Class  B  stock  will  carry  9.  5%  of  the  voting  rights  and  the  right  to  receive 
 9.  5%  of  any  dividends  or  other  distributions  in  Genuity,  subject  to  the  conversion  rights 
 and  investor  safeguards  described  below,  and  Genuitys  Class  A  common  stock,  initially 
 representing  90.  5%  of  the  equity  in  the  company,  will  be  owned  by  the  public.  The 
 merger  of  Bell  Atlantic  and  GTE  (creating  NewCo)  will  not  close  until  the  IPO  is 
 completed. 

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

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

 461.  Unless  and  until  NewCo  eliminates,  as  to  at  least  50%  of  Bell 
 Atlantic  in-  region  lines,  1014  section  271  restrictions  applicable  to  its  operation  of  Genuitys 
 business,  NewCo  will  only  have  the  right  to  convert  its  Class  B  stock  into  Class  A  stock 

 1014  Bell  Atlantic  in-  region  lines  shall  equal  the  sum  of  the  number  of  lines  for  each  of  the  Bell  Atlantic 
 in-  region  states,  and  the  number  of  lines  for  each  Bell  Atlantic  state  shall  be  the  number  of  total  billable 
 access  lines  for  the  Bell  Atlantic  operating  company  in  that  state  in  Bell  Atlantics  1999  ARMIS  reports 
 (and  reported  in  the  FCC's  1999  ARMIS  Report  43-  04),  except  that  because  the  entry  for  Bell  Atlantic 
 New  York  Telephone  includes  Bell  Atlantic  lines  in  both  New  York  and  Connecticut,  the  number  of  lines 
 for  Connecticut  shall  be  54,087  and  the  number  for  New  York  shall  be  11,088,712. 
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 representing  a  10%  equity  interest  in  Genuity.  Accordingly,  if  NewCo  fails  to  meet  the 
 50%  threshold  within  the  conversion  period,  NewCo  will  never  have  any  right  to  convert 
 its  stock  into  more  than  a  10%  interest,  and  the  public  shareholders  ownership  of  at  least 
 90%  of  the  company  will  be  permanent.  Likewise,  if  NewCo  transfers  its  Class  B  shares 
 to  a  third  party  before  reaching  the  50%  section  271  threshold,  that  third  party  will  never 
 be  able  to  convert  those  shares  into  more  than  a  10%  interest  in  Genuity. 

 B.  Conversion  Right  Above  10%  Equity  Interest  Once  Threshold  Is  Met 
 462.  Once  NewCo  has  met  the  50%  section  271  threshold,  its  Class  B 
 shares  become  capable  of  converting  into  stock  that  will  represent  approximately  80%  of 
 the  outstanding  shares  of  Genuity  following  conversion,  assuming  no  additional  Class  A 
 shares  are  issued  before  conversion.  Even  after  meeting  this  threshold,  however,  NewCo 
 itself  cannot  exercise  its  conversion  rights  so  as  to  own  and  control  Genuity  unless  and 
 until  NewCo  has  eliminated  all  section  271  restrictions  applicable  to  NewCos  operation 
 of  Genuitys  business. 

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

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

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

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

 467.  After  NewCo  has  eliminated  applicable  section  271  restrictions  as 
 to  100%  of  Bell  Atlantic  in-  region  lines  and  simultaneous  with  its  conversion  of  the  shares 
 of  Class  B  common  stock,  NewCo  would,  at  its  election,  either  make  a  payment  to 
 Genuity  for  distribution  to  the  holders  of  Class  A  common  stock  or  adjust  the  conversion 
 ratio,  in  either  event  so  that  the  holders  of  Genuitys  Class  A  common  stock  receive  a 
 portion  of  the  appreciation  on  the  Class  B  common  stock  (and  accompanying  conversion 
 rights).  That  portion  would  be  determined  as  follows.  First,  NewCos  total  appreciation 
 would  be  determined;  that  would  be  an  amount  equal  to  the  value  of  NewCos  Class  B 
 common  stock  on  an  as-  converted  basis  (determined  by  a  nationally  recognized 
 independent  investment  banker  in  proportion  to  the  appreciation  in  the  publicly  traded 
 Class  A  common  stock  but  adjusting  that  appreciation  so  that  it  did  not  reflect  anticipation 
 of  the  payment  or  conversion  change  contemplated  by  this  paragraph)  less  the  initial  value 
 of  NewCos  Class  B  stock  (based  on  the  original  IPO  price).  Second,  the  appreciation 
 attributable  to  a  10%  interest  in  Genuity  would  be  subtracted  from  NewCos  total 
 appreciation  (since  NewCo  could  have  owned  that  without  regard  to  section  271 
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 restrictions).  Third,  as  of  each  anniversary  of  the  closing  of  the  IPO,  a  percentage  will  be 
 determined  equal  to  25  percent  1015  times  a  fraction,  the  numerator  of  which  is  the  number 
 of  Bell  Atlantic  in-  region  lines  as  to  which  applicable  section  271  restrictions  have  not 
 been  eliminated  and  the  denominator  of  which  is  the  number  of  Bell  Atlantic  in-  region 
 lines.  1016  Fourth,  those  annual  fractions  will  be  averaged.  And  fifth,  the  product  of  that 
 average  fraction  times  NewCos  appreciation  (less  the  ten  percent  subtracted  in  step  two) 
 will  either  be  paid  in  cash  to  Genuity,  in  which  case  it  will  be  tax  adjusted  (to  reflect  the 
 fact  that  NewCo  would  have  to  pay  taxes  if  it  sold  Genuity  stock  or  other  assets  to  raise 
 the  cash),  or  translated  into  a  number  of  shares  of  Genuity  stock  and  forgone  by  NewCo 
 in  the  conversion,  in  either  event  giving  the  appropriate  amount  of  value  to  the  public 
 shareholders. 

 C.  Limitation  on  Sales  Proceeds 
 468.  If  NewCo  sells  all  of  its  stock  before  it  has  eliminated  applicable 
 section  271  restrictions  as  to  95%  of  Bell  Atlantic  in-  region  lines,  NewCo  will  not  have  a 
 right  to  retain  sale  proceeds  that  exceed  (i)  the  value  of  a  10%  equity  interest  in  Genuity 
 (determined  based  on  the  sale  proceeds),  plus  (ii)  the  amount  NewCo  would  have  if  it  had 
 taken  the  amount  of  its  initial  investment  in  Genuity  above  a  10%  interest  (based  on  the 
 IPO  offering  price  for  the  Class  A  shares)  and  invested  it  at  the  time  of  closing  in  the  S&  P 
 500  Index.  If,  during  such  period,  NewCo  sells  all  of  its  stock  except  an  amount 
 convertible  into  a  10%  equity  interest  in  Genuity,  NewCo  will  have  a  right  to  retain  only 
 the  amount  described  in  clause  (ii)  above.  1017  In  each  of  these  cases,  NewCo  would  pay  an 
 amount  equal  to  sale  proceeds  in  excess  of  those  proceeds  it  can  retain  under  the 
 preceding  two  sentences,  adjusted  to  reflect  taxes  due  on  that  excess  amount,  or  would 
 pay  such  lesser  amount  as  the  Commission  in  its  discretion  may  determine,  into  the  general 
 fund  of  the  U.  S.  Treasury.  Once  NewCo  has  eliminated  applicable  section  271  restrictions 

 1015  Because  Genuity  operates  its  existing  data  business  on  a  nationwide  (indeed,  worldwide)  basis,  the 
 portion  of  appreciation  attributable  to  Bell  Atlantic's  in-  region  states  was  calculated  by  dividing  the 
 number  of  Bell  Atlantic's  billable  access  lines  in  its  in-  region  states  by  the  number  of  billable  access  lines 
 nationwide  (as  both  reported  in  the  FCC's  1999  ARMIS  Report  43-  04).  The  resulting  percentage  was 
 then  rounded  up  to  25%  (putting  a  larger  portion  of  the  appreciation  at  risk).  This  provides  a  conservative 
 estimate  of  the  portion  of  the  appreciation  attributable  to  Bell  Atlantic's  in-  region  lines,  particularly 
 because  it  does  not  take  into  account  the  fact  that  a  significant  and  growing  portion  of  Genuity's  revenues 
 are  attributable  to  international  operations.  If  Genuity's  international  operations  were  taken  into  account, 
 it  would  reduce  the  percentage  further. 

 1016  "Bell  Atlantic  in-  region  lines"  are  as  defined  in  note  1,  supra. 
 1017  Likewise,  if,  during  such  period,  NewCo  sells  a  portion  of  its  stock  but  retains  stock  convertible  into 
 more  than  a  10%  equity  interest  in  Genuity,  NewCo  will  have  a  right  to  retain  only  a  prorated  portion  of 
 the  amount  described  in  clause  (ii)  above;  and  if,  during  such  period,  NewCo  sells  all  of  its  stock  except 
 for  an  amount  convertible  into  less  than  a  10%  equity  interest,  NewCo  will  have  a  right  to  retain  the 
 proceeds  from  the  number  of  shares  sold  that,  together  with  the  number  of  shares  retained,  would  be 
 convertible  into  a  10%  equity  interest,  plus  the  amount  described  in  clause  (ii)  above. 
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 as  to  at  least  95%  of  Bell  Atlantics  in-  region  lines,  NewCo  may  sell  its  stock  and  retain 
 the  sales  proceeds,  except  that  NewCo  (or  the  purchaser)  shall  make  either  the  conversion 
 payment  or  the  conversion  adjustment  that  would  be  required  under  the  last  paragraph  of 
 Section  2.B. 

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

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

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

 E.  Compliance  with  Legal  Order 
 472.  If,  before  NewCo  satisfies  the  50%  section  271  threshold,  a  court 
 or  agency  rules  that  NewCos  interest  in  Genuity  results  in  a  violation  of  section  271, 
 NewCos  Class  B  shares  shall  be  immediately  convertible  to  the  same  extent  as  described 
 above  in  section  2.B.  In  such  event,  NewCo  shall  be  given  a  reasonable  time  extending 
 beyond  the  date  that  such  ruling  becomes  final  and  non-  appealable  in  which  to  dispose  of 
 its  Class  B  shares  to  the  extent  they  are  convertible  into  more  than  a  10%  interest  (or  to 
 convert  those  shares  as  part  of  a  disposition),  and  may  sell  its  shares  to  a  third  party 
 subject  to  the  limitation  on  sales  proceeds  described  above. 
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 XV.  INDEPENDENCE  OF  GENUITY 
 473.  Until  NewCo  eliminates  the  applicable  section  271  restrictions  and 
 exercises  its  option  to  take  ownership  of  Genuity,  Genuity  will  be  independent  of  NewCo. 
 Genuity  will  have  an  independent  board  of  directors  that  is  periodically  elected  by  the 
 voting  shareholders  consistent  with  the  requirements  of  applicable  corporation  laws. 
 Before  the  IPO,  Genuity  will  elect  six  directors,  including  the  CEO  of  Genuity,  one 
 director  elected  by  a  class  vote  of  the  Class  B  shares,  and  four  independent  directors  who 
 have  no  prior  relationship  with  GTE  or  Bell  Atlantic.  Within  90  days  following  the  IPO, 
 the  four  independent  directors  will  select  seven  additional  directors  who  have  no  prior 
 relationship  with  GTE  or  Bell  Atlantic,  which  will  bring  the  total  board  membership  to  13 
 directors,  a  majority  of  whom  will  have  been  selected  after  the  IPO.  In  addition,  as  soon 
 as  practicable,  but  in  any  event  within  nine  months  following  the  IPO,  all  directors  except 
 the  Class  B  director  will  stand  for  election  by  the  public  shareholders,  and  each  year 
 thereafter  four  such  directors  will  stand  for  election.  The  Class  B  director  will  abstain 
 from  any  vote  before  there  are  at  least  ten  directors  on  the  board  and  will  at  no  time  serve 
 as  chairman  of  the  board.  Exhibit  B  to  the  April  28,  2000  ex  parte  submission  of  William 
 P.  Barr  describes  more  fully  how  the  board  of  Genuity  will  be  constituted  and  elected. 

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

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

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

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

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

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

 XVIII.  INDEPENDENT  AUDITOR 
 480.  NewCo  will  hire  an  independent  auditor,  acceptable  to  the  Chief  of 
 the  Common  Carrier  Bureau,  to  monitor  NewCos  ongoing  compliance  with  the  terms  of 
 these  conditions. 
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 APPENDIX  C:  Summary  of  Confidential  Information 
 [NOT  TO  BE  RELEASED  WITH  PUBLIC  VERSION] 

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

 A.  Applicants  Plans  to  Compete  Outside  Their  Traditional  Service 
 Areas 

 1.  GTEs  Out  of  Region  Plans 
 2.  Bell  Atlantics  Out  of  Region  Plans 
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 SEPARATE  STATEMENT  OF  COMMISSIONER  SUSAN  NESS 
 Re:  Applications  of  GTE  Corporation,  Transferor,  and  Bell  Atlantic 
 Corporation,  Transferee,  for  Consent  to  Transfer  Control  of  Domestic  and  International 
 Sections  214  and  310  Authorizations  and  Application  to  Transfer  Control  of  a  Submarine 
 Cable  Landing  License  (CC  Docket  No.  98-  184) 

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

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

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

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

 As  I  have  said  before,  however,  I  do  not  endorse  the  quasi-  antitrust 
 analysis  that  this  Commission  has  used  to  determine  whether  a  license  transfer  is 
 in  the  public  interest,  and  I  do  not  join  in  those  portions  of  this  Order  that 
 follow  this  approach.  Nor  do  I  support  those  conditions  that  are  essentially 
 carbon  copies  of  the  conditions  that  the  Commission  imposed  on  the 
 SBC/  Ameritech  transaction.  I  summarize  below  my  objections  to  these 
 conditions.  I  refer  to  the  reader  to  my  statement  in  the  SBC/  Ameritech  Order 
 for  a  more  complete  discussion  of  my  concerns.  See  Statement  of 
 Commissioner  Furchtgott-  Roth,  Concurring  in  Part  &  Dissenting  in  Part, 
 Applications  of  Ameritech  Corp.,  Transferor,  and  SBC  Communications,  Inc., 
 Transferee,  For  Consent  to  Transfer  Control  of  Corporations  Holding 
 Commission  Licenses  and  Lines  Pursuant  to  Sections  214  and  310(  d)  of  the 
 Communications  Act  and  Parts  5,  22,  24,  25,  63,  90,  95,  and  101  of  the 
 Commission's  Rules,  CC  Docket  98-  141  (rel.  Oct.  6,  1999). 

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

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

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

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

 For  these  reasons,  as  well  as  for  those  set  out  in  my  statement  in  the 
 SBC/  Ameritech  Order,  I  concur  only  in  the  Commissions  decision  to  approve 
 these  license  transfer  applications  and  in  the  analysis  it  applies  to  assess 
 BA/  GTEs  compliance  with  section  271  (Part  V  of  this  order). 
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 STATEMENT  OF  COMMISSIONER  MICHAEL  K.  POWELL, 
 CONCURRING  IN  PART  AND  DISSENTING  IN  PART 

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

 Just  over  eight  months  ago,  I  wrote  separately  and  at  length  to  criticize  sharply  the 
 form  and  content  of  the  Commissions  analysis  of  another  merger  of  major  incumbent 
 local  exchange  carriers  (LECs),  namely  SBCs  acquisition  of  Ameritech.  1018  Among  other 
 shortcomings,  this  analysis  allowed  the  applicants  voluntary  conditions  to  compensate 
 for  largely  unrelated  alleged  public  interest  harms.  Because  the  majority  persists  in  its 
 reliance  on  this  faulty  analysis  in  evaluating  Bell  Atlantics  proposed  acquisition  of  GTE,  I 
 must  respectfully  dissent  from  some  aspects  of  this  Order  and  only  concur  as  to  other 
 aspects.  1019  Specifically,  although  I  again  concur  in  the  conclusion  that  there  are  public 
 harms  that  might  well  result  from  this  combination  that  are  not  entirely  offset  by  the 
 applicants  asserted  benefits,  I  am  unsatisfied  that  any  one  of  these  harms  bears  the  weight 
 assigned  to  it  in  this  Order.  Thus,  I  believe  fewer  conditions,  tailored  to  address  the 
 specifically  identified  harms,  would  have  been  the  correct  result. 

 This  Order  suffers  from  the  same  flawed  analytical  framework  as  in  the 
 SBC/  Ameritech  Order.  In  that  order,  I  expressed  extreme  discomfort  with  a  merger 
 review  standard  that  places  harms  on  one  side  of  a  public  interest  scale  and  then 
 examines  whether  those  harms  are  outweighed  by  beneficial  conditions  placed  on  the 
 opposite  side  of  that  scale,  regardless  whether  the  compensating  conditions  actually  rectify 
 the  harms.  I  explained  that  this  approach  results  in  a  number  of  pernicious  effects.  1020 

 1018  See  Applications  of  Ameritech  Corp.,  Transferor,  and  SBC  Communications  Inc.,  Transferee,  for 
 Consent  to  Transfer  Control  of  Corporations  Holding  Commission  Licenses  and  Lines  Pursuant  to  Section 
 214  and  Section  310(  d)  of  the  Communications  Act  and  Parts  5,  22,  24,  25,  63,  90,  95,  and  101  of  the 
 Commissions  Rules,  CC  Docket  No.  98-  141,  Memorandum  Opinion  and  Order  (Separate  Statement  of 
 FCC  Commissioner  Michael  K.  Powell)  (Oct.  8,  1999)  (  SBC/  Ameritech  Separate  Statement)  [Available 
 on  the  World  Wide  Web  at  <  http://  www.  fcc.  gov/  Speeches/  Powell/  Statements/  stmkp930.doc>]. 

 1019  Although  I  dissent  in  part  to  the  Order,  I  do  concur  with  the  items  Section  271  analysis. 

 1020  See  SBC/  Ameritech  Separate  Statement  at  1.  This  balancing  approach  leads  to  a  number  of 
 problems:  First,  the  approach  creates  a  great  temptation  to  load  up  the  benefits  side  of  the  scale  with  a  big 
 wish  list  of  conditions  that  are  non-  germane  to  the  mergers  harmful  effects.  Second,  the  approach  makes 
 it  easier  for  identified  harms,  even  significant  ones,  to  be  visited  upon  the  public  in  exchange  for  other 
 benefits.  Third,  the  conditions  that  are  sought  are  more  often  surrogates  for  policies  and  rules  of  general, 
 (continued.) 
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 Sadly,  these  effects  are  not  significantly  avoided  in  this  Order. 
 For  example,  in  the  SBC/  Ameritech  Order,  I  lamented  that  the  majoritys  faulty 
 merger  review  framework  would  make  it  easier  for  regulators  to  visit  identified  harms 
 upon  the  public  in  exchange  for  unrelated  benefits.  This  problem  evidences  itself  again  in 
 this  Order.  Despite  the  fact  that  the  majority  concludes  that  the  merger  will  result  in 
 harms  they  characterize  as  significant,  such  as  precluded  competition,  increased 
 discrimination,  and  loss  of  major  incumbent  LEC  benchmarks,  the  Order  allows  these 
 purportedly  significant  harms  to  occur  largely  unmitigated  by  the  proposed  conditions. 
 This  leads  me  to  question  whether  the  majority  truly  believes  that  the  harms  are 
 significant,  or  whether  they  believe,  as  do  I,  that  the  described  harms  are  too  speculative 
 and  thus  may  be  exaggerated.  1021 

 My  skepticism  surrounding  the  alleged  harms  of  major  LEC  mergers  is 
 exacerbated  in  this  proceeding  because  these  harms  should  be,  at  least  according  to  the 
 majoritys  reasoning,  more  significant  in  this  merger  than  in  the  SBC/  Ameritech 
 proceeding.  For  example,  according  to  the  majoritys  theory,  the  bigger  the  merged  LEC 
 is,  the  more  incentive  and  ability  to  discriminate  it  will  have.  As  such,  it  follows  that  there 
 must  be  greater  risk  of  potential  harm  associated  with  this  merger  than  with  respect  to  the 
 SBC/  Ameritech  merger,  which  yielded  a  smaller  merged  entity  than  the  one  we  sanction  in 
 this  Order.  Similarly,  the  majoritys  benchmarking  rationale  postulates  that  it  will  become 
 increasingly  difficult  for  regulators  to  find  useful  major  LEC  benchmarks  as  the  number  of 
 these  LECs  declines.  It  follows,  then,  that  the  further  consolidation  among  major  LECs 
 that  the  Bell  Atlantic/  GTE  merger  represents  must  involve  greater  risk  of  harm  than  that 
 associated  with  the  previously  approved  SBC/  Ameritech  merger.  If  I  were  convinced  that 
 the  risk  of  these  harms  was  as  significant  as  the  majoritys  analysis  suggests,  and  that  no 
 conditions  could  correct  them,  I  would  be  very  hesitant  to  subject  the  public  to  these 
 harms  and  would  instead  disapprove  the  merger,  rather  than  try  to  offset  it  with 
 commitments  that  are  wholly  unrelated  to  the  harms. 
 (Continued  from  previous  page) 
 rather  than  merger-  specific,  applicability,  but  without  the  extensive  deliberative  process  and  the  check  of 
 judicial  review  normally  afforded  a  rulemaking.  And  fourth,  the  process  of  obtaining  voluntary 
 conditions  inevitably  involves  bilateral  negotiations  with  the  parties  that  leave  the  integrity  of  the 
 Commissions  process  vulnerable  to  criticism. 

 1021  See  SBC/  Ameritech  Separate  Statement  at  5-  19.  I  would  note,  in  addition,  that  I  find  little  comfort  in 

 the  fact  that,  in  contrast  to  the  proceeding  leading  to  the  SBC/  Ameritech  Order,  this  proceeding  did  not 
 involve  nearly  as  much  haggling  between  the  applicants  and  Commission  staff  regarding  the  proposed 
 conditions.  Among  other  things,  I  argued  in  that  previous  context  that  the  process  of  obtaining 
 voluntary  conditions  inevitably  involves  bilateral  negotiations  with  the  parties  that  leave  the  integrity  of 
 the  Commissions  process  vulnerable  to  criticism.  Although  the  proposed  conditions  here  were  not 
 subject  protracted  negotiations  with  these  two  applicants,  they  are  modeled  so  closely  on  the  conditions 
 negotiated  by  SBC  and  Ameritech  that  they  carry  the  same  taint.  In  short,  we  cannot  turn  a  blind  eye  to 
 the  troubled  origins  of  these  conditions,  simply  because  the  applicants  anticipated  what  would  satisfy  the 
 Commission  based  on  its  previous  negotiations  with  SBC  and  Ameritech.  That  said,  I  am  at  least  pleased 
 that  the  Commission  did  not  pursue  extensive  negotiation  with  these  applicants  over  the  proposed 
 conditions. 
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 Unfortunately,  none  of  the  shortcomings  I  address  here  or  in  my  previous 
 statement  on  these  issues  will  ever  be  addressed  unless  the  Commission  begins  to  reform 
 the  majoritys  balancing  approach  to  merger  review  that  we  apply  again  here,  or 
 seriously  question  the  aforementioned  specious  theories  of  potential  harm.  At  most,  these 
 theories  evidence  our  reluctance  to  confront  directly  what  appears  to  be  an  unstated 
 distaste  for  horizontal  mergers  in  this  area.  1022  Until  then,  I  must,  with  respect  to  both  the 
 majoritys  unworkable  analytical  framework,  and  as  to  their  assessment  of  potential  harms, 
 respectfully  dissent  from  application  of  this  reasoning  in  our  merger  review. 

 1022  See  SBC/  Ameritech  Separate  Statement  at  12  (  Sadly,  all  that  one  is  left  with  after  reading  the 
 [SBC/  Ameritech]  Orders  benchmarking  analysis  (and,  indeed,  its  discrimination  analysis)  is  the  sense 
 that,  for  some  reason,  the  Bell  Companies  and  perhaps  GTE  are  on  the  too  large  to  merge  side  of  the 
 dividing  line  between  permissible  and  impermissible  mergers.  If  this  was  supposed  to  be  the  moral  of  the 
 benchmarking  and  discrimination  stories  in  this  Order,  I  would  have  preferred  to  relay  that  moral  more 
 directly,  rather  then  through  these  theoretical  constructs.). 
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 SEPARATE  STATEMENT  OF  GLORIA  TRISTANI 
 Re:  In  re  Application  of  GTE  Corp.,  Transferor,  and  Bell  Atlantic  Corporation, 
 Transferee,  for  Consent  to  Transfer  Control  of  Domestic  and  International  Section  214 
 and  310  Authorizations  and  Application  to  Transfer  Control  of  a  Submarine  Cable 
 Landing  License.  CC  Docket  No.  98-  184. 

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

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

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

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

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