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 Federal  Communications  Commission  FCC  05-  184 
 Before  the  Federal  Communications  Commission 
 Washington,  D.  C.  20554 

 In  the  Matter  of 
 Verizon  Communications  Inc.  and  MCI,  Inc.  Applications  for  Approval  of 
 Transfer  of  Control 

 )  ) 
 )  ) 
 )  )  WC  Docket  No.  05-  75 

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

 TABLE  OF  CONTENTS  Para. 
 I.  INTRODUCTION  ...........................................................................................................................  1  II.  EXECUTIVE  SUMMARY  .............................................................................................................  3 
 III.  BACKGROUND  .............................................................................................................................  5  A.  DESCRIPTION  OF  THE  APPLICANTS  ..................................................................................................  5 
 1.  MCI,  Inc........................................................................................................................................  5  2.  Verizon  Communications  Inc.  ......................................................................................................  7 
 B.  DESCRIPTION  OF  THE  TRANSACTION  ...............................................................................................  9  C.  APPLICATIONS  AND  REVIEW  PROCESS...........................................................................................  14 
 1.  Commission  Review  ...................................................................................................................  14  2.  Department  of  Justice  Review  ....................................................................................................  15 
 IV.  STANDARD  OF  REVIEW  AND  PUBLIC  INTEREST  FRAMEWORK....................................  16  V.  POTENTIAL  PUBLIC  INTEREST  HARMS  ...............................................................................  20 
 A.  ANALYTICAL  FRAMEWORK  ...........................................................................................................  20  B.  WHOLESALE  SPECIAL  ACCESS  COMPETITION  ...............................................................................  24 
 1.  Relevant  Markets  ........................................................................................................................  25  2.  Competitive  Analysis  ..................................................................................................................  31 
 C.  RETAIL  ENTERPRISE  COMPETITION  ...............................................................................................  56  1.  Relevant  Markets  ........................................................................................................................  57 
 2.  Competitive  Analysis  ..................................................................................................................  65  D.  MASS  MARKET  COMPETITION  .......................................................................................................  82 
 1.  Relevant  Markets  ........................................................................................................................  83  2.  Competitive  Analysis  ................................................................................................................  102 
 E.  INTERNET  BACKBONE  COMPETITION...........................................................................................  109  1.  Background...............................................................................................................................  110 
 2.  Relevant  Markets  ......................................................................................................................  113  3.  Competitive  Analysis  ................................................................................................................  117 
 F.  WHOLESALE  INTEREXCHANGE  COMPETITION.............................................................................  145  1.  Relevant  Markets  ......................................................................................................................  146 
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 2.  Competitive  Analysis  ................................................................................................................  148  G.  U.  S.  INTERNATIONAL  SERVICES  COMPETITION...........................................................................  152 
 1.  Input  Markets  ............................................................................................................................  157  2.  Intermediate  Facilities-  Based  Markets......................................................................................  163 
 3.  End-  User  Markets  .....................................................................................................................  170  4.  Foreign  Carrier  Affiliations  and  Related  Safeguards................................................................  178 
 5.  Submarine  Cable  Landing  Licensee  Notification  .....................................................................  182  H.  VERIZONS  QUALIFICATIONS  TO  ACQUIRE  CONTROL  OF  MCIS  LICENSES  ................................  183 
 I.  OTHER  ISSUES  ..............................................................................................................................  189  VI.  POTENTIAL  PUBLIC  INTEREST  BENEFITS..........................................................................  193 
 A.  INTRODUCTION.............................................................................................................................  193  B.  ANALYTICAL  FRAMEWORK  .........................................................................................................  194 
 C.  ENHANCEMENTS  TO  NATIONAL  SECURITY  AND  GOVERNMENT  SERVICES  .................................  197  D.  EFFICIENCIES  RELATED  TO  VERTICAL  INTEGRATION..................................................................  202 
 E.  ECONOMIES  OF  SCOPE  AND  SCALE  ..............................................................................................  205  F.  COST  SYNERGIES  .........................................................................................................................  208 
 VII.  PROCESS  AND  ENFORCEMENT............................................................................................  215  VIII.  CONCLUSION............................................................................................................................  219 
 IX.  ORDERING  CLAUSES  ..............................................................................................................  222  APPENDIX  A:  LIST  OF  COMMENTERS 
 APPENDIX  B:  LIST  OF  MCI  LICENSES  AND  AUTHORIZATIONS  SUBJECT  TO  TRANSFER  OF  CONTROL 
 APPENDIX  C:  ENTERPRISE  DATA  APPENDIX  D:  MASS  MARKET  DATA 
 APPENDIX  E:  INTERNET  BACKBONE  DATA  APPENDIX  F:  U.  S.-  INTERNATIONAL  SERVICES  DATA 
 APPENDIX  G:  CONDITIONS 
 I.  INTRODUCTION 
 1.  Verizon  Communications  Inc.  (Verizon)  and  MCI,  Inc.  (MCI)  (collectively,  the  Applicants)  have  filed  a  series  of  applications  1  pursuant  to  sections  214  and  310(  d)  of  the  Communications  Act  of 
 1934,  as  amended  (Communications  Act  or  Act)  2  and  section  2  of  the  Cable  Landing  License  Act  3  in  connection  with  their  proposed  merger.  This  merger  would  combine  one  of  the  largest  regional  Bell 
 Operating  Companies  (BOCs)  with  one  of  the  largest  providers  of  interexchange  and  competitive  local  service.  This  proposed  merger  occurs  against  the  backdrop  of  ongoing  change  in  the  industry,  including 
 the  pending  merger  of  SBC  and  AT&  T,  and  the  recent  merger  of  Sprint  and  Nextel.  4  Verizon  and  MCI 

 1  Commission  Seeks  Comment  on  Application  For  Consent  to  Transfer  of  Control  Filed  By  Verizon 
 Communications  Inc.  and  MCI,  Inc.,  WC  Docket  No.  05-  75,  Public  Notice,  DA  05-  762  (rel.  Mar.  24,  2005)  (Public  Notice). 

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

 Communications  Inc.  and  AT&  T  Corp.  Applications  for  Approval  of  Transfer  of  Control,  WC  Docket  No.  05-  65,  Memorandum  Opinion  and  Order,  FCC  05-  183  (rel.  Nov.  17,  2005)  (SBC/  AT&  T  Order);  Applications  of  Nextel 
 (continued.) 
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 new  business  segments    Enterprise  Markets;  15  U.  S.  Sales  and  Service;  16  and  International  and  Wholesale  Markets.  17 
 2.  Verizon  Communications  Inc. 
 7.  Verizon,  a  publicly-  traded  corporation  incorporated  under  the  laws  of  the  State  of  Delaware  and  headquartered  in  New  York,  New  York,  18  is  a  holding  company  that  owns  operating  subsidiaries  that 
 provide  a  range  of  communications  services  in  the  United  States  and  select  foreign  countries.  19  Verizon  offers  local,  long-  distance,  high-  speed  Internet  and  wireless  services  to  residential  customers  on  a  stand-alone 
 basis  or  in  various  packages,  including  all-  distance  voice  packages  that  include  local  and  long  distance  services.  20  Verizon  provides  these  services,  including  broadband,  in  28  states  and  the  District  of 
 Columbia.  21  Verizon  also  provides  a  variety  of  services  to  other  telecommunications  carriers  as  well  as  large  and  small  businesses.  22  Verizon  has  investments  in  international  wireline  and  wireless  operators, 
 primarily  in  the  Americas  and  Europe.  23 
 8.  Verizon  is  also  a  majority  owner  of  Verizon  Wireless,  which  serves  43.8  million  voice  and  data  subscribers  across  the  United  States.  24  Verizons  domestic  wireless  business  provides  wireless  voice  and 

 15  MCIs  Enterprise  Markets  segment  includes  Global  Accounts,  Government  Markets  and  System  Integrators. 
 Global  Accounts  provides  communications  and  network  solutions  to  large  multinational  corporations  requiring  complex  international  network  services.  Government  Markets  provides  similar  services  to  various  government 

 agencies,  while  System  Integrators  serves  customers  through  partnerships  with  third-  party  network  solutions  providers.  Id. 

 16  MCIs  U.  S.  Sales  and  Service  segment  includes  Mass  Markets  and  Commercial  Accounts.  The  Mass  Markets 
 division  is  responsible  for  such  services  as  subscription-  based  residential  and  certain  small  business  accounts,  and  transactional  products  which  include  10-  10-  987,  10-  10-  220,  1-  800-  COLLECT,  and  MCI  prepaid  cards.  MCIs 

 Commercial  Accounts  provides  services  to  small,  mid-  sized,  and  large  business  accounts.  Commercial  Accounts  also  includes  MCIs  SkyTel  business,  which  provides  wireless  e-  mail,  interactive  two-  way  messaging,  wireless 
 telemetry  services  and  traditional  text  and  numeric  paging  to  customers  throughout  the  United  States.  Id. 
 17  Id.  MCIs  International  and  Wholesale  Markets  segment  provides  voice,  data,  Internet  and  managed  network 
 services  to  domestic  and  international  wholesale  accounts,  as  well  as  to  retail  and  government  customers  in  Europe,  the  Middle  East  and  Africa,  the  Asian  Pacific  region,  Latin  America  and  Canada.  Id. 

 18  Verizon  Communications  Inc.,  Form  10-  Q  at  1  (filed  Aug.  8,  2005)  available  at 
 http://  investor.  verizon.  com/  sec/  sec_  frame.  aspx?  fid=  3837584  (Verizon  Form  10-  Q). 
 19  Verizon/  MCI  Application  at  2. 

 20  See  http://  investor.  verizon.  com/  business/  wireline.  aspx.  Verizon  has  been  able  to  offer  long  distance  services  in 
 all  of  the  states  in  which  it  operates  since  2003.  See  http://  www.  fcc.  gov/  Bureaus/  Common_  Carrier/  in-region_  applications/. 

 21  Verizon/  MCI  Proxy  Statement  at  1  (Aug.  31,  2005)  available  at  http://  investor.  verizon.  com/  SEC/  (Verizon/  MCI 
 Proxy  Statement). 
 22  Id. 

 23  Verizon/  MCI  Application  at  2. 
 24  Id. 
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 data  products  and  services  across  the  United  States.  25  Verizons  subsidiary,  Information  Services,  operates  directory  publishing  businesses  and  provides  electronic  commerce  services.  26  Verizon  employs 
 approximately  214,000  people.  27  For  the  six  months  ended  June  30,  2005,  Verizon  reported  $36.7  billion  in  operating  revenues  and  net  income  of  $3.9  billion.  28  For  the  year  ended  December  31,  2004,  Verizon 
 reported  $71.3  billion  in  operating  revenues  and  a  net  income  of  $7.8  billion.  29 
 B.  Description  of  the  Transaction 
 9.  On  February  14,  2005,  Verizon  and  MCI  announced  an  Agreement  and  Plan  of  Merger  (  Merger  Agreement)  30  under  which  MCI  will  become  a  wholly-  owned  subsidiary  of  Verizon.  31  According  to  the 
 terms  and  conditions  of  the  Merger  Agreement,  a  wholly-  owned  subsidiary  of  Verizon  will  merge  with  and  into  MCI.  32  MCI  will  be  the  surviving  corporation,  thereby  becoming  a  wholly-  owned  subsidiary  of 
 Verizon.  33  MCI  shareholders  will  receive  cash  and  stock  worth  at  least  $23.50,  consisting  of  $8.75  in  cash,  including  MCIs  March  15  dividend  payment  of  $0.40  per  share.  34  In  addition,  MCI  shareholders 
 will  receive  at  least  0.4062  shares  of  Verizon  common  stock  for  each  MCI  share  owned.  35  On  October  6,  2005,  a  majority  of  MCI  shareholders  voted  to  approve  the  merger.  36 

 10.  Following  consummation  of  the  transaction,  MCI  will  continue  to  own  the  stock  of  its  subsidiaries,  and  MCI  and  its  subsidiaries  will  continue  to  hold  all  of  the  Commission  licenses  and 

 25  Verizon/  MCI  Proxy  Statement  at  1. 
 26  Id. 
 27  Id. 
 28  Id. 
 29  Id. 
 30  See  Verizon/  MCI  Application  at  ii.  The  Merger  Agreement  was  amended  as  of  March  4,  2005,  March  29,  2005, 
 and  May  1,  2005.  See  MCI  Form  10-  Q/  A  at  5. 
 31  Verizon/  MCI  Application  at  1. 

 32  Id. 
 33  Id. 
 34  See  Letter  from  Michael  Glover,  Verizon  Communications  Inc.,  and  Richard  Whitt,  MCI,  Inc.  to  Marlene  H. 
 Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  75  (filed  Apr.  1,  2005). 
 35  Id.  Separately,  on  April  9,  2005,  Verizon  entered  a  stock  purchase  agreement  with  eight  entities  affiliated  with 
 Carlos  Slim  Helu  to  purchase  43.4  million  shares  of  MCI  common  stock  for  $25.72  per  share  in  cash  plus  an  additional  cash  amount  of  3%  per  annum  from  April  9,  2005  until  the  closing  of  the  purchase  of  those  shares.  The 

 transaction  closed  on  May  17,  2005  and  the  additional  cash  payment  was  made  through  May  13,  2005.  The  total  cash  payment  was  $1.121  million.  See  Verizon  Form  10-  Q  at  1. 

 36  See  Verizon-  MCI  Merger  Receives  Overwhelming  Majority  of  Shareholder  Vote  (Oct.  6,  2005)  available  at 
 http://  newscenter.  verizon.  com/  proactive/  newsroom/  release.  vtml?  id=  92916. 
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 authorizations  that  they  held  prior  to  the  merger.  37  As  such,  the  transaction  does  not  involve  any  assignment  of  MCIs  licenses  and  authorizations  or  any  change  in  the  licensees  that  hold  such  licenses 
 and  authorizations.  38  Similarly,  the  transaction  will  not  result  in  any  assignment  of  Verizons  existing  licenses  and  authorizations  or  any  change  in  the  licensees  that  hold  such  licenses  and  authorizations.  39 

 11.  The  Applicants  contend  that  the  transaction  is  in  the  public  interest.  They  assert  that  the  transaction  will  combine  Verizons  broadband,  wireless  and  local  wireline  networks  with  MCIs  Internet 
 backbone  and  global  reach.  40  The  Applicants  claim  that  this  combination  will  benefit  large  enterprise  customers  by  creating  a  strong  new  competitor  with  the  network  reach  and  financial  resources  to  compete 
 in  this  technologically  intensive  and  highly  competitive  market  segment.  41  They  argue  that  the  transaction  will  benefit  government  customers  and  promote  national  security  by  enhancing  investment  in 
 the  national  and  international  communications  infrastructure  that  is  used  by  the  Departments  of  Defense  and  Homeland  Security,  as  well  as  other  federal  and  state  agencies.  42 

 12.  The  Applicants  further  contend  that,  as  a  result  of  the  transaction,  Verizon  will  bring  to  the  large  enterprise  and  governmental  businesses  the  same  commitment  to  innovation  and  investment  that  it  has 
 brought  to  its  mass  market  wireline  and  wireless  businesses,  and  that  it  has  already  committed  to  a  $2  billion  investment  in  MCIs  network  and  information  technology  platforms.  43  The  Applicants  state  that 
 the  transaction  will  also  benefit  mass  market  consumers  by  establishing  the  nations  most  advanced  broadband  platform,  capable  of  delivering  next-  generation  multimedia  services  in  markets  across  the 
 country.  44  The  Applicants  also  assert  that  the  transaction  is  expected  to  generate  synergies  in  the  form  of  both  cost  savings  and  enhanced  revenue  opportunities  that  will  yield  a  net  present  value  of  $7  billion, 
 which  will  further  the  companies  ability  to  provide  new  and  improved  services  faster  and  more  efficiently.  45 

 13.  The  Applicants  argue  that  the  combined  company  will  be  just  one  among  many  other  competitors  in  the  large  enterprise  segment  that  represents  the  core  of  MCIs  business.  46  Further,  the 
 Applicants  assert  that,  with  respect  to  the  mass  market,  the  transaction  will  not  affect  the  rapid  growth  of 

 37  Verizon/  MCI  Application  at  2.  On  July  21,  2005,  Verizon  and  MCI  notified  the  Commission,  pursuant  to  section 
 1.65  of  the  Commissions  rules,  47  C.  F.  R.    1.65,  that  networkMCI,  Inc.,  formerly  a  wholly-  owned  subsidiary  of  MCI,  Inc.,  was  merged  into  MCI  Network  Services,  Inc.,  effective  June  30,  2005.  See  Letter  from  Curtis  L.  Groves, 

 MCI,  Inc.  and  Karen  Zacharia,  Verizon  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  75  (filed  July  21,  2005). 

 38  Verizon/  MCI  Application  at  2. 
 39  Id. 
 40  Verizon/  MCI  Application,  Public  Interest  Statement,  Exh.  1,  at  3  (Verizon/  MCI  Public  Interest  Statement). 

 41  Id.  See  infra  para.  67. 
 42  Verizon/  MCI  Public  Interest  Statement  at  3. 
 43  Id. 
 44  Id. 

 45  Id. 
 46  Id.  at  4. 
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 competitive  intermodal  alternatives,  such  as  cable  and  wireless,  VoIP,  e-  mail,  and  other  technologies  that  consumers  are  increasingly  using  in  place  of  their  traditional  wireline  phone.  47  The  Applicants  state,  by 
 contrast,  that  MCIs  mass  market  business  is  in  a  continuing  and  irreversible  decline  thereby  prompting  MCI  to  exit  the  consumer  business.  48 

 C.  Applications  and  Review  Process 
 1.  Commission  Review 
 14.  On  March  11,  2005,  Verizon  and  MCI  jointly  filed  a  series  of  applications  seeking  Commission  approval  of  the  proposed  transfer  of  control  of  licenses  and  authorizations  held  by  MCI  and  its 
 subsidiaries  to  Verizon.  49  On  March  24,  2005,  the  Wireline  Competition  Bureau  released  a  Public  Notice  seeking  public  comment  on  the  proposed  transaction.  50  In  response  to  the  Public  Notice,  more  than  50 
 parties  filed  petitions  to  deny  the  applications  or  comments  supporting  or  opposing  grant  of  the  applications.  51  On  May  5,  2005,  Wireline  Competition  Bureau  staff  requested  additional  information 
 from  the  Applicants  (Information  Request).  52  On  May  26,  2005,  the  International  Bureau  staff  requested  additional  information  from  the  Applicants  (International  Information  Request).  53  The  Applicants 

 47  Id. 
 48  Id. 
 49  Pursuant  to  section  214  of  the  Communications  Act,  Verizon  and  MCI  filed  applications  seeking  Commission 
 approval  to  transfer  to  Verizon  control  of  domestic  and  international  section  214  authorizations  held  by  MCI  and  its  subsidiaries.  47  U.  S.  C.    214.  The  Applicants  also  filed  applications  for  consent  to  transfer  control  of  MCIs 

 interests  in  submarine  cable  landing  licenses  to  Verizon  pursuant  to  section  2  of  the  Cable  Landing  License  Act.  47  U.  S.  C.    35.  Pursuant  to  section  310(  d)  of  the  Communications  Act,  Verizon  and  MCI  filed  applications  seeking 
 Commission  approval  to  transfer  of  control  of  wireless  and  earth  station  licenses  and  authorizations  held  by  MCI  and  various  subsidiaries  to  Verizon.  47  U.  S.  C.    310(  d). 

 50  See  Public  Notice.  The  Public  Notice  set  due  dates  of  May  9,  2005  for  the  filing  of  Comments  and  Petitions  to 
 Deny  and  May  24,  2005  for  Responses  and  Oppositions.  The  Wireline  Competition  Bureau  (Bureau)  adopted  protective  orders  under  which  third  parties  would  be  allowed  to  review  confidential  or  proprietary  documents. 

 Verizon  Communications  Inc.  and  MCI,  Inc.,  Applications  for  Approval  of  Transfer  of  Control,  WC  Docket  No.  05-  75,  Order  Adopting  Protective  Order,  20  FCC  Rcd  5232  (2005)  (First  Protective  Order);  Verizon  Communications 
 Inc.  and  MCI,  Inc.,  Applications  for  Approval  of  Transfer  of  Control,  WC  Docket  No.  05-  75,  Order  Adopting  Second  Protective  Order,  20  FCC  Rcd  10420  (2005)  (Second  Protective  Order). 

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

 52  See  Letter  from  Thomas  Navin,  Acting  Chief,  Wireline  Competition  Bureau,  FCC,  to  Michael  Glover,  Senior 
 Vice  President  and  Deputy  General  Counsel,  Verizon,  and  Richard  Whitt,  Vice  President  of  Federal  Law  and  Policy,  MCI,  WC  Docket  No.  05-  75  (May  5,  2005)  (FCC  May  5  Information  Request). 

 53  See  Letter  from  James  Ball,  Chief,  Policy  Division,  International  Bureau,  FCC,  to  Michael  Glover,  Senior  Vice 
 President  and  Deputy  General  Counsel,  Verizon,  and  Richard  Whitt,  Vice  President  of  Federal  Law  and  Policy,  MCI,  WC  Docket  No.  05-  75  (May  26,  2005)  (FCC  May  26  Information  Request). 
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 responses  to  the  Information  Request,  along  with  their  responses  to  additional  Commission  requests,  are  included  in  the  record.  54 
 2.  Department  of  Justice  Review 
 15.  The  Antitrust  Division  of  the  U.  S.  Department  of  Justice  (  DOJ)  reviews  telecommunications  mergers  pursuant  to  section  7  of  the  Clayton  Act,  which  prohibits  mergers  that  are  likely  to  substantially 
 lessen  competition.  55  The  Antitrust  Divisions  review  is  limited  solely  to  an  examination  of  the  potential  competitive  effects  of  the  acquisition,  without  reference  to  national  security,  law  enforcement,  or  other 
 public  interest  considerations.  The  Antitrust  Division  reviewed  the  proposed  merger  between  Verizon  and  MCI  and  entered  into  a  consent  decree  with  the  Applicants  on  October  27,  2005.  56  Under  the  DOJ 
 Consent  Decree,  the  Applicants  agreed  to  divest  certain  assets  in  the  form  of  Indefeasible  Rights  of  Use  (IRUs)  to  certain  buildings  where  only  Verizon  and  MCI  had  direct  connections. 

 IV.  STANDARD  OF  REVIEW  AND  PUBLIC  INTEREST  FRAMEWORK 
 16.  Pursuant  to  sections  214(  a)  and  310(  d)  of  the  Communications  Act,  57  and  the  Cable  Landing  License  Act,  58  the  Commission  must  determine  whether  the  proposed  transfer  of  control  to  Verizon  of 

 54  Several  petitioners  and  commenters  raised  various  objections  to  the  manner  in  which  information  provided  by  the 
 Applicants  was  made  available  for  their  review.  See  Letter  from  Brad  E.  Mutschelknaus  et  al.,  Counsel  for  Cbeyond  et  al.,  to  Kevin  J.  Martin,  Chairman,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  (filed  June  7,  2005);  Letter  from 

 Gary  R.  Lytle,  Senior  Vice  President    Federal  Relations,  Qwest,  to  Kevin  J.  Martin,  Chairman,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  (filed  June  7,  2005);  Letter  from  Yaron  Dori,  Counsel  for  Qwest,  WC  Docket  Nos.  05-  65,  05-  75 
 (filed  Aug.  1,  2005)  (describing  ex  parte  meeting  of  July  29,  2005).  These  complaints  elicited  a  vigorous  defense  from  the  Applicants.  See  Letter  from  Richard  S.  Whitt,  MCI,  and  Michael  E.  Glover,  Verizon,  to  Kevin  J.  Martin, 
 Chairman,  FCC,  WC  Docket  No.  05-  75  (filed  June  2,  2005).  The  Commission  reviewed  the  pleadings  filed  on  both  sides,  met  with  both  the  Applicants  and  those  opposing  the  applications,  and  considered  the  merits  of  the 
 complaints,  including  potential  alternative  mechanisms  to  balance  the  risks  of  granting  access  to  certain  highly  confidential  sensitive  competitive  information  in  electronic  form  against  the  additional  benefit  of  such  access  in 
 providing  material  support  on  issues  of  real  controversy.  We  note  that  the  letters  from  the  petitioners  and  commenters  were  filed  in  both  this  docket  and  in  WC  Docket  05-  65  and  that  most  of  the  complaints  arose  with 
 regard  to  WC  Docket  No.  05-  65.  Under  the  particular  circumstances  of  this  case,  including  the  risks,  the  procedural  difficulties,  and  the  apparent  success  of  the  opponents  in  obtaining  sufficient  information  on  key  points,  either  from 
 that  provided  by  the  Applicants  or  from  other  sources  (such  as  their  own  confidential  records  or  third-  party  sources),  we  chose  not  to  intervene  further  in  the  production  process). 

 55  15  U.  S.  C.    18. 
 56  DOJ-  Verizon/  MCI  Consent  Decree;  see  also  DOJ-  Verizon/  MCI  Complaint. 
 57  47  U.  S.  C.    214(  a),  310(  d). 
 58  47  U.  S.  C.    34-  39.  The  Cable  Landing  License  Act  provides  that  approval  of  a  license  application  may  be 
 granted  upon  such  terms  as  shall  be  necessary  to  assure  just  and  reasonable  rates  and  service  .  .  .  .  47  U.  S.  C.    35.  The  Commission  does  not  conduct  a  separate  public  interest  analysis  under  this  statute.  See,  e.  g.,  WorldCom,  Inc. 

 and  Its  Subsidiaries  (Debtors-  in-  Possession),  Transferor,  and  MCI,  Inc.,  Transferee,  WC  Docket  No.  02-  215,  Memorandum  Opinion  and  Order,  18  FCC  Rcd  26484,  26492,  para.  12  (2003)  (WorldCom  Order);  Application  of 
 WorldCom,  Inc.  and  MCI  Communications  Corporation  for  Transfer  of  Control  of  MCI  Communications  Corporation  to  WorldCom,  Inc.,  CC  Docket  No.  97-  211,  Memorandum  Opinion  and  Order,  13  FCC  Rcd  18025 
 (1998)  (WorldCom/  MCI  Order). 
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 licenses  and  authorizations  held  by  MCI  will  serve  the  public  interest,  convenience,  and  necessity.  59  In  making  this  determination,  we  first  assess  whether  the  proposed  transaction  complies  with  the  specific 
 provisions  of  the  Communications  Act,  other  applicable  statutes,  and  the  Commissions  rules.  If  the  proposed  transaction  would  not  violate  a  statute  or  rule,  the  Commission  considers  whether  it  could  result 
 in  public  interest  harms  by  substantially  frustrating  or  impairing  the  objectives  or  implementation  of  the  Communications  Act  or  related  statutes.  The  Commission  then  employs  a  balancing  test  weighing  any 
 potential  public  interest  harms  of  the  proposed  transaction  against  the  potential  public  interest  benefits.  60  The  Applicants  bear  the  burden  of  proving,  by  a  preponderance  of  the  evidence,  that  the  proposed 
 transaction,  on  balance,  serves  the  public  interest.  61  If  we  are  unable  to  find  that  the  proposed  transaction  serves  the  public  interest  for  any  reason,  or  if  the  record  presents  a  substantial  and  material  question  of 
 fact,  we  may  designate  the  application  for  hearing.  62 
 17.  Our  public  interest  evaluation  necessarily  encompasses  the  broad  aims  of  the  Communications  Act,  63  which  include,  among  other  things,  a  deeply  rooted  preference  for  preserving  and  enhancing 

 59  47  U.  S.  C.    310(  d)  requires  that  we  consider  the  applications  for  transfer  of  Title  III  licenses  (wireless  licenses 
 and  earth  station  authorizations  in  this  case)  under  the  same  standard  as  if  the  proposed  transferee  were  applying  for  the  licenses  directly  under  section  308  of  the  Act,  47  U.  S.  C.    308.  See  Applications  of  Western  Wireless 

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

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

 98-  184,  Memorandum  Opinion  and  Order,  15  FCC  Rcd  14032,  14046,  paras.  20,  22  (2002)  (Bell  Atlantic/  GTE  Order);  Applications  of  VoiceStream  Wireless  Corporation,  Powertel,  Inc.,  Transferors,  and  Deutsche  Telekom  AG, 
 Transferee,  IB  Docket  No.  00-  187,  Memorandum  Opinion  and  Order,  16  FCC  Rcd  9779,  9789,  para.  17  (2001)  (Deutsche  Telekom/  VoiceStream  Order);  Applications  of  Ameritech  Corp.,  Transferor,  and  SBC  Communications, 
 Inc.,  Transferee,  Memorandum  Opinion  and  Order,  CC  Docket  No.  98-  141,  14  FCC  Rcd  14712,  14737,  para.  48  (1999)  (SBC/  Ameritech  Order);  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18031,  para.  10;  Bell  Atlantic/  NYNEX 
 Order,  12  FCC  Rcd  at  19987,  para.  2. 
 61  See,  e.  g.,  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21542-  43,  para.  40,  and  cases  cited  therein. 

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

 would  be  in  the  public  interest.  However,  with  respect  to  the  applications  to  transfer  licenses  subject  to  Title  III  of  the  Act,  if  we  are  unable  to  find  that  the  proposed  transaction  serves  the  public  interest,  or  if  the  record  presents  a 
 substantial  and  material  question  of  fact,  section  309(  e)  of  the  Act  requires  that  we  designate  the  application  for  hearing.  47  U.  S.  C.    309(  e);  see  Application  of  EchoStar  Communications  Corporation  (a  Nevada  Corporation), 
 General  Motors  Corporation,  and  Hughes  Electronics  Corporation  (Delaware  Corporations)  (Transferors)  and  EchoStar  Communications  Corporation  (a  Delaware  Corporation)  (Transferee),  CS  Docket  No.  01-  348,  Hearing 
 Designation  Order,  17  FCC  Rcd  20559,  20574,  para.  25  (2002)  (EchoStar/  DirecTV  Order);  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21542-  44,  para.  40. 

 63  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544,  para.  41  and  cases  cited  therein;  Applications  for 
 Consent  to  the  Transfer  of  Control  of  Licenses  and  Section  214  Authorizations  from  MediaOne  Group,  Inc.,  (continued.) 
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 competition  in  relevant  markets,  accelerating  private  sector  deployment  of  advanced  services,  ensuring  a  diversity  of  license  holdings,  and  generally  managing  the  spectrum  in  the  public  interest.  64  Our  public 
 interest  analysis  may  also  entail  assessing  whether  the  merger  will  affect  the  quality  of  communications  services  or  will  result  in  the  provision  of  new  or  additional  services  to  consumers.  65  In  conducting  this 
 analysis,  the  Commission  may  consider  technological  and  market  changes,  and  the  nature,  complexity,  and  speed  of  change  of,  as  well  as  trends  within,  the  communications  industry.  66 

 18.  In  determining  the  competitive  effects  of  the  merger,  our  analysis  is  informed  by,  but  not  limited  to,  traditional  antitrust  principles.  67  The  Commission  and  the  DOJ  each  have  independent  authority  to 
 examine  telecommunications  mergers,  but  the  standards  governing  the  Commissions  review  differ  from  those  of  the  DOJ.  68  As  stated  above,  the  DOJ  reviews  mergers  pursuant  to  section  7  of  the  Clayton  Act, 
 which  prohibits  mergers  that  are  likely  to  lessen  competition  substantially  in  any  line  of  commerce.  69  The  Commission,  on  the  other  hand,  as  stated  above,  is  charged  with  determining  whether  the  transfer  of 
 control  serves  the  broader  public  interest.  In  the  communications  industry,  competition  is  shaped  not  only  by  antitrust  rules,  but  also  by  the  regulatory  policies  that  govern  the  interactions  of  industry  players.  70  In 
 addition  to  considering  whether  the  merger  will  reduce  existing  competition,  therefore,  we  also  must  focus  on  whether  the  merger  will  accelerate  the  decline  of  market  power  by  dominant  firms  in  the  relevant 

 (Continued  from  previous  page)  Transferor,  to  AT&  T  Corp.,  Transferee,  CS  Docket  No.  99-  251,  Memorandum  Opinion  and  Order,  15  FCC  Rcd 
 9816,  9821,  para.  11  (2000)  (AT&  T/  MediaOne  Order). 
 64  See  47  U.  S.  C.    157  nt.  (incorporating  section  706  of  the  Telecommunications  Act  of  1996,  Pub.  Law  No.  104- 
 104,  110  Stat.  56  (1996)  (1996  Act)),  254,  332(  c)(  7);  1996  Act,  Preamble;  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544,  para.  41;  see  also  Applications  for  Consent  to  the  Assignment  of  Licenses  Pursuant  to  Section  310(  d) 

 of  the  Communications  Act  from  NextWave  Personal  Communications,  Inc.,  Debtor-  in-  Possession,  and  NextWave  Power  Partners,  Inc.,  Debtor-  in-  Possession,  to  subsidiaries  of  Cingular  Wireless  LLC,  WT  Docket  No.  03-  217, 
 Memorandum  Opinion  and  Order,  19  FCC  Rcd  2570,  2583,  para.  29  (2004)  (Cingular/  NextWave  Order);  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18030-  31,  para.  9;  2000  Biennial  Regulatory  Review  Spectrum  Aggregation 
 Limits  for  Commercial  Mobile  Radio  Services,  Report  and  Order,  16  FCC  Rcd  22668,  22696,  para.  55  (2001)  (citing  47  U.  S.  C.    301,  303,  309(  j),  310(  d));  cf.  47  U.  S.  C.    521(  4),  532(  a)). 

 65  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544,  para.  41,  and  cases  cited  therein. 
 66  Id. 
 67  See,  e.  g.,  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544-  45,  para.  42;  News  Corp./  Hughes  Order,  19 
 FCC  Rcd  at  484,  para.  17;  Bell  Atlantic/  GTE  Order,  15  FCC  Rcd  at  14046,  para.  23;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18033,  para.  13. 

 68  See,  e.  g.,  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544-  45,  para.  42;  News  Corp./  Hughes  Order,  19 
 FCC  Rcd  at  484,  para.  17;  see  also  Satellite  Business  Systems,  62  FCC  2d  997,  1088  (1977),  affd  sub  nom.  United  States  v.  FCC,  652  F.  2d  72  (DC  Cir.  1980)  (en  banc);  Northern  Utilities  Service  Co.  v.  FERC,  993  F.  2d  937,  947-  48 

 (1  st  Cir.  1993)  (public  interest  standard  does  not  require  agencies  to  analyze  proposed  mergers  under  the  same  standards  that  the  Department  of  Justice  .  .  .  must  apply.). 

 69  15  U.  S.  C.    18. 
 70  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544-  45,  para.  42;  Applications  for  Consent  to  the  Transfer 
 of  Control  of  Licenses  from  Comcast  Corporation  and  AT&  T  Corp.,  Transferors,  to  AT&  T  Comcast  Corporation,  Transferee,  MB  Docket  No.  02-  70,  Memorandum  Opinion  and  Order,  17  FCC  Rcd  23246,  23256,  para.  28  (2002) 

 (AT&  T/  Comcast  Order). 
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 communications  markets  and  the  mergers  effect  on  future  competition.  71  We  also  recognize  that  the  same  consequences  of  a  proposed  merger  that  are  beneficial  in  one  sense  may  be  harmful  in  another.  For 
 instance,  combining  assets  may  allow  the  merged  entity  to  reduce  transaction  costs  and  offer  new  products,  but  it  may  also  create  market  power,  create  or  enhance  barriers  to  entry  by  potential 
 competitors,  and  create  opportunities  to  disadvantage  rivals  in  anticompetitive  ways.  72 
 19.  Our  public  interest  authority  also  enables  us  to  impose  and  enforce  narrowly  tailored,  transaction-  specific  conditions  that  ensure  that  the  public  interest  is  served  by  the  transaction.  73  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.  74  Similarly,  section 
 214(  c)  of  the  Act  authorizes  the  Commission  to  attach  to  the  certificate  such  terms  and  conditions  as  in  its  judgment  the  public  convenience  and  necessity  may  require.  75  Indeed,  unlike  the  role  of  antitrust 
 enforcement  agencies,  our  public  interest  authority  enables  us  to  impose  and  enforce  conditions  based  upon  our  extensive  regulatory  and  enforcement  experience  to  ensure  that  the  merger  will,  overall,  serve 
 the  public  interest.  76  Despite  broad  authority,  the  Commission  has  held  that  it  will  impose  conditions  only  to  remedy  harms  that  arise  from  the  transaction  (i.  e.,  transaction-  specific  harms)  77  and  that  are  related  to 
 the  Commissions  responsibilities  under  the  Communications  Act  and  related  statutes.  78  Thus,  we  will  not  impose  conditions  to  remedy  pre-  existing  harms  or  harms  that  are  unrelated  to  the  transaction. 

 71  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544-  45,  para.  42;  Bell  Atlantic/  GTE  Order,  15  FCC  Rcd  at 
 14046-  47,  para.  23;  AT&  T  Corp.,  British  Telecommunications,  plc,  VLT  Co.  L.  L.  C.,  Violet  License  Co.  LLC,  and  TNV  [Bahamas]  Limited  Applications  for  Grant  of  Section  214  Authority,  Modification  of  Authorizations  and 

 Assignment  of  Licenses,  IB  Docket  No.  98-  212,  Memorandum  Opinion  and  Order,  14  FCC  Rcd  19140,  19147-  48,  para.  15  (1999)  (AT&  T/  British  Telecom  Order). 

 72  See,  e.  g.,  Applications  for  Consent  to  the  Transfer  of  Control  of  Licenses  and  Section  214  Authorizations  by  Time 
 Warner,  Inc.  and  America  Online,  Inc.,  Transferors,  to  AOL  Time  Warner  Inc.,  Transferee,  CS  Docket  No.  00-  30,  Memorandum  Opinion  and  Order,  16  FCC  Rcd  6547,  6550,  6553,  paras.  5,  15  (2001)  (AOL/  Time  Warner  Order); 

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

 Internet  assets). 
 74  47  U.  S.  C.    303(  r). 

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

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

 77  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544-  45,  para.  43;  News  Corp./  Hughes  Order,  19  FCC  Rcd 
 at  534,  para.  131. 
 78  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21544-  45,  para.  43. 
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 V.  POTENTIAL  PUBLIC  INTEREST  HARMS 
 A.  Analytical  Framework 
 20.  In  this  section,  we  consider  the  potential  public  interest  harms,  including  potential  harms  to  competition,  arising  from  the  merger.  Because  Verizon  and  MCI  currently  compete  with  respect  to  a 
 wide  variety  of  services  and  groups  of  customers,  we  must  consider  the  potential  horizontal  effects  of  this  merger.  79  In  addition,  because  both  Verizon  and  MCI  provide  critical  inputs,  particularly  special  access 
 services,  to  various  communications  markets,  we  need  to  consider  the  potential  vertical  effects  of  the  merger    specifically,  whether  the  merged  entity  will  have  an  increased  incentive  or  ability  to  injure 
 competitors  by  raising  the  cost  of,  or  discriminating  in  the  provision  of,  inputs  sold  to  competitors.  80 
 21.  With  respect  to  the  horizontal  effects,  consistent  with  Commission  precedent,  we  first  perform  a  structural  analysis  of  the  merger  to  examine  whether  it  is  likely  to  result  in  anticompetitive  effects.  81  We 
 begin  by  defining  the  relevant  product  markets  82  and  relevant  geographic  markets.  83  We  next  identify  market  participants  and  examine  market  concentration  and  how  concentration  will  change  as  a  result  of 
 the  merger.  We  also  consider  whether  entry  conditions  are  such  that  new  competitors  could  likely  enter  and  defeat  any  attempted  post-  merger  price  increase. 

 22.  If  our  structural  analysis  suggests  that  the  merger  may  have  anticompetitive  effects,  we  must  then  examine  in  more  detail  whether  and  how  the  merger  might  affect  competitive  behavior.  In 
 performing  this  behavioral  analysis,  we  consider  whether  the  merger  is  likely  to  have  anticompetitive  effects  either  through  unilateral  actions  of  the  merged  entity  or  through  coordinated  interaction  among 
 firms  competing  in  the  relevant  market.  84 

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

 80  Id.  at  508,  para.  71. 
 81  Structural  merger  analysis,  as  the  name  suggests,  considers  structural  characteristics  of  the  merging  firms  and  the 
 relevant  markets,  such  as  market  shares  and  entry  conditions,  to  make  predictions  about  the  likely  competitive  effects  of  a  proposed  merger. 

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

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

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

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

 84  Id.  at  20619,  para.  151.  As  the  Commission  explained  in  the  EchoStar/  DirecTV  Order: 
 Unilateral  effects  arise  when  the  merging  firm  finds  it  profitable  to  alter  its  behavior  following  the  merger.  Examples  of  unilateral  effects  include  a  merging  firms  raising  its  price  or  reducing  the 
 quantity  it  supplies.  Coordinated  effects,  in  contrast,  arise  when  competing  firms,  recognizing  their  interdependence,  take  actions  that  are  profitable  for  each  of  them  only  as  a  result  of  the 
 (continued.) 
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 23.  With  regard  to  potential  vertical  effects,  we  will  examine  how  the  merger  affects  the  Applicants  incentives  and  ability  to  discriminate  in  provisioning  inputs  to  competitors.  In  particular,  we  will 
 consider  the  effect  of  the  merger  on  the  merged  entitys  incentives  and  ability  to  discriminate  in  the  provision  of  special  access  services. 

 B.  Wholesale  Special  Access  Competition 
 24.  In  this  section,  we  consider  the  effects  of  the  merger  of  Verizon  and  MCI  on  the  provisioning  and  pricing  of  wholesale  special  access  services.  The  Commission  has  previously  defined  special  access 
 as  a  dedicated  transmission  link  between  two  places.  85  As  discussed  below,  wholesale  special  access  service  is  a  critical  input  for:  competitive  LECs  in  providing  services  to  their  retail  enterprise  customers, 
 wireless  and  competitive  LECs  in  connecting  their  networks  to  other  carriers,  long  distance  carriers  seeking  to  connect  customers  to  their  long-  distance  networks,  and  entities  seeking  to  connect  with 
 Internet  backbones.  86  Firms  needing  dedicated  transmission  links  essentially  have  three  choices:  to  deploy  their  own  facilities,  to  buy  special  access  service  from  incumbent  LECs,  or  to  purchase  such 
 service  from  a  competing  special  access  provider.  As  discussed  below,  we  find  that  MCI  provides  special  access  services  in  competition  with  Verizons  special  access  services,  and  that  the  merger,  absent 
 appropriate  remedies,  is  likely  to  result  in  anticompetitive  effects  for  wholesale  special  access  services  offered  wholly  over  MCIs  own  facilities  to  certain  buildings.  We  conclude,  however,  that  the  consent 
 decree  entered  into  between  the  Applicants  and  the  DOJ,  pursuant  to  which  the  Applicants  agreed  to  certain  divestitures  in  the  form  of  IRUs  for  loops  and  transport  necessary  to  reach  to  certain  buildings 
 where  MCI  is  the  only  competitive  LEC  that  has  a  direct  wireline  connection,  should  remedy  any  likely  anticompetitive  effects.  Moreover,  we  find  further  comfort  in  certain  voluntary  commitments,  which  the 
 Applicants  have  offered.  Accordingly,  we  adopt  the  proffered  commitments  as  express  conditions  of  our  approval  of  the  transfer  of  licenses  and  authorizations  from  MCI  to  Verizon. 

 1.  Relevant  Markets 
 a.  Relevant  Product  Markets 
 25.  As  previously  indicated,  special  access  is  a  dedicated  transmission  link  between  two  locations,  most  often  provisioned  via  high-  capacity  circuits.  Such  services  are  used  for  various  purposes,  such  as 
 direct  connection  between  tenants  of  commercial  buildings  and  a  competing  carriers  network  or  between 
 (Continued  from  previous  page)  accommodating  reactions  of  others.  Because  coordinated  effects  generally  are  more  likely  the 
 smaller  the  number  of  firms  in  a  market,  mergers  may  significantly  increase  the  likelihood  of  coordinated  effects  by  reducing  the  number  of  firms.  Examples  include  explicit  collusion,  tacit 
 collusion,  and  price  leadership.  Id.  at  20619,  para.  152  (footnotes  omitted). 
 85  See  Special  Access  Rates  for  Price  Cap  Local  Exchange  Carriers;  AT&  T  Corp.  Petition  for  Rulemaking  to 
 Reform  of  Incumbent  Local  Exchange  Carrier  Rates  for  Interstate  Special  Access  Services,  WC  Docket  No.  05-  25,  RM-  10593,  Order  and  Notice  of  Proposed  Rulemaking,  20  FCC  Rcd  1994,  1997,  para.  7  (2005)  (Special  Access 

 NPRM).  We  recognize  that  different  companies,  particularly  carriers  that  are  not  incumbent  LECs,  may  use  slightly  different  terms  to  refer  to  dedicated  loop  and  transport  links  between  two  points.  For  example,  MCI  uses  the  term 
 Metro  Private  Line  to  refer  to  services  consisting  of  loops  and  transport,  typically  in  combination  that  generally  compete  directly  with  Verizons  special  access  services.  Verizon/  MCI  Application,  Declaration  of  Jonathan  P. 
 Powell  and  Stephen  M.  Owens,  Attach.  13  at  para.  14.  For  simplicity,  we  will  use  the  term  special  access  to  refer  to  all  services  provided  by  any  carrier  that  involves  such  dedicated  links. 

 86  See  infra  Part  V.  C  (Retail  Enterprise  Competition);  Part  V.  D  (Mass  Market  Competition);  and  Part  V.  E  (Internet 
 Backbone  Competition). 
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 different  facilities  of  the  same  firm.  Both  voice  and  data  may  be  carried  using  special  access  services.  The  facilities  used  to  provide  special  access  service  typically  consist  of  three  different  segments:  (1)  an 
 entrance  facility,  which  connects  the  purchasing  carriers  point  of  presence  (  POP)  to  the  nearest  wire  center,  carrier  hotel,  or  similar  location  (  entrance  facility);  (2)  local  transport;  and  (3)  a  last  mile 
 connection  or  local  loop,  also  known  as  a  channel  termination,  which  runs  from  the  transport  facility  to  the  end-  user  customer. 

 26.  The  record  demonstrates  that  there  are  at  least  two  separate  relevant  product  markets  for  special  access  services:  Type  I  special  access  services,  which  are  offered  wholly  over  a  carriers  own  facilities, 
 and  Type  II  special  access  services,  which  are  offered  using  a  combination  of  the  carriers  own  facilities  for  two  of  the  segments  and  the  special  access  services  of  another  carrier  for  the  third  segment.  87  The 
 record  evidence  suggests  that  many  purchasers  of  wholesale  special  access  services  view  Type  I  services  as  substantially  superior  to  Type  II  services  due  to  differences  in  performance,  reliability,  security,  and 
 price,  and  that  these  differences  are  sufficiently  large  that  Type  I  special  access  services  fall  into  a  separate  relevant  product  market  from  Type  II.  88 

 87  See,  e.  g.,  Letter  from  Melissa  E.  Newman,  Vice  President-  Federal  Regulatory,  Qwest,  to  Marlene  H.  Dortch, 
 Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  8  (filed  June  15,  2005)  (Qwest  June  15  Ex  Parte  Letter).  MCI  offers  two  additional  types  of  special  access:  Type  III  and  Type  IV.  Type  III  services  use  two  incumbent 

 channel  terminations  and  MCI  fiber  connection  in  the  middle.  Type  IV  services  use  no  MCI  facilities,  being  simply  resale  of  the  incumbents  special  access  service.  More  than  [REDACTED]  of  MCIs  wholesale  special 
 access  revenue  is  derived  from  Type  I  service,  and  most  of  the  rest  is  from  Type  II  service.  Less  than  [REDACTED]  of  MCIs  wholesale  special  access  revenue  is  derived  from  Type  III  services,  while  MCI  does  not 
 currently  offer  Type  IV  service  except  for  a  handful  of  grandfathered  services.  Verizon/  MCI  Reply,  Declaration  of  Jonathan  P.  Powell,  Peter  H.  Reynolds,  and  Edwin  A.  Fleming,  (Verizon/  MCI  Powell/  Reynolds/  Fleming  Reply 
 Decl.),  Tab  9,  at  paras.  8-  12  &  n.  2. 
 We  decline  to  find  that  the  limited  Type  III  and  Type  IV  services  constitute  separate  relevant  product  markets.  Type  III  service  is  a  mix  of  MCI  network  and  purchased  Verizon  services,  much  like  Type  II  service  and,  thus, 

 Type  II  and  Type  III  services  will  be  considered  as  essentially  the  same  service  in  the  current  proceeding.  MCI  does  not  currently  market  Type  IV  service,  and  only  a  residual  number  of  grandfathered  customers  are  in  existence. 
 Therefore  we  conclude  that  any  sale  of  Type  IV  service  is  de  minimis  and  will  not  be  considered. 
 In  this  Order,  REDACTED  indicates  that  confidential  or  proprietary  information  that  is  subject  to  a  Protective  Order  in  this  proceeding  has  been  redacted  from  the  public  version  of  this  Order.  First  Protective  Order,  20  FCC 

 Rcd  at  5196;  Second  Protective  Order,  20  FCC  Rcd  at  8876.  The  unredacted  text  is  included  in  the  confidential  version  of  this  Order,  which  is  available  upon  request  only  to  those  parties  who  have  executed  and  filed  with  the 
 Commission  signed  acknowledgments  of  the  protective  orders.  Qualified  persons  who  have  not  yet  signed  the  required  acknowledgments  may  do  so  in  order  to  obtain  the  confidential  version  of  this  Order. 

 88  See,  e.  g.,  Cbeyond  et  al.  Petition,  Declaration  of  Simon  Wilkie  (Cbeyond  et  al.  Wilkie  Decl.)  at  para.  19  n.  10 
 ([  O]  ther  things  being  equal,  buyers  have  a  preference  to  purchase  Type  I  circuits  to  avoid  any  reliance  on  the  ILEC  who  may  degrade  quality  or  be  unresponsive  to  service  problems.);  Letter  from  Melissa  E.  Newman,  Vice 

 President  Federal  Regulatory,  Qwest,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  8  (filed  June  15,  2005)  (Qwest  June  15  Ex  Parte  Letter);  Letter  from  Thomas  W.  Cohen,  Counsel  for  XO 
 et  al.,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  2-  4  (filed  Oct.  3,  2005)  (XO  et  al.  Oct.  3  Ex  Parte  Letter)  ([  REDACTED]);  Letter  from  Brad  E.  Mutschelknaus,  et  al.,  Counsel  for  Eschelon  et 
 al.,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  at  6  (filed  June  6,  2005)  (Eschelon  et  al.  June  6  Ex  Parte  Letter)  (asserting  that  the  fact  that  wholesale  services  are  provisioned  using  Type  II,  rather  than 
 Type  I,  offerings  does  not  significantly  diminish  the  competitive  significance  of  those  offerings,  and  that  criticisms  of  Type  II  offerings  do  not  account  for  the  important  role  played  by  those  facilities  in  the  wholesale 
 market). 
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 27.  We  also  recognize  that  the  services  provided  over  different  segments  of  special  access  (e.  g.,  channel  terminations  and  local  transport)  constitute  separate  relevant  product  markets,  which  may  be 
 subject  to  varying  levels  of  competition.  89  In  the  competitive  analysis  section  below,  we  will  discuss  the  competitiveness  of  the  different  special  access  services. 

 b.  Relevant  Geographic  Markets 
 28.  Consistent  with  Commission  precedent  and  the  record  before  us,  we  conclude  that  the  relevant  geographic  market  for  wholesale  special  access  services  is  a  particular  customers  location,  since  it  would 
 be  prohibitively  expensive  for  an  enterprise  customer  to  move  its  office  location  in  order  to  avoid  a  small  but  significant  and  nontransitory  increase  in  the  price  of  special  access  service.  90  In  order  to  simplify  its 

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

 different  capacity  services  should  be  different  relevant  product  markets).  While  customers  in  certain  circumstances  may  be  able  to  substitute  different  capacity  services  in  different  combinations  to  meet  their  needs  if  the  price  of  a 
 particular  capacity  circuit  were  raised  (for  example,  customers  could  substitute  multiple  DS1  loops  for  a  single  DS3  loop),  we  believe  that,  in  general,  different  capacity  circuits  are  likely  to  constitute  separate  relevant  product 
 markets.  However,  we  find  comparable  competitive  alternatives  for  varying  capacities  of  special  access  circuits,  and  thus  for  administrability  purposes  we  do  not  separately  analyze  different  capacity  services.  Where  competing 
 carriers  offer  Type  I  service  using  their  own  facilities,  the  facilities  can  be  channelized  to  provide  service  at  all  capacity  levels.  See,  e.  g.,  Unbundled  Access  to  Network  Elements;  Review  of  the  Section  251  Unbundling 
 Obligations  of  Incumbent  Local  Exchange  Carriers,  WC  Docket  No.  04-  313,  CC  Docket  No.  01-  338,  Order  on  Remand,  20  FCC  Rcd  2533,  2585-  86.  para.  86  (2005),  petitions  for  review  filed  (Triennial  Review  Remand  Order). 
 Where  carriers  seek  to  offer  Type  II  service,  they  can  purchase  the  required  capacity  of  special  access  service  from  the  incumbent  or  from  any  competitive  access  providers. 

 We  note  that,  in  prior  orders  addressing  our  section  251  unbundling  rules,  we  conducted  a  capacity-  based  analysis.  See,  e.  g.,  Unbundled  Access  to  Network  Elements;  Review  of  the  Section  251  Unbundling  Obligations  of  Incumbent 
 Local  Exchange  Carriers,  WC  Docket  No.  04-  313,  CC  Docket  No.  01-  338,  Order  on  Remand,  20  FCC  Rcd  2533,  2625,  para.  166  (rel.  Feb.  4,  2005),  petitions  for  review  filed  (Triennial  Review  Remand  Order)  (describing  the 
 capacity-  based  analysis  used  for  DS1,  DS3,  and  dark  fiber  loops);  Review  of  the  Section  251  Unbundling  Obligations  of  Incumbent  Local  Exchange  Carriers,  Implementation  of  the  Local  Competition  Provisions  of  the 
 Telecommunications  Act  of  1996,  Deployment  of  Wireline  Services  Offering  Advanced  Telecommunications  Capability,  CC  Docket  Nos.  01-  338,  96-  98,  98-  147,  Report  and  Order  and  Order  on  Remand  and  Further  Notice  of 
 Proposed  Rulemaking,  18  FCC  Rcd  16978,  17102,  para.  197  (2003)  (Triennial  Review  Order),  corrected  by  Errata,  18  FCC  Rcd  19020  (2003)  (Triennial  Review  Order  Errata),  affd  in  part,  vacated  and  remanded  in  part,  and 
 remanded  in  part,  United  States  Telecom  Assn  v.  FCC,  359  F.  3d  554  (D.  C.  Cir.  2004)  (describing  the  capacity-based  analysis  used  for  DS1,  DS3,  OCn,  and  dark  fiber  loops).  Our  approach  to  product  definitions  here  differs  in 
 key  respects  from  our  unbundling  analysis,  however.  Our  merger  analysis  focuses  on  special  access  competition  generally  (whether  through  facilities  deployment  or  partial  reliance  on  other  carriers  special  access  services), 
 whereas  our  high-  capacity  loop  impairment  analysis  focused  solely  on  the  likelihood  of  competitive  facilities  deployment.  Moreover,  our  location-  specific  analysis  in  the  merger  context  focuses  on  those  locations  where  MCI 
 offers  competing  special  access  services  today,  whereas  the  Commission  applied  a  wire  center  test  for  high-  capacity  loop  unbundling  because  a  building-  by-  building  test  would  not  be  administrable.  Thus,  we  find  no  need  to  perform 
 separate  analyses  for  different  capacity  circuits  based  on  the  record  and  analytical  framework  here,  notwithstanding  our  prior  unbundling  analyses. 

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

 Communications  Services,  CC  Docket  No.  98-  24,  Memorandum  Opinion  and  Order,  13  FCC  Rcd  15236,  15248,  para.  21  (AT&  T/  TCG  Order).  Our  geographic  market  definition  is  consistent  with  the  arguments  made  by  certain 
 (continued.) 
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 analysis,  however,  the  Commission  has  traditionally  aggregated  or  grouped  customers  facing  similar  competitive  choices,  and  we  will  do  so  in  our  discussion  below  to  the  extent  appropriate.  91 
 29.  In  addition,  however,  we  will  consider  the  potential  effect  of  the  merger  on  Verizons  special  access  prices,  which  are  generally  set  on  a  wider  geographic  basis.  Because  Verizon  has  gained  Phase  II 
 pricing  flexibility  for  its  special  access  services  in  some  metropolitan  statistical  areas  (MSAs),  92  but  not  others,  Verizons  rates  for  special  access  may  vary  from  MSA  to  MSA.  93  Accordingly,  we  will  also 
 examine  on  an  MSA  basis  how  the  merger  is  likely  to  affect  Verizons  special  access  prices. 
 c.  Market  Participants 
 30.  Verizon  can  access  all  or  virtually  all  of  the  buildings  and  transport  routes  in  its  territory.  Although  the  record  is  not  clear  as  to  what  extent  other  competitive  LECs  compete  in  the  special  access 
 market  in  Verizons  territory,  it  is  clear  that,  in  addition  to  MCI,  360  Networks,  AboveNet,  AT&  T,  Broadwing/  Focal,  Cablevision  Lightpath,  Con  Ed,  Cox,  CTC  Communications,  CTSI,  Elantic/  Dominion, 
 Edison  Carrier  Solutions/  SCE,  Electric  Lightwave,  Fiber  Net,  FPL  Fibernet,  Interstate  Fibernet/  ITC  Deltacom,  DMC  Telecom,  Level  3,  Looking  Glass,  McLeod  USA,  Neon,  NTS  Communications,  On 
 Fiber,  PPL  Telecom,  Progress  Telecomm,  Qwest,  SBC  Communications,  Sprint,  TelCove,  Time  Warner,  Wiltel  and  XO  provide  wholesale  Type  I,  and  in  some  cases  Type  II,  special  access  services.  94  The  record 
 does  not,  however,  clearly  indicate  the  extent  to  which  individual  buildings  are  served  by  one  or  more  of  these  competitive  LECs. 

 2.  Competitive  Analysis 
 31.  In  this  section,  we  separate  our  discussion  of  the  competitive  effects  of  the  merger  into  the  effects  on  the  in-  region  special  access  market,  both  horizontal  and  vertical,  and  the  effects  on  out-  of-( 

 Continued  from  previous  page)  commenters.  See  Global  Crossing  Comments  at  8-  13;  Conversent  et  al.  Aug.  31  Ex  Parte  Letter  at  3;  cf. 
 EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20609-  12,  paras.  117-  125;  AT&  T/  Comcast  Order,  17  FCC  Rcd  at  23282,  para.  90  (finding  that  the  relevant  geographic  market  was  individual  customer  residences  but  that  it  is  reasonable  to 
 aggregate  to  a  larger  geographic  area);  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20016-  19,  para.  54-  57  (finding  that  separate  geographic  areas  were  appropriately  defined  by  the  availability  of  similar  set  of  services  at  similar 
 prices). 
 91  See,  e.  g.,  AT&  T/  Comcast  Order,  17  FCC  Rcd  at  23282,  para.  90;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 20016-  19,  paras.  54-  56;  EchoStar/  DirecTV  Order  17  FCC  Rcd  at  20610-  11,  para.  120;  SBC/  Ameritech  Order  14  FCC  Rcd  at  14746,  paras.  67-  68. 

 92  Verizon/  MCI  Reply,  Declaration  of  Quintin  Lew  (Verizon/  MCI  Lew  Reply  Decl.),  Tab  4,  at  paras.  38-  43;  Letter 
 from  Dee  May,  Verizon,  and  Curtis  Groves,  MCI,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  75,  Attach.  Special  Access  White  Paper  at  61-  65  (filed  Aug.  25,  2005)  (Verizon/  MCI  Special  Access  White  Paper). 

 93  We  recognize  that  Verizon  also  offers  various  volume  and  term  discount  plans,  which  offer  percentage  discounts 
 off  the  tariffed  rate.  Some  discounts  are  based  on  a  carriers  total  spend  over  a  larger  geographic  market  while  other  discounts  may  vary  from  MSA  to  MSA.  See,  e.  g.,  CompTel/  ALTS  Petition  at  14  (suggesting  a  regional  analysis  is 

 appropriate  given  Verizon  pricing  strategies);  Global  Crossing  Comments  at  8-  13. 
 94  Verizon/  MCI  Lew  Reply  Decl.,  at  Exh.  1A. 
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 region  special  access  markets.  95  We  begin  by  considering  whether  the  merger  is  likely  to  result  in  a  meaningful  reduction  in  competition  or  increase  in  price  for  special  access  services  to  particular  locations. 
 32.  As  discussed  below,  we  find  that  the  elimination  of  MCI  as  a  provider  of  wholesale  special  access  services  is  likely  to  result  in  anticompetitive  effects  in  the  provision  of  Type  I  special  access 
 services  to  particular  buildings  where  MCI  is  currently  the  sole  carrier,  besides  Verizon,  with  a  direct  wireline  connection  to  the  building,  and  where  barriers  to  entry  make  it  unlikely  that  other  carriers  will 
 build  their  own  facilities.  Absent  appropriate  remedies,  these  building-  specific  effects  may  also  lead  to  increases  in  Verizons  MSA-  wide  special  access  prices. 

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

 34.  We  next  consider  whether  the  merger  is  likely  to  result  in  anticompetitive  effects  in  the  provision  of  wholesale  special  access  services  in  areas  outside  Verizons  territory.  In  particular,  we  consider 
 arguments  made  by  certain  commenters  that,  after  the  Verizon/  MCI  and  SBC/  AT&  T  mergers  are  consummated,  Verizon  and  SBC  will  have  an  incentive  to  forbear  from  competing  in  the  provision  of 
 wholesale  special  access  services  within  each  others  territories.  We  conclude  that  the  merger  will  not  result  in  competitive  harm  in  SBC  territory.  We  find  that  a  variety  of  actual  and  potential  competing 
 providers  will  remain  post-  merger  to  fill  any  void  left  by  MCI  if  the  merged  entity  does  not  continue  to  offer  wholesale  special  access  services  in  SBCs  territory. 

 35.  Finally,  we  consider  possible  vertical  effects  of  the  merger.  Verizon  is  already  a  vertically  integrated  company.  We  conclude  that  the  merger,  as  conditioned  by  the  DOJ  Consent  Decree,  will  not 
 increase  the  merged  entitys  ability  to  increase  prices  for  or  decrease  quality  of  wholesale  special  access  services.  To  the  extent  that  Verizon,  prior  to  the  merger,  had  any  incentive  or  ability  to  raise  rivals  costs 
 or  discriminate  in  the  provision  of  wholesale  special  access  services,  those  issues  are  better  addressed  in  pending  general  rulemaking  proceedings. 

 a.  Horizontal  Effects 
 36.  Unilateral  Effects.  Several  commenters  claim  that,  as  a  result  of  the  merger,  wholesale  special  access  prices  are  likely  to  rise  at  specific  buildings  where  MCI  is  currently  offering  either  Type  I  or  Type 
 II  special  access  services.  96  As  discussed  in  greater  detail  below,  we  believe  these  claims  are  correct  in 

 95  By  in-  region,  we  mean  the  franchise  areas  where  Verizon  is  the  incumbent  LEC.  Thus,  out-  of-  region  refers 
 to  all  other  regions  in  the  U.  S. 
 96  See,  e.  g.,  Verizon/  MCI  Public  Interest  Statement  at  33-  34;  ACN  et  al.  Comments  at  32-  37;  Broadwing  and 
 SAVVIS  Petition  at  22-  30;  Cbeyond  et  al.  Petition  at  22-  25;  CompTel/  ALTS  Petition  at  13-  20;  Global  Crossing  Comments  at  13-  18;  NASUCA  Comments  at  14-  16;  Qwest  Petition  at  15-  21;  Ad  Hoc  Telecom  Users  Reply  at  19-23; 

 Letter  from  Richard  M.  Blau  and  Edward  W  Kirsch,  Counsel  for  CTC  Communications,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  at  4-  5  (filed  Sept.  21,  2005)  (CTC  Sept.  21  Ex  Parte  Letter);  Letter 
 from  Brad  E.  Mutschelknaus,  Counsel  for  BridgeCom,  et  al.,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  at  2  (filed  Sept.  22,  2005)  (BridgeCom  et  al.  Sept.  22  Ex  Parte  Letter);  Letter  from  John  T. 
 (continued.) 
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 part.  The  record  suggests  that  the  merger  will  result  in  a  reduction  in  the  number  of  competitors  offering  Type  I  services  in  buildings  where  MCI  is  currently  connected  via  its  own  facilities,  and  that,  absent 
 remedial  measures,  this  is  likely  to  lead  to  an  increase  in  the  price  of  special  access  service  to  buildings  where  only  Verizon  and  MCI  own  or  control  a  direct  wireline  connection,  and  where  conditions  make 
 additional  facilities-  based  entry  unlikely.  97  We  further  find,  however,  that  the  merger  is  not  likely  to  result  in  anticompetitive  effects  in  the  provision  of  Type  II  services.  Competing  carriers  can  use  their 
 existing  collocation  facilities  in  the  relevant  wire  center  (or  contract  with  a  competitor  that  has  such  collocation  facilities)  and  can  purchase  special  access  circuits  or  UNE  loops  to  provide  Type  II  services. 

 37.  Type  I  Services.  We  disagree  with  the  Applicants  assertion  that  the  absolute  number  of  buildings  served  by  MCI  is  so  small  that  MCIs  facilities  cannot  be  considered  competitively 
 significant.  98  As  discussed  above,  the  relevant  geographic  market  for  wholesale  special  access  services  is  a  particular  customers  location.  Thus,  where  MCI  is  the  only  carrier  besides  Verizon  that  is  directly 
 connected  to  a  particular  building  and  where  entry  is  unlikely,  MCIs  elimination  as  a  competitor  may  lead  to  an  increase  in  the  price  of  Type  I  special  access  services  to  that  building.  Thus,  absent  appropriate 
 remedial  measures,  like  those  imposed  by  the  DOJ  Consent  Decree,  the  proposed  merger  is  likely  to  have  anticompetitive  effects  in  buildings  where  MCI  is  the  only  competitive  LEC  with  a  direct  wireline 
 connection  and  where  entry  appears  unlikely. 
 38.  MCI  is  directly  connected  via  its  own  facilities  to  at  least  [REDACTED]  buildings  in  Verizons  territory  where  MCI  has  local  facilities.  99  MCI  has  provided  data  indicating  that  MCI  is  the  only 
 competitive  provider  to  approximately  [REDACTED]  of  those  buildings.  100 
 39.  The  record  also  indicates  that,  for  many  buildings,  there  is  little  potential  for  competitive  entry,  at  least  in  the  short  term.  As  the  Commission  has  previously  recognized,  carriers  face  substantial  fixed 
 and  sunk  costs,  as  well  as  operational  barriers,  when  deploying  loops,  particularly  where  the  capacity  demanded  is  relatively  limited.  101  Given  these  barriers,  it  appears  unlikely  that  a  carrier  would  be  willing 
 to  make  the  significant  sunk  investment  without  some  assurance  that  it  would  be  able  to  generate 
 (Continued  from  previous  page)  Nakahata,  Counsel  for  Level  3  Communications,  LLC,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05- 

 65,  05-  75,  Attach.  at  2  (filed  Sept.  23,  2005)  (Level  3  Sept.  23  Ex  Parte  Letter). 
 97  In  the  39  wire  center  clusters  in  the  30  in-  region  MSAs  where  MCI  has  local  facilities,  Verizon  estimates  that  it 
 serves  over  246,000  commercial  buildings,  and  states  that  MCI  provides  Type  I  service  to  only  [REDACTED]  of  them  using  its  own  facilities    less  than  [REDACTED].  See  Verizon/  MCI  Special  Access  White  Paper  at  24; 

 Letter  from  Dee  May,  Verizon,  and  Curtis  Groves,  MCI,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  75  at  3  (filed  Sept.  28,  2005)  (Verizon/  MCI  Sept.  28  Ex  Parte  Letter);  Verizon/  MCI  Reply,  Declaration  of 
 Gustavo  E.  Bamberger,  Dennis  W.  Carlton  and  Allan  L.  Shampine,  (Verizon/  MCI  Bamberger/  Carlton/  Shampine  Reply  Decl.),  Tab  1,  at  para.  19. 

 98  Verizon/  MCI  Powell/  Reynolds/  Fleming  Reply  Decl.  at  paras.  5;  Verizon/  MCI  Special  Access  White  Paper  at  13- 
 14. 
 99  Letter  from  Dee  May  and  Curtis  Groves,  Counsel  for  Verizon  and  MCI,  to  Marlene  H.  Dortch,  Secretary,  FCC, 
 WC  Docket  No.  05-  75,  at  4  (filed  Sept.  9,  2005)  (Verizon/  MCI  Sept.  9  Ex  Parte  Letter). 
 100  Id.  We  note  that  MCIs  data  is  likely  to  overestimate  the  number  of  buildings  where  MCI  is  the  sole  competitive 
 LEC  with  a  direct  connection,  because  the  data  only  count  competitive  LECs  with  whom  MCI  has  wholesale  contracts.  See,  e.  g.,  id.  at  3-  4,  n.  11. 

 101  See  Triennial  Review  Remand  Order,  20  FCC  Rcd  at  2615-  18,  paras.  149-  54;  see  also  Triennial  Review  Order, 
 18  FCC  Rcd  at  17160-  62,  paras.  303-  306.  See  also  ACN  et  al.  Aug.  10,  2005  Ex  Parte  Letter,  Attach.  at  3. 
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 revenues  sufficient  to  recover  that  investment.  102  Consistent  with  this  analysis,  there  is  evidence  in  the  record  that  carriers  generally  are  unwilling  to  invest  in  deploying  their  own  loops  unless  they  have  a  long-term 
 retail  contract  that  will  generate  sufficient  revenues  to  allow  them  to  recover  the  cost  of  their  investment.  103  Moreover,  even  where  there  is  adequate  retail  demand,  the  costs  of  constructing  the  loop 
 may  be  sufficiently  high,  or  there  may  be  other  operational  barriers,  that  may  deter  entry.  104 
 40.  This  analysis  is  consistent  with  the  analysis  contained  in  the  complaint  that  the  DOJ  filed  in  connection  with  this  merger.  In  its  complaint,  the  DOJ  alleged  that,  in  certain  buildings  where  Verizon 
 and  MCI  are  the  only  firms  that  own  or  control  a  direct  wireline  connection  to  the  building,  the  merger  was  likely  to  substantially  reduce  competition  for  Local  Private  Lines  and  telecommunications  services 
 that  rely  on  Local  Private  Lines  to  those  buildings.  105  The  DOJs  complaint  goes  on  to  allege  that  [  a]  though  other  CLECs  can,  theoretically,  build  their  own  fiber  connection  to  each  building  in  response 
 to  a  price  increase  by  the  merged  firm,  such  entry  is  a  difficult,  time-  consuming,  and  expensive  process.  106  The  complaint  further  alleges  that  [  a]  lthough  entry  may  occur  in  response  to  a  post-  merger 
 price  increase  in  some  of  the  buildings  where  MCI  is  the  only  connected  CLEC,  the  conditions  for  entry  are  unlikely  to  be  met  in  hundreds  of  those  buildings.  107  To  remedy  this  problem,  the  DOJ  in  the  consent 
 decree  required  that  MCI  divest  IRUs  to  those  buildings  where  it  was  the  sole  CLEC  with  a  direct  connection  to  the  building  and  where  DOJ  found  entry  unlikely.  108  We  find  that  the  terms  of  the  consent 
 decree  should  adequately  remedy  any  likely  anticompetitive  effects  in  the  provision  of  Type  I  wholesale  special  access  services. 

 41.  Type  II.  In  buildings  where  a  competitive  LEC  is  not  directly  connected  to  a  building  via  its  own  facilities  and  where  customer  demand  may  not  justify  the  construction  of  competitive  facilities  (such  as 
 where  demand  is  less  than  the  OCn  level),  competing  carriers  can  either  combine  competitive  transport  with  special  access  loops  or,  where  available,  high-  capacity  loop  UNEs  purchased  from  Verizon  (i.  e., 

 102  See,  e.  g.,  Verizon/  MCI  Sept.  9  Ex  Parte  Letter,  Attach.  3,  Declaration  of  Edwin  A.  Fleming,  at  paras.  6-  7;  Letter 
 from  Thomas  Cohen,  Counsel  for  XO,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  paras.  15-  21  (filed  Oct.  21,  2005)  (XO  Oct.  21  Ex  Parte  Letter). 

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

 attempted  post-  merger  price  increase.  See,  e.  g.,  Verizon/  MCI  Bamberger/  Carlton/  Shampine  Reply  Decl.  at  paras.  14-  22,  Verizon/  MCI  Reply,  Reply  Declaration  of  Jonathan  P.  Powell,  Peter  H.  Reynolds,  and  Edwin  A.  Fleming 
 (Verizon/  MCI  Powell/  Reynolds/  Fleming  Reply  Decl.),  Tab  9,  at  para.  31.  As  the  Commission  explained  in  the  Triennial  Review  Order,  [  t]  he  purposes  of  a  market  power  analysis  are  not  the  purposes  of  section  251(  d)(  2).  .  .  the 
 Act  requires  only  that  network  elements  be  unbundled  if  competing  carriers  are  impaired  without  them,  regardless  of  whether  the  incumbent  LEC  is  exercising  market  power  or  the  unbundling  would  eliminate  this  market  power. 
 Triennial  Review  Order,  18  FCC  Rcd  at  17051  at  para.  109. 
 105  DOJ-  Verizon/  MCI  Complaint  at  para.  3. 

 106  Id.  at  para.  27. 
 107  Id.  at  para.  29. 
 108  DOJ-  Verizon/  MCI  Consent  Decree,  App.  A. 
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 Type  II  offerings).  109  Carriers  can  use  their  existing  collocation  facilities  in  the  relevant  wire  center  (or  contract  with  a  competitor  that  has  such  collocation  facilities)  and  can  purchase  special  access  loops  or 
 UNEs  to  provide  Type  II  services. 
 42.  Commenters  claim  that  MCI  has  three  unique  advantages  in  supplying  Type  II  special  access  services  to  other  competing  carriers:  (1)  MCI  obtains  greater  special  access  discounts  from  Verizon  for 
 the  loop  portion  of  the  circuit;  110  (2)  MCI  has  more  collocations  than  other  competitive  LECs  so  it  can  use  the  incumbent  LEC  special  access  to  a  greater  number  of  buildings;  111  and  (3)  MCI  has  a  more  extensive 
 fiber  network  and  therefore  can  reach  more  commercial  buildings.  112  We  do  not  find  these  arguments  persuasive. 

 43.  First,  there  is  no  evidence  that  MCI  has  access  to  a  discount  plan  that  is  not  available  to  other  providers.  The  Applicants  assert,  and  opponents  do  not  rebut,  that  the  volume  and  term  discount  plans 
 under  which  MCI  takes  Verizon  special  access  circuits  are  also  available  to  other  competitive  LECs.  113  Indeed,  these  plans  are  made  available  to  others  pursuant  to  contract  tariffs  or  generally  available  tariffs. 
 Further,  Verizon  provides  special  access  discounts  in  a  variety  of  ways  with  differing  conditions  in  different  regions,  including  discounts  available  even  to  those  carriers  that  might  not  qualify  for  the  precise 
 discount  plan  used  by  MCI.  114  Finally,  we  note  that  regardless  of  whether  competitors  are  able  to 
 109  While  UNEs  are  not  available  solely  for  the  provision  of  long  distance  or  mobile  wireless  services,  they  are 
 available  for  the  provision  of  local  exchange  and  exchange  access  services.  Triennial  Review  Remand  Order,  20  FCC  Rcd  at  2551-  58,  paras.  34-  40.  Carriers  that  obtain  UNEs  for  the  provision  of  local  exchange  or  exchange 

 access  services  may  also  provide  other  services  using  those  UNEs.  47  C.  F.  R.    51.309(  d). 
 110  CompTel/  ALTS  Petition  at  14-  15  (arguing  that  because  of  the  size  of  its  fiber  resources  and  massive  amount  of 
 wholesale  circuits,  MCI  can  credibly  threaten  to  groom  circuits  off  the  ILEC  network  and  onto  its  own  fiber  to  get  lower  prices);  Broadwing  and  SAVVIS  Petition  at  22-  23  (MCIs  volume  of  demand,  combined  with  the  implicit 

 threat  that  MCI  could  deploy  more  circuits  of  its  own,  exerts  some  discipline  on  Verizons  access  rates  in  general);  Cbeyond  et  al.  Petition  at  23-  24. 

 111  Letter  from  Mark  C.  Del  Bianco,  Counsel  for  Paetec,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05- 
 75  at  1-  2  (filed  Oct.  6,  2005)  (Paetec  Oct.  6  Ex  Parte  Letter). 
 112  CompTel/  ALTS  Petition  at  14-  15;  Letter  from  Teresa  D.  Baer,  Counsel  for  Global  Crossing,  to  Marlene  H. 
 Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  75  at  8  (filed  June  2,  2005)  (Global  Crossing  June  2  Ex  Parte  Letter)  (asserting  that  no  other  competitive  LEC  matches  the  breadth  of  MCIs  and  AT&  Ts  local  access  networks). 

 113  Verizon/  MCI  Lew  Reply  Decl.  at  paras.  24-  48;  Verizon/  MCI  Powell/  Reynolds/  Fleming  Reply  Decl.  at  paras.  13-14; 
 Verizon/  MCI  Special  Access  White  Paper  at  18.  The  Applicants  also  assert  that  non-  carriers  have  entered  the  market  aggregating  the  demand  from  several  buyers  to  take  advantage  of  Verizon  discounts.  Id.  at  60. 

 114  Verizon  provides  special  access  services  under  tariffed  rates  as  well  as  through  individual  contracts,  as  Verizon 
 has  gained  pricing  flexibility  in  certain  MSAs.  Various  volume  and  term  discounts  may  apply  to  individual  purchases  or  for  all  purchases  in  particular  regions.  Other  discounts  are  dependent  on  maintaining  minimum 

 purchasing  levels  over  several  years.  Verizon/  MCI  Lew  Reply  Decl.  at  paras.  24-  48;  Verizon/  MCI  Reply  Powell/  Reynolds/  Fleming  Reply  Decl.  at  13-  14;  Verizon/  MCI  Sept.  9  Ex  Parte  Letter  at  8.  See  also  Letter  from 
 Dee  May  and  Curtis  Groves,  Counsel  for  Verizon  and  MCI,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  75,  at  2  (filed  Sept.  15,  2005)  (Verizon/  MCI  Sept.  15  Ex  Parte  Letter).  While  it  is  not  always  clear  how  much 
 each  buyer  pays,  it  is  clear  that  the  simple  tariff  rate  sometimes  used  by  commenters  for  comparing  prices  is  not  adequate  for  that  purpose.  See,  e.  g.,  Letter  from  Thomas  Cohen,  Counsel  for  SAVVIS  and  XO,  to  Marlene  H. 
 Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  5  (filed  July  29,  2005)  (SAVVIS/  XO  July  29  Ex  Parte  Letter);  XO  et  al.  Oct.  3  Ex  Parte  Letter,  Attach.  at  2-  4;  see  also  Cbeyond  et  al.  Wilkie  Decl.  at  para.  15 
 (discussing  the  review  of  special  access  RFP  bid  data,  and  stating  that  the  incumbent  LEC  rarely  actively  underbid[  s]  the  posted  special  access  rates). 
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 negotiate  significant  discounts,  where  competitive  duplication  of  the  last-  mile  facility  is  not  economic,  competing  carriers  will  be  able  to  rely  on  high-  capacity  loop  and  transport  UNEs  priced  at  Total  Element 
 Long  Run  Incremental  Cost  (TELRIC)  where  they  are  available.  115 
 44.  Second,  existing  competitive  collocations  and  the  threat  of  competitive  entry  through  collocation  allow  for  special  access  competition  in  Verizons  in-  region  wire  centers  where  MCI  competes  today. 
 Indeed,  in  the  30  MSAs  in  Verizons  territory  where  MCI  currently  has  local  facilities,  116  the  Applicants  indicate  that  MCI  only  has  collocations  in  [REDACTED]  wire  centers  compared  to  the  total  of 
 [REDACTED]  collocations  by  other  competing  carriers  in  Verizon  wire  centers.  117  Thus,  other  competing  carriers  collectively  have  almost  [REDACTED]  times  the  number  of  Verizon  wire  center 
 collocations  compared  with  MCI.  In  addition,  there  are  nearly  100  competing  carriers  that  have  between  [REDACTED]  collocations  per  MSA,  with  an  average  of  [REDACTED]  collocations,  in  each  of  the  30 
 MSAs  where  MCI  has  local  facilities.  118  Moreover,  of  the  [REDACTED]  wire  centers  in  the  30  MSAs  in  Verizons  territory  in  which  MCI  has  collocations,  other  competing  carriers  are  collocated  in 
 [REDACTED].  119  Even  in  those  wire  centers  where  MCI  currently  is  the  only  collocated  carrier,  competitors  after  the  merger  are  likely  to  have  incentives  to  construct  substitute  collocations.  The 
 extensive  local  fiber  networks  120  already  deployed  by  other  competitors  in  Verizons  territory  indicate  that  these  competitors  are  likely  to  find  it  both  technically  and  economically  feasible  to  construct  additional 
 collocations.  121 
 45.  Third,  the  Applicants  submitted  maps  showing  the  local  fiber  routes  of  MCI  and  other  competing  carriers  in  the  30  MSAs  where  MCI  provides  special  access  in  Verizons  region.  122  These  maps  further 

 115  In  addition,  we  note  that  the  Commission  has  found  that  the  availability  of  UNEs  is  itself  a  check  on  special 
 access  pricing.  Triennial  Review  Remand  Order,  20  FCC  Rcd  at  2574,  para.  65. 
 116  These  MSAs  are  Albany,  Allentown,  Baltimore,  Boston,  Bridgeport,  Buffalo,  Dallas,  Durham,  Los  Angeles, 
 Manchester,  New  York,  Philadelphia,  Pittsburgh,  Portland  (ME),  Portland  (OR),  Poughkeepsie,  Providence,  Reading,  Richmond,  San  Francisco,  San  Jose,  Santa  Barbara,  Seattle,  Springfield  (MA),  Syracuse,  Tampa,  Trenton, 

 Washington  (DC),  Worcester,  and  York.  Verizon/  MCI  Aug.  25  Ex  Parte  Letter,  Special  Access  White  Paper  at  12  nn.  30-  32. 

 117  Letter  from  Dee  May,  Verizon,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  75,  Attach. 
 Collocation  Supplement  (filed  Aug.  5,  2005)  (Verizon  Aug.  5  Ex  Parte  Letter,  Collocation  Supplement);  MCI  Info.  Req.  Exh.  6(  a)(  3);  Letter  from  Dee  May,  Verizon,  and  Curtis  Groves,  MCI,  to  Marlene  H.  Dortch,  Secretary,  FCC, 

 WC  Docket  No.  05-  75  at  9  (filed  Sept.  5,  2005)  (Verizon/  MCI  Sept.  5  Ex  Parte  Letter). 
 118  Verizon  Aug.  5  Ex  Parte  Letter,  Collocation  Supplement. 

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

 20  FCC  Rcd  at  2589-  95,  2625-  26,  paras.  96-  105,  167  (discussing  the  inferences  drawn  from  fiber-  based  collocations  for  purposes  of  our  UNE  rules);  Access  Charge  Reform;  Price  Cap  Performance  Review  for  Local 
 Exchange  Carriers,  CC  Docket  Nos.  96-  262,  94-  1,  Fifth  Report  and  Order  and  Further  Notice  of  Proposed  Rulemaking,  14  FCC  Rcd  14221,  14265-  69,  paras.  81-  86  (1999)  (Pricing  Flexibility  Order)  (describing  the 
 correlation  between  fiber-  based  collocation  and  sunk  investment  in  competitive  transport  facilities). 
 122  Letter  from  Dee  May,  Verizon,  and  Curtis  Groves,  MCI,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No. 
 05-  75,  Attach.  Fiber  Location  Maps  (filed  Sept.  14,  2005)  (Verizon/  MCI  Sept.  14  Ex  Parte  Letter). 
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 demonstrate  that  other  carriers  besides  MCI  have  fiber  networks  in  these  geographic  areas.  In  many  MSAs,  some  competitors  appear  to  have  more  extensive  networks  than  MCI.  123  We  conclude,  therefore, 
 that  there  are  existing  competitors  with  local  fiber  networks  that  reasonably  could  provide  wholesale  special  access  in  MSAs  where  MCI  now  operates  local  facilities.  124  We  note  that  our  findings  here  are 
 consistent  with  the  findings  underlying  the  Commissions  high-  capacity  loop  impairment  analysis  in  the  Triennial  Review  Remand  Order.  125 

 46.  We  are  also  not  persuaded  by  certain  study  results  cited  by  commenters  that  purport  to  show  that  the  removal  of  MCI  as  a  special  access  competitor  in  Verizon  territory  would  result  in  significant 
 increases  in  bid  prices  for  wholesale  special  access  services.  126  Commenters  have  alleged  that  their  analysis  of  particular  carriers  special  access  bid  data  shows  that  AT&  T  and  MCI  were  the  most  frequent 
 bidders  to  offer  competitive  special  access  services  and  that  regression  analyses  of  a  large  sample  of  bids  submitted  in  response  to  competitors  RFPs  demonstrates  that  removal  of  MCI  from  Verizon  territory 

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

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

 124  Indeed,  MCI  itself  purchases  special  access  from  several  competing  carriers.  See  Verizon/  MCI  Reply, 
 Declaration  of  Jonathan  P.  Powell,  Peter  H.  Reynolds,  and  Edwin  A.  Fleming  (Verizon/  MCI  Powell/  Reynolds/  Fleming  Reply  Decl.)  at  para.  17;  Verizon  Special  Access  White  Paper  at  17-  18;  see  also  Verizon 

 Special  Access  White  Paper  at  26-  47  (listing  wholesale  special  access  competitors  to  MCI). 
 125  In  the  Triennial  Review  Remand  Order,  the  Commission  drew  inferences  that  requesting  carriers  were  not 
 impaired  without  unbundled  access  to  DS1  and  DS3  loops  in  wire  centers  with  a  significant  number  of  business  lines  and  fiber-  based  collocators.  See  Triennial  Review  Remand  Order,  20  FCC  Rcd  at  2622-  23,  para.  161.  The 

 Commission  further  noted  that  in  those  wire  centers  where  high-  capacity  loop  unbundling  was  eliminated,  carriers  could  compete  using  incumbent  LEC  or  third  party  special  access  to  serve  particular  buildings  to  the  extent  that 
 competitive  facilities  cannot  economically  be  deployed.  See  id.  at  2623-  24,  para.  163.  For  various  reasons,  the  Commission  did  not  directly  rely  on  the  availability  of  special  access  as  precluding  the  need  for  unbundling.  See 
 generally  id.  at  2560-  71,  paras.  46-  63.  In  the  Triennial  Review  Remand  Order,  the  Commission  was  evaluating  whether  a  requesting  carrier  would  be  impaired  without  access  to  a  UNE,  whereas  here  we  are  evaluating  the 
 mergers  effects  on  competition  in  the  market  for  special  access.  Consequently,  we  find  it  appropriate  here  to  rely  on  competing  carriers  ability  to  use  Type  II  special  access  facilities  given  the  evidence  in  the  record  on  all  sides 
 regarding  successful  special  access  competition  provided  by  Type  II  service  offerings.  Cf.  Verizon/  MCI  Reply  at  33  (contending  that  the  Commissions  high-  capacity  loop  impairment  analysis  suggests  that  competitive  alternatives 
 would  remain  for  MCIs  lit  buildings). 
 126  ACN  et  al.  Comments  at  35;  Broadwing  and  SAVVIS  Petition,  Declaration  of  Mark  Pietro  (Broadwing  and 
 SAVVIS  Pietro  Decl.)  at  para.  18;  CompTel/  ALTS  Petition  at  27;  Ad  Hoc  Telecom  Users  Reply  at  20-  22;  BT  Americas  Reply  at  15-  16;  Letter  from  Richard  M.  Blau  and  Edward  W  Kirsch,  Counsel  for  CTC  Communications, 

 to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  at  4-  5  (filed  Sept.  21,  2005)  (CTC  Sept.  21  Ex  Parte  Letter);  Letter  from  Brad  E.  Mutschelknaus,  Counsel  for  BridgeCom  et  al.,  to  Marlene  H.  Dortch, 
 Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  at  2  (filed  Sept.  22,  2005)  (BridgeCom  et  al.  Sept.  22  Ex  Parte  Letter);  Letter  from  John  T.  Nakahata,  Counsel  for  Level  3  Communications,  LLC,  to  Marlene  H.  Dortch, 
 Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  2  (filed  Sept.  23,  2005)  (Level  3  Sept.  23  Ex  Parte  Letter). 
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 would  result  in  a  doubling  of  bid  prices.  127  As  an  initial  matter,  Applicants  have  noted  the  difficulty  in  relying  on  these  assertions  since  neither  the  majority  of  commenters  source  data  nor  even  the  underlying 
 methodologies  used  for  the  analyses  are  in  the  public  record  and  have  not  been  subject  to  examination  by  opposing  parties.  128  Further,  these  analyses  appear  to  conflate  Type  I  and  Type  II  special  access  offerings, 
 which,  as  we  find  above,  are  in  separate  relevant  product  markets.  129  Consequently,  we  do  not  accept  the  commenters  bid  data  analyses  as  demonstrating  that  the  merger  will  lead  to  special  access  price  increases 
 at  particular  buildings. 
 47.  In  summary,  within  Verizons  region,  we  find  that  collectively,  other  competing  carriers  have  more  fiber  and  many  more  collocations  than  does  MCI.  130  In  the  limited  number  of  MSAs  where  MCI  has 
 local  facilities  in  the  Verizon  region,  MCI  represents  about  [REDACTED]  percent  of  the  competitive  collocations.  Moreover,  the  record  clearly  shows  that  MCIs  collocations  are  located  exclusively  in 
 MSAs  with  many  other  competitive  collocations.  Therefore,  we  conclude  that  elimination  of  MCI  as  a  provider  of  Type  II  wholesale  special  access  services  should  not  have  an  appreciable  effect  on  price  or 
 availability  of  Type  II  wholesale  special  access  services. 

 127  Cbeyond  et  al.  Wilkie  Decl.  at  paras.  14-  16,  23-  27  ([  f]  or  those  circuits  where  competition  is  eliminated  and  the 
 requesting  carrier  is  left  with  the  current  special  access  tariff,  prices  will  rise  approximately  100%.);  see  also  Letter  from  Brad  E.  Mutschelknaus,  et  al.,  Counsel  for  Eschelon  et  al.,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket 

 Nos.  05-  65,  05-  75,  Attach.  at  21  (filed  May  10,  2005)  (Eschelon  et  al.  May  10  Ex  Parte  Letter);  SAVVIS/  XO  July  29  Ex  Parte  Letter,  Attach.  at  5;  Letter  from  Teresa  D.  Baer,  Counsel  for  Global  Crossing,  to  Marlene  H.  Dortch, 
 Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  3  (filed  Sept.  7,  2005)  (Global  Crossing  Sept.  7  Ex  Parte  Letter)  (comparing  certain  AT&  T,  MCI,  and  BOC  T-  1  prices  for  two  states);  XO  et  al.  Oct.  3  Ex  Parte  Letter, 
 Attach.  at  3-  4;  see  also  Letter  from  Sherry  Ingram,  Verizon,  and  Curtis  Groves,  MCI,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  75)  (filed  Oct.  18,  2005)  (Verizon/  MCI  Oct.  18  Ex  Parte  Letter)  (arguing  that 
 the  RFP  data  submitted  by  competitive  LECs  are  inadequate  to  prove  that  MCI  is  a  price  leader  in  the  sale  of  wholesale  or  retail  special  access). 

 128  Letter  from  Dee  May,  Verizon,  and  Curtis  Groves,  MCI,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No. 
 05-  75,  Attach.  at  1-  4  (filed  June  30,  2005)  (Verizon/  MCI  June  30  Ex  Parte  Letter);  Verizon/  MCI  Sept.  9  Ex  Parte  Letter  at  21-  22.  It  is  not  clear  how  similar  the  bid  process  was  between  the  several  companies,  whether  there  were 

 substantial  negotiations  after  the  bids,  or  whether  the  bids  were  conducted  in  several  rounds.  Understanding  these,  and  possibly  other,  considerations  could  be  important  in  interpreting  the  data. 

 129  See,  e.  g.,  XO  et  al.  Oct.  3  Ex  Parte  Letter,  Attach.;  SAVVIS/  XO  July  29  Ex  Parte  Letter,  Attach.  at  5. 
 130  We  reject  EarthLinks  assertion  that  the  proposed  merger  will  eliminate  MCI  as  a  potential  wholesale  DSL 
 competitor.  EarthLink  contends  that  MCI  made  acquisitions  in  2001  which  positioned  itself  as  a  facilities-  based  provider  of  DSL  service  in  over  700  central  offices  covering  31  markets  across  the  United  States.  Letter  from 

 Jennifer  L.  Phurrough,  Counsel  for  EarthLink,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  22-  23  (filed  Sept.  26,  2005)  (EarthLink  White  Paper).  As  an  initial  matter,  we  note  that  EarthLink 
 relies  on  statements  about  MCIs  intentions  regarding  DSL  from  2001,  see  id.  at  23,  many  years  prior  to  its  determination  to  discontinue  pursuing  its  consumer  DSL  line  of  business.  See  infra  Part  V.  D  (discussing  MCIs 
 decision  to  reduce  marketing  of  mass  market  services).  Consequently,  EarthLinks  outdated  evidence  does  not  persuade  us  that  MCI  was  likely  to  begin  offering  wholesale  DSL  services  in  the  absence  of  the  merger.  Moreover, 
 we  conclude  that  MCI  is  not  uniquely  positioned  to  become  a  wholesale  DSL  provider.  The  Commission  previously  has  found  that  competitors  are  actively  deploying  their  own  packet  switches,  including  routers  and 
 DSLAMs  to  serve  both  the  enterprise  and  mass  markets,  and  that  these  facilities  are  much  cheaper  to  deploy  than  circuit  switches,  suggesting  that  MCI  likely  is  not  unique  in  its  ownership  of  DSLAMs  and  networking  equipment. 
 Triennial  Review  Order,  18  FCC  Rcd  at  17321-  22,  para.  538.  Further,  as  we  find  above,  there  are  numerous  other  competitive  LECs  with  collocations.  Given  that  unbundled  DS0  loops  are  available  throughout  Verizons  region, 
 those  other  carriers  can  also  use  their  collocations  in  conjunction  with  unbundled  loops  to  offer  wholesale  DSL  service. 
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 48.  MSA-  wide  effects.  To  the  extent  that  the  elimination  of  MCI  as  a  competitor  in  the  Type  I  wholesale  special  access  market  causes  competitive  harm,  this  also  could  result  in  increases  in  the  MSA-wide 
 prices  that  Verizon  sets  for  its  own  special  access  services.  131  However,  as  discussed  above,  we  find  that  the  divestitures  contained  in  the  consent  decree  executed  by  the  Department  of  Justice  and  the 
 Applicants  should  adequately  address  any  competitive  concerns  that  we  might  have  relating  to  this  market.  Thus,  in  light  of  the  DOJ  Consent  Decree,  we  conclude  that  the  merger  is  not  likely  to  result  in 
 increases  in  the  MSA-  wide  prices  that  Verizon  charges  for  special  access  services.  Moreover,  the  voluntary  commitments  that  the  Applicants  have  offered,  132  and  which  we  accept  and  make  conditions  of 
 our  approval  of  this  order,  provide  us  with  further  comfort  that  the  merger  is  not  likely  to  result  in  anticompetitive  effects  either  in  the  building-  specific  markets  for  Type  I  wholesale  special  access 
 services,  or  derivatively  in  the  MSA-  wide  market  for  Verizons  special  access  services. 
 49.  We  note  that  certain  commenters  have  submitted  special  access  market  share  and  HHI  calculations  for  selected  MSAs  in  Verizon  territory  to  demonstrate  that  the  merger  will  lead  to 
 competitive  harm  for  those  MSAs.  133  We  find  certain  weaknesses  with  this  analysis  and  data,  however.  First,  we  share  some  of  the  concerns  expressed  by  the  Applicants  concerning  the  reliability  of  the 
 underlying  data.  134  In  addition,  it  appears  that  the  commenters  market  share  calculations  include  all  capacity,  regardless  of  whether  it  is  used  to  provide  wholesale  special  access  or  to  support  MCIs  own 
 retail  services.  135  Finally,  as  discussed  above,  we  find  that  any  increase  in  Verizons  MSA-  wide  special  access  prices  would  only  result  from  a  reduction  in  competition  in  building  specific  markets  for  Type  I  or 
 Type  II  wholesale  special  access  services.  Because  we  find  that  the  consent  decree  adequately  remedies  any  likely  anticompetitive  effects  on  Type  I  wholesale  special  access  services  and  that  the  merger  is 
 unlikely  to  result  in  anticompetitive  effects  in  the  provision  of  Type  II  wholesale  special  access  services,  we  find  that  no  additional  measures  are  required  to  protect  against  increases  in  Verizons  special  access 
 prices  resulting  from  the  merger. 

 131  As  previously  discussed,  each  building  represents  a  separate  relevant  geographic  market,  and  competitors 
 frequently  charge  different  prices  for  special  access  services  to  different  buildings.  To  the  extent  that  Verizon  has  received  Phase  II  pricing  flexibility,  but  nevertheless  sets  special  access  prices  that  are  geographically  averaged  over 

 an  entire  MSA,  we  would  expect  that  Verizon  would  set  a  geographically  uniform  price  that  maximizes  its  profits  given  competitive  conditions  that  vary  from  building  to  building.  If  competition  is  reduced  to  a  number  of 
 buildings,  this  is  likely  to  cause  Verizon  to  raise  its  MSA-  wide  price.  See,  e.  g.,  Global  Crossing  Comments  at  17,  n.  34;  see  also  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20629,  para.  185  (providing  a  formula  that  describes  how 
 the  profit-  maximizing,  uniform  price  that  is  averaged  over  multiple  geographic  markets  will  rise  in  response  to  a  decrease  in  competition  in  particular  local  markets). 

 132  See  generally  Verizon  Oct.  31  Ex  Parte  Letter;  see  also  Appendix  G. 
 133  See,  e.  g.,  SAVVIS/  XO  July  29  Ex  Parte  Letter,  Wilkie  Presentation  at  9-  11. 
 134  Verizon/  MCI  Reply  at  35;  Verizon/  MCI  Sept.  9  Ex  Parte  Letter  at  21. 
 135  We  reject  the  national  private  line  market  share  calculations  submitted  by  commenters.  See  Letter  from  Thomas 
 W.  Cohen,  Counsel  for  XO,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  13  (filed  Sept.  21,  2005)  (attached  excerpts  from  a  January  2004  Yankee  Group  study).  As  an  initial  matter,  it  is  not 

 clear  what  data  Yankee  Group  used  to  calculate  market  shares.  Because  we  expect  MCI  to  be  in  the  best  position  to  know  its  revenues,  we  believe  that  the  revenue  submitted  by  MCI  in  response  to  the  Commissions  information 
 request,  showing  lower  revenues,  is  more  accurate  than  the  Yankee  Groups  earlier  estimate.  Second,  even  if  the  market  shares  reported  for  MCI  were  accurate,  the  national  market  shares  likely  mask  variations  in  market  share 
 among  narrower  geographic  regions.  The  study  states  that  other  competing  carriers  market  shares  vary  among  Tier  1  to  Tier  4  metropolitan  markets,  for  example.  Id. 
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 50.  We  also  reject  commenters  assertions  that  MCI,  because  of  its  extensive  local  transport  network,  has  a  unique  ability  to  handle  short  and  intermediate  haul  traffic.  136  As  shown  above,  MCI  faces 
 competition  from  many  other  competitive  LECs,  which  also  possess  extensive  local  transport  facilities  and  collocations.  137  As  explained  above,  local  fiber  facility  maps  show  that  there  are  other  competing 
 carriers  besides  MCI  in  the  30  MSAs  where  MCI  provides  special  access  in  Verizons  region.  These  maps  demonstrate  that  other  carriers  besides  MCI  have  fiber  networks  in  these  geographic  areas  and  are 
 possible  suppliers  of  short  and  intermediate  haul  traffic.  138  Thus,  we  do  not  find  that  MCI  is  able  to  provide  local  transport  on  an  MSA-  wide  basis  more  efficiently  than  other  competing  carriers.  139 

 136  See,  e.  g.,  CompTel/  ALTS  Petition  at  17;  Broadwing  and  SAVVIS  Petition  at  25-  26  n.  42,  33;  Broadwing  and 
 SAVVIS  Pietro  Decl.  at  paras.  12-  16;  Qwest  July  7  Ex  Parte  Letter,  Attach.  at  7;  Paetec  Oct.  6  Ex  Parte  Letter  at  1-2. 

 137  See  supra  para.  45  (discussing  evidence  of  competitive  fiber  networks);  para.  44  (discussing  competitive 
 collocation  in  the  same  wire  centers  as  MCI  within  the  30  MSAs  where  MCI  has  local  facilities).  The  Commission  has  previously  concluded  that  fiber-  based  collocation  is  a  key  indicator  of  competitive  fiber  deployment,  and  the 

 D.  C.  Circuit  has  affirmed  this  use  as  reasonable.  Fiber-  based  collocation  in  a  wire  center  very  clearly  indicates  the  presence  of  competitive  transport  facilities  in  that  wire  center.  Triennial  Review  Remand  Order,  20  FCC  Rcd  at 
 2589-  90,  para.  96. 
 138  Letter  from  Dee  May,  Verizon,  and  Curtis  Groves,  MCI,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No. 
 05-  75,  Attach.  Fiber  Location  Maps  (filed  Sept.  14,  2005)  (Verizon/  MCI  Sept.  14  Ex  Parte  Letter). 
 139  Based  on  our  findings  regarding  the  ability  of  other  carriers  with  fiber  networks  to  offer  competing  special  access 
 services  where  MCI  offered  such  services  pre-  merger,  we  are  not  persuaded  by  commenters  assertions  that  the  merger  is  likely  to  result  in  anticompetitive  effects  because  the  remaining  competitive  LECs  are  unlikely  to  re-  create 

 MCIs  facilities,  or  replicate  its  ability  to  expand,  in  the  near  future.  See,  e.  g.,  Letter  from  Melissa  Newman,  Vice  President  Federal  Relations,  Qwest,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  65  at  7,  13  (filed 
 July  7,  2005)  (Qwest  July  7  Ex  Parte  Letter)  (contending  that  MCI  (and  AT&  T)  were  each  expected  to  deploy  more  local  facilities  so  as  to  reduce  their  dependence  on  the  incumbent  carriers  facilities  based  on  their  unique, 
 comparatively  larger  networks).  We  also  reject  CTC  Communications  assertion  that  we  should,  in  this  proceeding,  revise  the  unbundling  rules  adopted  in  the  Triennial  Review  Remand  Order.  Specifically,  CTC  contends  that  the 
 Commission  should  revise  its  unbundling  rules  so  that  MCIs  fiber-  based  collocations  are  counted  as  affiliated  for  purposes  of  high-  capacity  loops  and  dedicated  transport  unbundling.  Letter  from  Edward  W.  Kirsch,  Counsel  for 
 CTC  Communications,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  8  (filed  Aug.  31,  2005)  (CTC  Aug.  31  Ex  Parte  Letter);  see  also  Letter  from  Brad  E.  Mutschelknaus,  Counsel  for 
 Bridgecom  et  al.,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  at  3-  4  (filed  Oct.  18,  2005).  This  issue  currently  is  pending  before  the  Commission  on  reconsideration  of  the  Triennial  Review  Remand  Order, 
 and  we  believe  that  is  the  appropriate  forum  to  address  our  unbundling  rules.  See,  e.  g.,  CTC  Communications  Corp.  et  al.  Petition  for  Reconsideration,  Unbundled  Access  to  Network  Elements;  Review  of  the  Section  251  Unbundling 
 Obligations  of  Incumbent  Local  Exchange  Carriers,  WC  Docket  No.  04-  313,  CC  Docket  No.  01-  338,  at  5-  8  (filed  Mar.  28,  2005).  While  we  decline  to  revise  our  unbundling  rules,  as  requested  by  commenters,  we  note  that  the 
 Applicants  have  voluntarily  committed  to  exclude  fiber-  based  collocation  arrangements  established  by  MCI  or  its  affiliates  in  identifying  wire  centers  in  which  Verizon  claims  there  is  no  impairment.  See  Verizon  Oct.  31  Ex  Parte 
 Letter,  Attach.  at  3;  see  also  Appendix  G. 
 Our  finding  above  that  the  merger  will  not  likely  have  anticompetitive  effects  with  respect  to  wholesale  transport  services  generally  applies  with  even  greater  force  in  the  context  of  entrance  facilities.  As  the  Commission  has 

 found  in  the  past,  entrance  facilities  are  less  costly  to  build,  are  more  widely  available  from  alternative  providers,  and  have  greater  revenue  potential  than  dedicated  transport  between  incumbent  LEC  central  offices,  and  no 
 significant  concerns  regarding  entrance  facilities  were  raised  in  the  record.  Triennial  Review  Remand  Order,  20  FCC  Rcd  at  2612,  para.  141. 
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 51.  We  find  further  comfort  in  certain  voluntary  commitments  which  the  Applicants  have  made  relating  to  unbundled  network  elements  and  special  access  services.  140  First,  the  Applicants  commit  not  to 
 seek  any  increase  in  state-  approved  rates  for  UNEs  that  are  currently  in  effect,  with  the  exception  of  rates  that  are  subject  to  specified  currently  pending  appeals.  Second,  the  Applicants  commit  to  exclude  fiber-based 
 collocation  arrangements  established  by  MCI  or  its  affiliates  in  identifying  wire  centers  in  which  Verizon  claims  there  is  no  impairment  pursuant  to  section  51.319(  a)  and  (e)  of  the  Commissions  rules. 
 Third,  the  Applicants  commit  that  Verizons  incumbent  local  operating  companies  will  implement  a  performance  metrics  plan  for  interstate  special  access  services,  under  which  they  will  provide 
 performance  data  on  a  quarterly  basis.  Fourth,  the  Applicants  commit  not  to  raise  rates  paid  by  existing  customers  of  MCIs  DS1  and  DS3  wholesale  metro  private  line  services  that  MCI  provides  in  Verizons 
 incumbent  local  telephone  company  service  areas.  Fifth,  the  Applicants  commit  that  Verizons  incumbent  local  telephone  companies  will  not  provide  special  access  offerings  to  their  wireline  affiliates  that  are  not 
 available  to  other  similarly  situated  special  access  customers  on  the  same  terms  and  conditions.  Sixth,  the  Applicants  commit  that,  before  Verizon/  MCI  provides  a  new  contract  tariff  to  its  own  section  272(  a) 
 affiliate(  s),  it  will  certify  to  the  Commission  that  it  provides  service  pursuant  to  that  contract  tariff  to  an  unaffiliated  customer  other  than  SBC  or  its  wireline  affiliates.  Finally,  the  Applicants  commit  that 
 Verizon/  MCI  will  not  increase  the  rates  set  forth  in  Verizons  interstate  tariffs,  including  contract  tariffs,  for  DS1,  DS3  and  OCn  special  access  services  that  Verizons  incumbent  local  telephone  companies 
 provide  in  their  local  service  areas  and  that  are  set  forth  in  tariffs  on  file  at  the  Commission  on  the  Merger  Closing  Date.  141  These  commitments  and  their  duration  are  described  in  greater  detail  in  Appendix  G. 
 Because  we  find  these  commitments  will  serve  the  public  interest,  we  accept  them  and  adopt  them  as  conditions  of  our  approval  of  the  merger. 

 52.  Coordinated  Effects.  We  also  do  not  believe  that  the  merger  increases  the  likelihood  of  coordinated  interaction.  It  is  generally  recognized  that  the  likelihood  of  coordinated  effects  depends  on  a 
 number  of  factors,  including  the  ease  with  which  firms  can  reach  tacit  agreement,  the  incentive  of  firms  to  cheat,  and  the  ability  of  the  remaining  firms  to  detect  and  punish  such  cheating.  142  Carriers  that  purchase 
 wholesale  special  access  services,  whether  Type  I  or  Type  II,  are  sophisticated  customers  that  often  rely  on  a  competitive  bid  process  or  negotiate  individual  contracts,  and  that  enter  into  long-  term  contracts.  143 
 Further,  by  virtue  of  the  fact  that  MCI  will  be  divesting  assets  pursuant  to  the  DOJ  Consent  Decree,  there  need  not  be  significant  reduction  in  the  number  of  competitive  providers  of  Type  I  wholesale  special 
 access  services  to  specific  buildings.  Moreover,  as  noted  above,  there  will  remain  numerous  competitors  that  are  able  to  provide  Type  II  wholesale  special  access  services.  We  find  that  these  factors  make  it 
 unlikely  that  the  merger  will  lead  to  tacit  collusion  or  other  coordinated  effects  in  the  relevant  special  access  markets  in  Verizons  region.  144 

 140  See  Verizon  Oct.  31  Ex  Parte  Letter,  Attach.  at  2-  4. 
 141  This  condition  does  not  apply  to  Advanced  Services  that  would  have  been  provided  by  a  separate  Advanced 
 Services  affiliate  under  the  terms  of  the  Bell  Atlantic/  GTE  Order.  See  Bell  Atlantic/  GTE  Order,  15  FCC  Rcd  at  14032,  App.  D. 

 142  JEAN  TIROLE,  THE  THEORY  OF  INDUSTRIAL  ORGANIZATION  239  (1988);  GEORGE  STIGLER,  A  Theory  of 
 Oligopoly,  in  THE  ORGANIZATION  OF  INDUSTRY  39  (1968);  ALEXIS  JACQUEMIN  AND  MARGARET  E.  SLADE,  Cartels,  Collusion,  and  Horizontal  Merger,  in  THE  HANDBOOK  OF  INDUSTRIAL  ORGANIZATION  415  (1989). 

 143  Verizon/  MCI  Bamberger/  Carlton/  Shampine  Reply  Decl.  at  paras.  56-  67.  See,  e.  g.,  Broadwing  and  SAVVIS 
 Pietro  Decl.  at  paras.  12-  16  (discussing  the  use  of  a  bidding  process  for  certain  special  access  services);  Cbeyond  et  al.  Wilkie  Decl.  at  para.  15  (discussing  the  use  of  a  bidding  process  for  special  access). 

 144  See  DOJ/  FTC  Guidelines    2.12. 
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 53.  Mutual  Forbearance.  Commenters  assert  that,  if  their  respective  mergers  are  consummated,  Verizon/  MCI  and  SBC/  AT&  T  are  likely  to  mutually  forbear  from  competing  against  each  other  in  the 
 provision  of  wholesale  special  access  services  in  the  others  service  territory.  145  They  claim  that  the  revenues  Verizon/  MCI  could  earn  by  offering  competing  special  access  services  in  SBCs  region  would 
 be  dwarfed  by  the  revenues  that  would  be  lost  if  SBC/  AT&  T  responded  by  offering  competitive  special  access  services  in  Verizons  territory.  Commenters  assert  that  both  Verizon/  MCI  and  SBC/  AT&  T  would 
 recognize  that  it  is  in  their  mutual  interest  not  to  compete.  146  As  support,  commenters  assert  that  Verizon  and  SBC  have  failed  to  compete  significantly  with  each  other  in  geographic  areas  where  they  already 
 have  adjacent  network  facilities,  such  as  Southern  California,  Dallas  and  Irving,  Texas,  and  along  the  Connecticut/  New  York  border.  147 

 54.  While  we  recognize  that  mutual  forbearance  is  possible  in  theory,  we  reject  commenters  allegations  that  this  merger  is  likely  to  result  in  anticompetitive  effects  in  SBCs  region.  As  an  initial 
 matter,  Verizon  is  spending  billions  of  dollars  to  buy  MCIs  nationwide  network  and  global  enterprise  and  business  reach,  including  facilities  in  SBCs  region.  In  light  of  this  investment,  it  is  reasonable  to 
 expect  Verizon  to  have  strong  incentives  to  utilize  fully  its  assets  in  SBCs  territory.  148  More  significantly,  however,  we  find,  as  discussed  above,  that  there  are  numerous  competitors  with  local 
 facilities  that  will  remain  post-  merger,  that  can  offer  competing  special  access  services  to  the  buildings  in  Verizons  region  where  MCI  offered  special  access  services.  149  Nothing  in  the  record  suggests  that  the 
 conditions  would  be  significantly  different  in  SBCs  territory.  Thus,  we  conclude  that,  even  if  Verizon/  MCI  forbears  from  offering  competing  special  access  services  in  SBCs  region,  competitive 
 alternatives  will  remain  for  those  locations  where  MCI  offered  competing  special  access  services.  150 
 b.  Vertical  Effects 
 55.  We  disagree  with  commenters  that  the  merger  will  increase  the  Applicants  incentive  and/  or  ability  to  raise  rivals  costs  or  engage  in  a  price  squeeze.  151  As  an  initial  matter,  where  UNEs  are 

 145  Cbeyond  et  al.  Petition  at  45-  51;  Qwest  Petition  at  30-  33;  Eschelon  et  al.  June  6  Ex  Parte  Letter  at  12. 
 146  Cbeyond  et  al.  Wilkie  Decl.  at  para.  32,  see  also  id.  at  paras.  28-  39;  Qwest  Petition  at  35-  37;  Eschelon  et  al.  May 
 10  Ex  Parte  Letter,  Attach.  at  29-  30. 
 147  Eschelon  et  al.  May  10  Ex  Parte  Letter,  Wilkie  Attach.  at  30-  34;  SAVVIS/  XO  July  29  Ex  Parte  Letter,  Attach.  at 
 14-  15. 
 148  Verizon/  MCI  Bamberger/  Carlton/  Shampine  Reply  Decl.  at  paras.  56-  67;  Verizon/  MCI  Aug.  25  Special  Access 
 White  Paper  at  31-  33;  Verizon/  MCI  Sept.  9  Ex  Parte  Letter  at  11-  12. 
 149  Professor  Wilkie  submitted  a  declaration  that  contained  calculations  suggesting  that  SBC  and  Verizon  will  have 
 an  incentive  to  engage  in  mutual  forbearance.  See  Letter  from  Thomas  Cohen,  Counsel  for  XO,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  (filed  Oct.  18,  2005)  (XO  Wilkie  Supp.  Decl.). 

 Professor  Wilkies  declaration  fails  to  address  the  role  of  competing  providers  of  special  access,  however. 
 150  We  note  in  this  regard  that,  in  order  to  address  potential  competitive  harm  from  the  elimination  of  AT&  T  as  a 
 competitive  Type  I  service  provider  in  SBCs  region,  the  DOJ  required  certain  divestitures.  See  generally  Final  Judgment,  United  States  v.  SBC  Communications  Inc.,  Civil  Action  No.  1:  05CV02102  (D.  D.  C.  filed  Oct.  27,  2005) 

 (DOJ-  SBC/  AT&  T  Final  Judgment). 
 151  See,  e.  g.,  ACN  et  al.  Comments  at  32-  33  (claiming  not  only  that  the  merged  entity  will  have  the  ability  to  impose 
 a  price  squeeze,  but  that  the  mere  fact  that  the  merger  combines  Verizons  access  facilities  with  MCIs  enterprise  customers  poses  competitive  problems  because  competitors  will  be  forced  to  pay  Verizons  prices  for  special 

 access,  while  Verizon  itself  will  face  only  the  actual  economic  cost  of  providing  special  access  services  to  itself);  (continued.) 
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 available,  they  provide  an  alternative  for  special  access  service  and  might  serve  to  constrain,  at  least  to  some  extent,  special  access  price  increases  and  other  raising  rivals  costs  strategies.  152  For  areas  where 
 UNEs  are  not  available,  we  note  that  competing  carriers  have  invested  heavily  in  the  30  MSAs  where  MCI  has  local  facilities.  153  As  described  above,  we  have  analyzed  the  likely  impacts  of  this  merger  with 
 regard  to  the  provision  of  special  access  services  and  have  determined  that  this  merger,  as  conditioned  by  the  DOJ  Consent  Decree,  is  not  likely  to  result  in  anticompetitive  effects  in  the  markets  for  special  access 
 services.  As  the  Applicants  point  out,  Verizon  and  other  incumbent  LECs  already  are  vertically  integrated  participants  in  both  input  and  downstream  markets.  154  Second,  as  we  have  found  previously, 
 [  t]  o  the  extent  that  certain  incumbent  LECs  have  the  incentive  and  ability  under  our  existing  rules  to  discriminate  against  competitors  using  special  access  inputs,  such  a  concern  is  more  appropriately 
 addressed  in  our  existing  rulemaking  proceedings  on  special  access  performance  metrics  and  special  access  pricing.  155  In  fact,  a  voluminous  record  on  industry-  wide  special  access  pricing  issues  (along  with 
 specific  pricing  information)  has  only  recently  been  submitted  to  the  Commission  in  one  of  these  proceedings.  156  By  addressing  these  issues  in  the  context  of  a  rulemaking,  we  will  be  able  to  develop  a 
 comprehensive  approach  based  on  a  full  record  that  applies  to  all  similarly-  situated  incumbent  LECs.  157 

 (Continued  from  previous  page)  Broadwing  and  SAVVIS  Petition  at  6  (expressing  the  concern  that  Verizon  will  provide  relatively  slower  and 
 poorer  provisioning  and  repair  of  circuits  supplied  to  its  competitors,  which  along  with  price,  are  critical  benchmarks  customers  use  to  select  suppliers);  see  also,  e.  g.,  Global  Crossing  Comments  at  17-  18;  Broadwing  and 
 SAVVIS  Petition  at  28-  35;  Consumer  Federation  of  America  et  al.  Petition  at  24;  Ad  Hoc  Telecom  Users  Reply  at  13-  16;  Letter  from  Patrick  Donovan,  Counsel  for  ACN  et  al.,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket 
 Nos.  05-  65,  05-  75  at  5  (filed  Aug.  10,  2005)  (ACN  et  al.  Aug.  10  Ex  Parte  Letter). 
 152  See  Triennial  Review  Remand  Order,  20  FCC  Rcd  at  2625-  33,  paras.  167-  181  (discussing  the  general  criteria 
 used  to  determine  whether  UNE  DS1  and  DS3  loops  must  be  made  available);  id.  at  2570-  75,  paras.  62-  65  (discussing  the  potential  for  UNEs  to  act  as  a  constraint,  to  some  extent,  on  special  access  prices). 

 153  MCI  Info.  Req.,  Exhibit  6(  e)(  1).  While  exact  fiber  route  miles  for  the  competitive  LECs  are  not  available  for  the 
 30  MSAs  where  MCI  has  local  fiber  facilities,  it  appears  that  a  number  of  competitive  LECs  have  substantial  national  fiber  facilities,  some  even  greater  than  MCIs.  Verizon  Aug.  5  Ex  Parte  Letter,  Collocation  Supplement; 

 Verizon/  MCI  Sept.  14  Ex  Parte  Letter,  Attach.  Fiber  Location  Maps. 
 154  Letter  from  Dee  May,  Verizon,  and  Curtis  Groves,  MCI,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No. 
 05-  75  at  2  (filed  Sept.  7,  2005)  (Verizon/  MCI  Sept.  7  Ex  Parte  Letter).  This  includes  vertical  integration  in  both  input  and  downstream  markets. 

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

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

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

 rulemaking  proceeding.  .  .  .  [The  rulemaking]  proceeding  will  afford  interested  parties  an  opportunity  to  comment  (continued.) 
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 C.  Retail  Enterprise  Competition 
 56.  In  this  section,  we  analyze  the  potential  competitive  effects  of  the  proposed  merger  on  enterprise  services.  As  discussed  below,  we  find  that  the  Applicants  compete  against  each  other  with  respect  to 
 various  types  of  enterprise  services  and  various  classes  of  enterprise  customers,  and  that  the  merger  will  lead  to  increased  concentration  in  certain  relevant  markets.  We  conclude,  however,  that  the  merger  is  not 
 likely  to  result  in  anticompetitive  effects  for  enterprise  customers.  We  find  that  competition  for  medium  and  large  enterprise  customers  should  remain  strong  after  the  merger  because  medium  and  large  enterprise 
 customers  are  sophisticated,  high-  volume  purchasers  of  communications  services  that  demand  high-capacity  communications  services,  and  because  there  will  remain  a  significant  number  of  carriers 
 competing  in  the  market.  With  respect  to  small  enterprise  customers,  we  find  that  MCI  had  significantly  reduced  its  marketing  to  those  customers  prior  to  the  announcement  of  the  merger,  and  we  conclude,  after 
 examining  the  record,  that  it  was  not  exerting  significant  competitive  pressure  with  respect  to  those  customers. 

 1.  Relevant  Markets 
 a.  Relevant  Product  Markets 
 57.  The  record  indicates  that  retail  enterprise  customers  purchase  a  variety  of  different  communications  services,  including  local  voice,  long  distance  and  international  voice,  and  data 

 (Continued  from  previous  page)  on  a  variety  of  roaming  issues,  including  manual  and  automatic  roaming,  technical  considerations,  and  small  and 
 rural  carrier  roaming  concerns.);  AT&  T/  Comcast  Order,  17  FCC  Rcd  at  23257,  para.  31  (  The  Commissions  pending  rulemaking  on  cable  horizontal  ownership  is  the  more  appropriate  forum  for  consideration  of  the  potential 
 effects  of  industry-  wide  clustering  on  the  distribution  of  programming  by  MVPDs  to  consumers.);  cf.  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20584,  para.  48  ([  W]  e  find  that  the  specific  recommendations  made  by 
 Consumers  Union  with  respect  to  public  interest  set-  aside  issues  are  properly  addressed  in  the  rulemaking  setting  rather  than  a  subset  thereof  in  the  context  of  a  merger  application.);  SBC/  SNET  Order,  13  FCC  Rcd  at  21306,  para. 
 29  (finding  that  the  Commission  need  not  address  in  the  context  of  the  merger  proceeding  the  allegation  that  SBC  was  not  providing  support  necessary  for  a  calling  party  pays  service  because  the  Commission  has  regularly 
 declined  to  consider  in  merger  proceedings  matters  that  are  subject  to  other  proceedings  before  the  Commission  because  the  public  interest  would  be  better  served  by  addressing  the  matter  in  the  broader  proceedings  of  general 
 applicability);  AT&  T/  TCI  Order,  14  FCC  Rcd  at  3183,  para.  43  (  We  find  that  digital  broadcast  signal  carriage  requirements  should  be  addressed  in  the  Commissions  pending  rulemaking  proceeding  and  not  here.  .  .  .  [T]  his  is 
 like  other  cases  where  the  Commission  has  declined  to  consider,  in  merger  proceedings,  matters  that  are  the  subject  of  rulemaking  proceedings  before  the  Commission  because  the  public  interest  would  be  better  served  by  addressing 
 the  matter  in  a  broader  proceeding  of  general  applicability.)  For  these  same  reasons,  we  reject  the  claims  of  commenters  seeking  special  access  conditions  or  raising  concerns  unrelated  to  the  merger,  many  of  which  are  the 
 subject  of  pending  rulemaking  proceedings.  See,  e.  g.,  ACN  et  al.  Comments  at  50-  58;  NASUCA  Comments  at  20-  27;  Texas  OPC  Comments  at  10-  12;  Broadwing  and  SAVVIS  Petition  at  34-  35;  Global  Crossing  Comments  at  15, 
 12-  14,  17-  24;  Ad  Hoc  Telecom  Users  Reply  at  23-  25;  Global  Crossing  June  2  Ex  Parte  Letter,  Attach.  at  11-  12;  ACN  et  al.  Aug.  10  Ex  Parte  Letter,  Attach.  at  5;  Letter  from  Ad  Hoc  Telecom  Users  et  al.,  to  Marlene  H.  Dortch, 
 Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  2-  3  (filed  Oct.  21,  2005);  Letter  from  Jonathan  Lee,  Sr.  Vice  President  Regulatory  Affairs,  CompTel/  ALTS,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05- 
 65,  05-  75  at  4-  5  (filed  Oct.  24,  2005);  Letter  from  Andrew  D.  Lipman,  Richard  M.  Rindler  and  Patrick  J.  Donovan,  Counsel  to  ATX  Communications  Inc.,  et  al.,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75 
 at  5-  6  (filed  October  19,  2005);  Letter  from  Brad  E.  Mutschelknaus  and  Chip  A.  Yorkgitis,  Counsel  to  Bridgecom  et  al.,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65.  05-  75  at  2  (filed  Oct.  18,  2005);  ACN  et  al. 
 Aug.  10  Ex  Parte  Letter,  Attach.  at  5;  Letter  from  Melissa  E.  Newman,  Vice  President    Federal  Regulatory,  Qwest,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  4-  8  (filed  Sept.  22,  2005)  (Qwest 
 Sept.  22  Ex  Parte  Letter). 
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 services.  158  In  addition,  enterprise  customers  frequently  purchase  high-  capacity  transmission  services,  159  such  as  Frame  Relay,  160  ATM,  161  Gigabit  Ethernet,  162  and  similar  services  provided  via  emerging 
 technologies.  163  Retail  enterprise  customers  also  purchase  other  facilities  and  CPE.  164 
 58.  The  record  makes  clear  that  the  services  offered  to  enterprise  customers  fall  into  a  number  of  separate  relevant  product  markets.  For  example,  it  makes  little  sense  that  an  enterprise  customer  would 
 shift  to  making  only  long  distance  calls  in  response  to  a  small,  but  significant  and  nontransitory  increase  in  the  price  of  local  telephone  service.  Similarly,  an  enterprise  customer  would  not  shift  to  relying  totally 
 on  voice  services  (whether  local,  long-  distance,  or  international)  if  the  price  of  data  services  rose  by  a  small,  but  significant  and  nontransitory  amount.  Consequently,  we  find  that  local  voice,  long  distance 
 voice,  and  data  services  constitute  distinct  product  markets. 

 158  Evidence  in  the  record  shows  that  enterprise  customers  purchase  [REDACTED]  general  classes  of  products  and 
 services:  [REDACTED]  Verizon  Info.  Req.,  VZFCC4111148-  295  at  4111155.  Note  that  documents  submitted  by  Verizon  in  response  to  the  Commissions  information  request  include  numerical  labeling  in  the  following  format: 

 VZFCC########  (where  #  represents  a  digit).  For  convenience  in  citing  these  documents,  we  do  not  include  any  leading  0s.  Thus,  a  document  beginning  on  page  VZFCC0001234  would  be  cited  as  VZFCC1234. 

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

 Order,  18  FCC  Rcd  at  17155-  56,  para.  298  (discussing  services  typically  purchased  by  enterprise  customers).  A  DS0  is  a  two-  wire  basic  connection,  which  operates  at  64,000  bps,  the  worldwide  standard  speed  for  digitizing 
 voice  conversation  using  pulse  code  modulation.  Harry  Newton,  Newtons  Telecom  Dictionary  273  (20  th  ed.  2004)  (defining  DS-  0)  (Newtons  Telecom  Dictionary).  A  DS1  is  a  four-  wire  connection  equivalent  to  24  DS0s.  A  DS3 
 is  equivalent  to  28  DS1s.  These  loops  may  be  purchased  by  customers  from  state  and  federal  tariffs.  Triennial  Review  Order,  18  FCC  Rcd  at  17155-  56,  para.  298. 

 160  Frame  Relay  is  a  high  speed  data  service  that  allows  local  area  networks  to  be  connected  across  a  public  network. 
 Frame  Relay  remains  a  cost  effective  service  option  for  smaller  businesses  that  do  not  generate  enough  traffic  to  support  a  full  T-  1.  See  Telecommunications  Industry  Association,  2005  Telecommunications  Market  Review  and 

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

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

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

 163  Enterprises  are  increasing  their  use  of  IP-  VPNs,  and  carriers  are  migrating  to  Multiprotocol  Label  Switching 
 (MPLS).  TIA  2005  Market  Review  at  118-  25.  MPLS  is  similar  to  other  circuit-  switched  ATM  or  Frame  Relay  networks,  except  that  MPLS  is  not  dependent  on  a  particular  technology.  See,  e.  g.,  MPLS  Resource  Center,  The 

 MPLS  FAQ  available  at  http://  www.  mplsrc.  com/  faq1.  shtml#  MPLS%  20History. 
 164  Verizon/  MCI  Reply,  Declaration  of  Eric  J.  Bruno  et  al.  (Verizon/  MCI  Bruno  et  al.  Reply  Decl.),  Tab  5,  at  paras. 
 30-  31. 
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 59.  We  have  less  information  about  the  substitutability  of  different  transmission  services.  While  there  is  data  in  the  record  indicating  that  the  number  of  customers  taking  Frame  Relay  is  declining,  while 
 the  number  taking  IP  transmission  services  is  increasing,  we  do  not  have  data  on  elasticities  (and  cross  elasticities)  of  demand  for  any  particular  transmission  services.  165  Similarly,  there  is  insufficient 
 information  about  the  migration  time,  price  differences,  and  service  quality  differences  that  customers  face  when  deciding  to  change  from  one  transmission  service  to  another.  Thus,  the  evidence  is  insufficient 
 for  us  to  define  precisely  the  boundaries  of  those  transmission  service  markets. 
 60.  In  previous  orders,  the  Commission  also  has  found  it  appropriate  to  define  separate  relevant  product  markets  based  on  the  class  of  customer  (particularly  where  there  is  price  discrimination).  166  For 
 example,  the  Commission  previously  found  that  small  enterprise  customers  fall  into  a  separate  relevant  product  market  from  mid-  sized  to  large  retail  enterprise  customers.  167  This  distinction  exists  because, 
 unlike  small  enterprise  customers,  larger  businesses  often  contract  for  more  sophisticated  services  including  Frame  Relay,  virtual  private  networks,  and  enhanced  800  services.  168  Larger  businesses  also 
 demand  a  greater  volume  of  minutes,  for  which  they  often  negotiate  discounts.  169  Not  only  do  smaller  enterprise  customers  tend  to  purchase  different  services  than  larger  business  customers,  170  but  carriers 
 treat  them  differently,  both  in  the  way  they  market  their  products  and  in  the  prices  they  charge.  171 

 165  From  1997  through  2002,  the  use  of  Frame  Relay  grew  at  a  faster  rate  than  the  use  of  dedicated  leased  lines; 
 however,  in  the  past  two  years,  growth  in  Frame  Relay  ports  has  stagnated.  TIA  2005  Market  Review  at  120-  121.  From  the  year  2000  through  the  year  2004,  ATM  service  revenues  nearly  tripled,  from  $1.1  billion  to  $2.9  billion. 

 Id.  at  124.  The  number  of  ATM  ports  in  the  United  States  rose  by  10.5%  in  2004  to  42,000,  and  it  is  expected  to  climb  to  51,000  by  2008.  Id.  However,  as  newer  technologies  emerge,  ATMs  role  as  a  backbone  technology  is 
 changing  as  enterprise  customers  increase  their  use  of  IP-  VPNs.  Id.  at  123;  see  also  n.  163. 
 166  See  Bell  Atlantic/  GTE  Order,  15  FCC  Rcd  at  14088-  89,  para.  102  (finding  that  it  is  appropriate  to  define  the 
 product  market  by  aggregating  customers  with  similar  demand  patterns);  see  also  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18040-  42,  paras.  24-  29;  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14760,  para.  100;  SBC/  SNET  Order,  13  FCC 

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

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

 T-  l  and  T-  3  lines.  STEPHEN  B.  POCIASK,  A  Survey  of  Small  Businesses  Telecommunications  Use  and  Spending  at  2  (Mar.  2004)  (SBA  Telecom  Report).  Indeed,  Verizon  reports  that  the  largest  enterprise  customers  typically 
 purchase  [REDACTED]  Verizon  Info.  Req.,  VZFCC413596-  97  at  VZFCC413596. 
 168  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18040-  41,  para.  26. 

 169  Id. 
 170  According  to  one  study,  for  data  services,  38%  of  small  business  users  subscribe  to  Internet  dial-  up  services, 
 26%  use  cable  modem,  21%  use  DSL,  and  only  4%  of  small  businesses  subscribe  to  T-  1  services.  SBA  Telecom  Report  at  44. 

 171  See,  e.  g.,  MCI  Info.  Req.,  MCIFCC4325473-  78  (showing  the  different  prices  charged  to  different  customer 
 groups  for  access  services);  MCI  Info.  Req.,  MCIFCC240360064  (showing  that  businesses  of  different  sizes  are  paying  different  rates  for  conferencing  services);  see  also  infra  note  172  (discussing  how  both  MCI  and  Verizon 

 (continued.) 
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 61.  While  the  record  demonstrates  that  service  providers  charge  different  prices  to  different  customers  for  particular  services,  it  fails  to  reveal  any  standard  rules  or  general  principles  that  dictate  how 
 service  providers  set  prices  for  particular  customers.  For  example,  while  record  evidence  indicates  that  Verizon  and  MCI  have  created  classes  of  enterprise  customers  for  pricing,  marketing  and  other  purposes, 
 it  appears  that  the  two  carriers  use  different  break-  points  between  the  customer  classes.  172  There  is  evidence  in  the  record,  however,  suggesting  that  a  number  of  factors  influence  how  carriers  price  their 
 services  to  particular  types  of  customers.  173  These  factors  include  the  customers  total  telecom  spend;  the  types  of  services  and  technologies  ordered;  the  customers  total  employee  count;  the  customers  total 
 annual  revenues;  and  whether  the  customer  obtains  customized  services.  174  Further,  it  appears  that  carriers  place  varying  degrees  of  importance  on  each  of  these  factors,  and  consequently,  carriers  pricing 
 to  particular  enterprise  customers  may  vary.  Thus,  although  we  find  that  there  are  separate  product  markets  for  the  different  enterprise  customer  groups,  there  does  not  appear  to  be  industry-  wide  consensus 
 as  to  how  to  differentiate  one  class  from  another.  175 
 b.  Relevant  Geographic  Markets 

 (Continued  from  previous  page)  adopt  different  marketing  approaches  for  different  classes  of  business  customers  and  showing  that,  for  MCI, 
 customers  with  higher  spending  are  assigned  individual  account  representatives). 
 172  Verizon  states  that,  [  b]  usiness  customers  occupy  a  continuum,  and  any  attempt  to  group  such  customers  by  size 
 is  necessarily  arbitrary.  Verizon  Info.  Req.  at  4.  Indeed,  both  Verizon  and  MCI  use  the  term  enterprise  differently  in  the  ordinary  course  of  business.  Verizon  explains  that  business  operations  are  broken  down  into  its 

 Enterprise  Services  Group  (ESG)  and  its  Business  Solutions  Group  (BSG).  Verizon  Info.  Req.  at  5.  ESG  is  divided  into  three  tiers:  Tier  I  customers  spend  at  least  $1.8  million  annually;  Tier  II  customers  spend  between  $250,000 
 and  $1.8  million  annually;  and  Tier  III  customers  spend  less  than  $250,000  annually.  Verizon/  MCI  Bruno  et  al.  Reply  Decl.  at  paras.  25-  29.  BSG  customers  generally  spend  less  than  $100,000  per  year,  and  are  defined  as  either 
 managed  or  unmanaged  customers:  managed  customers  have  an  account  manager  assigned  to  them;  unmanaged  do  not.  Id.;  Verizon  Info.  Req.  at  6.  Verizon  explains  that  three  categories  of  customers  qualify  as 
 managed:  1)  customers  in  Tier  1  MSAs  that  generate  [REDACTED]  or  more  in  total  billed  revenue  per  year;  2)  customers  located  in  Tier  2  MSAs  that  generate  [REDACTED]  or  more  in  total  billed  revenue  per  year;  and  3) 
 customers  located  in  Tier  3  MSAs  that  generate  [REDACTED]  or  more  in  total  billed  revenue  per  year.  Verizon  Info.  Req.  at  6. 

 MCI  organizes  its  business  operations  into  its  Global  Accounts  and  Commercial  Markets  groups.  MCIs  business  customers  outside  the  United  States  are  handled  by  MCIs  Wholesale  and  International  organization.  See  supra 
 note  17;  MCI  Info.  Req.  at  1.  The  Global  Accounts  group  handles  the  largest  multinational  customers,  and  these  customers  spend  between  $2  million  and  $180  million  annually.  The  Commercial  Markets  group  is  organized  into 
 enterprise,  mid-  market,  and  small  business  segments.  MCI  Info.  Req.  at  2.  For  MCI,  enterprise  customers  are  companies  with  at  least  1,000  employees,  multiple  business  locations,  and  at  least  $2  to  $3  million  in  annual 
 spend  on  communications  services.  Id.  Mid-  market  customers  have  100-  999  employees,  are  national  in  scope,  and  spend  over  $10,000  annually  on  communications  services.  Id.  Small  business  customers  have  less  than  100 
 employees,  buy  commodity  services,  and  are  largely  managed  through  telemarketing  by  MCIs  Customer  Account  Management  group.  Id.  Very  small  business  customer  accounts  are  managed  outside  the  Commercial  Markets 
 group  and  are  overseen  by  MCIs  residential  operations.  MCI  explains  that  these  businesses  generally  have  fewer  than  20  employees  and  spend  approximately  $500  per  month  on  communications  services.  Id. 

 173  See  supra  note  171. 
 174  See  supra  note  172. 
 175  Cf.  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18041,  para.  27  (finding  that  it  is  unnecessary  to  define  narrow 
 product  markets  where  there  is  insufficient  data  in  the  record  on  cross  elasticities  of  demand). 
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 62.  In  prior  merger  orders,  the  Commission  has  recognized  that,  because  a  customer  is  unlikely  to  physically  move  its  location  in  response  to  a  small,  but  significant  and  nontransitory  increase  in  the  price 
 of  a  communications  service,  each  customer  location  constitutes  a  separate  relevant  geographic  market.  176  For  reasons  of  administrative  practicality,  however,  the  Commission  has  aggregated  customers  facing 
 similar  competitive  choices  to  create  larger  relevant  geographic  markets.  177  We  believe  this  traditional  approach  is  appropriate  for  enterprise  customers  with  single  locations  in  Verizons  region.  Unfortunately, 
 the  data  in  the  record  is  not  sufficiently  detailed  to  define  localized  relevant  geographic  markets  in  which  all  enterprise  customers  face  the  same  competitive  choices.  Rather,  the  most  disaggregated  market  share 
 data  that  is  available  is  presented  by  state  for  Verizons  former  Bell  Atlantic/  NYNEX  territories  and  by  MSA  in  Verizons  former  GTE  territories.  Accordingly,  we  will  use  the  most  disaggregated  data  possible 
 in  performing  our  structural  analysis  for  different  types  of  business  services  and  for  certain  broad  classes  of  business  customers,  where  such  data  is  available.  In  most  cases,  the  data  will  be  presented  at  the  state 
 level.  178 
 63.  For  larger,  multi-  location  enterprise  customers,  we  reach  a  slightly  different  conclusion.  We  find  that  these  customers  typically  seek  service  from  a  provider  that  can  serve  all  their  locations,  and  generally 
 only  a  few  carriers  serving  a  particular  location  have  such  capabilities.  In  light  of  the  fact  that  there  are  relatively  few  providers  that  can  offer  a  high  level  of  ubiquitous  service,  we  conclude  that  this  geographic 
 market  should  encompass  all  the  geographic  locations  where  these  multi-  location  business  customers  may  have  a  presence.  Thus,  we  consider  it  appropriate  to  consider  Verizons  various  states  and  regions  as  the 
 relevant  geographic  market  for  regional,  multi-  location  customers,  while  for  business  customers  with  locations  throughout  the  United  States,  we  will  perform  a  structural  analysis  based  upon  available  data  at 
 the  national  level. 
 c.  Market  Participants 
 64.  We  find,  based  on  the  record,  that  there  are  numerous  categories  of  competitors  providing  services  to  enterprise  customers.  These  include  interexchange  carriers,  competitive  LECs,  cable 
 companies,  other  incumbent  LECs,  systems  integrators,  and  equipment  vendors.  179 
 2.  Competitive  Analysis 
 a.  Horizontal  Effects 
 65.  Unilateral  Effects.  The  lack  of  precise  demand  data  notwithstanding,  there  is  documentary  evidence  in  the  record  that  allows  us  to  examine  the  Applicants  assertions  regarding  the  degree  to  which 
 they  compete  for  enterprise  customers.  180  Moreover,  there  are  some  data  that  permit  us  to  identify  (with 

 176  See,  e.  g.,  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20610,  para.  119. 
 177  Id.;  see  also  Bell  Atlantic-  NYNEX  Order,  12  FCC  Rcd  at  20016-  17,  para.  54. 
 178  Cf.  In  the  Matter  Of  2002  Biennial  Regulatory  Review  -  Review  of  the  Commission's  Broadcast  Ownership  Rules 
 and  Other  Rules  Adopted  Pursuant  to  Section  202  of  the  Telecommunications  Act  of  1996,  18  FCC  Rcd  13620,  13724,  para.  273  (2003)  (finding  that  the  use  of  a  broader  geographic  area  still  serves  as  a  rational  basis  when 

 defining  relevant  geographic  markets),  affd  in  part,  remanded  in  part  on  other  grounds,  Prometheus  Radio  Project  v.  FCC,  373  F.  3d  372  (D.  C.  Cir.  2003). 

 179  See  Verizon/  MCI  Public  Interest  Statement  at  4;  see  also  infra  note  188. 
 180  ACN  et  al.  claim  that  the  application  provides  neither  data  about  how  many  small  or  mid-  sized  business 
 customers  MCI  actually  serves  in  Verizons  region,  nor  data  about  how  many  national  customers  Verizon  serves.  (continued.) 
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 some  level  of  disaggregation)  market  participants,  as  well  as  to  calculate  current  market  shares,  and  to  estimate  changes  in  market  share  that  are  likely  to  result  from  the  merger.  Specifically,  the  Applicants 
 have  provided  internal  documents  about  their  business  operations,  as  well  as  limited,  third-  party  studies  that  provide  market  share  data  about  the  carriers  serving  certain  markets.  In  this  section,  we  use  this 
 documentary  evidence  and  data  to  discuss  the  horizontal  concerns  raised  in  the  record.  We  conclude  that,  although  there  is  evidence  that  horizontal  concentration  will  increase  as  a  result  of  the  merger,  this 
 increase  is  not  likely  to  result  in  anticompetitive  effects,  given  the  large  number  of  competitors  already  participating  in  this  market  and  the  high  level  of  customer  sophistication  for  mid-  sized  and  large 
 enterprise  customers.  For  small  enterprise  customers,  we  similarly  conclude  that  the  merger  is  not  likely  to  result  in  anticompetitive  effects,  based  upon  MCIs  significantly  reduced  marketing  to  those  customers, 
 as  well  as  likely  increased  competition  from  cable  and  VoIP  providers. 
 66.  Commenters  claim  that  the  merger  will  have  adverse  competitive  effects  because  Verizon  and  MCI  already  compete  to  a  significant  degree  for  the  same  customers,  and  thus  the  merger  will  cause  an 
 increase  in  the  merged  entitys  market  share  and  in  market  concentration.  181  Commenters  further  assert  that,  if  the  Commission  finds  that  little  current  competition  exists  between  the  two  companies,  the  merger 
 nonetheless  eliminates  Verizon  as  a  potential  competitor  in  the  large  enterprise  market.  182  Moreover,  commenters  assert  that,  after  the  merger,  Verizon  and  MCI  together  will  have  about  a  70  percent  market 
 share  for  medium  and  large  enterprise  customers.  183  CompTel/  ALTS  argue  that  the  merger  will  increase  concentration  in  this  market  by  800  points  from  a  pre-  merger  HHI  of  2500  to  a  post-  merger  HHI  of  more 
 than  3300.  184 
 67.  The  Applicants  contend  that  there  is  little  overlap  between  their  customer  bases  or  in  the  services  they  provide.  Specifically,  they  assert  that  Verizon  is  a  strong  competitor  for  local  services,  185  while  MCI 

 (Continued  from  previous  page)  See  ACN  et  al.  Comments  at  9.  As  discussed  below,  however,  Verizon  has  provided  some  data  regarding  these 
 markets. 
 181  ACN  et  al.  Comments  at  3,  8-  10;  CompTel/  ALTS  Petition  at  20-  22;  Qwest  Petition  at  14-  15;  Consumer 
 Federation  et  al.  Petition  at  22-  23;  Cbeyond  et  al.  Petition  at  1-  2.  Specifically,  commenters  generally  assert  that,  because  MCI  is  one  of  Verizons  biggest  competitors,  there  will  be  too  much  market  concentration  in  the  hands  of 

 the  merged  entity;  see  also  Letter  from  Thomas  Cohen,  Counsel  for  ACTel,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  (filed  Sept.  13,  2005)  (ACTel  Sept.  13  Ex  Parte  Letter)  (alleging  that  Fortune  1000 
 companies  largely  believe  that  the  merger  will  bring  higher  rates,  less  innovation,  and  poorer  customer  service).  But  see  Letter  from  Dee  May,  Verizon,  and  Curtis  Groves,  MCI,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket 
 No.  05-  75  (filed  Sept.  22,  2005)  (Verizon/  MCI  Sept.  22  Ex  Parte  Letter)  (showing  sampling  bias  as  well  as  survey  design  flaws  in  the  ACTel  survey). 

 182  ACN  et  al.  argue  that,  even  if  Verizon  serves  only  a  few  large  enterprise  customers  today,  a  merger  with  MCI  is 
 not  its  only  possible  means  of  entry  into  this  market.  They  assert  that  Verizon  has  not  demonstrated  an  inability  to  compete,  but  rather,  only  that  it  has  never  attempted  to  do  so.  ACN  et  al.  Comments  at  10. 

 183  Consumer  Federation  et  al.  Petition  at  22.  According  to  these  groups,  the  HHI  in  the  large  business  segment  is 
 just  under  4900;  see  also  ACN  et  al.  Comments  at  25  note  74. 
 184  CompTel/  ALTS  Petition  at  25. 

 185  Verizon  explains  that  its  strength  lies  as  a  provider  of  in-  region  local  wireline  and  wireless,  not  as  a  large 
 business  provider.  Verizon/  MCI  Public  Interest  Statement  at  11;  Verizon/  MCI  Application,  Declaration  of  Gustavo  E.  Bamberger,  Dennis  W.  Carlton,  and  Allan  L.  Shampine  (Verizon/  MCI  Bamberger/  Carlton/  ShampineDecl.),  Tab 

 1,  at  para.  7.  Verizon  explains  that,  while  it  has  enjoyed  some  success  in  the  medium-  sized  business  segment,  its  success  has  been  largely  in-  region.  Verizon/  MCI  Application,  Declaration  of  Eric  J.  Bruno  and  Shelley  Murphy 
 (continued.) 
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 Federal  Communications  Commission  FCC  05-  184 
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 provides  primarily  national  and  global  services.  186  They  further  contend  that,  [  t]  he  transaction  will  marry  Verizons  best-  in-  class  broadband,  wireless,  and  local  wireline  networks  with  MCIs  Internet  backbone 
 and  global  reach.  187  The  Applicants  argue  that  the  number  of  competitors  in  the  enterprise  market  is  increasing  and  that  competitive  intensity  levels  are  rising.  188  Verizon  acknowledges  that  it  has  attempted 
 to  enter  the  large  enterprise  market,  but  claims  that  it  has  achieved  little  success.  189  The  Applicants  contend  that,  with  regard  to  the  enterprise  market,  the  Verizon/  MCI  merger  will  create  a  carrier  no  bigger 
 than  a  single  AT&  T,  let  alone  a  merged  AT&  T/  SBC,  and  that  its  merger  strengthens  competition  because  a  merged  Verizon/  MCI  would  serve  as  the  strongest  competitor  to  a  merged  AT&  T/  SBC.  190 

 68.  Based  upon  review  of  internally  produced  documents,  we  find  that  the  two  companies  in  fact  compete  for  a  range  of  customers  in  the  enterprise  market.  Specifically,  contrary  to  the  Applicants 
 description  of  their  respective  enterprise  operations,  we  find  that  Verizon  competes  to  a  certain  extent  with  MCI  for  large  enterprise  customers  and  that  conversely,  MCI  competes  with  Verizon  for  small  and 
 mid-  sized  enterprise  customers.  191  With  respect  to  the  level  of  competition  between  the  Applicants  in  the  large  enterprise  market,  we  agree  with  ACN  et  al.  that  it  would  be  extraordinary  for  Verizon  already  to 
 have  a  large  share  of  this  market  given  that  it  only  had  region-  wide,  section  271  authority  for  approximately  24  months  at  the  time  of  the  mergers  announcement;  indeed,  Verizons  revenues  in  this 
 market  are  smaller  than  MCIs.  192  Documents  clearly  show,  however,  that  Verizon  has  achieved  some 
 (Continued  from  previous  page)  (Verizon/  MCI  Bruno/  Murphy  Decl.),  Tab  3,  at  para.  58.  Verizon  is  also  strong  in  local  access  and 

 CPE/  professional  services,  an  area  where  MCI  is  traditionally  weak.  Id. 
 186  MCI  describes  itself  as  a  provider  of  global  services,  focusing  on  long  distance  voice  and  data  networks,  with  an 
 extensive  Internet  backbone.  Verizon/  MCI  Public  Interest  Statement  at  10.  The  Applicants  argue  that  MCI  has  primarily  focused  on  the  large  enterprise  customer  segment.  Id.  at  30.  MCI  caters  to  customers  with  national  and 

 global  operations,  including  Fortune  1000  companies  that  have  more  than  1,000  employees  and  that  generally  spend  more  than  $2  million  a  year  on  communications  services.  Verizon/  MCI  Application,  Declaration  of  Ronald  J. 
 McMurtrie  (Verizon/  MCI  McMurtrie  Decl.),  Tab  12,  at  para.  3. 
 187  Verizon/  MCI  Public  Interest  Statement  at  3. 

 188  Id.  at  4.  Competitors  include  several  different  groups.  AT&  T,  Sprint,  and  Qwest  are  the  largest  competitors. 
 Verizon/  MCI  Bruno/  Murphy  Decl.  at  para.  17.  Network  integrators,  incumbent  LECs,  competitive  LECs,  international  communications  providers,  IP  network  providers,  equipment  manufacturers,  and  cable  companies  are 

 all  also  active  competitors  in  that  same  market.  Id.  at  paras.  18-  26;  Verizon/  MCI  Bruno  et  al.  Reply  Decl.  at  paras.  16-  19.  Interexchange  carriers  and  new  network  providers  also  compete  in  this  market.  Verizon/  MCI 
 Bamberger/  Carlton/  Shampine  Reply  Decl.  at  paras.  8,  58.  Verizon  references  a  $1  billion  RFP  from  the  federal  government  for  the  Department  of  the  Treasury,  and  it  reports  that  Northrop  Grumann,  AT&  T,  Broadwing,  Level  3, 
 and  Qwest  all  submitted  responses.  Verizon/  MCI  Reply  at  18-  19;  Verizon/  MCI  Bruno  et  al.  Reply  Decl.  at  para.  12. 

 189  Verizon/  MCI  Bruno/  Murphy  Decl.  at  paras.  53-  56.  Applicants  argue  that  Verizon  alone  would  remain  a  small 
 actor  in  the  large  business  market  for  years  to  come.  Id.  at  56. 
 190  Id.  at  para.  3. 

 191  [REDACTED]  Verizon  Info.  Req.,  VZFCC191187-  93. 
 192  ACN  et  al.  Comments  at  9,  28;  cf.  Letter  from  Kristen  Verderame,  BT  Americas,  to  Marlene  H.  Dortch, 
 Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  6-  8  (claiming  that  Verizon  is  a  potential  competitor  for  GTS  customers)  (filed  May  6,  2005)  (BT  Americas  May  6  Ex  Parte  Letter);  but  see  Verizon/  MCI  Bruno/  Murphy 

 Decl.  at  para.  56  (arguing  that  Verizon  has  been  precluded  from  providing  interLATA  services  and  that  this  preclusion,  coupled  with  regulatory  limits,  has  prevented  Verizon  from  winning  large  enterprise  customers).  Of  the 
 retail  enterprise  customers  who  purchased  over  $5  million  in  communications  services  in  2004,  MCI  reports  that  it  (continued.) 
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 degree  of  success  with  its  entry  into  the  large  enterprise  market,  especially  in  its  own  region.  193  Documents  in  the  record  further  show  that  MCI  has  a  presence  in  the  small  and  mid-  sized  enterprise 
 market,  and  that  it  competes  for  a  wide  range  of  customers.  194 
 69.  Using  data  submitted  by  the  Applicants,  staff  calculated  Herfindahl-  Hirschman  Indices  (HHIs),  195  at  the  state  level  for  various  types  of  enterprise  services  and  classes  of  enterprise  customers.  In 
 keeping  with  our  conclusions  about  the  relevant  geographic  markets,  this  analysis  is  conducted  by  examining  the  competitive  alternatives  of  enterprise  customers  with  single  or  multiple  operations  within 
 the  Verizon  franchise  area,  and  also  conducting  a  separate  examination  of  the  competitive  choices  for  enterprise  customers  having  multiple  operations  throughout  the  country. 

 70.  In  general,  the  market  share  calculations  indicate  a  high  level  of  concentration  in  most  franchise  areas  for  many  relevant  services  for  large  enterprise  customers  with  significant  operations  in  Verizons 
 region  after  the  merger.  196  Verizons  median  statewide  share  of  local  voice  services  197  increases  from  [REDACTED]  percent  before  the  merger  to  [REDACTED]  percent  after  the  merger  for  states  within  its 
 former  Bell  Atlantic/  NYNEX  region.  198  The  median  pre-  merger  HHI  for  these  services  199  in  Verizons 
 (Continued  from  previous  page)  generated  [REDACTED]  in  revenues.  MCI  Info.  Req.,  Exh.  1(  c).  For  the  same  class  of  customer,  Verizons 

 business  operations  generated  only  [REDACTED]  in  revenues.  Verizon  Info.  Req.  at  9.  For  retail  enterprise  customers  that  purchased  between  $1  and  $5  million  in  communications  services,  MCI  reported  that  it  generated 
 [REDACTED].  MCI  Info.  Req.,  Exh.  1(  c).  For  the  same  class  of  customer,  Verizon  reported  that  it  generated  [REDACTED].  Verizon  Info.  Req.  at  9. 

 193  A  Verizon  report  states  that  Verizon  is  ranked  [REDACTED]  Verizon  Info.  Req.,  VZFCC20415-  24  at 
 VZFCC20416. 
 194  One  MCI  document  states  that  [REDACTED]  MCI  Info.  Req.,  MCIFCC24360064;  see  also  MCI  Info.  Req., 
 MCIFCC24360755-  66  at  MCIFCC24360759  [REDACTED] 
 195  The  HHI  is  calculated  as  the  sum  of  the  squares  of  the  market  shares  of  each  firm  participating  in  a  relevant 
 market.  The  HHI  can  range  from  nearly  zero  in  the  case  of  an  atomistic  market  to  10,000  in  the  case  of  a  pure  monopoly.  Because  the  HHI  is  based  on  the  squares  of  the  market  shares  of  the  participants,  it  gives 

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

 196  Our  analysis  of  Verizons  position  in  the  large,  mid-  sized,  and  small  retail  enterprise  services  markets  both 
 before  and  after  the  merger  is  based  upon  analysis  of  third-  party  data  supplied  by  Verizon.  See  Letter  from  Dee  May,  Vice  President,  Federal  Regulatory,  Verizon,  to  Marlene  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  75, 

 Attach.  1  &  Exhs.  A-  D  (filed  Sept.  20,  2005)  (Verizon  Sept.  20  Ex  Parte  Letter).  [REDACTED]  See  infra  para.  72.  For  the  former  GTE  territories,  [REDACTED]  We  note  that,  in  these  MSAs,  Verizon  is  the  incumbent  LEC  in 
 only  a  portion  of  the  MSA. 
 197  Market  share  and  HHI  calculations  pre-  and  post-  merger  for  large  enterprise  customers  in  the  former  Bell 
 Atlantic/  NYNEX  region  are  provided  in  Confidential  Appendix  C,  Tables  1A,  1C,  1E,  and  1G. 
 198  Market  share  data  was  provided  in  terms  of  customer  sites  that  used  a  particular  carrier  for  the  named  service. 
 However,  when  more  than  one  carrier  serves  a  customer  location,  the  data  reports  that  each  carrier  provides  the  same  amount  of  service  when,  in  fact,  there  could  be  large  variances.  See  Verizon  Sept.  20  Ex  Parte  Letter,  Attach 

 1  at  1. 
 199  In  the  text,  we  present  the  median  pre-  merger  HHI  and  median  post-  merger  HHI  over  the  entire  former  Bell 
 Atlantic/  NYNEX  region  for  each  product  where  data,  which  were  presented  at  the  state  level,  are  available.  The  pre-  merger  and  post-  merger  HHIs  for  each  state  in  this  region,  as  well  as  the  accompanying  changes  in  HHI,  are 

 presented  in  Confidential  Appendix  C,  Tables  1A,  1C,  1E,  and  1G.  The  pre-  merger  and  post-  merger  HHIs,  as  well  (continued.) 
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 region  is  [REDACTED],  and  it  increases  to  [REDACTED]  after  the  merger.  200  Verizons  median  statewide  share  of  long  distance  services  increases  from  [REDACTED]  percent  to  [REDACTED] 
 percent  within  the  states  in  its  region.  The  median  pre-  merger  HHI  for  these  services  in  Verizons  region  is  [REDACTED],  and  it  increases  to  [REDACTED]  post-  merger.  201  For  Frame  Relay  services,  202 
 Verizons  median  statewide  market  share  increases  from  [REDACTED]  percent  to  [REDACTED]  percent  for  its  in-  region  states.  The  median  pre-  merger  HHI  for  these  services  in  Verizons  region  is 
 [REDACTED],  and  it  increases  to  [REDACTED]  post-  merger.  203  For  T-  1  services,  Verizons  statewide  market  share  increases  from  a  median  of  [REDACTED]  percent  to  a  median  of  [REDACTED]  percent 
 for  its  in-  region  states.  The  median  pre-  merger  HHI  for  these  services  in  Verizons  entire  region  is  [REDACTED],  and  it  increases  to  [REDACTED]  post-  merger.  204  For  the  six  former  GTE  MSAs,  the 
 increases  in  Verizons  market  shares  for  all  services  are  no  larger  than  those  in  the  Bell  Atlantic/  NYNEX  states.  205 

 71.  Similarly,  the  market  share  calculations  indicate  a  high  level  of  concentration  in  most  franchise  areas  for  many  relevant  services  for  mid-  sized  enterprise  customers  with  significant  operations  in 
 Verizons  region.  206  Verizons  median  statewide  share  of  local  voice  services  increases  from  [REDACTED]  percent  before  the  merger  to  [REDACTED]  percent  after  the  merger  for  states  within  its 
 former  Bell  Atlantic/  NYNEX  region.  207  The  median  pre-  merger  HHI  for  these  services  208  is  [REDACTED],  and  it  increases  to  [REDACTED]  after  the  merger.  209  Verizons  median  statewide  share 
 of  long  distance  services  210  increases  from  [REDACTED]  percent  to  [REDACTED]  percent  within  the  (Continued  from  previous  page) 
 as  accompanying  changes  in  HHI,  for  the  former  GTE  MSAs  are  presented  in  Confidential  Appendix  C,  Tables  1B,  1D,  1F,  and  1H. 

 200  The  minimum  post-  merger  HHI  for  these  services  is  [REDACTED],  and  the  maximum  is  [REDACTED]. 
 Specifically,  these  results  provide  the  lowest  and  highest  HHI  ratings  in  the  Verizon  region  states  after  the  merger. 
 201  The  minimum  post-  merger  HHI  for  these  services  is  [REDACTED],  and  the  maximum  is  [REDACTED]. 

 202  See  supra  note  160. 
 203  The  minimum  post-  merger  HHI  for  these  services  is  [REDACTED],  and  the  maximum  is  [REDACTED]. 
 204  The  minimum  post-  merger  HHI  for  these  services  is  [REDACTED],  and  the  maximum  is  [REDACTED]. 
 205  Detailed  data  for  the  former  GTE  MSAs  is  contained  in  Confidential  Appendix  C,  Tables  1B,  1D,  1F,  and  1H. 
 206  Our  analysis  of  Verizons  position  in  the  mid-  size  enterprise  services  market  both  before  and  after  the  acquisition 
 is  based  upon  analysis  of  data  in  a  third-  party  report  that  was  submitted  by  Verizon  in  response  to  our  data  request.  Market  share  calculations  pre-  and  post-  merger  for  the  former  Bell  Atlantic/  NYNEX  region  are  provided  in 

 Confidential  Appendix  C,  Tables  2A,  2C,  2E,  and  2G. 
 207  See  supra  note  198. 

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

 presented  in  Confidential  Appendix  C,  Tables  2A,  2C,  2E,  and  2G.  The  pre-  merger  and  post-  merger  HHIs,  as  well  as  accompanying  changes  in  HHI,  for  the  former  GTE  MSAs  are  presented  in  Confidential  Appendix  C,  Tables  2B, 
 2D,  2F,  and  2H. 
 209  The  minimum  post-  merger  HHI  for  these  services  is  [REDACTED],  and  the  maximum  is  [REDACTED]. 
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 states  in  its  region.  The  median  pre-  merger  HHI  for  these  services  is  [REDACTED],  and  it  increases  to  [REDACTED]  post-  merger.  211  For  Frame  Relay  services,  212  Verizons  median  statewide  market  share 
 increases  from  [REDACTED]  percent  to  [REDACTED]  percent  for  its  in-  region  states.  The  median  pre-  merger  HHI  for  these  services  in  Verizons  region  is  [REDACTED],  and  it  increases  to 
 [REDACTED]  post-  merger.  213  For  T-  1  services,  Verizons  median  statewide  market  share  increases  from  [REDACTED]  percent  to  [REDACTED]  percent  for  its  in-  region  states.  The  median  pre-  merger 
 HHI  for  these  services  in  Verizons  entire  region  is  [REDACTED],  and  it  increases  to  [REDACTED]  post-  merger.  214  For  the  six  former  GTE  MSAs,  the  increases  in  Verizons  market  shares  for  all  services 
 are  no  larger  than  those  in  the  Bell  Atlantic/  NYNEX  states.  215 
 72.  Market  share  data  pertaining  to  small  enterprise  customers  within  Verizons  relevant  franchise  areas  216  indicate  some  increase  in  concentration  for  some  relevant  services.  217  Specifically,  we  consider 
 data  pertaining  to  local  and  long-  distance  voice  services  for  small  enterprise  customers.  218  On  average,  Verizons  share  of  local  access  services  increases  from  [REDACTED]  percent  to  [REDACTED]  percent 
 in  Massachusetts,  New  York  and  Pennsylvania;  increases  from  [REDACTED]  percent  to  [REDACTED]  percent  in  Rhode  Island,  Vermont,  Maine,  New  Jersey,  New  Hampshire,  and  Delaware;  and  in  Virginia, 
 Maryland,  West  Virginia,  and  the  District  of  Columbia,  Verizons  market  share  remains  unchanged  at  [REDACTED].  The  pre-  merger  HHI  for  these  services  is  [REDACTED],  and  increases  to 
 [REDACTED]  post-  merger  in  Massachusetts,  New  York  and  Pennsylvania;  increases  from  [REDACTED]  to  [REDACTED]  in  Rhode  Island,  Vermont,  Maine,  New  Jersey,  New  Hampshire,  and 
 Delaware;  and  increases  from  [REDACTED]  to  [REDACTED]  in  Virginia,  Maryland,  West  Virginia, 
 (Continued  from  previous  page)  210  The  Verizon  survey  does  not  provide  a  definition  for  these  services,  but  it  is  generally  accepted  that  local  voice 

 services  encompass  calls  placed  to  a  location  within  the  local  service  area.  See  Newtons  Telecom  Dictionary  at  488  (defining  local  call).  As  discussed  in  greater  detail  below,  see  infra  Part  V.  D  (Mass  Market  Competition),  local 
 voice  service  provides  a  connection  to  a  network  that  the  customer  can  use  to  place  and  receive  local  calls,  as  well  as  long  distance  calls  (assuming  that  the  customer  also  has  a  long  distance  service  provider). 

 211  The  minimum  post-  merger  HHI  for  these  services  is  [REDACTED],  and  the  maximum  is  [REDACTED]. 
 212  See  supra  note  160. 
 213  The  minimum  post-  merger  HHI  for  these  services  is  [REDACTED],  and  the  maximum  is  [REDACTED]. 
 214  The  minimum  post-  merger  HHI  for  these  services  is  [REDACTED],  and  the  maximum  is  [REDACTED]. 
 215  Detailed  data  for  the  former  GTE  MSAs  are  contained  in  Confidential  Appendix  C,  Tables  2B,  2D,  2F,  and  2H. 
 216  See  supra  note  196. 
 217  Our  analysis  of  Verizons  position  in  the  small  enterprise  market  both  before  and  after  the  acquisition  is  based 
 upon  analysis  of  data  in  a  third-  party  report  that  was  submitted  by  Verizon  in  response  to  our  data  request.  See  supra  note  196.  Market  share  calculations  pre-  and  post-  merger  for  the  former  Bell  Atlantic/  NYNEX  region  are 

 provided  in  Confidential  Appendix  C,  Tables  3A  and  3B.  Market  share  calculations  pre-  and  post-  merger  for  some  of  the  former  GTE  MSAs  are  provided  in  Confidential  Appendix  C,  Tables  4A  and  4B. 

 218  Given  the  difficulty  in  obtaining  accurate  data  about  the  various  customer  groups,  it  is  likely  that  there  is  an 
 overlap  of  data  between  consumer  groups.  For  example,  Verizon  explains  that  small  business  customers  that  obtain  [REDACTED]  or  fewer  telephone  lines  are  generally  given  the  same  designation  as  a  residential  customer. 

 Verizon  Info.  Req.  at  7.  In  light  of  this  consideration,  however,  Verizons  data  about  small  enterprise  customers  are  likely  to  contain  data  from  small  business  customers  which  are  discussed  in  our  section  on  mass  market  customers. 
 Additionally,  we  note  that,  although  small  enterprise  customers  also  purchase  data  services,  the  sample  sizes  for  these  services  were  statistically  insufficient  to  rely  on. 
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 and  the  District  of  Columbia.  On  average,  Verizons  share  of  long  distance  services  increases  from  [REDACTED]  percent  to  [REDACTED]  percent  in  Massachusetts,  New  York  and  Pennsylvania;  from 
 [REDACTED]  percent  to  [REDACTED]  percent  in  Rhode  Island,  Vermont,  Maine,  New  Jersey,  New  Hampshire,  and  Delaware;  and  increases  from  [REDACTED]  percent  to  [REDACTED]  percent  in 
 Virginia,  Maryland,  West  Virginia,  and  the  District  of  Columbia.  The  pre-  merger  HHI  for  these  services  is  [REDACTED],  and  increases  to  [REDACTED]  post-  merger  in  Massachusetts,  New  York  and 
 Pennsylvania;  increases  from  [REDACTED]  to  [REDACTED]  in  Rhode  Island,  Vermont,  Maine,  New  Jersey,  New  Hampshire,  and  Delaware;  and  increases  from  [REDACTED]  to  [REDACTED]  in  Virginia, 
 Maryland,  West  Virginia,  and  the  District  of  Columbia. 
 73.  The  data  indicate  that  the  merger  will  result  in  a  smaller  increase  in  market  concentration  for  enterprise  customers  having  multiple  operations  located  both  inside  and  outside  of  Verizons  region.  219 
 Although  we  do  not  have  data  for  specific  products,  data  submitted  in  the  record  indicate  that  Verizon  is  not  one  of  the  top  five  large  enterprise  market  share  carriers.  220  The  smallest  of  the  top  five  carriers 
 presented  in  that  study  has  1.1  percent  of  the  large  enterprise  market.  221  Thus,  we  reasonably  deduce  that  Verizons  share  of  this  market  is  one  percent  or  less,  and  we  conclude  that  there  would  be  little  impact  on 
 market  shares  or  HHIs  post  merger. 
 74.  For  enterprise  customers  with  locations  predominantly  in  Verizons  region,  we  find  that  myriad  providers  are  prepared  to  make  competitive  offers.  We  further  find  that  available  market  share  data  does 
 not  reflect  the  rise  in  data  services,  cable  and  VoIP  competition,  and  the  dramatic  increase  in  wireless  usage.  222  Foreign-  based  companies,  competitive  LECs,  cable  companies,  systems  integrators,  and 
 equipment  vendors  and  value-  added  resellers  are  also  providing  services  in  this  market.  223  Similarly,  we  find  that  market  shares  may  misstate  the  competitive  significance  of  existing  firms  and  new  entrants.  224 
 Large  interexchange  carriers  and  the  BOCs  currently  have  the  biggest  share  of  the  market,  but  they  are 

 219  Our  analysis  of  Verizons  market  position  for  large  enterprise  customers  with  operations  both  in  and  out  of  its 
 region  is  based  upon  analysis  of  data  reported  by  Verizon.  See  Verizon/  MCI  Bruno/  Murphy  Decl.,  Exh.  1.  Specifically,  this  exhibit  is  a  November  11,  2003  equity  research  report  produced  by  Lehman  Brothers  for  the 

 enterprise  telecom  service  market.  We  rely  upon  the  data  in  Figure  13  of  this  report  because  it  provides  market  share  based  upon  revenue  for  those  carriers  serving  Fortune  1000  companies.  See  Verizon/  MCI  Bruno/  Murphy 
 Decl.,  Exh.  1  at  15. 
 220  Id. 

 221  Id. 
 222  Cf.  Verizon/  MCI  Bamberger/  Carlton/  Shampine  Decl.  at  paras.  24-  26;  Verizon/  MCI  Bruno/  Murphy  Decl.  at 
 paras.  24-  25  (arguing  that  VoIP  and  IP-  VPN  providers  are  emerging  threats  to  traditional  communications  carriers). 
 223  Verizon  contends,  and  we  agree,  that  competitors  are  rapidly  deploying  new  IP-  based  networks  and  services 
 along  with  other  technologies  to  satisfy  customer  demand.  Verizon  Info.  Req.  at  15;  see  also  Verizon/  MCI  Public  Interest  Statement  at  27-  28;  Verizon/  MCI  Bruno/  Murphy  Decl.  at  paras.  16-  26;  Verizon/  MCI  McMurtrie  Decl.  at 

 paras.  24-  27;  Verizon/  MCI  Bruno  et  al.  Reply  Decl.  at  paras.  33-  45,  Exh.  4.  As  discussed  in  prior  Commission  orders,  there  are  numerous  types  of  business  models  supporting  competition  for  enterprise  customers.  Some 
 competitive  LECs  market  integrated  voice  and  data  services  to  enterprise  customers,  primarily  through  leasing  high-capacity  loops  from  the  BOCs  as  UNEs  or  special  access  and  then  using  the  loops  to  provide  a  bundled  offering 
 including  voice,  data  and  Internet  access.  See  Triennial  Review  Order,  18  FCC  Rcd  at  17014,  para.  48  note  159  (observing  that  companies  such  as  ITC^  Deltacom,  NewSouth  and  Cbeyond  have  focused  on  providing  integrated 
 services  to  the  business  market). 
 224  See  Verizon  Info.  Req.  at  16. 
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 not  the  only  providers  competing  for  these  customers.  We  find,  as  shown  in  confidential  Appendix  C,  that  a  large  number  of  carriers  compete  in  this  market  (even  though  the  market  shares  of  some  may  be 
 small),  and  that  these  multiple  competitors  ensure  that  there  is  sufficient  competition.  225  For  example,  in  the  state  of  New  York,  although  the  combined  market  share  of  the  merged  entity  with  respect  to  the  large 
 enterprise  market  will  be  [REDACTED]  percent  of  Frame  Relay  services,  three  competitors  each  individually  capture  from  [REDACTED]  to  [REDACTED]  percent  of  the  market,  with  the  rest  of  the 
 other  competitors  capturing  the  remaining  [REDACTED]  percent.  226 
 75.  Although  we  find  that  medium-  sized  and  large  enterprise  customers  with  national,  multi-  location  operations  do  not  have  as  many  competitive  options,  227  we  nevertheless  conclude  that  this  merger  is 
 unlikely  to  cause  competitive  harm  to  this  market.  First,  Verizons  pre-  merger  presence  in  this  market  is  nascent,  and  thus,  the  post-  merger  market  will  have  virtually  as  many  competitors  as  before.  228  Second, 
 as  further  discussed  below,  given  their  size  and  geographically-  dispersed  operations,  these  customers  are  highly  sophisticated  and  negotiate  for  significant  discounts.  229  We  find  that  systems  integrators  and  the 
 use  of  emerging  technologies  are  likely  to  make  this  market  more  competitive,  and  that  this  trend  is  likely  to  continue  in  the  future.  230  Further,  we  note  that  the  merger  could  bring  even  more  competition  for  these 

 225  See  infra  Confidential  Appendix  C. 
 226  Verizon  Sept.  20  Ex  Parte  Letter,  Exh.  D  at  40.  [REDACTED]  Id.;  see  generally  Confidential  Appendix  C. 
 Another  illustration  can  be  seen  in  the  long  distance  service  market  in  Pennsylvania  for  large  enterprise  customers.  The  combined  entity  will  provide  service  to  [REDACTED]  percent  of  this  market;  however,  four  competitors  will 

 each  individually  capture  from  [REDACTED]  to  [REDACTED]  percent  of  the  market,  and  at  least  9  other  competitors  will  provide  service  to  the  remaining  [REDACTED]  percent  of  the  market. 

 227  A  Verizon  report  states  that  the  large  enterprise  market  is  dominated  by  a  few  competitors.  It  states  that 
 [REDACTED]  Verizon  Info.  Req.,  VZFCC0410011180. 
 228  See  supra  note  219.  We  also  dismiss  the  issues  raised  in  the  ACTel  Sept.  13  Ex  Parte  Letter.  Specifically,  we 
 agree  with  the  Applicants,  that  the  survey  is  significantly  flawed  because  the  only  customers  surveyed  were  those  that  had  already  chosen  MCI  or  AT&  T  as  their  provider,  and  the  fact  that  the  questions  were  phrased  in  such  a  way 

 as  to  elicit  a  biased  response.  See  Verizon/  MCI  Sept.  22  Ex  Parte  Letter. 
 229  See  Verizon  Info.  Req.  at  12.  Verizon  explains  that  larger  customers  typically  procure  services  through  an  RFP 
 process,  which  covers  a  wide  range  of  products  and  services.  They  buy  all-  distance  packages  of  voice  from  integrated  providers  in  place  of  separate  local  and  long  distance  voice  services.  These  customers  also  use  data 

 services  to  replace  traditional  voice  services.  Additionally,  large  businesses  are  turning  to  IP-  VPNs  and  other  converged  services.  Id.  Verizon  states  that  these  customers  are  moving  away  from  carriers  who  offer  standard 
 configurations  of  local,  interexchange,  international,  and  data  services.  Instead,  a  growing  number  of  enterprise  customers  are  approaching  systems  integrators  and  managed  network  providers.  Id.  at  13;  see  also  Verizon/  MCI 
 Bruno/  Murphy  Decl.  at  paras.  18-  19;  Verizon/  MCI  Public  Interest  Statement  at  27.  These  new  competitors  are  putting  significant  competitive  pressure  on  traditional  service  providers.  Verizon  Info.  Req.  at  13;  see  also 
 Verizon/  MCI  Bruno/  Murphy  Decl.  at  para.  15;  Verizon/  MCI  Application,  Declaration  of  Quintin  Lew  and  Ronald  H.  Lataille  (Verizon/  MCI  Lew/  Lataille  Decl.),  Tab  5,  at  paras.  8-  10. 

 230  Verizon  explains  that  large  enterprise  customers  are  increasingly  purchasing  CPE  that  provides  the  same 
 functions  that  network  providers  historically  provided,  including  intra-  and  inter-  office  voice  and  data  communications.  As  a  result,  Lucent,  Nortel,  Siemens,  and  Cisco  are  competing  in  this  market.  See  Verizon  Info. 

 Req.  at  14.  One  Verizon  report  states  that  [REDACTED]  Verizon  Info.  Req.,  VZFCC416814-  48  at  VZFCC416826. 
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 customers  because  the  merged  company  will  offer  a  true  end-  to-  end  solution  to  businesses,  which  in  turn,  will  likely  improve  quality  and  could  create  cost  savings.  231 
 76.  As  noted  above,  we  find,  consistent  with  the  Commissions  prior  conclusions,  that  mid-  sized  and  large  enterprise  customers  tend  to  be  sophisticated  purchasers  of  communications  services,  whether  they 
 are  located  solely  within  Verizons  region,  or  have  locations  both  inside  and  outside  Verizons  territory.  232  These  users  tend  to  make  their  decisions  about  communications  services  by  using  either  communications 
 consultants  or  employing  in-  house  communications  experts.  233  This  is  significant  not  only  because  it  demonstrates  that  these  users  are  aware  of  the  multitude  of  choices  available  to  them,  but  also  because 
 they  show  that  these  users  are  likely  to  make  informed  choices  based  on  expert  advice  about  service  offerings  and  prices.  234  Thus,  so  long  as  competitive  choices  remain  in  this  market,  these  classes  of 
 customers  should  seek  out  best-  priced  alternatives,  and  the  merged  entity  should  not  be  able  to  raise  and  maintain  prices  above  competitive  levels. 

 77.  Finally,  although  small  enterprise  customers  may  not  possess  the  same  level  of  sophistication  as  their  larger  counterparts,  we  nonetheless  find  that  the  merger  is  not  likely  to  result  in  anticompetitive 
 effects  for  this  group  of  customers.  We  base  our  conclusion  largely  on  the  fact  that  MCI  has  significantly  reduced  its  marketing  to  these  customers,  and  therefore  was  not  exerting  significant  competitive  pressure 
 with  respect  to  those  customers.  235  Moreover,  we  find  that  intermodal  competition  from  cable  telephony,  mobile  wireless  service  providers,  and  providers  of  certain  VoIP  services  will  likely  continue  to  provide 
 these  customers  with  viable  alternatives.  236 
 78.  In  conclusion,  although  we  find  overlap  between  the  Applicants  enterprise  operations,  we  do  not  find  that  the  increase  in  concentration  resulting  from  the  merger  is  likely  to  result  in  anticompetitive 

 231  See  Verizon/  MCI  Reply  at  13.  Verizon  explains  that  the  merger  will  benefit  the  enterprise  market  by  creating  a 
 strong  new  competitor  with  the  network  reach  and  financial  resources  to  compete  in  this  market  segment  nationwide.  Id. 

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

 WorldCom/  MCI  Order,  13  FCC  Rcd  at  18073-  74,  paras.  84-  87.  ACN  et  al.  argue  that  no  degree  of  sophistication  can  alleviate  the  problems  caused  by  market  concentration  when  there  are  no  competitive  alternatives.  ACN  et  al. 
 Comments  at  11-  12.  We  reject  this  argument  in  this  context  because,  as  discussed  supra  at  para.  64,  we  find  that  there  are  adequate  numbers  of  competitors  in  the  enterprise  market. 

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

 proposals  from  carriers  other  than  AT&  T  and  accord  full  consideration  to  these  proposals);  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18064,  para.  65  (finding  that  larger  business  customers  are  knowledgeable  consumers  that  will  have 
 competitive  alternatives  to  the  largest  three  incumbents). 
 234  Interexchange  Competition  Order,  6  FCC  Rcd  at  5887,  para.  39.  Moreover,  the  Commission  found  that  name 
 recognition  and  goodwill  are  less  significant  in  markets  where  customers  tend  to  be  sophisticated  and  aware  of  the  choices  available  to  them.  Id.  at  5888,  para.  41;  see  also  Verizon  Info.  Req.  at  12  (discussing  use  of  RFP  process). 

 235  See  infra  Part  V.  D  (Mass  Market  Competition). 
 236  See  Letter  from  Dee  May,  Verizon,  to  Ms.  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  75  at  6-  7 
 (filed  Sept.  14,  2005)  (Verizon  Sept.  14  Ex  Parte  Letter). 
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 effects  in  this  market.  As  discussed  above,  the  record  shows  that,  for  all  groups  of  business  customers,  there  are  multiple  services  and  multiple  providers  that  can  meet  their  demand. 
 79.  Coordinated  Effects.  We  find  that  the  merger  will  not  increase  the  likelihood  of  tacit  collusion  or  other  coordinated  behavior  in  relevant  markets.  On  the  contrary,  we  find  that,  even  if  competitors 
 reached  tacit  agreements  in  the  enterprise  market,  there  are  strong  incentives  to  cheat  and  scant  ability  to  detect  and  punish  such  cheating.  Specifically,  the  high  value  of  enterprise  contracts  will  likely  entice 
 many  competitors,  particularly  those  with  smaller  market  shares,  to  cheat  on  tacit  agreements.  Moreover,  detection  and  punishment  would  be  significantly  frustrated  by  the  facts  that  enterprise  customers  tend  to 
 be  sophisticated  and  knowledgeable  (often  with  the  assistance  of  consultants),  that  contracts  are  typically  the  result  of  RFPs  and  are  individually-  negotiated  (and  frequently  subject  to  non-  disclosure  clauses),  that 
 contracts  are  generally  for  customized  service  packages,  and  that  the  contracts  usually  remain  in  effect  for  a  number  of  years.  Accordingly,  we  find  no  basis  to  conclude  that  the  merger  increases  the  likelihood  of 
 tacit  collusion  or  other  coordinated  effect  in  the  relevant  markets  in  Verizons  region.  237 
 80.  Mutual  Forbearance.  We  reject  commenters  assertions  that  this  merger  would  reinforce  the  BOCs  historical  reluctance  to  compete  with  each  other.  238  First,  we  find  it  highly  unlikely  that  the 
 companies  would  engage  in  mutual  forbearance  with  respect  to  large  national  enterprise  customers,  given  the  significant  revenue  opportunities  associated  with  serving  those  customers.  The  record  indicates  that 
 Verizon  has  improved  its  out-  of-  region  network  to  serve  out-  of-  region  customers.  Evidence  in  the  record  shows  that  Verizon  has  deployed  [REDACTED]  miles  of  fiber  optic  facilities  in  Los  Angeles  and 
 additional  fiber  in  Dallas,  in  the  incumbent  LEC  territory  of  SBC.  239  In  addition,  Verizon  competes  in  28  other  out-  of-  region  cities,  17  of  which  are  in  SBCs  franchise  region.  240  Second,  even  if  commenters  are 
 correct  with  respect  to  medium  and  large  in-  region  enterprise  customers,  we  find,  as  discussed  above,  that  there  will  be  sufficient  competition  based  on  the  competitors  that  remain  in  the  market.  Finally,  with 
 respect  to  small  enterprise  customers,  we  have  already  discussed  that  MCI  had  significantly  reduced  its  marketing  to  small  enterprise  customers,  and  we  conclude,  based  on  the  record,  that  it  was  not  exerting 
 significant  competitive  pressure  with  respect  to  those  customers  prior  to  the  announcement  of  the  merger.  In  those  markets,  as  discussed  above,  we  find  that  intermodal  competition  from  cable  telephony  service 

 237  While  some  commenters  express  concern  that  the  merged  company  will  use  its  role  as  a  wholesale  provider  to 
 obtain  information  to  aid  tacit  collusion,  we  find  such  coordination  to  be  unlikely  given  the  characteristics  of  enterprise  customers  discussed  above.  Moreover,  we  find  that,  even  without  the  merger  with  MCI,  Verizon  is  a 

 major  supplier  of  special  access  services,  and  thus  it  already  has  the  ability  to  engage  in  such  anticompetitive  conduct.  See  CompTel/  ALTS  Petition  at  24-  25;  Cbeyond  et  al.  Petition  at  45-  49. 

 238  ACN  et  al.  Comments  at  27,  33-  35;  Broadwing  and  SAVVIS  Petition  at  18-  20;  Cbeyond  et  al.  Petition  at  4,  45-48; 
 CompTel/  ALTS  Petition  at  5,  45-  65.  For  example,  Cbeyond  et  al.  argue  that  if  Verizon  were  to  compete  in  another  BOCs  market,  the  other  BOC  would  likely  react  by  reducing  its  retail  prices  and  increasing  its  wholesale 

 rates.  Consequently,  Verizon  would  react  in-  kind  in  its  region.  The  result  is  a  net  loss  to  both  firms,  as  prices  are  forced  down  while  average  costs  increase.  Cbeyond  et  al.  Petition  at  49-  51,  53-  59;  see  also  NJ  Ratepayer 
 Advocate  Comments  at  16-  18;  ACN  et  al.  Comments  at  33-  35;  Broadwing  and  SAVVIS  Petition  at  18-  20;  Qwest  Petition  at  30-  33. 

 239  Verizon/  MCI  Bruno  et  al.  Reply  Decl.  at  paras.  14-  15. 
 240  Id.  at  15.  See  also  Verizon  Info.  Req.,  VZFCC40369-  382  at  VZFCC40370-  71  ([  REDACTED]);  Verizon  Info. 
 Req.,  VZFCC418317-  22  at  VZFCC418321-  22  ([  REDACTED]). 
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 providers,  mobile  wireless  service  providers,  and  VoIP  service  providers  will  likely  continue  to  provide  these  customers  with  viable  alternatives.  241 
 b.  Vertical  Effects 
 81.  We  reject  commenters  concerns  about  their  continued  ability  to  serve  enterprise  customers  in  Verizons  franchise  region  because  the  merger  will  make  them  more  reliant  on  Verizons  facilities.  242  We 
 address  these  arguments  in  our  analysis  of  the  wholesale  special  access  market,  and  in  other  sections  of  this  Order.  243  In  addition,  we  reject  commenters  assertions  that  Verizons  acquisition  of  MCIs 
 interexchange  network  will  lead  the  merged  entity  to  discriminate  against  its  rivals  who  rely  upon  this  network  for  essential  inputs  used  to  serve  their  own  enterprise  customers.  We  find,  as  discussed  below, 
 that  the  merged  entity  would  be  unable  to  increase  rivals  costs  due  to  the  presence  of  extensive  competitive  national  wholesale  interexchange  networks  with  excess  capacity.  244  Thus,  we  find  that  the 
 merger  is  not  likely  to  result  in  anticompetitive  effects  for  wholesale  inputs  used  to  serve  enterprise  customers. 

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

 1.  Relevant  Markets 
 a.  Relevant  Product  Markets 
 83.  Based  on  the  record  in  this  proceeding,  we  identify  three  relevant  product  markets  for  our  mass  market  analysis:  (1)  local  service;  (2)  long  distance  service;  and  (3)  bundled  local  and  long  distance 
 service.  245  In  previous  wireline  mergers,  the  Commission  focused  on  local  and  long  distance  services.  246 

 241  See  Verizon  Sept.  14  Ex  Parte  Letter  at  6-  7. 
 242  See,  e.  g.,  Cox  Comments  at  13-  14;  United  States  Cellular  Comments  at  2-  4;  T-  Mobile  Reply  at  7-  14;  ACN  et  al. 
 Comments  at  39-  40;  Cbeyond  et  al.  Petition  at  24-  30;  Broadwing  and  SAVVIS  Petition  at  22-  29;  CompTel/  ALTS  Petition  at  21-  31;  Global  Crossing  Comments  at  15. 

 243  See  supra  Part  V.  B  (Wholesale  Special  Access  Competition). 
 244  See  infra  Part  V.  F  (Wholesale  Interexchange  Competition);  cf.  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, 

 Memorandum  Opinion  and  Order,  15  FCC  Rcd  5376,  5398,  para.  42  (2000)  (Qwest/  U  S  West  Order)  (finding,  in  the  context  of  the  Qwest/  U  S  West  merger,  that  an  incumbent  LEC  has  no  more  incentive  to  degrade  the  access  it 
 provides  to  competing  interexchange  carriers  whether  the  incumbent  LEC  is  providing  .  .  .  [interexchange]  service  over  facilities  it  constructed  or  [whether]  it  purchased  [them]  from  another  carrier). 

 245  The  Commission  has  defined  mass  market  customers  as  residential  and  small  business  customers  that  purchase 
 standardized  offerings  of  communications  services.  See,  e.  g.,  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18040,  para.  24;  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14746,  para.  68.  The  Commission  addresses  international  mass  market 

 voice  services,  along  with  other  international  services  in  Part  V.  G  of  this  Order. 
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 Based  on  recent  market  and  technological  developments,  including  increased  subscription  to  mobile  wireless  service  and  VoIP  services  that  provide  a  bundle  of  local  and  long  distance  services,  we  find  it 
 appropriate  to  refine  our  market  analysis,  including  defining  a  separate  relevant  product  market  for  bundled  local  and  long  distance  service. 

 84.  The  Commission  defines  product  markets  from  the  perspective  of  customer  demand.  247  We  thus  begin  our  analysis  by  recognizing  two  types  of  consumer  demand  for  communications  services:  (1) 
 demand  for  access  and  (2)  demand  for  usage.  The  consumer  demands  access  from  a  provider  so  as  to  be  able  to  connect  to  a  communications  network.  248  Depending  upon  the  type  of  access  chosen  by  the 
 consumer,  the  consumer  will  be  able  to  connect  to  a  wireline  telephone  network,  a  mobile  wireless  network,  or  the  Internet.  249 

 85.  Because  a  consumer  can  choose  multiple  access  providers,  his  demand  for  usage,  i.  e.,  how  much  of  a  service  he  consumes,  will  be  determined  by  his  particular  set  of  access  provider(  s)  as  well  as  the 
 terms  of  service  associated  with  the  consumers  chosen  access  provider(  s).  For  example,  consider  a  consumers  options  for  long  distance  service.  250  For  expositional  purposes,  we  assume  that  a  consumer 
 subscribes  to  a  wireline  long  distance  service  and  a  mobile  wireless  service.  This  consumer  could  choose  to  place  a  long  distance  call  using  a  presubscribed  long  distance  carrier,  a  dial-  around  alternative  such  as  a 
 prepaid  calling  card,  or  his  mobile  wireless  service,  but,  how  he  views  the  alternatives  would  be  affected  by  the  terms  of  the  particular  service  plans  he  has  chosen.  If  he  subscribes  to  a  wireline  long  distance 
 plan  that  charges  a  flat  monthly  fee  for  unlimited  calling,  he  may  be  less  likely  to  use  an  alternative  service  (such  as  a  prepaid  calling  card  or  mobile  wireless)  because  the  marginal  cost  of  each  long  distance 
 minute  for  his  wireline  service  is  zero.  In  contrast,  if  he  subscribes  to  a  wireline  long  distance  plan  that  charges  a  low  monthly  fee  and  a  relatively  high  per-  minute  charge,  the  marginal  cost  of  each  long 
 distance  minute  is  the  per-  minute  charge,  and  he  might  be  more  willing  to  consider  alternative  usage  options  (such  as  prepaid  calling  cards  or  mobile  wireless)  when  placing  long  distance  calls.  For  example, 
 he  could  allocate  calls  among  different  service  providers  based  on  the  terms  of  service  plans  by  using  the  wireline  phone  for  long  distance  calls  made  during  peak  hours  (e.  g.,  week  days)  and  the  mobile  wireless 
 phone  for  long  distance  calls  made  during  off-  peak  hours  (e.  g.,  evenings  and  weekend  days)  when  the  price  per  minute  may  be  zero.  Accordingly,  we  consider  both  access  demand  and  usage  demand  in 
 defining  our  relevant  product  markets  of  local  service,  long  distance  service,  and  bundled  local  and  long  (Continued  from  previous  page) 
 246  See,  e.  g.,  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18040,  para.  25;  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14745, 
 para.  66. 
 247  See,  e.  g.,  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20605-  06,  para.  106. 

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

 increasing  percentage  of  consumers  are  choosing  to  subscribe  to  a  broadband  Internet  access  service.  See  Clyde  Tucker,  J.  Michael  Brick,  Brian  Meekins,  and  David  Morganstein,  Household  Telephone  Service  and  Usage 
 Patterns  in  the  United  States  in  2004,  page  4,  available  at  http://  www.  bls.  gov/  ore/  pdf/  st040130.  pdf  (Household  Telephone  Survey).  About  20%  of  households  subscribed  to  a  broadband  service  in  2003.  Federal 
 Communications  Commission,  Wireline  Competition  Bureau,  Industry  Analysis  and  Technology  Division,  Trends  in  Telephone  Service,  at  11-  12  (Apr.  2005)  (Trends  in  Telephone  Service)  (citing  A  Nation  Online:  Entering  the 
 Broadband  Age,  U.  S.  Department  of  Commerce  (Sept.  2004)). 
 250  A  consumer  desiring  to  place  an  international  call  would  have  similar  options. 
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 distance  service  because  these  decisions  play  a  role  in  whether  consumers  view  products  as  reasonable  substitutes  (meaning  that  those  services  are  in  the  same  product  market  for  purposes  of  our  analysis).  251 
 (i)  Local  Service 
 86.  Based  on  record  evidence,  we  define  the  market  for  local  service  to  include  not  only  wireline  local  service,  but  also  certain  types  of  VoIP  service  to  the  extent  that  consumers  view  them  as  close 
 substitutes  for  wireline  local  service.  In  addition,  the  record  evidence  suggests  that  for  certain  categories  of  customers,  mobile  wireless  service  is  viewed  as  a  close  substitute  to  wireline  local  service.  252 

 87.  VoIP.  VoIP  services  are  being  provided  to  consumers  in  a  variety  of  ways  today.  The  degree  to  which  particular  VoIP  services  are  viewed  as  close  substitutes  to  other  local  services  varies  depending 
 upon  the  characteristics  of  the  VoIP  offering.  For  purposes  of  our  analysis  we  find  it  useful  to  divide  VoIP  providers  into  two  general  types:  (1)  facilities-  based  VoIP  providers  and  (2)  over-  the-  top  VoIP 
 providers.  For  purposes  of  this  proceeding,  we  define  facilities-  based  VoIP  providers,  such  as  certain  cable  VoIP  providers,  as  providers  that  own  and  control  the  last  mile  facility.  These  providers  may  own 
 or  lease  the  switching  and  transmission  networks  that  are  used  to  carry  VoIP  calls.  253  Other  kinds  of  VoIP  providers  not  meeting  this  definition  are  referred  to  as  over-  the-  top  VoIP  providers.  This  type  includes 
 those  providers  that  require  the  end  user  to  obtain  broadband  transmission  from  a  third-  party  provider,  and  such  VoIP  providers  can  vary  in  terms  of  the  extent  to  which  they  rely  on  their  own  facilities.  As 
 discussed  below,  the  record  indicates  that  mass  market  consumers  view  facilities-  based  VoIP  services  as  sufficiently  close  substitutes  for  local  service  to  include  them  in  the  relevant  product  market.  The  record 
 is  insufficient  to  determine  which  over-  the-  top  VoIP  services  should  be  included  in  the  relevant  product 

 251  See,  e.  g.,  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20606,  para.  106  (  In  other  words,  when  one  product  is  a 
 reasonable  substitute  for  the  other  in  the  eyes  of  consumers,  it  is  to  be  included  in  the  relevant  product  market  even  though  the  products  themselves  are  not  identical.)  We  note  that  the  evidence  in  the  record  is  insufficient  for  us  to 

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

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

 (Dec.  1,  2003)  available  at  http://  www.  fcc.  gov/  voip/  presentations/  billock.  doc;  Long  Distance  Calling  Plan:  Local,  Regional  and  Long  Distance  Calling  Plans  from  Optimum  Voice  available  at 
 http://  www.  optimumvoice.  com/  index.  jhtml?  pageType=  what_  is_  it;  Phone  Services    Optimum  Voice  available  at  http://  optimumvoice.  custhelp.  com/  cgi-  bin/  optimumvoice.  cfg/  php/  enduser/  std_  adp.  php?  p_  faqid=  261;  National 
 Cable  and  Telecommunications  Association,  Cable  Telephony:  Offering  Consumers  Competitive  Choice  at  5-  7  (July  2001)  available  at  http://  www.  ncta.  com/  pdf_  files/  Telephony_  ReportComplete.  pdf;  Cox  Communications, 
 Whitepaper:  Preparing  for  the  Promise  of  Voice-  over  Internet  Protocol  (VoIP)  at  5-  8  (Feb.  2003)  available  at  http://  www.  cox.  com/  PressRoom/  supportdocuments/  VOIDwhitepaper.  pdf  (Cox  White  Paper). 
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 market,  however.  We  thus  reject  the  Applicants  assertion  that  all  VoIP  offerings  should  be  included  in  the  relevant  product  market.  254 
 88.  Based  upon  the  information  in  this  record,  we  find  that  facilities-  based  VoIP  services  clearly  fall  within  the  relevant  service  market  for  local  services.  Facilities-  based  VoIP  services  have  many  similar 
 characteristics  to  traditional  wireline  local  service.  255  There  is  also  significant  evidence  in  the  record  indicating  that  mass  market  subscription  to  cable-  based  VoIP  continues  to  increase  nationwide  256  as  cable 
 operators  continue  to  roll  out  these  services  throughout  their  footprints.  257  In  addition,  there  is  documentary  evidence  that  Verizon  views  cable-  based  VoIP  as  its  primary  competitive  threat  in  the  mass 
 market,  and  considers  the  prospect  of  consumer  substitution  to  cable-  based  VoIP  when  devising  its  strategies  and  service  offers.  258  While  we  recognize  that  facilities-  based  VoIP  services  may  not  be 
 available  ubiquitously  in  Verizons  territory,  our  product  market  analysis  does  not  require  that  all  mass  market  consumers  would  be  willing  or  able  to  substitute  VoIP  service  for  wireline  local  service,  or  even 
 that  it  be  widely  available  for  it  to  be  included  in  the  relevant  product  market.  259  Rather,  our  product  market  definition  analysis  only  requires  evidence  of  sufficient  demand  substitutability  in  those  geographic 
 markets  where  facilities-  based  VoIP  service  is  available. 
 89.  The  record  is  inconclusive  regarding  the  extent  to  which  various  over-  the-  top  VoIP  services  should  be  included  in  the  relevant  product  market  for  local  services.  The  record  indicates  that  there  are  a 
 wide  variety  of  methods  by  which  over-  the-  top  VoIP  providers  offer  service.  The  varieties  of  over-  the- 

 254  See,  e.  g.,  Verizon/  MCI  Public  Interest  Statement  at  37-  45;  Verizon/  MCI  Application,  Declaration  of  Michael  K. 
 Hassett  et  al.  (Verizon/  MCI  Hassett  et  al.  Decl.),  Tab  6,  at  paras.  57-  71;  Verizon/  MCI  Reply  at  56-  59. 
 255  These  similar  characteristics  include:  installation  by  the  provider;  the  lack  of  a  requirement  for  a  broadband 
 subscription;  and  connection  to  the  consumers  home  inside  wiring,  which  permits  use  of  all  of  the  households  traditional  wireline  and  cordless  handsets.  See,  e.  g.,  Consumer  information  provided  by  Cablevision  available  at 

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

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

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

 Businesses,  Time  Warner  Release,  Feb.  3,  2005;  Cox  Names  New  2005  Telephony  Markets,  Cox  Press  Release,  Aug.  1,  2005;  Verizon/  MCI  Hassett  et  al.  Decl.  at  paras.  30-  56. 

 258  See,  e.  g.,  Verizon/  MCI  Public  Interest  Statement  at  39-  41;  Verizon/  MCI  Reply  at  50-  52;  Verizon/  MCI  Reply, 
 Declaration  of  Michael  K.  Hassett  et  al.  (Verizon/  MCI  Hassett  et  al.  Reply  Decl.),  Tab  6,  at  paras.  35-  44;  Verizon  Info.  Req.,  VZFCC81-  964-  80;  VZFCC7-  1486-  1571  at  1515-  33;  VZFCC61-  230-  46;  VZFCC74-  3518-  3531; 

 VZFCC45-  1809-  1883;  VZFCC12-  305-  331  at  314-  318. 
 259  See,  e.  g.,  NASUCA  Comments  at  9-  10;  Cbeyond  et  al.  Wilkie  Decl.  at  para.  42;  Texas  OPC  Comments  at  7; 
 ACN  et  al.  Comments  at  17;  Qwest  Petition,  Declaration  of  P.  Douglas  Bernheim  (Qwest  Bernheim  Decl.)  at  para.  84-  85. 
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 top  VoIP  differ  significantly  in  their  service  characteristics,  260  including  quality  of  service  261  and  price.  262  The  extent  to  which  consumers  view  these  services  as  substitutes  for  traditional  wireline  local  service  may 
 vary  based  on  these  differences.  263  In  addition,  the  requirement  that  a  customer  have  broadband  access  to  be  able  to  use  certain  over-  the-  top  VoIP  services  affects  the  substitutability  of  those  services  with  wireline 
 local  service.  Specifically,  for  customers  that  do  not  already  have  broadband  access  service,  the  subscription  fee  to  obtain  broadband  access  must  be  added  to  the  subscription  price  for  the  over-  the-  top 
 VoIP  service  when  weighing  it  against  the  price  of  traditional  wireline  local  service,  and  the  extra  fee  could  make  substitution  uneconomical.  264  Even  for  consumers  that  have  broadband  service,  however, 
 their  willingness  to  subscribe  to  over-  the-  top  VoIP  service  in  lieu  of  wireline  local  service  will  vary  with  the  attributes  of  the  service  and  the  consumers  willingness  to  trade  off  service  characteristics  for  lower 
 prices.  Thus,  while  it  is  likely  that  some  proportion  of  mass  market  consumers  may  view  certain  over-the-  top  VoIP  services  as  substitutes  for  wireline  local  service,  there  is  insufficient  information  in  the 
 record  to  determine  which  types  of  over-  the-  top  VoIP  service  should  be  included  in  the  product  market. 

 260  Some  over-  the-  top  VoIP  services  require  a  consumer  to  have  a  computer  and  to  install  the  software  on  his 
 computer;  others  may  require  the  purchase  of  specialized  telephone  handsets;  and  some  require  specialized  equipment  such  as  terminal  adapters.  See,  e.  g.,  Vonage  Holdings  Corporation  Petition  for  Declaratory  Ruling 

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

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

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

 distance  calling,  some  offer  multipart  plans  with  baskets  of  minutes,  and  others  offer  their  service  for  free.  For  example,  for  calling  anywhere  in  the  U.  S.,  Canada,  or  Puerto  Rico,  Vonage  offers  a  basic  500  minute  plan  for 
 $14.99  and  an  unlimited  calling  plan  for  $24.99.  See  http://  www.  vonage.  com.  Skype  offers  unlimited  free  PC  to  PC  calling  and  a  pay-  per-  call  PC  to  phone  service  on  a  per-  minute  basis.  See  http://  www.  skype.  com;  see  also 
 http://  www.  ordervoip.  com. 
 263  See,  e.  g.,  Texas  OPC  Comments  at  8;  NASUCA  Comments  at  9-  10;  Cbeyond  et  al.  Petition  at  36-  38;  Cbeyond  et 
 al.  Wilkie  Decl.  at  para.  42;  Consumer  Federation  et  al.  Petition  at  16-  17;  ACN  et  al.  Comments  at  17-  19;  Qwest  Bernheim  Decl.  at  para.  88. 

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

 consider  over-  the-  top  VoIP  services  than  consumers  without  broadband  service.  Where  a  consumer  has  already  subscribed  to  broadband,  the  cost  of  the  broadband  subscription  would  not  be  viewed  as  part  of  the  incremental  cost 
 of  subsequently  subscribing  to  the  VoIP  service.  See  Forrester  Research:  The  State  of  Consumer  Technology  Adoption:  Survey  of  More  Than  68,000  Households  Reveal  How  Consumers  Adopt  and  Use  Technology,  BUSINESS 
 WIRE,  Aug.  2,  2005;  Stephanie  Kirchgaessner  and  Paul  Taylor,  The  Americas:  FCCs  Easing  of  Internet  Service  Rules  Welcomed,  FINANCIAL  TIMES  USA,  Aug.  6,  2005.  Time  Warner  reports  a  22%  penetration  rate  for  their  own 
 residential  high-  speed  data  service.  The  corresponding  figures  for  Cox  and  Comcast  are  respectively,  27%  and  19%.  Time  Warner  Reports  Second  Quarter  2005  Results,  Time  Warner  Press  Release,  Aug.  3,  2005,  at  1;  Comcast 
 Second  Quarter  2005  Results,  Financial  Tables,  Aug.  2,  2005;  Cox  Second  Quarter  2005  Results,  Suppl.  Tables,  Aug.  9,  2005;  see  also  Texas  OPC  Comments  at  7. 
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 Consequently,  in  order  to  be  conservative  in  our  structural  analysis,  we  exclude  these  services  from  the  relevant  product  market  in  our  structural  analysis.  265 
 90.  Mobile  Wireless  Service.  We  find  that  mobile  wireless  service  should  be  included  in  the  local  services  product  market  when  it  is  used  as  a  complete  substitute  for  all  of  a  consumers  voice 
 communications  needs.  266  On  the  one  hand,  increasing  numbers  of  mass  market  customers  are  subscribing  to  mobile  wireless  services,  thus  providing  an  additional  access  option  for  making  local 
 telephone  calls.  267  On  the  other  hand,  we  recognize  that  the  average  cost  for  mobile  wireless  service  appears  to  be  higher  than  for  wireline  local  service.  268  In  addition,  while  most  customers  making  wireline 
 local  calls  face  a  per-  minute  cost  of  zero  (because  they  can  make  unlimited  local  calls  for  a  flat  monthly  fee),  many  wireless  customers  must  pay  per-  minute  fees  when  making  local  calls  with  their  wireless 
 phones.  269 
 91.  Considering  consumer  behavior  more  closely,  the  record  reveals  that  growing  numbers  of  subscribers  in  particular  segments  of  the  mass  market  are  choosing  mobile  wireless  service  in  lieu  of 
 wireline  local  services.  Evidence  indicates  that,  overall,  approximately  6  percent  of  households  have 

 265  MCI  initiated  a  limited  trial  over-  the-  top  VoIP  offering  to  target  [REDACTED]  customers.  This  does  not 
 indicate  a  significant  change  in  strategy  or  show  that  MCI  would  become  a  significant  participant  for  this  service  because  the  targeted  customer  base  is  de  minimis.  See,  e.  g.,  Cox  Comments  at  12;  Consumer  Federation  et  al. 

 Petition  at  12.  Verizon/  MCI  Application,  Declaration  of  Wayne  Huyard  (Verizon/  MCI  Huyard  Decl.),  Tab  11,  at  para.  20;  Verizon/  MCI  Reply,  Declaration  of  Wayne  Huyard  (Verizon/  MCI  Huyard  Reply  Decl.),  Tab  8,  at  para.  5. 
 Given  the  limited  significance  of  MCIs  provision  of  mass  market  VoIP  services,  we  reject  the  concerns  of  commenters  that  the  merger  increases  Verizons  incentive  or  ability  to  discriminate  against  competitive  VoIP 
 offerings  using  its  wireline  and  wireless  facilities  and  operations.  See,  e.  g.,  Vonage  Comments  at  4-  8  (expressing  concern  about  VoIP  providers  access  to  tandem  switches,  E911  facilities,  and  wireless  Internet  platforms);  Global 
 Crossing  Comments  at  20-  22  (expressing  concern  about  VoIP  providers  interconnection,  intercarrier  compensation,  and  switched  access  rights  and  obligations). 

 266  The  Commission  previously  found  that,  although  wireline  services  do  not  have  a  price  constraining  effect  on 
 mobile  wireless  services,  some  consumers  may  find  that  mobile  wireless  services  are  a  good  substitute  for  wireline  services.  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21558,  paras.  73-  74.  As  we  discuss  below,  we  include 

 mobile  wireless  services  in  the  long  distance  service  market  to  some  extent  as  well. 
 267  Household  Telephone  Survey  at  Figure  1  and  Table  B. 

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

 sufficient  anytime  minutes  to  accommodate  the  typical  calling  needs  of  a  wireline  consumer  generally  costs  between  $50-$  60,  which  may  make  it  not  price  competitive  for  consumers.  Implementation  of  Section  6002(  b)  of  the 
 Omnibus  Budget  Reconciliation  Act  of  1993,  Annual  Report  and  Analysis  of  Competitive  Market  Conditions  with  Respect  to  Commercial  Mobile  Services,  WT  Docket  No.  04-  111,  Ninth  Report,  19  FCC  Rcd  20597,  20685,  para. 
 215  (2004)  (Ninth  CMRS  Competition  Report);  Tenth  CMRS  Competition  Report,  WT  Docket  No.  05-  71,  Tenth  Report,  FCC  05-  173  at  paras.  198-  200  (rel.  Sept.  30,  2005)  (Tenth  CMRS  Competition  Report);  Trends  in  Telephone 
 Service  at  3-  4;  Texas  OPC  Comments  at  8;  NASUCA  Comments  at  10. 
 269  Many  consumers  have  mobile  wireless  plans  in  which  they  are  assessed  a  per-  minute  charge  for  each  incoming 
 and  outgoing  call  (e.  g.,  prepaid  calling  plans).  Other  consumers  subscribe  to  mobile  wireless  plans  with  a  limited  number  of  anytime  minutes  with  the  result  that  they  may  incur  overage  charges  for  minutes  in  excess  of  their 

 allotted  anytime  minutes.  See,  e.  g.,  Tenth  CMRS  Competition  Report  at  paras.  99-  100;  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21613-  14,  para.  240. 
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 chosen  to  rely  upon  mobile  wireless  services  for  all  of  their  communications  needs.  270  Recent  research  sponsored  by  the  Bureau  of  Labor  Statistics  reveals  that  for  certain  segments  of  the  U.  S.  population,  a 
 significantly  higher  percentage  of  households  rely  solely  on  mobile  wireless  services  (e.  g.,  single  person  households  (8.1  percent),  adults  between  the  ages  of  twenty-  five  and  thirty-  four  (10.3  percent),  and  single 
 individuals  (11.1  percent)).  271  We  also  find  that  Verizon  considers  this  growing  substitution  in  developing  its  marketing,  research  and  development,  and  corporate  strategies  for  its  local  service 
 offerings.  272  Finally,  we  base  our  finding  on  the  Commissions  determination  in  the  Sprint/  Nextel  Order  that  Sprint/  Nextel,  after  the  merger,  would  likely  take  actions  that  would  increase  intermodal  competition 
 between  wireline  and  mobile  wireless  services,  273  as  well  as  Sprints  plans  to  focus  its  efforts  on  encouraging  consumers  to  cut  the  cord.  274  Accordingly,  our  expectation  is  that  intermodal  competition 
 between  mobile  wireless  and  wireline  service  will  likely  increase  in  the  near  term.  Even  if  most  segments  of  the  mass  market  are  unlikely  to  rely  upon  mobile  wireless  services  in  lieu  of  wireline  local  services 
 today,  275  as  discussed  above,  our  product  market  analysis  only  requires  that  there  be  evidence  of  sufficient  substitution  for  significant  segments  of  the  mass  market  to  consider  it  in  our  analysis.  Based  on  the 
 factors  discussed  in  this  section,  we  conclude  that  mobile  wireless  services  should  be  included  within  the  product  market  for  local  services  to  the  extent  that  customers  rely  on  mobile  wireless  service  as  a 
 complete  substitute  for,  rather  than  complement  to,  wireline  service.  276 
 (ii)  Long  Distance  Services 
 92.  There  is  significant  evidence  in  the  record  that  long  distance  service  purchased  on  a  stand-  alone  basis  is  becoming  a  fringe  market  including:  the  decision  by  MCI  to  reduce  its  marketing  of  long 
 distance  services,  277  the  declining  proportion  of  consumers  choosing  a  long  distance  provider  different  from  their  local  service  provider,  278  Verizons  assertion  that  it  is  not  obvious  that  a  standalone  provider 

 270  Household  Telephone  Survey  at  Table  A. 
 271  Id.  at  Tables  A,  B. 
 272  Verizon  Info.  Req.,  VZFCC12-  305-  331  at  314-  16;  VZFCC7-  1486-  1571  at  1511-  16,  1530. 
 273  Sprint/  Nextel  Order,  FCC  05-  148  at  paras.  141-  143. 
 274  Sprint  Prepares  to  Cut  the  Cord,  WASHINGTON  POST,  June  6,  2005;  Verizon  Info.  Req.,  VZFCCQ23-  8458-  8527 
 at  8467-  68. 
 275  See,  e.  g.,  Texas  OPC  Comments  at  8  (wireless  is  expensive  compared  to  wireline  and  does  not  provide  reliable 
 911  access);  New  Jersey  Ratepayer  Advocate  Reply  at  14;  New  Jersey  Ratepayer  Advocate  Comments,  Declaration  of  Susan  M.  Baldwin  and  Sarah  M.  Bosley  (New  Jersey  Ratepayer  Advocate  Baldwin/  Bosley  Decl.)  at  paras.  77-  79; 

 NASUCA  Comments  at  9-  10;  Cbeyond  et  al.  Petition  at  35-  36;  Consumer  Federation  et  al.  Petition  at  18;  ACN  et  al.  Comments  at  19-  20;  Household  Telephone  Survey  at  Tables  A,  B;  Verizon  Info.  Req.,  VZFCC7-  1486-  1571  at 
 1515-  16;  Verizon  Info.  Req.,  VZFCCQ23-  8458-  8527  at  8476,  8482. 
 276  In  addition,  we  agree  with  commenters  who  note  that  the  record  does  not  present  credible  evidence  that  mobile 
 wireless  services  have  a  price  constraining  effect  on  all  consumers  demand  for  primary  line  wireline  services.  Cbeyond  et  al.  Wilkie  Decl.  at  paras.  41,  44. 

 277  Verizon/  MCI  Huyard  Decl.  at  para.  17. 
 278  Between  December  2003  and  March  2005,  the  percentage  of  Verizons  residential  lines  with  a  presubscribed 
 interexchange  carrier  decreased  from  [REDACTED]%  to  [REDACTED]%,  while  the  percentage  of  its  residential  lines  with  an  interexchange  carrier  other  than  Verizon  declined  from  [REDACTED]%  to  [REDACTED]%. 

 Calculated  from  data  contained  in  Verizon  Info.  Req.,  Suppl.  Exh.  18.  B.  5.  See  also  MCI  Info.  Req.,  MCIFCC24-  350561-  596  at  350572,  350589-  94. 
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 of  long  distance  service  could  operate  at  a  profit,  279  and  other  documentary  evidence.  280  Nonetheless,  because  equal  access  requirements  permit  a  consumer  to  choose  to  subscribe  to  an  alternative  carriers 
 long  distance  service,  281  we  follow  Commission  precedent  and  consider  long  distance  services  as  a  separate  relevant  product  market.  282  As  discussed  below,  we  find  that  this  market  includes  not  only 
 presubscribed  wireline  long  distance  providers,  but  also  mobile  wireless  service  and  transaction  services,  such  as  prepaid  calling  cards  and  dial-  around  services.  283 

 93.  Mobile  Wireless.  Although  the  precise  extent  to  which  a  mobile  wireless  service  is  in  the  long  distance  market  is  unclear  from  the  record,  we  find  it  appropriate  to  include  mobile  wireless  services  in 
 the  relevant  market  at  least  to  some  extent  based  upon  usage  substitution  between  wireless  and  wireline  long  distance  service.  The  Commission  previously  has  noted  mobile  wireless  providers  increased 
 offering  of  wide-  area  pricing  plans,  284  and  the  migration  of  minutes  from  wireline  to  mobile  wireless  services.  285  However,  the  long  distance  usage  data  in  the  record  are  for  mass  market  and  all  business 
 customers  combined,  286  and  thus  cannot  be  used  to  infer  the  calling  patterns  for  mass  market  consumers  alone. 

 94.  In  evaluating  the  substitutability  of  wireless  service  for  stand-  alone  long  distance  service,  our  analysis  focuses  on  the  behavior  of  those  consumers  that  currently  subscribe  to  both  a  wireline  long 
 distance  service  and  a  mobile  wireless  service.  287  There  is  evidence  suggesting  that  consumers  are 
 279  Verizon/  MCI  Reply  at  63-  64;  Verizon/  MCI  Application,  Declaration  of  Ronald  H.  Lataille  (Verizon/  MCI 
 Lataille  Decl.),  Tab  7,  at  para.  10;  Verizon/  MCI  Reply,  Declaration  of  Robert  W.  Crandall  and  Hal  J.  Singer  (Verizon/  MCI  Crandall/  Singer  Reply  Decl.),  Tab  2,  at  para.  21. 

 280  MCI  Info.  Req.,  MCIFCC24-  350561-  596  at  350572,  350589-  94;  MCIFCC24-  232566-  32585  at  32578;  Verizon 
 Info.  Req.,  VZFCC-  8969-  373-  414  at  381-  382. 
 281  The  likelihood  that  consumers  subscribing  to  bundled  service  plans  consider  the  price  and  characteristics  of  the 
 bundle  as  a  whole,  rather  than  individual  components  of  the  bundle,  decreases  the  likelihood  that  an  increase  in  the  price  of  stand-  alone  long  distance  services  (or  the  long  distance  component  of  the  bundle)  would  lead  a  consumer  to 

 switch  to  an  alternative  service  provider  for  its  bundle  of  services.  Thus,  the  relevant  group  of  consumers  for  this  analysis  may  only  be  those  consumers  that  currently  purchase  a  wireline  long  distance  service  (whether  as  a  stand 
 alone  offering  or  bundled)  and  have  a  significant  demand  for  long  distance  services. 
 282  We  reject  the  Applicants  assertions  that  we  should  include  e-  mail  and  instant  messaging  in  the  relevant  service 
 markets  for  services  provided  to  mass  market  consumers.  Verizon/  MCI  Reply  at  60.  In  light  of  the  qualitative  differences  between  these  options  and  voice  communications,  the  Applicants  have  not  demonstrated  that  they 

 belong  in  the  same  relevant  product  market. 
 283  There  is  insufficient  information  in  this  record  to  assess  the  extent  to  which  mass  market  consumers  use  over-the- 
 top  VoIP  services  specifically  for  domestic  long  distance  calls. 
 284  See,  e.  g.,  Tenth  CMRS  Competition  Report  at  para.  97. 

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

 286  Verizon/  MCI  Bamberger/  Carlton/  Shampine  Decl.  at  para.  20. 
 287  Our  market  definition  exercise  does  not  consider  the  purchasing  behavior  of  consumers  who  do  not  have  a 
 presubscribed  interexchange  carrier  or  who  rely  upon  mobile  wireless  service  for  all  of  their  communications  needs,  because  they  would  be  unaffected  by  a  theoretical  price  increase  for  wireline  long  distance  services  as  a  result  of  the 

 merger.  In  addition,  our  market  definition  exercise  does  not  consider  the  purchasing  behavior  of  consumers  who  do  (continued.) 
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 increasingly  using  their  mobile  wireless  service  for  long  distance  calls,  288  and  there  is  evidence  that  Verizon  and  MCI  consider  minute  substitution  in  their  business  strategies.  289  As  a  general  matter,  we 
 expect  that  a  consumer  who  subscribes  to  both  a  mobile  wireless  service  and  a  wireline  long  distance  service  will  allocate  minutes  between  these  services  in  an  optimal  manner,  i.  e.,  the  consumer  will  seek  the 
 lowest  possible  charge,  consider  service  quality,  and  consider  the  time  the  call  is  placed.  While  we  have  insufficient  information  in  this  record  to  determine  the  precise  extent  of  wireless  long  distance  minute 
 substitution,  we  acknowledge  that  mobile  wireless  services  are  in  the  relevant  product  market  at  least  to  some  extent. 

 95.  Transaction  Services.  As  with  mobile  wireless  service,  we  find  that  certain  segments  of  mass  market  consumers  use  these  services  (prepaid  calling  cards  and  dial-  around  services)  as  a  substitute  for 
 long  distance  services.  We  have  insufficient  information  to  determine  the  precise  extent  of  consumer  substitution  between  transaction  services  and  presubscribed  wireline  long  distance  services,  however.  In 
 the  absence  of  more  precise  information,  we  include  these  services  in  the  relevant  market  definition  to  the  extent  that  consumers  view  these  services  as  substitutes  for  presubscribed  wireline  long  distance  service. 
 In  any  event,  to  the  extent  that  these  services  are  part  of  the  relevant  market,  they  appear  to  be  of  declining  significance.  Publicly  available  information  290  as  well  as  the  evidence  in  this  record  indicates 
 consumer  demand  for  these  services  has  declined  significantly  in  the  last  two  years,  291  possibly  due  to  reductions  in  long  distance  pricing  as  well  as  substitution  to  mobile  wireless  services.  292 

 (iii)  Bundled  Local  and  Long  Distance  Services 
 96.  We  agree  with  the  commenters  that  bundled  local  and  long  distance  services  should  be  treated  as  a  separate  relevant  product  market.  293  The  economics  literature  generally  discusses  two  types  of  bundles: 
 (Continued  from  previous  page)  not  currently  subscribe  to  a  mobile  wireless  service  because  it  would  most  likely  be  more  costly  for  these  consumers 
 to  subscribe  to  a  mobile  wireless  service  in  order  to  migrate  wireline  long  distance  minutes  to  a  mobile  wireless  service  than  it  would  be  to  pay  a  higher  price  for  wireline  long  distance  service. 

 288  From  2000  to  2003,  the  Commission  reports  that  the  percentage  of  all  wireless  calls  that  are  interstate  calls 
 increased  from  10%  to  15%,  and  the  percentage  of  all  minutes  that  are  interstate  grew  from  16%  to  26%.  Trends  in  Telephone  Service  at  11-  12  (Apr.  2005);  see  also  Verizon/  MCI  Bamberger/  Carlton/  Shampine  Decl.  at  para.  23 

 (reporting  the  results  of  a  Yankee  Group  survey  finding  that,  in  U.  S.  households,  more  than  60%  of  long  distance  calls  have  been  replaced  by  wireless). 

 289  Verizon  Info.  Req.,  VZFCC7-  1486-  1571  at  1513,  VZFCC12-  305-  331  at  307,  316;  MCI  Info.  Req.,  MCIFCC17- 
 13162-  13182  at  13180. 
 290  AT&  T  2004  Annual  Report  at  45;  AT&  T  2003  Annual  Report  at  21-  22;  MCI  2004  Annual  Report  at  49-  50. 

 291  See,  e.  g.,  Verizon  Info.  Req.,  VZFCCQ23-  8251-  8291  at  8272-  78;  MCI  Info.  Req.,  MCIFCC19-  6035-  6058  at 
 6037-  38;  MCI  Info.  Req.,  MCIFCC24-  350561-  596  at  350586;  MCI  Info.  Req.,  MCIFCC19-  124-  148  at  137-  38. 
 292  See,  e.  g.,  MCI  Info.  Req.,  MCIFCC19-  6035-  6058  at  6037-  38. 

 293  See,  e.  g.,  New  Jersey  Ratepayer  Advocate  Baldwin/  Bosley  Decl.  at  para.  71  (wireless  serves  as  a  substitute  to 
 bundled  telecommunications  offerings  and  not  as  a  substitute  for  basic  local  exchange  service);  Cbeyond  et  al.  Wilkie  Decl.  at  para.  40-  43;  Cbeyond  et  al.  Petition  at  34-  35.  The  Commission  has  previously  noted  the  increased 

 subscription  to  bundled  telecommunications  service  offerings.  See,  e.  g.,  Section  272  Sunset  FNPRM,  18  FCC  Rcd  at  10919,  para.  9.  We  note  that  the  Applicants  appear  to  dispute  the  existence  of  a  bundled  local  and  long  distance 
 service  market  because  they  assert  that  the  Commission  should  not  treat  all-  distance  offerings  as  a  distinct  product  market.  However,  other  statements  appear  to  support  the  market  definition  because  they  also  assert  that  it  no 
 longer  makes  sense  for  the  Commission  to  subdivide  the  mass  market  into  discrete  product  markets  for  local  and  long  distance  voice  services,  and  that  long  distance  services  probably  do  not  represent  a  distinct  antitrust  product 
 (continued.) 
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 a  pure  bundle,  where  the  bundled  services  are  only  sold  together  and  are  not  sold  individually;  and  a  mixed  bundle,  where  the  bundled  services  are  sold  individually,  as  well  as  in  a  package.  294  There  is 
 significant  variation  across  providers  as  to  whether  they  offer  a  pure  bundle  or  a  mixed  bundle.  Because  of  the  varied  marketing  strategies  and  limitations  in  the  data,  we  define  a  local  and  long  distance  service 
 bundle,  for  purposes  of  this  proceeding  only,  as  a  customers  purchase  of  local  and  long  distance  services  from  the  same  carrier,  regardless  of  whether  these  services  are  purchased  together  as  part  of  an  advertised 
 bundle  from  a  single  carrier  or  whether  the  consumer  creates  the  bundle  by  selecting  separately-  offered  local  and  long  distance  service  plans  from  the  same  provider.  The  evidence  indicates  that:  consumers 
 predominantly  purchase  local  and  long  distance  services  from  a  single  provider  today;  this  trend  is  likely  to  continue;  and  the  stand-  alone  wireline  long  distance  market  is  steadily  declining  in  size  relative  to  the 
 bundled  services  market.  295 
 97.  Several  other  factors  also  convince  us  that  it  is  appropriate  to  define  bundled  local  and  long  distance  services  as  a  separate  relevant  product  market.  First,  we  find  that  Verizons  marketing  and 
 pricing  strategies  are  designed  to  encourage  subscription  to  a  bundled  service  package.  296  Second,  the  evidence  in  the  record  indicates  increasing  intermodal  competition  is  likely  between  wireline  services  and 
 services  provided  on  alternative  service  platforms  such  as  facilities-  based  VoIP  and  mobile  wireless  services.  These  intermodal  services  tend  to  be  offered  as  a  bundle  of  local  and  long  distance  services, 

 (Continued  from  previous  page)  market.  See  Verizon/  MCI  Public  Interest  Statement  at  35;  Verizon/  MCI  Reply,  Declaration  of  Robert  Crandall  and 
 Hal  J.  Singer)  (Verizon/  MCI  Crandall/  Singer  Reply  Decl.),  Tab  2,  at  para.  21. 
 294  In  a  mixed  bundle,  the  package  is  generally  sold  at  a  discount  relative  to  the  sum  of  the  individual  service 
 component  prices.  See,  e.  g.,  Barry  Nalebuff,  Bundling,  Tying  and  Portfolio  Effects,  DTI  ECONOMICS  PAPER  NO.  1  (2001)  at  13-  14. 

 295  As  of  June  2005,  60%  of  Verizons  residential  customers  have  purchased  local  services  in  combination  with 
 either  Verizon  long  distance  or  a  Verizon  broadband  connection,  or  both.  Verizon  Investor  Quarterly,  July  26,  2005,  at  4.  Between  December  2003  and  March  2005,  the  proportion  of  Verizons  residential  consumer  lines  that 

 have  a  presubscribed  long  distance  carrier  decreased  from  [REDACTED]%  to  [REDACTED]%,  while  the  percentage  of  these  residential  customer  lines  with  Verizon  as  the  long  distance  carrier  increased  from 
 [REDACTED]%  to  [REDACTED]%.  See  Verizon  Info.  Req.,  Suppl.  Exh.  18.  B.  5.  Within  Verizons  region,  TNS  reports  that  the  proportion  of  households  purchasing  local  and  long  distance  from  a  single  provider  increased  from 
 [REDACTED]%  to  [REDACTED]%  between  December  2002  and  December  2004.  Nationally,  the  proportion  increased  from  [REDACTED]%  to  [REDACTED]%.  MCI  Info.  Req.,  MCIFCC24-  232566-  2586  at  232578-  79. 
 We  note  that  the  Commission  anticipated  that  a  bundled  product  market  might  become  a  relevant  product  market  sometime  after  the  BOCs  completed  the  section  271  process.  See,  e.  g.,  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 20010-  11,  paras.  39-  42;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18038-  39,  n.  60.  Verizon  completed  the  section  271  process  in  March  2003. 

 296  Verizons  documents  reveal  that  its  research  and  development,  marketing,  and  corporate  strategies  focus  upon 
 service  offerings  designed  to  encourage  consumers  to  subscribe  to  a  local  and  long  distance  service  bundle.  Verizons  incentive  is  to  drive  consumers  to  purchase  all  telephone  services  from  Verizon  to  reduce  its  marketing 

 costs  and  churn,  as  well  as  to  increase  its  average  revenue  per  user.  See,  e.  g.,  Verizon  Info.  Req.,  VZFCC69-  373-  414  at  376-  77,  381-  82,  387-  389,  396,  413-  14;  VZFCC45-  1809-  1883;  VZFCC50-  2834-  2884;  VZFCC45-  612-  670; 
 VZFCC81-  964-  980;  VZFCC7-  1486-  1571.  Moreover,  these  strategies  are  revealed  in  their  marketing.  See,  e.  g.,  Verizon  Second  Quarter  2005  Earnings  Conference  Call  at  6  (  In  consumer,  our  approach  to  the  marketplace  is  to 
 focus  on  consumer  retention  and  loyalty,  while  increasing  the  average  monthly  revenue  per  customer  through  these  new  services  and  higher  penetration  of  bundles  and  packages); 
 http://  www22.  verizon.  com/  ForYourHome/  sas/  sas_  con_  LongDescriptionTabs.  aspx. 
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 which  further  supports  the  use  of  a  bundled  local  and  long  distance  services  market.  297  These  findings  suggest  that  competition  tends  to  occur  between  bundled  offerings  rather  than  between  a  bundle  and 
 stand-  alone  local  and  long  distance  services  offered  by  separate  providers. 
 b.  Relevant  Geographic  Market 
 98.  As  with  special  access  and  enterprise  services,  we  conclude  that  the  relevant  geographic  market  for  mass  market  local,  long  distance,  and  bundled  local  and  long  distance  services  is  the  customers 
 location.  298  We  then  aggregate  customers  facing  similar  competitive  choices.  As  explained  below,  because  of  limitations  in  the  data  in  the  record,  we  analyze  local,  long  distance,  and  bundled  local  and 
 long  distance  service  for  Verizons  franchise  area  within  each  state. 
 99.  This  approach  is  consistent  with  the  way  we  have  defined  the  relevant  geographic  market  in  previous  mergers  of  incumbent  LECs.  299  We  acknowledge  that,  in  the  LEC  Classification  Order,  the 
 Commission  adopted  a  national  geographic  market  based  on  the  section  254(  g)  requirement  that  interexchange  carriers  adopt  geographically  averaged  prices  across  the  United  States.  300  Importantly, 
 however,  the  Commission  also  found  that,  while  a  long  distance  calling  plan  may  be  ubiquitous  in  that  it  offers  nationwide  coverage,  the  market  to  purchase  the  plan  is  a  localized  market,  not  a  national  one.  301 
 The  Commission  went  on  to  state  that  it  would  consider  a  smaller  relevant  geographic  market  if  it  found  evidence  that  there  is,  or  could  be,  a  lack  of  competition  in  a  particular  market.  302  Because  we  are 
 examining  here  whether  the  proposed  merger  involving  Verizon  and  MCI  is  likely  to  lead  to  a  lessening  of  competition  for  long  distance  services,  and  because  Verizons  and  MCIs  market  shares  in  the  long 
 distance  and  bundled  local  and  long  distance  markets  vary  significantly  from  state  to  state,  303  we  find  it  appropriate  to  consider  a  narrower  relevant  geographic  market. 

 100.  We  recognize  that  the  competitive  choices  customers  face  may  vary  within  a  state  (e.  g.,  in  some  areas  of  a  state,  cable  companies  may  provide  cable  VoIP,  while  in  other  areas  they  may  not).  This 
 suggests  that  we  should  define  the  relevant  geographic  market  to  be  an  area  smaller  than  the  state.  The  data  in  the  record  is  not  sufficiently  detailed,  however,  for  us  to  perform  a  structural  analysis  at  a  more 
 disaggregated  level  than  that  of  the  state.  Accordingly,  in  performing  our  structural  analysis,  we  calculate  market  shares  and  changes  in  market  share  at  the  state  level.  While  we  recognize  that,  in  theory,  using  a 

 297  NASUCA  Comments  at  9-  10.  In  addition,  Verizons  concerns  about  the  loss  of  customers  to  bundled  local  and 
 long  distance  service  offered  by  alternative  platforms  is  an  important  influence  on  its  strategies.  See,  e.  g.,  Verizon  Info.  Req.,  VZFCC45-  1809-  1883,  VZFCC12-  305-  331  at  307,  314-  321,  VZFCC7-  1486-  1571  at  1509-  1531 

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

 302  Id.  at  15794,  para.  66. 
 303  The  variation  in  market  share  from  state  to  state  for  long  distance  and  bundled  local  and  long  distance  services  is 
 due  in  large  part  to  the  fact  that  Verizon  obtained  section  271  authority  in  a  particular  state  to  provide  such  services  at  different  times  and  therefore  has  been  competing  in  those  markets  for  varying  periods  of  time.  NASUCA 

 Selwyn/  Golding/  Thompson  Statement  at  21-  22. 
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 state-  level  analysis  may  mask  some  variations  in  smaller  geographic  areas,  we  find  it  a  reasonable  approach  to  our  analysis,  particularly  given  that  Verizons  pricing  for  local,  long  distance,  and  bundled 
 local  and  long  distance  services  is  generally  advertised  on  a  statewide  basis.  304  Accordingly,  we  analyze  mass  market  local,  long  distance,  and  bundled  local  and  long  distance  services  in  Verizons  franchise  area 
 within  each  state. 
 c.  Market  Participants 
 101.  As  the  foregoing  indicates,  Verizon  faces  competition  from  a  variety  of  providers  of  retail  mass  market  services.  These  competitors  include  not  only  wireline  competitive  LECs  and  long  distance  service 
 providers  but  also,  to  at  least  some  extent,  facilities-  based  and  over-  the-  top  VoIP  providers  and  wireless  carriers. 

 2.  Competitive  Analysis 
 a.  Horizontal  Effects 
 102.  Unilateral  Effects.  As  discussed  below,  we  find  that  Verizons  acquisition  of  MCI  is  not  likely  to  result  in  anticompetitive  effects  for  mass  market  services  because  MCI  significantly  reduced  marketing 
 for  local  service,  long  distance  service  and  bundled  local  and  long  distance  service  provided  to  the  mass  market.  We  also  conclude  that  competition  from  intermodal  competitors  is  growing  quickly,  and  we 
 expect  it  to  become  increasingly  significant  in  the  years  to  come.  305 
 103.  Following  Commission  precedent,  we  begin  our  analysis  by  examining  Verizons  and  MCIs  market  share,  and  supply  and  demand  factors.  In  general,  the  market  share  calculations  indicate  a  high 
 level  of  concentration  in  most  franchise  areas  in  Verizons  states  for  all  relevant  services.  306  Within 
 304  See,  e.  g.,  Letter  from  Dee  May,  Verizon,  and  Curtis  Groves,  MCI,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC 
 Docket  No.  05-  75,  Attach.  at  5  (filed  Sept.  1,  2005)  (Verizon  Mass  Market  White  Paper);  see  also  http://  www22.  verizon.  com/  ForYourHome/  sas/  sas_  LocalPlans.  aspx.  We  reject  the  Applicants  assertion  that  we 

 should  define  a  national  geographic  market  for  mass  market  services  based  upon  similar  competitive  choices  across  geographic  regions.  We  base  this  decision  on  the  reasons  stated  above,  as  well  as  the  Applicants  admission  that  the 
 identity  of  providers  differs  across  geographic  regions.  Verizon/  MCI  Public  Interest  Statement  at  36. 
 305  Regulatory  safeguards  would  not  necessarily  constrain  a  post-  acquisition  price  increase  because  there  are 
 minimal  regulatory  safeguards  in  place  for  many  service  offerings.  For  example,  local  services  are  subject  to  only  limited  price  regulation  in  some  states  (e.  g.,  California).  Currently  there  is  limited  regulatory  oversight  for 

 Verizons  retail  service  offerings  provided  through  its  section  272  separate  affiliate.  In  many  states,  Verizons  bundled  offerings  either  have  no  price  regulation  (e.  g.,  Wisconsin,  Connecticut,  Washington  D.  C.,  and  Florida)  or 
 they  cannot  be  priced  lower  than  a  price  floor  (e.  g.,  California,  Indiana,  Massachusetts,  and  Virginia).  Verizon  Info.  Req.,  at  139-  51. 

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

 Our  analysis  of  concentration  in  the  mass  market  relies  upon  data  for  residential  customers  because  of  the  administrative  difficulty  of  distinguishing  small  business  data  from  data  for  other  classes  of  businesses.  The 
 Commission  has  previously  found  that  residential  and  very  small  businesses  have  similar  patterns  of  demand,  are  served  primarily  through  mass  marketing  techniques,  purchase  similar  volumes  and  communications  services,  and 
 would  likely  face  the  same  competitive  alternatives  within  a  geographic  market.  Thus,  we  conclude  that  an  analysis  of  market  share  of  residential  consumers  is  likely  to  accurately  represent  Verizons  position  in  the  mass  market.  Cf. 
 Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20016,  para.  53  (discussing  similarities  between  residential  and  small  business  customers);  Implementation  of  the  Local  Competition  Provisions  of  the  Telecommunications  Act  of  1996, 
 (continued.) 
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 Verizons  franchise  areas,  its  median  market  share  for  local  services  increases  from  [REDACTED]  percent  to  [REDACTED]  percent,  307  with  a  post-  merger  market  share  range  of  [REDACTED]  percent  to 
 [REDACTED]  percent.  Similarly,  within  Verizons  franchise  areas,  its  median  market  share  for  long  distance  services  will  increase  from  [REDACTED]  percent  to  [REDACTED]  percent,  with  a  post-acquisition 
 market  share  range  of  [REDACTED]  percent  to  [REDACTED]  percent.  308  Finally,  within  Verizons  franchise  areas,  its  median  market  share  for  bundled  local  and  long  distance  services  will 
 increase  from  [REDACTED]  percent  to  [REDACTED]  percent,  with  a  post-  acquisition  market  share  range  of  [REDACTED]  percent  to  [REDACTED]  percent.  309  Because  these  market  shares  suggest 
 potentially  problematic  levels  of  concentration,  we  must  next  evaluate  other  aspects  of  the  market. 
 104.  Although  we  agree  with  commenters  that  the  Applicants  post-  merger  market  shares  for  the  relevant  products  are  high,  310  we  nonetheless  find,  for  the  reasons  given  below,  that  these  numbers 
 significantly  overstate  the  likely  competitive  impact  of  the  merger.  Regardless  of  what  role  MCI  played  in  the  past,  311  we  conclude  it  no  longer  is,  and  is  unlikely  to  become,  a  significant  provider  (or  potential 
 provider)  of  local  service,  long  distance  service,  or  bundled  local  and  long  distance  service  to  mass  market  consumers  given  the  significant  reduction  in  its  marketing  and  consumer  operations,  and  its 

 (Continued  from  previous  page)  Third  Report  and  Order  and  Fourth  Further  Notice  of  Proposed  Rulemaking,  15  FCC  Rcd  3696,  3829,  para.  293 
 (1999)  (discussing  similarities  between  residential  and  small  business  customers  in  the  context  of  unbundling  rules);  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14746,  para.  68  (including  residential  and  small  business  customers  in  the 
 same  market). 
 307  We  estimate  total  residential  local  access  lines  in  each  relevant  geographic  market  by  summing  the  number  of 
 wireline  local  access  lines  (i.  e.,  residential  resold  lines,  residential  UNE-  P  lines,  non-  Verizon  residential  E-  911  listings,  Verizons  residential  access  lines)  and  an  estimate  of  the  number  of  residential  wireless-  only  lines.  We 

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

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

 market  shares  are  likely  to  overstate  Verizons  share  of  the  long  distance  market. 
 309  With  respect  to  bundled  local  and  long  distance  market  shares,  we  follow  a  methodology  similar  to  that 
 employed  in  calculating  Verizons  share  of  local  services.  See  supra  note  307.  In  this  case,  however,  we  exclude  consumers  who  do  not  have  a  PIC  or  who  subscribe  to  an  interexchange  carrier  other  than  their  local  service 

 provider.  Post-  merger,  we  assume  Verizons  local  customers  who  have  MCI  as  their  presubscribed  interexchange  carrier  will  migrate  to  Verizon.  Thus,  our  estimate  overstates  Verizons  relative  position  post-  acquisition  to  the 
 extent  that  Verizon  local/  MCI  long  distance  consumers  switch  to  an  alternative  interexchange  carrier  or  MCIs  local  customers  switch  to  a  competitive  provider. 

 310  See,  e.  g.,  Cbeyond  et  al.  Petition  at  34-  39;  Consumer  Federation  et  al.  Petition  at  20-  22;  Texas  OPC  Comments 
 at  4. 
 311  See  Cox  Reply  at  2;  Qwest  Petition  at  27-  30;  DC  OPC  Reply  at  5-  6. 
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 declining  mass  market  customer  base.  312  The  record  indicates  that  MCI  determined  that  it  would  be  uneconomical  to  continue  its  original  mass  market  strategy.  313  We  reject  as  speculative  and  unrealistic 
 commenters  suggestion  that  MCI  could  easily  reverse  its  current  market  position.  314  The  record  demonstrates  that  MCI  has  implemented  steps  to  de-  emphasize  its  mass  market  operations,  and  there  is  no 
 indication  that,  absent  the  merger,  MCI  would  reverse  this  decision.  Because  MCI  has  shifted  its  focus  away  from  the  mass  market,  it  is  no  longer  a  significant  participant  in  this  market  or  uniquely  positioned 
 to  offer  mass  market  services.  315  We  note  that  the  record  evidence  further  indicates  Verizons  current  and  future  pricing  incentives  are  based  more  on  competition  from  intermodal  competitors  and  the  remaining 
 competitive  LECs.  316 
 105.  Finally,  we  reject  commenters  arguments  that  consumers  will  be  worse  off  after  the  merger.  Qwest  argues  that  MCIs  customers  would  be  better  off  if  Verizon  had  to  compete  for  their  business.  317 
 First,  as  stated  above,  MCI  ceased  to  act  as  a  significant  competitive  presence  in  the  market  when  it  began  to  implement  its  strategy  to  de-  emphasize  its  mass  market  business.  Second,  MCIs  customers  will  not 
 necessarily  be  worse  off  after  the  merger  because  Verizon  (or  other  incumbent  LECs  outside  of  Verizons  region)  and  the  remaining  competitive  providers  will  continue  to  compete  for  customers  (MCIs  former 
 customers  as  well  as  each  others  customers).  318  Third,  MCIs  customers  are  free  to  seek  service  from  whichever  providers  are  present  in  the  market.  319  As  noted,  we  find  that  intermodal  competitors, 

 312  See  Verizon/  MCI  Huyard  Decl.  at  paras.  13-  19  (reporting  that  MCI  closed  [REDACTED]  call  centers  and 
 [REDACTED]  customer  service  centers,  and  that  its  monthly  expenses  for  selling,  general  and  administrative  expenditures  (e.  g.,  salaries,  advertising,  promotions)  for  mass  market  services  have  fallen  from  $[  REDACTED] 

 million  in  2002  to  less  than  $[  REDACTED]  million  in  2005.  Verizon  Info.  Req.,  VZFCC45-  612-  670  at  620-  22  [REDACTED].  For  example,  between  March  2004  and  March  2005,  MCI's  customer  base  of  local  exchange 
 customers  fell  from  [REDACTED]  million  to  [REDACTED]  million  and  its  long  distance  customers  fell  from  [REDACTED]  million  to  [REDACTED]  million.  MCI  Info.  Req.,  Exh.  18(  a)(  b)(  d). 

 313  See  Verizon/  MCI  Huyard  Decl.  at  paras.  15-  19.  We  find  that  prepaid  calling  cards  are  of  diminishing 
 importance  for  domestic  long  distance  services;  and  thus,  even  if  MCI  continues  to  have  a  role  in  this  market,  it  is  of  limited  significance  given  continued  competition  between  the  existing  providers  and  the  excess  capacity  for 

 wholesale  interexchange  services.  See  infra  Part  V.  F  (Wholesale  Interexchange  Competition).  In  addition,  we  note  that  the  record  indicates  that  IDT  is  a  leading  provider  of  prepaid  calling  card  services,  and  that  other  carriers  and 
 resellers  operate  in  this  market.  Verizon  Info.  Req.,  VZFCCQ23-  8251-  8291  at  8269;  MCI  Info.  Req.,  MCI-  19-  7708-  7732  [REDACTED]. 

 314  See,  e.  g.,  ACN  et  al.  Comments  at  11,  24;  Cbeyond  et  al.  Petition  at  35;  Qwest  Bernheim  Decl.  at  para.  84. 
 315  MCI  has  negotiated  commercial  agreements  with  the  RBOCs  to  permit  it  to  continue  to  serve  its  existing 
 customer  base.  Verizon  Mass  Market  White  Paper  at  11-  14;  Verizon/  MCI  Huyard  Decl.  at  paras.  14-  24;  Verizon/  MCI  Huyard  Reply  Decl.  at  paras.  3-  6.  Cbeyond  et  al.  Petition  at  34;  Cbeyond  et  al.  Wilkie  Decl.  at  paras. 

 43-  45. 
 316  See,  e.  g.,  discussion  in  paras.  88,  90-  91,  94,  97. 

 317  See,  e.  g.,  Qwest  Bernheim  Decl.  at  para.  84. 
 318  Verizon/  MCI  Reply  at  60-  65.  We  note  that  Cbeyond  et  al.  s  claims  of  likely  price  increases  for  residential  long 
 distance  and  bundled  services  are  flawed  because  their  analysis  does  not  consider  competition  from  intermodal  competitors.  Cbeyond  et  al.  Wilkie  Decl.  at  para.  43.  Moreover,  this  analysis  incorrectly  assumes  MCI  is  a 

 competitive  force  in  the  market  because  of  its  legacy  market  share  and  thus  overstates  MCI's  significance  in  the  market  by  failing  to  account  for  MCI's  reduced  marketing  to  mass  market  customers. 

 319  Verizon/  MCI  Reply  at  60-  63. 
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 including  facilities-  based  VoIP  and  mobile  wireless  providers,  are  likely  to  capture  an  increasing  share  of  mass  market  local  and  long  distance  services.  In  addition,  we  take  further  comfort  from  the  Applicants 
 voluntary  commitment  to  offer  stand-  alone  DSL.  320 
 106.  Coordinated  Effects.  We  also  find  that  Verizons  acquisition  of  MCI  is  unlikely  to  result  in  anticompetitive  effects  through  coordinated  interaction  among  remaining  competitors.  Given  our  finding 
 that  MCI  is  not  a  significant  participant  in  the  mass  market,  we  find  no  indication  that  the  proposed  acquisition  increases  the  likelihood  of  coordinated  interaction  for  the  relevant  products.  Moreover,  the 
 increasing  trend  toward  bundled  service  offerings  likely  decreases  the  possibility  of  coordinated  interaction.  Because  of  the  complexity  and  variety  of  the  bundled  local  and  long  distance  service  offers, 
 competitors  will  find  it  difficult  to  coordinate  on  prices.  321 
 107.  Mutual  Forbearance.  For  the  same  reasons  as  discussed  above  with  respect  to  claims  of  possible  coordinated  effects,  we  do  not  believe  that  the  merger  is  likely  to  result  in  anticompetitive  effects  for  mass 
 market  services  in  SBCs  region.  While  some  commenters  claim  that  the  merged  company  will  have  the  incentive  to  forbear  from  mass  market  competition  in  SBCs  territories,  322  we  note  that  MCI  had 
 significantly  reduced  marketing  to  mass  market  customers  in  those  territories.  323 
 b.  Vertical  Effects 
 108.  We  are  also  not  persuaded  by  commenters  claims  that  the  merger  will  increase  the  merged  entitys  incentive  and  ability  to  raise  the  costs  of  mass  market  rivals.  324  We  reject  Advances  argument 
 that  Verizons  acquisition  of  MCI  will  likely  impair  the  ability  of  Advance  and  other  facilities-  based  competitors  to  compete  in  the  geographic  markets  in  which  MCI  currently  provides  managed  VoIP 
 services.  325  First,  MCI  provides  these  services  to  Time  Warner,  Advance  and  other  cable  operators,  and 

 320  Because  we  find  this  commitment  will  serve  the  public  interest,  we  accept  it  and  adopt  it  as  a  condition  of  our 
 approval  of  the  merger,  as  discussed  below.  See  infra  Part  VII  (Process  and  Enforcement). 
 321  The  difficulties  in  coordinating  actions  may  be  exacerbated  not  only  by  the  bundling  of  local  and  long  distance 
 services  but  also  by  the  offering  of  discounts  to  consumers  that  purchase  additional  services  from  the  providers.  See,  e.  g.,  DOJ/  FTC  Guidelines    2.1.1  (  Reaching  terms  of  coordination  may  be  limited  or  impeded  by  product 

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

 322  Cbeyond  et  al.  Petition  at  45. 
 323  See  discussion  supra  para.  104. 
 324  See,  e.  g.,  Cox  Comments  at  13-  14  (expressing  concern  that  the  merged  company  would  have  increased  incentive 
 and/  or  ability  to  raise  rivals  costs  with  respect  to  Internet  backbone  and  transport  wholesale  inputs);  United  States  Cellular  Comments  at  3-  5  (expressing  concerns  about  discrimination  against  competing  wireless  carriers  in  the 

 pricing  and/  or  provisioning  of  wholesale  inputs);  T-  Mobile  Reply  at  9-  18  (expressing  concern  about  the  mergers  effects  with  respect  to  special  access  and  wholesale  interexchange  services).  We  address  these  issues  elsewhere. 
 See  supra  Part  V.  B  (Wholesale  Special  Access  Competition);  infra  Parts  V.  E  (Internet  Backbone  Competition);  V.  F  (Wholesale  Interexchange  Competition). 

 325  Advance  Reply  at  13-  14;  Letter  from  Robert  G.  Kidwell,  Counsel  to  Advance/  Newhouse  Communications,  to 
 Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  75,  Attach.  at  4  (filed  Sept.  30,  2005)  (Advance  Sept.  30  Ex  Parte  Letter).  MCI,  through  its  Managed  Cable  Solutions  service,  supports  the  VoIP  offerings  of  certain  cable 

 operators  including  Time  Warner,  Bright  House  Networks  (Advance),  Susquehanna  Communications  and  (continued.) 
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 Verizon  has  committed  to  honoring  MCIs  existing  contracts.  326  Specific  contract  disputes,  such  as  those  posed  by  Advance,  are  better  dealt  with  through  the  courts.  327  Second,  contrary  to  Advances  argument, 
 we  find  that  there  are  other  firms  that  are  realistic  long-  term  alternatives  to  MCI.  328  Third,  we  find  evidence  that  other  facilities-  based  providers  self-  provide  these  services.  329  Thus,  we  find  that  Verizons 
 acquisition  of  this  line  of  business  is  not  likely  to  impair  the  ability  of  facilities-  based  providers  to  compete  for  mass  market  customers. 

 E.  Internet  Backbone  Competition 
 109.  We  next  turn  to  the  potential  competitive  effects  of  the  proposed  merger  on  Internet  backbone  services.  We  find  that  the  proposed  merger  of  Verizon  and  MCI  is  not  likely  to  result  in  anticompetitive 

 (Continued  from  previous  page)  Armstrong  Group.  MCIs  managed  VoIP  service  offering  includes:  operations  support  systems  (order 
 management,  provisioning);  telephone  number  administration  (local  number  portability,  E-  911);  carrier  support  (network  infrastructure,  long-  haul  transport,  switching);  network  administration  (quality  of  service  and  network 
 monitoring);  and  operator  and  directory  assistance  services.  Verizon/  MCI  Application,  Declaration  of  Vinton  G.  Cerf  (Verizon/  MCI  Cerf  Decl.),  Tab  14,  at  para.  11;  Advance  Reply,  Affidavit  of  Arthur  C.  Orduna  (Advance 
 Orduna  Reply  Aff.)  at  paras.  6-  7. 
 326  Verizon  Info.  Req.  at  130.  We  reject  Advances  argument  that  post-  acquisition  MCI  is  less  likely  to  take  actions 
 to  remedy  service  issues  in  the  future  because  then,  as  well  as  now,  MCI  is  motivated  to  rectify  these  problems  because  of  contractual  performance  commitments.  Advance  Reply  at  18;  Advance  Orduna  Decl.  at  paras.  8-  14; 

 Advance  Sept.  30  Ex  Parte  Letter,  Attach.  at  5-  7.  See,  e.  g.,  Letter  from  Dee  May,  Verizon,  and  Curtis  Groves,  MCI,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  75  at  1-  4  (filed  Oct.  18,  2005)  (Verizon/  MCI  Oct. 
 18  Cable  Solutions  Ex  Parte  Letter);  MCI  Info.  Req.,  MCI-  17-  12749-  12751;  MCI-  17-  1351-  1352;  MCI-  17-  1370-  1378;  MCI-  17-  13030-  34;  MCI-  17-  13549-  13610. 

 327  The  Commission  has  a  long-  standing  policy  of  refusing  to  adjudicate  contract  law  questions  for  which  a  forum 
 exists  in  the  state  courts.  See,  e.  g.,  S.  A.  Dawson  D/  B/  A  Dawson  Associate,  Assignment  of  Licenses  for  900  MHz  Specialized  Mobile  Radio  Station  WNVE296  at  Bithlo  City,  Florida,  File  No.  9512R106102,  Memorandum  Opinion 

 and  Order,  17  FCC  Rcd  472,  474,  para.  7  (2002)  (finding  that  contractual  matters  between  parties  are  ordinarily  addressed  by  courts  rather  than  the  Commission);  see  also  Agreements  Between  Broadcast  Licensees  and  the 
 Public,  Docket  No.  20495,  Report  &  Order,  57  FCC  2nd  42,  53,  para.  26  (1975)  (expressing  the  Commissions  unwillingness  to  resolve  differences  in  the  interpretation  of  an  agreement);  Listeners'  Guild,  Inc.  v.  FCC,  813  F.  2d 
 465,  469  (D.  C.  Cir.  1987)  (finding  that  the  Commission  should  not  condition  a  license  transfer  upon  transferees  adherence  to  transferors  contractual  obligations,  as  doing  so  would  necessarily  prejudge  the  terms  and  conditions 
 of  the  contract). 
 328  Advance  Reply  at  10-  11;  Advance  Orduna  Aff.  at  paras.  12-  14.  See  Time  Warner  Cable  Creates  Unit  To  Handle 
 Residential  Telephone  Business  (Jan.  22,  2004)  available  at  http://  www.  timewarner.  com/  corp/  newsroom/  pr/  0,20812,670217,00.  html;  Charter  Taps  Three  Telephony  Partners: 

 Level  3,  Sprint  and  Accenture  to  Enhance,  Expedite  Charter  Telephone  (Aug.  30,  2004)  available  at  http://  phx.  corporate-  ir.  net/  phoenix.  zhtml?  c=  112298&  p=  irol-  newsArticle_  print&  ID=  608177&  highlight;  Mediacom 
 Communications  and  Sprint  Announce  Agreement  for  Mediacom  to  Provide  Telephony  Services  (Aug.  25,  2004)  available  at  http://  www2.  sprint.  com/  mr/  news_  dtl.  do?  id=  2122;  Sprint  Rings  Up  More  than  250,000  Voice 
 Customers  Through  Cable  Partnerships  (Apr.  4,  2005)  available  at  http://  www2.  sprint.  com/  mr/  news_  dtl.  do?  page&  id=  6180;  Sprint  Announces  Arrangement  with  Comcast  to  Provide 
 Connectivity  Services  for  Comcast  Digital  Voice  (July  28,  2005)  available  at  http://  www2.  sprint.  com/  mr/  news_  dtl.  do?  page=  print&  id=  7620. 

 329  We  note  that  some  cable  operators,  such  as  Cox  and  Cablevision,  have  chosen  to  self-  provision  these  services. 
 See  Verizon  Mass  Market  White  Paper  at  68-  69;  Cox  White  Paper  at  5-  8.  We  note  that  no  other  commenter  has  raised  issues  regarding  MCIs  Managed  Cable  Solutions  service  in  our  record. 
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 effects  in  the  Internet  backbone  market.  We  also  conclude  that,  while  the  merger  may  result  in  the  loss  of  a  potential  Tier  1  backbone  competitor  and  in  significant  vertical  integration,  the  record  does  not  support 
 commenters  conclusions  that  the  merger  will  tip  the  backbone  market  to  duopoly,  increase  transit  prices  to  supra-  competitive  levels,  or  lower  service  quality.  In  addition,  we  find  insufficient  evidence  in 
 the  record  to  conclude  that  the  merged  firm  will  engage  in  packet  discrimination  or  degradation  against  rivals  VoIP,  video  over  IP,  and  other  IP-  enabled  services.  Although  we  find  no  likely  anticompetitive 
 effects  for  Internet  backbone  and  related  services  as  a  result  of  the  merger,  we  note  that  the  Applicants  have  put  forward  on  the  record  of  this  proceeding  several  commitments,  which  we  find  to  be  in  the  public 
 interest.  As  described  further  in  this  section,  the  commitments  relate  to  maintaining  settlement-  free  peering  arrangements  after  the  merger,  publicly  posting  peering  policies,  and  complying  with  the 
 principles  of  the  Commissions  September  23,  2005  Policy  Statement  330  designed  to  ensure  that  broadband  networks  are  widely  deployed,  open,  affordable,  and  accessible  to  all  consumers.  Because  we 
 find  these  commitments  will  serve  the  public  interest,  we  accept  them  and  adopt  them  as  conditions  of  our  approval  of  the  merger. 

 1.  Background 
 110.  The  Internet  is  an  interconnected  network  of  packet-  switched  networks.  End  users  (individuals,  enterprise  customers,  and  content  providers)  typically,  though  not  always,  obtain  access  to  the  Internet 
 through  Internet  service  providers  (ISPs)  using  a  dial-  up  modem,  cable  modem,  DSL,  wireless  network,  or  a  dedicated  high-  speed  facility  (which  the  companies  often  call  Dedicated  Internet  Access  (DIA)).  331 
 ISPs  provide  access  to  the  Internet  on  a  local,  regional,  or  national  basis,  and  most  have  limited  network  facilities.  In  order  to  provide  Internet  service  to  end  users,  ISPs  and  owners  of  other  smaller  networks 
 interconnect  with  Internet  backbone  providers  (IBPs)  larger  Internet  backbone  networks.  332  The  backbone  networks  operate  high-  capacity  long-  haul  transmission  facilities  and  are  interconnected  with 
 each  other.  Typically,  a  representative  Internet  communication  consists  of  an  ISP  sending  data  from  one  of  its  customers  to  the  IBP  that  the  ISP  uses  for  backbone  services.  The  IBP,  in  turn,  routes  the  data  to 
 another  backbone  network,  which  delivers  the  data  to  the  ISP  serving  the  end  user  to  whom  the  data  is  addressed.  333 

 111.  IBPs  may  exchange  traffic  either  through  peering  or  transit  arrangements.  334  Under  a  peering  arrangement,  each  IBP  peer  will  accept  and  deliver,  without  charge,  traffic  destined  either  for  its 
 330  See  Appropriate  Framework  for  Broadband  Access  to  the  Internet  over  Wireline  Facilities,  Policy  Statement, 
 FCC  No.  05-  151  (rel.  Sept.  23,  2005). 
 331  See,  e.  g.,  Verizon/  MCI  Cerf  Decl.  at  para.  4.  IBPs  often  offer  DIA  services  that  include  both  transit  service  and 
 a  high-  capacity  connection  to  their  backbone.  See,  e.  g.,  MCI  Info.  Req.  at  34  and  Exh.  10(  f). 
 332  An  ISPs  traffic  connects  to  a  backbone  providers  network  at  a  POP.  Backbone  providers  have  POPs  in  many 
 locations,  usually  concentrated  in  more  densely-  populated  areas  where  Internet  end  users  demands  for  access  are  highest.  An  ISP  or  end  user  relies  on  telecommunications  lines  to  reach  distant  POPs.  We  note  that  large 

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

 packets  on  the  Internet.  Id. 
 334  Verizon/  MCI  Public  Interest  Statement  at  62. 
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 own  network  or  for  one  of  its  own  backbone  customers.  335  Transit  arrangements,  by  contrast,  permit  an  ISP,  small  or  regional  IBP,  or  other  corporate  business,  to  reach  the  entire  Internet  using  dedicated  access 
 lines  linking  it  directly  to  the  transit  providers  Internet  backbone  network.  336  An  IBP  providing  transit  service  enables  the  customer  to  send  and  receive  traffic  through  the  purchasers  IBP  to  any  other  network 
 or  destination  on  the  Internet.  337  Frequently,  IBP  customers  obtain  transit  packaged  with  a  dedicated  high-  speed  facility  as  part  of  a  DIA  service,  with  the  transit  customers  paying  fees  for  both  the  connection 
 and  the  transit  service.  338 
 112.  IBPs  generally  can  be  categorized  into  tiers  based  on  their  size,  geographic  scope,  and  interconnections.  Tier  1  IBPs  are  a  small  group  of  the  largest  IBPs  that  sell  transit  and/  or  dedicated 
 Internet  access  to  substantial  numbers  of  ISPs  and  corporate  customers  or  other  enterprise  customers.  These  Tier  1  IBPs  peer  with  all  other  Tier  1  IBPs  on  a  settlement-  free  basis.  Lower  tier  IBPs  may  peer 
 with  each  other,  but  generally  must  purchase  transit  from  a  higher  tier  IBP  to  reach  end  users  that  are  not  customers  of  the  networks  of  their  peers.  339 

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

 335  For  example,  if  IBP  A  only  has  a  peering  arrangement  with  IBP  B,  and  IBP  B  also  has  a  peering  arrangement 
 with  IBP  C,  then  IBP  B  will  not  allow  customers  of  IBP  A  to  send  traffic  to  or  receive  traffic  from  customers  of  IBP  C.  In  order  to  provide  access  to  customers  of  IBP  C,  IBP  A  must  either  peer  with  IBP  C  or  enter  a  transit 

 agreement,  i.  e.,  pay  for  a  connection,  with  IBP  B  or  IBP  C.  Decisions  about  peering  are  not  regulated,  but  are  the  product  of  negotiations  in  the  marketplace. 

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

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

 338  See  MCI  Info.  Req.  at  34.  Some  IBPs  also  offer  paid  peering,  where  the  paid  peer  pays  on  a  volume  basis  to 
 exchange  traffic,  but  the  quality  of  interconnection  is  similar  to  settlement-  free  peering.  By  contrast,  traffic  exchanges  involving  a  transit  provider  may  experience  additional  inter-  network  connections  or  hops  over  the 

 originating,  transiting,  and  terminating  networks,  reducing  efficiency  and  reliability  and  increasing  latency  and  potential  packet  loss.  Broadwing  and  SAVVIS  Aug.  12  Ex  Parte  Letter,  Wilkie  Decl.  at  paras.  11-  12. 

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

 number  of  interconnection  points,  among  other  things.  See,  e.  g.,  Letter  from  A.  Sheba  Chacko,  Chief  Regulatory  Counsel,  BT  Americas,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  14  (filed 
 June  13,  2005)  (BT  Americas/  SAVVIS  June  13  Ex  Parte  Letter). 
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 such  a  high  level  of  ubiquitous  service.  We  find  that  there  are  no  substitutes  for  these  Tier  1  connectivity  services  sufficiently  close  to  defeat  or  discipline  a  small  but  significant  nontransitory  increase  in  price.  340 
 114.  We  decline  to  adopt  EarthLinks  suggestion  that  we  define  an  additional  product  market  of  end-to-  end  connectivity  to  reflect  the  fact  that  the  merged  company,  after  the  merger,  will  be  the  first  IBP  to 
 own  and  operate  a  network  that  is  fully  vertically  integrated  from  the  end  users  premises  to  the  termination  facility  that  connects  the  user  with  his  or  her  destination  on  the  Internet.  341  First,  it  is  not  clear 
 how  such  a  market  differs  from  the  retail  ISP  market.  From  the  perspective  of  end  users,  the  purchase  of  Internet  access,  whether  broadband,  narrowband,  or  DIA,  is  the  purchase  of  access  to  the  world,  i.  e.,  the 
 purchase  of  end-  to-  end  service.  To  the  extent  that  EarthLinks  real  concern  is  the  vertical  integration  created  by  the  merger,  we  need  not  define  an  end-  to-  end  connectivity  market  to  analyze  these  effects. 

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

 340  See  DOJ  WorldCom/  Sprint  Complaint  at  para.  31;  see  also  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18106,  para. 
 148  (agreeing  with  commenters  that  Internet  backbone  service  constitutes  a  separate  relevant  product  market).  The  Applicants  and  commenters  agree  that,  for  current  analytical  purposes  and  consistent  with  prior  Commission 

 decisions,  Tier  1  Internet  backbone  services  constitute  a  separate  relevant  product  market.  See,  e.  g.,  Verizon/  MCI  Public  Interest  Statement  at  62;  Broadwing  and  SAVVIS  Petition  at  38. 

 341  See  EarthLink  Petition  at  9-  10.  But  see  Letter  from  Curtis  Groves,  MCI,  and  Dee  May,  Verizon,  to  Marlene  H. 
 Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  75,  at  2-  3  (filed  Aug.  8,  2005)  (Verizon/  MCI  Aug.  8  Ex  Parte  Letter)  (claiming,  among  other  things,  that:  (1)  the  combination  of  broadband  Internet  access  and  connection  to  an  Internet 

 backbone  is  not  a  product  market,  per  se,  as  end  users  purchase  global  connectivity,  and  (2)  that  neither  the  combined  company,  nor  any  other  provider  can  offer  such  connectivity  on  an  end-  to-  end  basis  over  its  own 
 facilities). 
 342  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18106,  para.  148;  DOJ  WorldCom/  Sprint  Complaint  at  para.  31. 

 343  See  supra  Parts  V.  B  (Wholesale  Special  Access  Competition),  V.  C  (Retail  Enterprise  Competition),  V.  D  (Mass 
 Market  Competition). 
 344  The  DOJ  defines  a  Tier  1  provider  as  a  provider  that  (i)  has  high-  capacity  networks  nationwide  or  internationally 
 and  (ii)  settlement-  free  interconnection  arrangements  with  all  other  Tier  1  providers.  DOJ  WorldCom/  Sprint  Complaint  at  para.  27. 
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 MCI,  Sprint,  Level  3,  Qwest,  Global  Crossing,  and  likely  SAVVIS  and  Cogent.  345  These  eight  providers  offer  dedicated  Internet  access  and  transit  services  primarily  to  ISPs  and  enterprise  customers,  and  they 
 generated  [REDACTED]  in  revenues  in  2003,  the  most  recent  year  for  which  data  is  available.  346  In  choosing  an  IBP,  ISP  and  enterprise  customers  seek  the  lowest  price,  highest  quality,  and  broadest 
 geographic  reach  consistent  with  their  needs,  and  these  Tier  1  backbone  providers  compete  vigorously  on  these  bases. 

 3.  Competitive  Analysis 
 117.  For  the  reasons  given  below,  we  find  that  the  merger  is  not  likely  to  result  in  anticompetitive  effects  through  either  unilateral  action  by  the  merged  entity  or  possible  tipping  of  the  Tier  1  Internet 
 backbone  market  to  a  monopoly  or  duopoly.  We  also  find  it  unlikely  that  the  remaining  Tier  1  IBPs  would  engage  in  coordinated  interaction  as  a  result  of  the  merger.  Finally,  we  are  not  persuaded  that  the 
 vertical  aspects  of  the  proposed  merger  would  increase  the  merged  firms  incentive  and  ability  to  raise  rivals  costs  by  discriminating  against  the  IP  traffic  of  its  broadband  competitors  or  by  raising  the  price  of 
 special  access  services  to  its  backbone  competitors. 
 118.  The  Internet  backbone  market  is  characterized  by  direct  network  effects,  where  the  value  of  the  network  increases  with  each  additional  user  who  joins  it.  347  So  long  as  there  is  rough  equality 
 among  backbone  providers,  each  has  an  incentive  to  peer  with  the  others  to  provide  universal  connectivity  to  the  Internet.  348  In  the  proposed  WorldCom/  Sprint  merger,  the  DOJ  concluded,  however,  that  the 
 incentives  of  the  peering  backbones  would  change,  if  one  backbone  provider  were  to  become  significantly  larger  than  the  others,  or  if  it  were  to  develop  greater  negotiating  power.  349  This  dominant  provider  might 
 be  able  to  tip  the  Internet  backbone  market  into  monopoly  and  then  raise  prices  for  all  transit  services.  350  Once  the  market  begins  to  tip,  connecting  to  the  dominant  network  becomes  even  more 
 important  to  competitors,  enabling  the  dominant  network  to  further  raise  its  rivals  costs.  351  By  contrast, 
 345  See  Verizon/  MCI  Application,  Declaration  of  Michael  Kende  (Verizon/  MCI  Kende  Decl.),  Tab  16,  at  para.  2; 
 see  also  Verizon  Info.  Req.  at  VZFCC-  57-  0001565.  [REDACTED]  When  identifying  Tier  1  IBPs,  we  focus  on  Internet  backbone  providers  with  domestic  operations  because  Tier  1  backbone  customers  are  unlikely  to  turn  to  any 

 foreign  providers  that  lack  these  domestic  operations  in  response  to  a  small  but  significant  and  nontransitory  increase  in  price  by  domestic  Tier  1  IBPs.  DOJ  WorldCom/  Sprint  Complaint  at  para  31.  Thus,  although  the 
 Applicants  identify  AOL  Transit  Data  Network  and  Teleglobe  as  other  possible  Tier  1  IBPs,  we  do  not  include  them  for  purposes  of  our  analysis.  See  Verizon/  MCI  Kende  Decl.  at  para.  2. 

 346  See  MCI  Info.  Req.  at  Exh.  8(  a)(  3)  (listing  MCIs  peers);  SBC/  AT&  T  Oct.  14  Ex  Parte  Letter,  Attachments. 
 (AT&  T  Info.  Req.  Exh.  8(  b)(  3)-  I,  II,  III  (listing  AT&  Ts  peers),  SBC  2004  transit  payments). 
 347  See  DOJ  WorldCom/  Sprint  Complaint  at  para.  36;  Jacques  Crmer  et  al.,  Connectivity  in  the  Commercial 
 Internet,  48  J.  IND.  ECON.  433,  458-  60  (2000). 
 348  See  DOJ  WorldCom/  Sprint  Complaint  at  para.  41. 

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

 reduced  to  customer  status,  the  dominant  network  can  raise  prices  to  users  of  its  own  network  beyond  competitive  levels.  Once  this  occurs,  restoring  the  market  to  a  competitive  state  often  requires  extraordinary  means,  including 
 some  form  of  government  regulation.). 
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 in  a  market  where  each  backbone  provider  derives  roughly  equal  benefit  from  settlement-  free  access  to  the  other  backbone  providers  customers,  the  incentive  to  cooperate  will  predominate  and  the  market 
 participants  will  peer  with  each  other.  If  terminating  a  peering  relationship  would  hurt  one  backbone  provider  significantly  less  than  the  others,  however,  then  the  first  backbone  provider  could  credibly 
 demand  payment.  352  Thus,  because  of  these  strong  network  effects,  the  Commission  and  the  DOJ  have  focused  on  whether  a  merger  between  two  Tier  1  IBPs  is  likely  to  lead  the  Internet  backbone  market  to  tip 
 into  a  situation  in  which  one  or  two  backbones  dominate. 
 119.  We  begin  our  horizontal  analysis  by  examining  the  relative  market  shares  of  the  Tier  1  IBPs  and  conclude  that  the  proposed  merger  would  not  create  a  backbone  provider  of  sufficient  size  to  cause 
 tipping.  We  next  consider  and  reject  various  arguments  raised  by  commenters  suggesting  that,  as  a  result  of  the  merger,  Verizon/  MCI  would  have  a  unique  incentive  and  ability  to  engage  in  a  strategy  of  targeted 
 de-  peering,  leading  eventually  to  its  dominating  the  backbone  market. 
 a.  Horizontal  Effects  of  the  Merger 
 120.  Unilateral  Effects    Traditional  Analysis  of  Tipping.  In  the  proposed  WorldCom/  MCI  merger,  the  Commission  and  the  DOJ  concluded  that  the  merged  entities,  absent  divestiture,  would  have  been  so 
 large  relative  to  other  Tier  1  IBPs  as  to  raise  a  significant  danger  of  tipping.  353  In  contrast,  as  discussed  below,  we  find  here  that  the  Tier  1  market  has  since  become  less  concentrated  such  that  the  proposed 
 merger  will  not  create  a  dominant  backbone  provider.  Accordingly,  we  agree  with  the  Applicants  that,  based  on  current  market  shares,  the  proposed  merger  is  not  likely  to  cause  tipping  into  monopoly  or  other 
 competitive  effects.  354 
 121.  Various  commenters  contend  that  the  proposed  merger  would  create  a  dominant  Tier  1  backbone  monopoly  or  duopoly,  threatening  the  currently  competitive  market  for  Internet  backbone  services.  355 
 Commenters  claim  that  the  merger  will  result  in  an  increase  in  the  merged  firms  market  share,  with  a  corresponding  reduction  of  the  Internet  backbone  market  shares  of  competing  Tier  1  providers.  356 

 122.  The  Applicants  respond  that  the  proposed  merger  will  not  reduce  competition  in  the  Internet  backbone  market,  because  MCIs  backbone  is  comparable  in  size  to  at  least  five  other  providers,  and 
 Verizon  has  no  comparable  backbone.  357  The  Applicants  further  contend  that  the  Tier  1  Internet  backbone 
 352  See  id.  at  paras.  33-  41. 
 353  The  DOJ  also  reached  this  conclusion  with  respect  to  the  WorldCom/  Sprint  merger.  DOJ  WorldCom/  Sprint 
 Complaint  at  para.  35. 
 354  Verizon/  MCI  Reply  at  71. 

 355  See,  e.  g.,  EarthLink  Petition  at  6-  8  (contending  that  Verizon/  MCIs  backbone  revenue  market  share  would  be 
 significantly  larger  than  that  of  its  backbone  competitors,  except  AT&  T  and  Sprint,  and  that  this  could  enable  Verizon/  MCI  to  raise  rivals  costs);  CompTel/  ALTS  Petition  at  25-  31  (same). 

 356  EarthLink  Petition  at  5-  8. 
 357  Verizon/  MCI  Public  Interest  Statement  at  61,  65  (claiming  that  Verizons  backbone  is  small  by  any  measure,  is 
 concentrated  primarily  in  the  Northeast  and  Mid-  Atlantic,  and  is  not  among  the  top  50  backbone  providers  measured  by  autonomous  system  (AS)  connections);  Verizon/  MCI  Kende  Decl.  at  paras.  1,  3.  The  number  of 

 connections  that  an  Internet  backbone  operator  has  to  different  autonomous  systems  provides  a  rough  proxy  for  the  number  of  its  business  and  enterprise  customers.  Verizon/  MCI  Reply,  Declaration  of  Michael  Kende  (Verizon/  MCI 
 Kende  Reply  Decl.),  Tab  3,  at  para.  14. 
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 market  has  become  significantly  less  concentrated  and  more  competitive  since  the  year  2000  and  that  MCIs  relative  position  has  declined  significantly.  358  The  Applicants  maintain  that  this  characterization  of 
 the  market  holds  true,  regardless  of  whether  market  shares  are  calculated  using  traffic,  359  revenues,  360  or  autonomous  systems  (AS)  connections.  361  They  also  emphasize  that  the  backbone  market  is  characterized 
 by  considerable  volatility  which  is  demonstrated  by  the  fact  that  MCIs  relative  position  has  declined  over  the  past  several  years.  362 

 123.  As  a  preliminary  matter,  we  note  that  no  complete  and  reliable  data  sources  are  available  to  measure  relative  shares  of  Internet  backbone  providers.  363  Nor  does  it  appear  that  any  single  measure 
 uniquely  captures  the  relative  size  and  importance  of  competing  Internet  backbone  providers.  As  noted,  the  Applicants  present  data  on  relative  shares  in  three  ways:  revenues,  AS  connections,  and  traffic  flows. 
 We  do  not  agree,  however,  with  the  way  that  the  Applicants  calculated  key  revenue  and  traffic  share  percentages.  364  Among  other  things,  the  Applicants  appear  to  define  the  market  to  include  non-  Tier  1  and 
 non-  U.  S.  firms,  which  has  the  effect  of  diluting  their  estimated  market  shares.  365  In  addition,  the  Applicants  methodology  for  calculating  market  share  double  counts  the  traffic  and  revenue  of  lower  tier 
 providers.  The  traffic  data  submitted  by  the  Applicants  do  not  permit  us  to  correct  for  the  market  definition  and  double  counting  errors  and  to  recalculate  market  shares  based  on  traffic,  and,  as  the 
 Applicants  acknowledge,  there  are  problems  with  using  AS  connections.  366  Therefore,  using  available  revenue  data,  and  using  revenue  shares  as  a  proxy  for  firm  size,  we  recalculated  the  market  shares  of  the 
 top  eight  Tier  1  backbone  providers.  367  In  calculating  these  shares,  we  adjusted  the  revenues  for  Sprint,  Level  3,  and  Qwest  to  reflect  that  SBC  and  Verizon  will  not  continue  to  pay  transit  to  such  providers;  we 
 also  estimated  SBCs  and  Verizons  2003  transit  payments  based  on  2004  actual  payments. 

 358  Verizon/  MCI  Public  Interest  Statement  at  63-  64  (noting  sharp  declines  in  prices  for  bandwidth);  Verizon/  MCI 
 Kende  Decl.  at  para.  7.  The  Applicants  also  emphasize  the  new  commercial  arrangements,  market  changes  and  technological  advances  including  falling  longhaul  fiber  prices  and  increased  capacity,  secondary  peering, 

 mirroring  and  caching,  decreasing  costs  of  switching  providers,  and  multi-  homing  have  changed  the  dynamics  of  the  backbone  market  and  allowed  other  backbone  operators  to  catch  up  with  and  overtake  MCI.  Verizon/  MCI 
 Reply  Kende  Decl.  at  paras.  18-  29. 
 359  Verizon/  MCI  Public  Interest  Statement  at  64;  Verizon/  MCI  Kende  Decl.  at  para.  5,  A1;  Verizon/  MCI  Reply 
 Kende  Decl.  at  paras.  5-  6. 
 360  Verizon/  MCI  Kende  Decl.  at  para.  4,  Annex  A  (A1). 

 361  See  supra  note  357. 
 362  Verizon/  MCI  Kende  Reply  Decl.  at  para.  17. 
 363  Verizon/  MCI  Kende  Decl.  at  para.  2. 
 364  Id.  at  paras.  4-  6,  Annex  1  (A1),  Annex  B  (A2-  A3),  Annex  C  (A3).  For  similar  reasons,  we  reject  the  market 
 share  calculations  proposed  by  BT  Americas.  See  Letter  from  A.  Sheba  Chacko,  Chief  Regulatory  Counsel,  BT  Americas,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  9-  11  (filed  Oct.  7, 

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

 365  Id.  at  paras.  4-  5. 
 366  Id.  at  para.  7. 
 367  Although  we  use  revenues,  because  it  is  the  best  evidence  in  the  record,  we  are  not  suggesting  that  this  is  the 
 only  way  or  most  appropriate  or  accurate  way  to  measure  market  share. 
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 124.  We  are  satisfied  that  the  proposed  merger  will  not  increase  horizontal  concentration  to  such  an  extent  that  it  is  likely  to  result  in  anticompetitive  effects  in  the  Internet  backbone  market.  As  noted 
 above,  there  are  at  least  six,  but  potentially  as  many  as  eight,  Tier  1  backbone  providers    AT&  T,  MCI,  Sprint,  Qwest,  Level  3,  Global  Crossing,  and  by  some  measures,  SAVVIS  and  Cogent.  368  Based  on  the 
 2003  revenue  data  submitted  by  the  Applicants,  the  merged  entitys  revenue  share  would  increase  by  a  modest  [REDACTED]  percent  to  approximately  [REDACTED]  percent,  or  to  [REDACTED]  percent 
 after  accounting  for  the  market  share  changes  associated  with  the  proposed  SBC/  AT&  T  merger.  The  post-  merger  HHI  is  [REDACTED]  and  the  change  in  HHI  would  be  [REDACTED].  369 

 125.  We  further  find  that  the  merger  does  not  change  the  market  ranking  of  the  Tier  1  backbones,  and  several  Tier  1  competitors  with  significant  market  shares  would  remain  in  the  market  post-  merger.  370  The 
 merger  also  does  not  remove  an  existing  Tier  1  provider,  as  Verizon  is  not  a  Tier  1  IBP.  In  addition,  we  note  that  2004  data  confirms  that  Level  3s  share  of  Internet  traffic  had  surpassed  both  AT&  Ts  and 
 MCIs  shares.  371  Finally,  we  observe  that  the  market  shares  for  Tier  1  backbones  have  fluctuated  over  time,  suggesting  that  the  market  is  both  competitive  and  dynamic.  Therefore,  we  agree  with  the 
 Applicants  that  the  proposed  merger  is  unlikely  to  create  a  single  dominant  Tier  1  Internet  backbone  provider  with  a  market  share  that  is  overwhelmingly  disproportionate  to  its  rivals,  which  was  the  key 
 concern  in  prior  backbone  mergers. 
 126.  Unilateral  Effects    Other  Factors  that  Might  Lead  to  Tipping.  We  next  consider  whether  there  are  other  factors  that  could  lead  the  merged  company  to  engage  in  targeted  de-  peering  or  to  degrade  the 
 quality  of  backbone  interconnection.  372  We  examine  commenters  claims  first  by  assessing  the  merged  firms  incentives  to  pursue  de-  peering  strategies,  and  then  by  exploring  whether  adverse  competitive 
 effects  are  likely  to  arise  from  traffic  imbalances  or  relative  market  shares.  As  explained  below,  we  conclude  that  the  merged  firm  is  unlikely  to  have  the  incentive  and  ability  to  de-  peer  a  sufficient  number 
 of  its  backbone  rivals  to  tip  the  market  to  monopoly  or  duopoly.  Moreover,  we  conclude  that,  while  certain  smaller  Tier  1  backbone  providers  might  be  de-  peered  (with  or  without  the  proposed  merger),  it  is 
 unlikely  that  the  merger  will  result  in  anticompetitive  effects.  In  addition,  as  discussed  below,  we  take  further  comfort  from  certain  commitments  the  Applicants  have  made  relating  to  their  peering  practices. 

 127.  Eyeballs  vs.  Content.  We  are  not  persuaded  by  commenters  argument  that  MCIs  acquisition  of  Verizons  residential  broadband,  voice,  and  wireless  customers  will  alter  the  merged  companys 
 incentives  to  maintain  MCIs  peering  relationships.  373  These  commenters  argue  that  MCIs  acquisition  of 
 368  See  supra  note  345. 

 369  Commenters  express  concern  about  relying  on  2003  revenue  data,  asserting  that  these  data  are  incomplete, 
 outdated  and  do  not  reflect  growth  trends  related  to  VoIP  and  video  over  IP.  Broadwing  and  SAVVIS  Aug.  12  Ex  Parte  Letter  at  4  n.  10;  CompTel/  ALTS  Petition  at  29.  We  conclude  that  the  2003  data  provide  a  reasonable  basis 

 for  our  decision,  especially  as  data  submitted  by  Verizon  on  its  2004/  2005  quarterly  revenues  for  DIA  and  transit  services  appear  to  validate  the  IDC  data.  See  Verizon  July  8  Ex  Parte  Letter  at  6-  8. 

 370  As  noted,  the  merger  does  not  remove  an  existing  Tier  1  provider.  See  Verizon/  MCI  Public  Interest  Statement  at 
 17;  Verizon/  MCI  Application,  Declaration  of  John  J.  Lack  and  Robert  F.  Pilgrim  Decl.  (Verizon/  MCI  Lack/  Pilgrim  Decl.),  Tab  10,  at  paras.  17-  18. 

 371  See  SBC/  AT&  T  Oct.  14  Ex  Parte  Letter  at  Attach.  (Level  3  Traffic  Leadership:  Why  and  What  Can  Be  Done). 
 372  See,  e.  g.,  Broadwing  and  SAVVIS  Petition  at  50;  Broadwing  and  SAVVIS  Petition,  Declaration  of  Matthew  P. 
 Dovens  (Broadwing  and  SAVVIS  Dovens  Decl.)  at  para.  24;  EarthLink  Petition  at  6. 
 373  See,  e.  g.,  Broadwing  and  SAVVIS  Dovens  Decl.  at  paras.  19-  24. 
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 these  Verizon  eyeball  customers  will  give  the  merged  entity  significant  negotiating  leverage  over  other  Tier  1  backbones  that  have  more  content  customers  than  eyeball  customers.  374  Ultimately, 
 commenters  claim  that  the  proposed  merger  will  give  the  merged  company  new  incentives  and/  or  an  increased  ability  to  serially  de-  peer  its  rivals,  degrade  the  quality  of  interconnection  among  backbones, 
 and  increase  transit  prices  to  disadvantage  its  backbone  rivals  and/  or  retail  competitors  served  by  competing  Internet  backbones  (even  at  the  expense  of  its  wholesale  backbone  business).  375 

 128.  We  are  not  persuaded  by  opponents  argument  that  peering  incentives  may  change  because  MCIs  backbone  will  acquire  more  eyeballs  as  a  result  of  the  merger.  First,  as  to  possible  global  de-peering 
 of  all  other  Tier  1  IBPs  or  all  others  except  SBC/  AT&  T,  the  percentage  of  eyeballs  currently  associated  with  Verizon  DSL  customers  is  relatively  small  compared  with  the  total  number  of  broadband 
 eyeballs  nationwide,  and  as  the  Applicants  point  out,  cable  modem  service  accounts  for  61  to  83  percent  of  residential  and  small  business  broadband  customers.  376  In  addition,  there  are  other  Tier  1 
 backbones  with  access  to  significant  numbers  of  their  own  eyeball  customers  that  plan  to  expand  that  customer  base  (e.  g.,  by  offering  broadband  and  3G  wireless  services).  377  Thus,  even  if  eyeballs  confer 
 additional  leverage  in  peering  negotiations  as  commenters  claim,  other  Tier  1  backbones  besides  Verizon/  MCI  and  SBC/  AT&  T  either  currently  have,  or  have  the  potential  to  acquire,  significant  numbers 
 of  broadband  eyeballs  to  rival  Verizon  and  SBC.  378  Second,  if  Verizon/  MCI  were  to  de-  peer  a 

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

 when  the  Web  page  downloads.  Conversely,  commenters  claim  that  certain  Internet  backbone  customers,  such  as  Internet  content  providers,  transmit  much  more  content  than  they  receive  (  content  customers).  See,  e.  g., 
 Broadwing  and  SAVVIS  Dovens  Decl.  at  paras.  19,  21-  24. 
 375  See,  e.  g.,  Broadwing  and  SAVVIS  Petition  at  50-  58;  Cox  Comments  at  13-  14;  EarthLink  Petition  at  6-  9; 
 EarthLink  July  15  Ex  Parte  Letter  at  3-  19;  ACN  et  al.  Comments  at  37-  39;  Consumer  Federation  et  al.  Petition  at  23-  24. 

 376  Verizon/  MCI  Reply  at  79;  Verizon/  MCI  Hassett  et  al.  Reply  Decl.  at  para.  38.  While  some  commenters  note 
 that  eyeballs  come  from  Verizons  dial-  up  Internet  access  customers,  as  well,  see  EarthLink  July  15  Ex  Parte  Letter  at  12-  13,  there  likewise  are  many  more  customers  that  subscribe  to  competing  dial-  up  ISPs  nationwide  than 

 subscribe  to  Verizons  service.  Moreover,  cable  companies  collectively  control  more  broadband  eyeballs  than  do  all  the  incumbent  LECs  combined.  Federal  Communications  Commission,  Wireline  Competition  Bureau,  Industry 
 Analysis  and  Technology  Division,  High-  Speed  Services  for  Internet  Access:  Status  as  of  December  31,  2004  (July  7,  2005)  at  6;  Verizon/  MCI  Aug.  8  Ex  Parte  Letter  at  6-  7. 

 377  For  example,  the  recent  merger  of  Sprint  and  Nextel  creates  a  backbone  and  wireless  competitor  with  a  business 
 plan  built  around  providing  wireless  data,  including  sports  and  entertainment  video,  as  well  as  traditional  wireless  telephony.  Arshad  Mohammed,  Training  to  Become  Wireless  Heavyweight,  WASHINGTON  POST,  Aug.  22,  2005,  at 

 D01;  Sprint/  Nextel  Order,  FCC  05-  148  at  para.  134  (noting  merger-  specific  benefits  related  to  the  deployment  of  3G  technology,  including  high  performance  push-  to-  talk  capabilities  and  high  speed  data  rates).  As  another 
 example,  Comcast,  the  largest  cable  modem  ISP,  has  announced  that  it  will  build  its  own  Internet  backbone.  Comcast  Extends  National  Fiber  Infrastructure  (Dec.  7,  2004)  available  at 
 http://  www.  cmcsk.  com/  phoenix.  zhtml?  c=  118591&  p=  irol-  newsArticle&  ID=  650960&  highlight=  backbone. 
 378  Verizon/  MCI  Reply  at  79  (claiming  that  competing  backbone  providers  would  have  every  incentive  to  attract 
 traffic  from  eyeball  heavy  networks,  if  there  is  a  benefit  to  serving  such  customers).  We  also  note  that  Google  has  announced  plans  to  build  a  national,  advanced  optical  fiber  network  to  push  voice,  video  and  data  content  closer 

 to  end  users.  Google  Reviewing  Bids  for  National  Optical  Switching  Network,  IP  Media  Monitor,  available  at  http://  www.  ipmediamonitor.  com/  subscribers/  index.  htm?  iid=  6&  article_  id=  21  (stating  that  the  move  to  construct  a 
 national  network  comes  on  the  heels  of  Googles  widely-  reported  purchase  of  dark  fiber).  Further,  instant  (continued.) 
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 backbone  that  served  a  major  cable  company  or  ISP  with  broadband  eyeballs,  it  seems  unlikely  that  the  cable  company  or  ISP  would  switch  to  a  vertically  integrated  backbone  provider  that  competes  against  it 
 for  broadband  and  VoIP  customers,  such  as  Verizon  or  SBC.  379 
 129.  Nor  are  we  convinced  by  opponents  claims  that  the  stickiness  of  eyeball  customers  would  largely  insulate  the  merged  firm  from  the  mutual  pain  associated  with  a  strategy  of  degradation  and  de-peering. 
 380  Given  the  widespread  availability  of  competing  broadband  and  narrowband  ISP  alternatives,  it 
 is  not  clear  that  Verizon/  MCIs  eyeball  customers  would  prove  sticky  in  practice  and,  in  any  case,  the  merged  entity  would  have  to  weigh  carefully  the  potential  for  customer  churn  as  a  result  of  degradation 

 strategies.  381  Accordingly,  we  do  not  find  it  likely  that  the  merged  entitys  share  of  eyeballs  will  create 
 (Continued  from  previous  page)  messaging  providers,  including  Microsoft,  Yahoo,  and  Google,  as  well  as  other  web  companies  such  as  eBay,  are 

 adding  VoIP  features  to  their  offerings,  and  may  add  additional  IM  services,  as  well.  In  so  doing,  these  IM  service  providers  might  attract  significant  numbers  of  eyeball  customers.  See,  e.  g.,  eBays  Skype  Risk  Is  a  Calculated 
 One,  WASHINGTON  POST,  Sept.  22,  2005;  MSN  Buys  into  Net-  calling  Future,  CNET  News.  com,  Aug.  30,  2005,  available  at  http://  news.  com.  com/  MSN+  buys+  into+  Net-  calling+  future/  2100=  1032_  3-  5844873. 

 379  We  also  reject  claims  that  the  Verizon/  MCI  Internet  backbone  ultimately  will  gain  the  vast  majority  of  content 
 customers.  Broadwing  and  SAVVIS  Petition  at  50-  54.  As  preconditions  to  that  occurring,  commenters  rely  on  the  assertion  that  the  merger  will  lead  to  monopoly  or  duopoly,  or  that  it  will  result  in  the  Verizon/  MCI  backbone 

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

 In  addition,  commenters  allege  that,  because  of  inbuilt  traffic  imbalances,  the  merged  Verizon/  MCI  would  have  the  ability  ultimately  to  monopolize  Internet  content  because  of  a  possible  hold-  up  problem.  See,  e.  g.,  Broadwing 
 and  SAVVIS  Aug.  12  Ex  Parte  Letter,  Wilkie  Decl.  at  para.  17.  The  commenters  reason  that  the  merged  firm  would  be  particularly  likely  to  end  settlement-  free  peering  with  relatively  content-  heavy  networks.  In  the  context  of 
 such  targeted  de-  peering,  commenters  assert  that  other  backbone  providers  would  factor  the  risk  of  de-  peering  into  their  bids  for  the  content  customers.  Commenters  claim  that,  as  a  result,  competition  for  such  customers  will 
 diminish,  creating  disincentives  for  content  customers  to  generate  high  bandwidth  content  and  applications  because  the  merged  companies  would  increase  prices  to  appropriate  the  rent  from  the  development  of  such  content.  Id.  We 
 disagree.  Given  our  conclusions  above  that  the  merged  entity  lacks  incentives  to  engage  in  a  strategy  of  targeted  de-  peering,  we  find  this  result  unlikely. 

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

 380  See,  e.  g.,  Broadwing  and  SAVVIS  Aug.  12  Ex  Parte  Letter  at  3,  8-  9;  see  also  EarthLink  July  15  Ex  Parte  Letter 
 at  9-  14  (claiming  that  the  harm  from  transmission  degradation  will  be  relatively  much  smaller  for  the  merged  companies  than  for  those  using  competing  networks).  But  see  Verizon/  MCI  Aug.  8  Ex  Parte  Letter  at  4-  7 

 (contending  that  the  merged  company  would  not  have  an  incentive  to  disconnect  other  backbone  providers  because  such  action  would  harm  its  customers). 

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

 (continued.) 
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 a  significant  incentive  for  it  to  engage  in  either  targeted  de-  peering  or  degradation  of  backbone  interconnection. 
 130.  More  generally,  we  are  not  convinced  that  the  merged  firm  would  gain  enough  by  disadvantaging  its  Internet  access  and  retail  competitors  to  alter  the  pre-  merger  calculus  that  led  to  the 
 current  peering  equilibrium.  If  the  merged  Verizon/  MCI  were  to  de-  peer  one  or  more  of  its  Tier  1  peers,  it  could  not  be  certain  that  the  targeted  backbone  would  become  a  transit  customer  of  MCI  or  that  the 
 customers  of  the  former  peer  would  switch  to  the  Verizon/  MCI  backbone.  The  backbone  might  instead  choose  to  purchase  transit  from  a  competing  Tier  1  backbone,  which  would  tend  to  increase  the  rivals 
 market  significance  relative  to  MCI,  and  thus,  a  decision  to  de-  peer  could  end  up  primarily  benefiting  one  of  MCIs  rivals.  We  also  find  that  disaffected  Internet  access  providers  or  retail  competitors  that  were 
 customers  of  the  former  peer  could  choose  from  a  wide  range  of  competing  IBPs.  382  Peering  and  de-(  Continued  from  previous  page) 
 Broadband  Access  to  the  Internet  over  Wireline  Facilities;  Universal  Service  Obligations  of  Broadband  Providers;  Review  of  Regulatory  Requirements  for  Incumbent  LEC  Broadband  Telecommunications  Services;  Computer  III 
 Further  Remand  Proceedings:  Bell  Operating  Company  Provision  of  Enhanced  Services;  1998  Biennial  Regulatory  Review    Review  of  Computer  III  and  ONA  Safeguards  and  Requirements;  Conditional  Petition  of  the 
 Verizon  Telephone  Companies  for  Forbearance  Under  47  U.  S.  C.    160(  c)  with  Regard  to  Broadband  Services  Provided  Via  Fiber  to  the  Premises;  Petition  of  the  Verizon  Telephone  Companies  for  Declaratory  Ruling  or, 
 Alternatively,  for  Interim  Waiver  with  Regard  to  Broadband  Services  Provided  Via  Fiber  to  the  Premises;  Consumer  Protection  in  the  Broadband  Era,  CC  Docket  Nos.  02-  33,  01-  337,  95-  20,  98-  10,  WC  Docket  Nos.  04- 
 242,  05-  271,  Report  and  Order  and  Notice  of  Proposed  Rulemaking,  FCC  05-  150  at  paras.  47-  64  (rel.  Sept.  23,  2005)  (Wireline  Broadband  Order)  (discussing  current  and  emerging  broadband  competition);  Petition  for 
 Forbearance  of  the  Verizon  Telephone  Companies  Pursuant  to  47  U.  S.  C.    160(  c);  SBC  Communications  Inc.  s  Petition  for  Forbearance  Under  47  U.  S.  C.    160(  c);  Qwest  Communications  International  Inc.  Petition  For 
 Forbearance  Under  47  U.  S.  C.    160(  c);  BellSouth  Telecommunications,  Inc.  Petition  for  Forbearance  Under  47  U.  S.  C.    160(  c),  WC  Docket  Nos.  01-  338,  03-  235,  03-  260,  04-  48,  Memorandum  Opinion  and  Order,  19  FCC  Rcd 
 21496,  21508,  para.  26  (2004)  (Section  271  Broadband  Forbearance  Order)  (discussing  competition  for  broadband  services);  Tenth  CMRS  Competition  Report,  FCC  05-  173  at  paras.  2-  5  (discussing  wireless  competition);  see  also 
 High-  Speed  Services  for  Internet  Access:  Status  as  of  December  31,  2004,  Industry  Analysis  and  Technology  Division,  FCC,  at  6  (rel.  July  7,  2005)  (specifying  relative  market  shares  of  cable  and  DSL). 

 382  See  Verizon/  MCI  Aug.  8  Ex  Parte  Letter  at  6  (arguing  that  end  users  will  not  remain  on  a  network  that  does  not 
 provide  access  to  desired  content,  applications,  or  other  users);  Verizon/  MCI  Bamberger/  Carlton  Reply  Decl.  at  para.  87  (asserting  that  degradation  of  quality  affects  both  the  degrading  and  targeted  backbones  relative  to  all  their 

 other  rivals).  While  opponents  claim  that  switching  backbone  providers  is  costly  and  time-  consuming,  the  Applicants  assert  that  major  purchasers  of  backbone  services,  including  cable  companies  and  other  large  ISPs,  could 
 easily  switch  to  competing  backbones.  Compare  Cox  Comments  at  14  (asserting  that  Cox  and  other  MCI  transit  customers  could  not  readily  switch  backbone  providers  without  loss  of  significant  time,  money,  and  resources)  with 
 Verizon/  MCI  Aug.  8  Ex  Parte  Letter  at  13  (contending  that  cable  operators  could  shift  IBPs  in  response  to  degradation  of  service  or  higher  prices).  As  an  example,  EarthLink  states  that  it  has  engineered  its  network  to  be  in 
 close  proximity  to  its  current  transit  provider,  Level  3,  and  that  switching  to  an  alternative  backbone  provider  would  require  it  to  purchase  special  access  service  to  link  the  EarthLink  network  to  the  new  backbone  provider  at  multiple 
 locations.  See  Letter  from  John  W.  Butler,  Counsel  for  EarthLink,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75,  Attach.  at  para.  14  (EarthLink  Aug.  26  Ex  Parte  Letter,  Collins  Decl.)  (filed  Aug.  26, 
 2005)  (EarthLink  Aug.  26  Ex  Parte  Letter)  at  para.  22.  EarthLink  estimates  that  the  cost  to  do  so  initially  would  involve  $2  million  for  fiber  build-  out  and  additional  recurring  charges  of  $1  million  per  year.  Id.  We  are  persuaded 
 that  Internet  backbone  customers  have  sufficient  ability  to  switch  backbones  to  provide  a  check  on  any  potential  strategy  of  targeted  de-  peering.  Particularly  given  the  sophistication  of  many  Internet  backbone  customers,  we  find 
 it  unlikely  that  they  would  allow  themselves  to  be  locked  in  to  a  particular  provider.  See,  e.  g.,  Verizon/  MCI  Kende  Reply  Decl.  at  paras.  19-  28  (describing  actions  by  backbone  customers  to  increase  their  flexibility  and 
 reduce  their  dependence  on  particular  IBPs).  EarthLinks  hypothetical  example  does  not  convince  us  otherwise  with  respect  to  IBP  customers  as  a  whole,  regardless  of  its  accuracy  for  EarthLink.  Other  commenters  concerns 
 regarding  the  Internet  backbone  market  are  predicated  on  the  ease  with  which  customers  can  switch  IBPs.  See,  e.  g.,  (continued.) 
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 peering  decisions  are  driven  by  a  backbones  incentives  to  maximize  network  efficiency  and  lower  interconnection  costs,  and  we  do  not  see  how  the  proposed  merger  would  materially  alter  this  calculus. 
 131.  Traffic  Imbalances.  Commenters  also  claim  that  significant  traffic  imbalances  would  flow  directly  from  the  proposed  merger  because  eyeball-  heavy  networks  generate  asymmetric  traffic  flows 
 with  content  networks,  and  because  the  Applicants  have  plans  to  increase  the  deployment  of  broadband,  video  over  IP,  and  3G  wireless  products  and  services.  383  Thus,  commenters  express  concern  384  that 
 current  Tier  1  peers  (other  than  similar  eyeball-  heavy  networks  like  the  merged  SBC/  AT&  T)  would  suddenly  fail  to  qualify  for  peering  under  current  criteria  (which  generally  require  a  1.8:  1  traffic  ratio).  385 
 Based  on  the  pre-  merger  traffic  flows,  it  is  possible  that  MCI,  even  absent  the  merger,  would  have  had  the  ability  to  de-  peer  some  of  the  smaller  Tier  1  backbone  providers  pursuant  to  the  traffic  ratio  requirements 
 in  its  existing  peering  policy.  386  We  note,  as  a  general  matter,  however,  that  peering  decisions  are  based  on  a  range  of  factors.  387  While  MCIs  traffic  ratios  with  its  peers  appear  to  fluctuate  considerably,  several 
 backbones  are  close  to  violating  the  required  1.8:  1  ratio  currently,  such  that  small  increases  in  traffic  flows  from  the  addition  of  Verizons  IP  traffic  could  put  them  further  out  of  balance  or  cause  them  to  fail 
 the  traffic  ratio  criterion. 
 132.  Nevertheless,  we  disagree  with  commenters  that  the  proposed  merger  presents  a  real  danger  that  most  settlement-  free  peering  arrangements  will  dissolve,  even  under  the  commenters  traffic  imbalance 
 theory.  388  Several  competing  backbones,  [REDACTED]  have  traffic  ratios  that  are  well  within  the 
 (Continued  from  previous  page)  BT  Americas  White  Paper  at  26-  31  (claiming  that  customers  will  not  be  able  to  prevent  anticompetitive  behavior  by 

 the  jointly  dominant  AT&  T  and  MCI  Internet  backbones).  We  are  persuaded  by  the  record  that  most  backbone  customers  can  readily  switch  IBPs,  even  if  there  are  particular  customers  for  which  the  cost  of  switching  IBPs  might 
 be  significant. 
 383  See  Broadwing  and  SAVVIS  Petition  at  50-  54;  Broadwing  and  SAVVIS  Dovens  Decl.  at  paras.  19,  21-  24; 
 Consumer  Federation  et  al.  Petition  at  24;  CompTel/  ALTS  Petition  at  29,  31  (arguing  that  Verizons  backbone  revenue  increased  15%  before  2002-  2003  compared  to  revenue  losses  by  other  providers);  EarthLink  Petition  at  7; 

 BT  Americas  White  Paper  at  15-  23. 
 384  EarthLink  Petition  at  6-  8;  see,  e.  g.,  Broadwing  and  SAVVIS  Petition  at  48-  51;  CompTel/  ALTS  Petition  at  33; 
 Consumer  Federation  et  al.  Petition  at  24;  Broadwing  and  SAVVIS  Dovens  Decl.  at  paras.  19,  21-  24;  Broadwing  and  SAVVIS  Aug.  12  Ex  Parte  Letter,  Wilkie  Decl.  at  para.  16.  Commenters  also  contend  that,  given  aggressive 

 service  rollout  plans,  the  merged  entity  will  experience  significant  growth  in  traffic  from  DSL,  FTTH  and  video  3G  products  and  services,  and  that  this  could  unbalance  traffic  ratios. 

 385  See  MCI  Policy  for  Settlement-  free  Interconnection  with  Internet  Networks  available  at 
 http://  global.  mci.  com/  uunet/  peering. 
 386  See  Confidential  Appendix  E  at  Table  2. 

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

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

 388  See  Broadwing  and  SAVVIS  Petition  at  50-  55;  Broadwing  and  SAVVIS  Petition,  Declaration  of  Michael  Bortz 
 (Broadwing  and  SAVVIS  Bortz  Decl.)  at  para.  19.  Because  we  conclude  that  a  sufficient  number  of  settlement-  free  (continued.) 
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 required  1.8:  1  threshold  and  are  unlikely  to  be  de-  peered  based  on  a  failure  to  meet  the  balanced  traffic  ratio  requirement.  389  Therefore,  even  if  certain  backbones  were  de-  peered,  sufficient  competition  would 
 remain  in  the  Tier  1  backbone  market  such  that  transit  prices  would  not  be  affected.  390 
 133.  Because  we  conclude  that  the  Internet  backbone  market  is  sufficiently  competitive  and  will  remain  so  post-  merger,  it  follows  that  the  prices  and  terms  of  interconnection  in  the  market  will  also  be 
 competitive.  391  We  note  that  MCI  has  published  its  peering  policy,  which  provides  useful  transparency  in  the  essentially  private  business  negotiations  over  interconnection.  392  In  addition,  interconnection  between 
 Internet  backbone  providers  has  never  been  subject  to  direct  government  regulation,  and  settlement-  free 

 (Continued  from  previous  page)  peers  will  remain  post-  merger,  we  therefore  need  not  address  factual  disputes  related  to  the  costs  associated  with 
 carrying  traffic,  including  whether  traffic  imbalances  impose  costs  sufficient  to  justify  de-  peering.  Compare  Broadwing  and  SAVVIS  Petition  at  52-  53  (asserting  that  the  costs  associated  with  carrying  traffic  are  not  sufficient 
 to  warrant  de-  peering  based  on  traffic  imbalances);  Broadwing  and  SAVVIS  Aug.  12  Ex  Parte  Letter  at  11  (contending  that  the  traffic  ratio  requirement  has  no  basis  in  economic  cost)  and  Wilkie  Decl.  at  para.  9  (asserting 
 that  the  marginal  cost  of  transporting  IP  packets  is  nearly  zero)  with  Verizon/  MCI  Reply  at  77  (asserting  that  providers  incur  significant  costs  to  peer,  and  peering  with  networks  that  have  traffic  imbalances  would  be  inefficient 
 and  lead  to  free  riding). 
 389  Verizon/  MCI  Kende  Reply  Decl.  at  para.  9  (stating  that  because  MCI  currently  carries  far  more  traffic  than 
 Verizon,  the  combined  firm  would  terminate  only  slightly  more  traffic  than  it  would  originate,  with  an  inbound/  outbound  ratio  of  approximately  [REDACTED]. 

 390  Similarly,  we  reject  concerns  that  non-  Tier  1  companies,  including  Verizons  facilities-  based  and  ISP 
 competitors,  will  be  placed  at  a  significant  competitive  disadvantage  or  that  the  proposed  merger  will  diminish  competition  in  the  retail  Internet  access  market.  Cox  Comments  at  13-  14;  EarthLink  Petition  at  8-  10;  Cox  Reply  at 

 3-  4.  In  this  regard,  we  find  that  commenters  concerns  related  to  inefficiencies  in  the  current  system  of  hot  potato  routing  and  recommendations  for  reallocating  interconnection  costs  between  eyeball  and  content  backbones 
 based  on  relative  benefits  to  each  backbones  customers  are  not  merger-  specific  and  moreover,  that  their  proposed  remedies  are  beyond  the  scope  of  this  proceeding  as  they  would  reconfigure  the  routing  pattern  of  the  public 
 Internet.  See  Broadwing  and  SAVVIS  Aug.  12  Ex  Parte  Letter  Wilkie  Decl.  at  paras.  5-  10. 
 391  In  this  regard,  we  note  the  general  downward  trend  of  transit  prices  in  recent  years.  Verizon/  MCI  Public  Interest 
 Statement  at  64-  65;  see  also  Verizon/  MCI  Reply  at  75  (claiming  that  customers  facing  increased  transit  prices  can  easily  switch  providers  or  use  technological  advancements  like  mirroring  and  caching  to  reduce  their  dependence  on 

 transit);  Verizon/  MCI  Kende  Reply  Decl.  at  para.  16  and  Exh.  8  (showing  a  sharp  decline  in  transit  prices  in  New  York  City  from  2Q2001  to  2Q2004). 

 392  Verizon/  MCI  Cerf  Decl.  at  para.  16;  MCI  Policy  for  Settlement-  free  Interconnection  with  Internet  Networks, 
 available  at  http://  global.  mci.  com/  uunet/  peering.  Many  other  Tier  1  backbone  providers  also  publish  their  peering  policies.  See  Verizon/  MCI  Kende  Decl.  at  para.  8.  See,  e.  g.,  SAVVIS  Settlement-  free  Peering  Policy  USA  (May  13, 

 2005)  available  at  http://  www.  savvis.  net/  NR/  rdonlyres/  16A6C413-  5D9F-  405D-  B157-  BC6DC9A01B52/  8264/  peering_  usa2.  doc;  Qwest:  International  IP  Network  Peering  Policy  (Sept.  14,  2005) 
 available  at  www.  qwest.  com/  legal/  peering_  int.  html;  MCI  Policy  for  Settlement-  Free  Interconnection  with  Internet  Networks  available  at  http://  global.  mci.  com/  uunet/  peering/;  Level  3  Settlement-  Free  Interconnection  Principles 
 available  at  http://  www.  level3.  com/  1511.  html. 
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 peering  and  degradation-  free  transit  arrangements  have  thrived.  393  We  see  no  evidence  that  the  merger  will  alter  this  dynamic.  394 
 134.  While  we  conclude  that  the  merger  is  unlikely  to  result  in  anticompetitive  effects  with  respect  to  Tier  1  peering  arrangements,  we  nonetheless  find  that  certain  commitments  made  by  the  Applicants  are  in 
 the  public  interest.  First,  they  commit  that  they  will  maintain  at  least  as  many  settlement-  free  U.  S.  peering  arrangements  for  Internet  backbone  services  with  domestic  operating  entities  as  they  did  in 
 combination  on  the  Merger  Closing  Date.  Second,  they  will  post  their  peering  policy  on  a  publicly  accessible  website,  and  will  post  any  revisions  on  a  timely  basis.  395  Because  we  find  these  commitments 
 will  serve  the  public  interest,  we  accept  them  and  adopt  them  as  conditions  of  our  approval  of  the  merger. 
 135.  We  recognize  the  unique  concerns  of  rural  carriers  expressed  by  Great  Plains,  the  Rural  Alliance  and  others  concerning  a  potential  lack  of  options  for  access  to  Internet  backbones  at  reasonable  rates, 
 terms,  and  conditions.  396  We  believe  that  the  Applicants  voluntary  commitments  will  reduce  this  concern.  397  Nonetheless,  we  commit  to  monitor  vigilantly  the  competitive  conditions  unique  to  rural  areas 
 and  will  take  action,  as  necessary,  to  ensure  that  the  benefits  of  the  Internet  are  extended  throughout  the  United  States.  We  also  commit  to  addressing  these  concerns  in  other  on-  going  rulemakings,  including  the 
 IP-  Enabled  Services  proceeding.  398 
 136.  Relative  Market  Share.  Finally,  we  disagree  with  commenters  who  allege  that,  separate  and  apart  from  whether  the  merger  creates  a  single  dominant  Tier  1  IBP,  the  merged  entity  will  have  sufficient 
 market  share  to  engage  in  targeted  de-  peering  of  rival  Tier  1  IBPs.  We  are  persuaded  that  the  Applicants  moderate  combined  market  share  [REDACTED]  based  on  backbone  revenues)  sufficiently  rebuts 
 commenters  claims  that  they  will  have  the  ability  to  engage  in  targeted  de-  peering  of  rival  Internet  backbones,  particularly  when  viewed  in  light  of  the  significant  market  shares  of  other  Tier  1  backbones.  399 
 While  the  merged  entity  may  have  some  increased  negotiating  leverage  over  smaller  backbone 

 393  See  Verizon/  MCI  Reply  at  76  (claiming  that  backbone  providers  who  peer  do  not  have  inherent  competitive 
 advantages  over  those  who  pay  transit). 
 394  We  thus  reject  the  concerns  that  small,  rural  companies  might  not  have  options  for  access  to  Internet  backbones 
 at  reasonable  rates,  terms  and  conditions.  See,  e.  g.,  Independent  Alliance  Comments  at  6-  7. 
 395  See  Verizon  Oct.  31  Ex  Parte  Letter,  Attach.  at  4-  5;  see  also  Appendix  G. 

 396  See,  e.  g.,  Letter  from  Ken  Pfister,  Vice  President-  Strategic  Policy,  Great  Plains  Communications,  to  Ms.  Marlene 
 H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65  &  05-  75  (filed  Oct.  20,  2005)  (raising  concerns  on  behalf  of  the  Rural  Alliance  about  Internet  backbone  connections  and  discrimination  against  smaller  ISPs). 

 397  See  generally  Verizon  Oct.  31  Ex  Parte  Letter;  see  also  Appendix  G.  Further,  as  discussed  above,  we  find  that 
 sufficient  competition  should  remain  in  the  Tier  1  backbone  market  such  that  transit  prices  would  not  be  affected.  Indeed,  as  previously  noted,  there  has  been  a  general  downward  trend  of  transit  prices  in  recent  years.  See 

 Verizon/  MCI  Kende  Reply  Decl.  at  para.  16  (discussing  historical  declines  in  transit  prices  over  the  last  five  years);  cf.  Letter  from  Curtis  L.  Groves,  MCI,  and  Dee  May,  Verizon,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket 
 No.  05-  75,  Attach.  at  4  ([  REDACTED]). 
 398  See  IP-  Enabled  Services,  WC  Docket  No.  04-  36,  Notice  of  Proposed  Rulemaking,  19  FCC  Rcd  4863  (2004). 

 399  See  discussion  supra  para.  123  (acknowledging  that  the  Commission  is  relying  on  relative  revenue  shares,  rather 
 than  traffic  shares);  see  also  BT  Americas  White  Paper  at  31  n.  58  (stating  that  in  the  absence  of  joint  dominance  by  SBC/  AT&  T  and  Verizon/  MCI,  the  parties  are  unlikely  to  be  able  to  successfully  engage  in  widespread 

 anticompetitive  degradation  or  pricing  strategies  in  the  downstream  Internet  backbone  market.). 
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 providers,  400  we  conclude  that  the  merged  Verizon/  MCI  likely  would  lack  the  ability  to  target  its  larger  rivals,  including  [REDACTED]  all  of  which  command  significant  revenue  shares  of  the  backbone 
 market.  401  These  providers  each  have  unique  advantages  in  the  backbone  services  marketplace  and  likely  would  provide  significant  counterweight  to  the  merged  entity.  In  addition,  we  note  that  some  backbone 
 providers  appear  to  have  higher  shares  of  traffic  than  of  revenue.  In  this  regard,  we  note  that  Level  3  and  AT&  T  have  comparable  backbone  traffic  volumes,  [REDACTED]  402  Similarly,  the  recent  merger  of 
 Sprint  and  Nextel  creates  a  backbone  and  wireless  competitor  with  a  business  plan  focused  on  providing  wireless  data,  including  sports  and  entertainment  video,  as  well  as  traditional  wireless  telephony.  403  The 
 increasingly  IP-  based  traffic  of  Sprints  44  million  plus  mobile  phone  subscribers  would  presumably  ride  on  its  backbone  network.  Qwest,  as  another  vertically-  integrated  incumbent  LEC  and  Tier  1  backbone 
 provider,  should  continue  to  bring  competitive  heft  to  the  backbone  market  as  well.  404  Based  on  the  foregoing,  we  see  no  need  for  the  conditions  that  commenters  suggest.  405  As  discussed  above,  we  take 
 further  comfort  from  the  commitments  the  Applicants  have  made  regarding  their  peering  practices. 
 137.  Coordinated  Effects.  Other  commenters  suggest  that  Verizon/  MCI  and  SBC/  AT&  T  together  might  come  to  dominate  the  Tier  1  IBP  market  and  then  engage  in  coordinated  interaction.  406  As  an  initial 
 matter,  we  conclude  that  the  proposed  merger  will  likely  not  result  in  competitive  harms  due  to  coordinated  interaction  among  Tier  1  backbone  providers.  Because  sufficient  vigorous  Tier  1  backbone 
 competitors  would  remain  (even  if  some  current  backbone  providers  were  de-  peered),  the  feasibility  of  such  coordinated  strategies  is  questionable.  407  In  short,  the  commenters  arguments  would  seem  to  require 

 400  [REDACTED]  See  Confidential  Appendix  E,  Table  1  (Market  Shares  and  HHIs  of  Tier  1  Backbone  Providers). 
 401  Id. 
 402  SBC/  AT&  T  Oct.  14  Ex  Parte  Letter  at  Attach.  (Level  3  Traffic  Leadership:  Why  and  What  Can  Be  Done) 
 [REDACTED]. 
 403  Arshad  Mohammed,  Training  to  Become  Wireless  Heavyweight,  WASHINGTON  POST,  Aug.  22,  2005,  at  D01; 
 Nextel/  Sprint  Order,  FCC  05-  148  at  para.  134  (noting  merger-  specific  benefits  related  to  the  deployment  of  3G  technology,  including  high  performance  push-  to-  talk  capabilities  and  high  speed  data  rates). 

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

 has  also  announced  that  it  is  reviewing  bids  for  the  deployment  of  a  national  fiber  network.  See  Google  Reviewing  Bids  for  National  Optical  Switching  Network  (Sept.  19,  2005)  available  at 
 http://  www.  ipmediamonitor.  com/  subscribers/  index.  htm?  iid=  6&  article_  id=  21. 
 405  Commenters  proffer  a  number  of  remedies,  which  we  do  not  discuss  in  detail,  because  as  noted,  we  find  that  the 
 commenters  have  not  established  either  merger-  related  harms  requiring  remedy,  or  substantial  and  material  questions  of  fact  concerning  whether  such  harms  exist.  See,  e.  g.,  Cox  Comments  at  14;  Independent  Alliance 

 Comments  at  9-  10;  New  York  Attorney  General  Comments  at  23;  Broadwing  and  SAVVIS  Aug.  12  Ex  Parte  Letter  at  11;  Broadwing  and  SAVVIS  Oct.  21  Ex  Parte  Letter,  Attach.  at  8-  10;  Earthlink  Aug.  26  Ex  Parte  Letter  at  11-  15; 
 Letter  from  John  W.  Butler,  Counsel  for  EarthLink,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  at  3-  12  (filed  Oct.  3,  2005). 

 406  See,  e.  g.,  EarthLink  Petition  at  10  (asserting  that  any  analysis  of  the  backbone  market  post-  merger  must  address 
 parallel  action  between  SBC/  AT&  T  and  Verizon/  MCI);  Letter  from  Kristen  Verderame,  BT  Americas,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  05-  65,  05-  75  (filed  May  6,  2005)  (claiming  that  the  merged  firms  can 

 effectively  signal  each  other  through  bilateral  contractual  dealings  and  leaks  to  achieve  common  objectives). 
 407  As  noted  above,  while  some  commenters  contend  that  de-  peering  places  the  de-  peered  backbone  at  a  competitive 
 disadvantage,  it  is  possible  that  the  act  of  de-  peering  one  competitor  may  very  well  make  another  competitor  (continued.) 
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 that  Verizon/  MCI  or  other  firms  be  able  to  de-  peer  a  sufficient  number  of  Tier  1  backbones  so  as  to  make  coordinated  effects  more  likely.  We  find  this  result  to  be  speculative  at  the  very  least,  and  not  supported 
 by  the  record.  Accordingly,  we  conclude  that  Verizons  control  of  MCI  is  unlikely  to  result  in  anticompetitive  coordinated  effects  in  the  Tier  1  Internet  backbone  market.  408 

 138.  For  the  reasons  discussed  above,  we  also  are  unpersuaded  that  Verizon/  MCI  and  SBC/  AT&  T,  in  particular,  will  have  the  ability  to  coordinate  to  de-  peer  a  sufficient  number  of  their  backbone  rivals 
 either  through  targeted  and  serial  de-  peering  or  global  de-  peering  to  effectively  tip  the  market  to  duopoly.  409  We  conclude  that  it  would  be  difficult  for  the  merged  Verizon/  MCI  and  SBC/  AT&  T  to  agree 
 tacitly  on  the  specifics  of  these  de-  peering  strategies,  such  as  which  peers  to  target,  and  in  which  sequence,  without  reaching  an  express  agreement  in  clear  violation  of  antitrust  laws.  410  It  is  also  not  clear 
 that,  even  together,  the  merged  Verizon/  MCI  and  SBC/  AT&  T  would  be  able  successfully  to  engage  in  global  de-  peering.  To  the  extent  that  other  Tier  1  backbones  have  a  significant  number  of  content 
 customers,  which  commenters  claim  to  be  the  case,  Verizon/  MCIs  and  SBC/  AT&  Ts  eyeball  customers  likely  will  value  access  to  that  content  so  highly  that  the  strategy  would  not  be  profitable.  In 
 addition,  even  after  combining  their  respective  retail  broadband  customer  bases,  the  merged  SBC/  AT&  T  and  Verizon/  MCI  would  have  less  than  30  percent  of  all  broadband  eyeballs.  411 

 b.  Vertical  Effects  (Raising  Rivals  Costs) 
 139.  We  reject  commenters  assertions  that  the  vertical  integration  of  Verizon  and  MCI  could  allow  the  merged  entity  to  raise  the  costs  of  its  VoIP  and  retail  broadband  rivals  by:  (a)  discriminating  against 
 (Continued  from  previous  page)  stronger,  as  the  de-  peered  provider  (or  its  customers)  will  need  to  purchase  transit  and  will  be  disinclined  to  do  so 
 from  the  very  provider  (such  as  Verizon/  MCI)  that  just  de-  peered  it.  See,  e.  g.,  Cox  Comments  at  13-  14  (claiming  that  the  merged  company  would  have  increased  capability  and  incentive  to  maintain  transit  rates  at  supra-competitive 
 levels  in  order  to  raise  the  costs  of  IP  service  providers  who  compete  against  Verizons  core  retail  services).  Broadwing  and  SAVVIS  Dovens  Decl.  at  para.  14. 

 408  We  must  also  consider  whether  the  proposed  merger  would  result  in  a  loss  of  actual  or  potential  competition. 
 While  it  is  possible  that  Verizon  would  eventually  have  achieved  Tier  1  status  absent  the  merger,  we  find  that  this  fact  alone  does  not  raise  a  potential  competition  concern.  See  Verizon  Info.  Req.  at  VZFCC  57-  1548-  1575  (noting 

 that  Verizon  would  not  be  a  Tier  1  IBP  prior  to  4Q2006  or  1Q2007);  see  also  Verizon/  MCI  Reply,  Declaration  of  Robert  F.  Pilgrim  (Verizon/  MCI  Pilgrim  Reply  Decl.),  Tab  7,  at  para.  6  (claiming  that  SAVVIS  and  Global 
 Crossing  have  refused  to  peer  with  Verizon,  in  part  because  Verizon  does  not  generate  sufficient  traffic).  In  order  for  a  loss  of  potential  competition  to  raise  a  concern,  four  criteria  must  be  met:  the  market  must  be  concentrated; 
 the  potential  entry  must  produce  a  substantial  likelihood  of  producing  a  deconcentrated  market;  there  must  be  few  other  equivalent  potential  competitors;  and  the  company  being  acquired  must  be  able  to  enter  the  market  without  the 
 merger.  ABA  Section  of  Antitrust  Law,  Antitrust  Law  Developments  354-  62  (5th  ed.  2000).  Here,  only  the  last  criterion  is  satisfied.  As  discussed  above,  we  are  satisfied  that  there  are  enough  competitors  in  the  Internet 
 backbone  market  to  provide  sufficient  competition.  Given  this,  the  acquisition  of  a  potential  competitor  which  by  definition  does  not  diminish  the  current  state  of  competition  cannot  cause  substantial  competitive  harm. 

 409  BT  Americas  White  Paper  at  6-  31. 
 410  DOJ/  FTC  Guidelines  at  2.1  (noting  that  successful  coordinated  interaction  entails  reaching  terms  of 
 coordination  that  are  profitable  to  the  firms  involved  and  an  ability  to  detect  and  punish  deviations  that  would  undermine  the  coordinated  interaction). 

 411  See  Verizon/  MCI  Reply  at  83;  Verizon/  MCI  Hassett  et  al.  Reply  Decl.  at  para.  38  (stating  that  [  C]  able  modem 
 service  is  the  market  leader  for  broadband  services,  accounting  for  more  than  61  percent  of  residential  and  small  business  customers  receiving  download  speeds  of  200  Kbps  and  83  percent  of  customers  that  receive  more  than  200 

 Kbps  in  both  directions.). 
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 IP  packets  transmitted  by  its  broadband  and  VoIP  competitors;  and/  or  (b)  leveraging  bottleneck  control  over  special  access  to  gain  a  competitive  advantage  in  the  backbone  and  broadband  markets.  For  the 
 reasons  given  below,  we  conclude  that  the  proposed  merger  is  not  likely  to  have  such  adverse  effects  on  competition. 

 140.  Packet  Discrimination  and  Traffic  Degradation.  We  are  not  persuaded  by  commenters  assertions  that  the  merger  gives  rise  to  an  increased  incentive  and/  or  ability  for  the  merged  company  to 
 degrade  or  otherwise  discriminate  against  competitors  IP  traffic.  Commenters  claim  that  the  merger  increases  the  potential  for  three  forms  of  broadband  discrimination  with  respect  to  competing  VoIP,  IP 
 video,  and  other  IP-  enabled  services  with  limited  tolerance  for  latency  and  packet  loss:  (i)  giving  the  merged  entitys  IP  packets  priority  over  the  packets  generated  by  third  party  providers;  (ii)  affirmatively 
 injecting  latency  or  otherwise  degrading  the  packets  sent  by  third-  party  Internet  application  providers;  and  (iii)  blocking  certain  transmissions.  412  Such  actions  by  the  merged  entity  would  allegedly  place 
 competing  providers  at  a  significant  competitive  disadvantage  as  to  quality  of  service.  413 
 141.  We  are  generally  unpersuaded  that  commenters  concerns  are  sufficiently  merger  specific  and  that  the  merged  entity  is  likely  to  pursue  the  alleged  strategies.  First,  we  note  that  no  commenter  has 
 alleged  that  Verizon  (or  MCI)  currently  engages  in  packet  discrimination  or  degradation.  414  Second,  to  the  extent  that  commenters  allege  that  packet  degradation  or  discrimination  could  occur  using  MCIs 
 backbone,  we  find  it  unlikely  that  the  merged  Verizon/  MCI  would  have  the  incentive  to  engage  in  such  conduct.  We  acknowledge  that,  in  theory,  the  merger  could  give  the  merged  company  an  incentive  to 

 412  See,  e.  g.,  Vonage  Comments  at  9-  10  (describing  possible  broadband  discrimination);  EarthLink  Aug.  26  Ex 
 Parte  Letter,  Collins  Decl.  at  paras.  5-  6  (describing  possible  methods  of  programming  routers  to  discriminate  against  competing  service  providers,  such  as  by  disconnecting  networks  that  carry  particular  types  of  traffic  or 

 creating  queues  that  give  a  lower  priority  to  competing  service  providers  traffic).  See  also  New  York  Attorney  General  Comments  at  21-  22  (expressing  concerns  about  broadband  discrimination  based  in  part  on  a  March  2005 
 Consent  Decree  between  Madison  River  Communications  and  the  Commissions  Enforcement  Bureau  concerning  the  companys  practice  of  port  blocking,  such  that  all  of  the  communications  generated  by  Vonage  customers  were 
 blocked,  and  citing  Madison  River  Communications,  LLC  and  Affiliated  Companies,  File  No.  EB-  05-  1H-  0110,  DA  05-  543  (EB  rel.  March  3,  2005)). 

 413  Vonage  Comments  at  9-  10.  Vonage  claims  that,  while  cable  providers  have  committed  not  to  block  customer 
 access  to  new  innovative  IP  applications,  Verizon  has  not  made  any  commitments  in  this  area.  Id.  Global  Crossing  similarly  alleges  that  combining  Verizon  and  MCI,  which  are  current  competitors  in  the  enterprise  VoIP  market, 

 could  have  a  negative  impact  on  VoIP  services.  Global  Crossing  Comments  at  20-  21. 
 414  See  Verizon/  MCI  Reply  at  81  (asserting  that  neither  MCI  nor  Verizon  gives  priority  to  certain  traffic  in  an 
 unreasonably  discriminatory  or  anticompetitive  way).  While  the  merger  does  not  materially  alter  Verizons  existing  incentives  to  prefer  affiliated  VoIP  and  other  IP  traffic  and  to  protect  traditional  voice  revenues  by  discriminating 

 against  or  degrading  the  traffic  of  competing  VoIP  providers,  some  commenters  contend  that  Verizon  could  currently  leverage  its  control  over  last  mile  facilities,  on  which  VoIP  traffic  terminates,  to  block  or  degrade  access. 
 See,  e.  g.,  Vonage  Comments  at  9-  10  (discussing  possible  discrimination  through  port  blocking).  That  is  not  a  merger-  specific  concern.  Further,  this  general  issue  is  the  subject  of  a  pending  Commission  proceeding.  See  IP-Enabled 
 Services,  WC  Docket  No.  04-  36,  Notice  of  Proposed  Rulemaking,  19  FCC  Rcd  4863,  4915,  para.  77  (2004)  (seeking  comment,  for  example,  with  respect  to  the  incentives  of  facilities-  based  IP  service  providers  to 
 provide  network  access  to  non-  facilities-  based  IP  service  providers).  We  also  note  that  MCI  has  few  mass  market  broadband  customers,  and  has  suspended  marketing  for  mass  market  broadband  services.  See  Verizon  Public 
 Interest  Statement  at  48-  49;  Verizon/  MCI  Reply  at  60-  61.  Thus,  we  find  that  the  acquisition  of  MCIs  limited  additional  broadband  customer  base  is  not  likely  to  result  in  anticompetitive  effects  for  mass  market  broadband 
 services  through  either  unilateral  or  coordinated  effects.  See,  e.  g.,  Consumer  Federation  et  al.  Petition  at  3-  9  (expressing  concern  about  competitive  effects  with  respect  to  broadband  services). 
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 degrade  or  discriminate  against  the  IP  traffic  of  its  retail  competitors.  On  the  other  hand,  we  agree  with  the  Applicants  that  the  merged  entity  will  likely  have  strong  incentives  to  provide  VoIP  (and  to  make 
 others  VoIP  services  available  to  its  broadband  customers),  in  order  to  retain  customers  that  seek  a  VoIP  alternative  to  circuit-  switched  voice  service.  415  Consequently,  we  believe  that  these  countervailing 
 incentives  make  it  unlikely  that  the  merged  company  would  choose  to  engage  in  packet  discrimination  or  degradation  of  IP  traffic. 

 142.  Third,  it  is  not  clear  that  the  merged  company  would  be  able  effectively  to  discriminate  or  degrade  competitors  IP  traffic  using  its  Internet  backbone.  Given  the  routing  of  VoIP  calls  today,  for 
 example,  it  does  not  appear  that  the  backbone  creates  a  new  bottleneck  for  VoIP  providers  that  use  their  own  backbone  or  a  virtual  private  network  to  deliver  service  to  their  customers  by  delivering  the  traffic 
 directly  to  the  public  switched  telephone  network  (PSTN),  rather  than  routing  it  through  the  Verizon/  MCI  backbone.  416  Further,  while  the  merged  entity  may  have  an  incentive  to  prioritize  its  own  traffic  using 
 queuing  or  other  such  differentiated  service  mechanisms,  by  recent  measures  significant  excess  capacity  remains  on  backbone  networks.  417  Thus,  in  the  absence  of  affirmative  efforts  to  degrade  a  competitors 
 traffic,  queuing  and  packet  prioritization  is  likely  to  yield  only  very  small  increases  in  latency  and  packet  loss  in  many  cases.  418 

 143.  Finally,  we  take  further  comfort  in  the  Applicants  commitment  to  conduct  business  in  a  manner  that  comports  with  the  principles  set  forth  in  the  Commissions  September  23,  2005  Policy  Statement 
 designed  to  ensure  that  broadband  networks  are  widely  deployed,  open,  affordable,  and  accessible  to  all 

 415  Verizon/  MCI  Reply  at  84.  Even  if  the  merger  were  to  increase  the  ability  of  the  merged  entity  to  engage  in 
 packet  discrimination  and  degradation,  the  record  indicates  that  such  strategies  are  unlikely  to  be  profitable  in  the  long  term.  The  relevant  calculus  is  whether  the  potential  benefits  of  packet  discrimination  or  degradation  against 

 the  merged  entitys  VoIP  competitors  (i.  e.,  potentially  higher  customer  take  rates  or  win-  back  and  resulting  increases  in  VoIP  revenues)  would  outweigh  the  potential  costs  (i.  e.,  network  administration  costs  and  possible 
 customer  churn).  Compare  Verizon/  MCI  Aug.  8  Ex  Parte  Letter  at  10-  11  (discussing  possible  network  administration  costs  and  technical  obstacles  associated  with  a  selective  degradation  strategy,  although  suggesting 
 that  some  of  the  technical  obstacles  might  not  be  that  great)  with  Earthlink  Aug.  26  Ex  Parte  Letter  at  7-  8  (selective  degradation  possible  on  current  network  architecture  and  would  not  be  easily  identified  or  defeated).  In  the  race  to 
 roll  out  competitive,  nationwide  VoIP  offerings,  we  are  not  convinced  that  the  merged  entity  has  much  to  gain  from  blocking  or  affirmatively  degrading  rival  VoIP  services. 

 416  See,  e.  g.,  EarthLink  Aug.  26  Ex  Parte  Letter  at  4  (explaining  that,  while  VoIP  calls  are  routed  in  a  variety  of 
 ways  today,  EarthLink  currently  routes  VoIP  calls  solely  over  Level  3s  backbone  until  they  are  handed  off  to  the  PSTN).  EarthLink  speculates  that  within  two  years  VoIP  providers  might  choose  to  route  50%  of  VoIP  traffic 

 between  Internet  backbones.  See,  e.  g.,  id.,  Attach.  at  para.  11.  While  we  find  it  fundamentally  speculative  that  VoIP  providers  necessarily  will  choose  to  pursue  the  approach  EarthLink  proposes,  we  note  in  any  event  that  we 
 find  it  unlikely  that  the  merged  entity  would  have  the  incentive  to  engage  in  such  conduct. 
 417  See,  e.  g.,  Broadwing  and  SAVVIS  Aug.  12  Ex  Parte  Letter  Wilkie  Decl.  at  para.  6  (noting  the  excess  capacity 
 held  by  Internet  backbone  providers). 
 418  EarthLink,  for  example,  asserts  that  a  backbone  provider  might  assign  competing  VoIP  traffic  to  a  queue  that 
 results  in  those  packets  being  delivered  only  after  all  the  other  queues  are  empty.  EarthLink  Aug.  26  Ex  Parte  Letter,  Collins  Decl.  at  para.  7.  To  the  extent  that  there  is  excess  capacity,  however,  the  other  queues  will  quickly 

 empty,  and  there  will  be  little  or  no  delay  for  the  competing  VoIP  traffic,  absent  some  affirmative  efforts  to  delay  that  traffic.  Cf.  id.  (noting  that  the  backbone  provider  might  choose  to  implement  this  queuing  process  only  in 
 certain  circumstances,  such  as  high-  traffic  periods). 
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 consumers.  419  Because  we  find  that  this  commitment  will  serve  the  public  interest,  we  accept  it  and  adopt  it  as  a  condition  of  our  merger  approval. 
 144.  Special  Access  and  the  Internet  Backbone  Market.  Several  commenters  maintain  that  the  merged  firm  will  have  an  incentive  to  leverage  its  alleged  market  power  in  the  special  access  market  to  gain  a 
 competitive  advantage  in  the  backbone  and  broadband  markets.  420  As  noted  above,  the  issue  of  competition  in  the  special  access  market  is  currently  being  addressed  in  two  ongoing  rulemaking 
 proceedings,  which  will  allow  the  Commission  to  address  any  competitive  issues  on  a  full  record  on  an  industry-  wide  basis.  421 

 F.  Wholesale  Interexchange  Competition 
 145.  We  find  that  the  merger  is  not  likely  to  result  in  anticompetitive  effects  in  the  wholesale  interexchange  services  market.  We  conclude  that  the  market  will  remain  competitive  post  merger,  due 
 primarily  to  the  presence  of  extensive  competitive  national  networks  with  excess  capacity. 
 1.  Relevant  Markets 
 a.  Relevant  Product  Markets 
 146.  The  Commission  previously  has  identified  wholesale  domestic,  interstate,  interexchange  (i.  e.,  long  distance)  services  as  a  separate  product  market,  422  although  it  has  not  always  found  it  necessary  to 
 conduct  a  separate  analysis  of  that  product  market.  423  In  light  of  concerns  raised  by  some  commenters,  we  address  here  the  impact  of  the  proposed  merger  on  the  market  for  wholesale  long  distance  services. 

 b.  Relevant  Geographic  Markets 
 147.  Consistent  with  our  definition  of  the  relevant  geographic  markets  for  retail  enterprise  and  retail  mass  market  services,  424  we  conclude  that  the  relevant  geographic  market  for  wholesale  long  distance 
 services  is  the  customers  location.  425  We  then  aggregate  locations  where  customers  face  similar  competitive  choices.  Since  all  the  major  providers  of  wholesale  long  distance  services  have  nationwide 
 networks,  we  can  aggregate  customers  of  wholesale  long  distance  service  who  are  located  throughout  the  United  States.  Moreover,  wholesale  long  distance  customers  generally  need  to  connect  to  the  wholesale 
 long  distance  provider  at  multiple  locations  throughout  the  United  States.  Consequently,  we  find  it 

 419  See  Verizon  Oct.  31  Ex  Parte  Letter,  Attach.  at  5. 
 420  See,  e.  g.,  Broadwing  and  SAVVIS  Petition  at  55-  58;  CompTel/  ALTS  Petition  at  22-  25;  Consumer  Federation  et 
 al.  Petition  at  24;  Global  Crossing  Comments  at  6,  9;  BT  Americas  White  Paper  at  13-  14. 
 421  See  discussion  supra  at  Part  V.  B  (Wholesale  Special  Access  Competition). 

 422  See,  e.  g.,  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18041-  42,  para.  28. 
 423  Id. 
 424  See  supra  Parts  V.  C  (Retail  Enterprise  Competition),  V.  D  (Mass  Market  Competition). 
 425  We  note  that  individual  customers  of  wholesale  long  distance  services  are,  like  larger,  multi-  location  enterprise 
 customers,  likely  to  require  access  to  service  at  multiple  geographic  locations,  often  throughout  the  United  States  or  a  region  thereof.  See  supra  Part  V.  C  (Retail  Enterprise  Competition). 
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 appropriate  to  aggregate  customer  locations  and  evaluate  wholesale  long  distance  services  at  the  national  level.  426 
 2.  Competitive  Analysis 
 148.  The  record  does  not  support  the  contention  of  some  commenters  that  the  Applicants,  unilaterally  or  in  conjunction  with  the  proposed  SBC/  AT&  T  entity,  will  be  able  to  exercise  market  power  to 
 discriminate  against  retail  competitors  by  withdrawing,  in  whole  or  in  part,  from  the  wholesale  long  distance  market  or  by  providing  wholesale  long  distance  service  on  discriminatory  terms  or  conditions.  427 
 The  record  shows  that  MCIs  wholesale  long  distance  revenues  have  been  declining  due  to  significant  competition  from  multiple  other  facilities-  based  long  distance  service  providers.  428  The  evidence  of 
 wholesale  long  distance  competition  is  consistent  with  prior  Commission  findings  that  Sprint,  Qwest,  and  others  have  a  significant  presence  in  this  market.  429  As  a  result,  the  Applicants  ability  to  discriminate 
 against  their  retail  competitors  will  be  highly  constrained,  contrary  to  the  concerns  of  some  commenters.  430  Further,  as  the  Commission  has  found  previously,  it  would  not  be  economically  rational 
 for  the  Applicants  to  attempt  to  discriminate  against  rival  providers  of  retail  long  distance  service  if  the  wholesale  market  is  highly  competitive  and  there  are  numerous  competing  wholesale  providers  ready  and 
 able  to  supply  those  rivals.  431 

 426  We  note  that  this  approach  is  consistent  with  our  definition  of  the  relevant  geographic  markets  for  larger  multi-location 
 enterprise  customers  with  a  nationwide  presence  and  for  Tier  1  Internet  backbone  providers.  See  supra  Parts  V.  C  (Retail  Enterprise  Competition),  V.  E  (Internet  Backbone  Competition).  We  reject  the  suggestion  that  the 

 Commission  examine  specific  routes  in  the  Verizon  region  on  which  MCI  and  Verizon  have  overlapping  facilities.  See  Qwest  Bernheim  Decl.  at  para.  59.  First,  the  record  contains  no  evidence  to  indicate  the  magnitude  or  scope  of 
 any  such  overlaps.  Second,  Verizon  frequently  purchases  and  resells  long  distance  transport  from  independent  providers,  indicating  that  it  is  unlikely  such  overlaps  occur  frequently.  See,  e.  g.,  Letter  from  Dee  May,  Vice 
 President,  Federal  Regulatory,  Verizon  to  Marlene  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  75,  Suppl.  Exh.  15.  A.  1  ([  REDACTED]).  Finally,  the  merger  will  not  lead  to  horizontal  concentration  on  those  routes  where  MCI 
 or  Verizon  is  currently  the  sole  provider  of  interexchange  transport. 
 427  See,  e.  g.,  United  States  Cellular  Comments  at  3-  4,  Independent  Alliance  Comments  at  2-  5;  T-  Mobile  Reply  at 
 14-  18. 
 428  See,  e.  g.,  MCI  Info.  Req.,  MCIFCC3-  0015743  at  MCIFCC3-  15769  ([  REDACTED]).  We  note,  however,  that 
 MCI  has  experienced  an  upswing  in  minutes  of  use  since  [REDACTED].  See  MCI  Info.  Req.,  MCIFCC24-  499200  at  MCIFCC24-  499201.  SBC/  AT&  T  Oct.  14  Ex  Parte  Letter  at  Attach.  (AT&  T  4Q04  Business  LD  Voice  Market 

 Share  Results)  ([  REDACTED]). 
 429  See  SBC/  AT&  T  Oct.  14  Ex  Parte  Letter  at  Attach.  (AT&  T  4Q04  Business  LD  Voice  Market  Share  Results) 
 (showing  market  shares  based  on  revenues  and  volume  for  wholesale  voice);  MCI  Info.  Req.,  MCIFCC24-  128007  at  MCIFCC24-  128011  [REDACTED];  see  also  AT&  T  Non-  Dominance  Order,  11  FCC  Rcd  at  3308,  paras.  70,  72; 

 WorldCom/  MCI  Order,  13  FCC  Rcd  at  18052-  56,  18066-  7,  paras.  43-  50,  70.  Because  we  find  there  exists  sufficient  excess  capacity  in  this  market,  we  decline  to  impose  non-  structural  conditions  such  as  those  suggested  by 
 United  States  Cellular  and  T-  Mobile.  See  United  States  Cellular  Comments  at  2-  5;  T-  Mobile  Reply  at  14-  18. 
 430  See  supra  note  427.  We  reject  as  fundamentally  speculative  commenters  concerns  that  other  BOCs  will  acquire 
 the  remaining  independent  facilities-  based  interexchange  carriers.  See  ACN  et  al.  Aug.  10  Ex  Parte  Letter,  Attach.  at  6.  No  such  mergers  are  pending  before  the  Commission  and,  in  any  event,  the  Commission  could  address  any 

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

 (continued.) 
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 149.  The  evidence  in  the  record  further  demonstrates  that  there  is  significant  spare  capacity  in  this  market.  432  In  addition,  the  evidence  shows  that  this  industry  segment  faces  increasing  pressure  from  the 
 migration  of  minutes  to  packet-  switched  voice  services,  Internet-  based  applications,  and  other  technological  substitutes,  433  suggesting  further  reductions  in  MCIs  presence  in  this  market  and  increasing 
 excess  capacity  by  its  competitors.  Therefore,  there  should  be  more  than  sufficient  capacity  among  the  remaining  independent  providers  of  facilities-  based  wholesale  long  distance  services  to  accommodate  any 
 carrier  that  cannot  obtain  satisfactory  service  from  the  Applicants.  434  This  evidence  of  continued  competition  from  a  variety  of  wholesale  interexchange  service  providers  convinces  us  that  the  merger  is 
 unlikely  to  result  in  anticompetitive  effects  through  either  unilateral  effects  or  coordinated  interaction. 
 150.  Finally,  the  record  does  not  support  the  contention  of  some  commenters  that  the  Applicants,  unilaterally  or  in  conjunction  with  the  proposed  SBC/  AT&  T  entity,  will  adversely  affect  the  viability  of 
 the  wholesale  interexchange  market  by  eliminating  Verizon  as  a  purchaser  of  wholesale  long  distance  services.  435  While  the  merger  likely  will  gradually  eliminate  Verizon  as  a  purchaser  of  wholesale  long 
 distance  services,  this  process  likely  will  take  some  time,  436  allowing  affected  carriers  an  opportunity  to  seek  other  customers.  As  the  Commission  has  noted  previously,  [  o]  ur  statutory  duty  is  to  protect 
 efficient  competition,  not  competitors.  437 
 151.  Based  on  the  foregoing,  we  find  that  the  merger  is  not  likely  to  result  in  anticompetitive  effects  in  the  wholesale  segment  of  the  domestic,  interstate,  interexchange  market. 

 (Continued  from  previous  page)  of  United  States  Cellular  regarding  the  sharing  of  call  detail  or  other  competitively  sensitive  information 
 between  Verizon,  MCI  and  their  wireless  affiliate  unconvincing.  See  United  States  Cellular  Comments  at  4.  To  the  extent  United  States  Cellular  or  other  parties  have  concerns,  they  should  be  able  to  negotiate  an  appropriate 
 arrangement  with  a  competitive  provider  of  wholesale  long  distance  services.  Further,  although  United  States  Cellular  has  not  identified  the  nature  of  the  information  it  seeks  to  protect  with  great  specificity,  we  note  that   
 222(  b)  of  the  Act  provides  all  carriers  with  certain  protections.  See  47  U.  S.  C.    222(  b). 
 432  See,  e.  g.,  Level  3  Communications,  Inc.,  SEC  Form  10-  K  at  18  (filed  March  16,  2005)  (  The  result  of  [high 
 competitive  entry]  was  an  oversupply  of  capacity  and  an  intensely  competitive  environment.),  available  at  http://  www.  sec.  gov/  Archives/  edgar/  data/  794323/  000104746905006668/  a2153221z10-  k.  htm;  Leucadia  National 

 Corp.,  SEC  Form  10-  K  at  44  (filed  March  14,  2005)  (stating  that  telecommunications  capacity  far  exceeds  actual  demand  and  the  marketplace  is  characterized  by  fierce  price  competition.  .  .  .)  (Leucadia  2005  10-  K),  available  at 
 http://  www.  sec.  gov/  Archives/  edgar/  data/  96223/  000090951805000159/  jd3-  14_  new10k.  txt. 
 433  See,  e.  g.,  MCI  Info.  Req.,  MCIFCC24-  0499664  at  MCIFCC24-  0499672. 

 434  Qwest  Bernheim  Decl.  at  para.  62  (  Even  with  [the  SBC/  AT&  T  and  Verizon/  MCI]  mergers,  significant 
 independent  long  distance  transport  capacity  would  remain.). 
 435  See,  e.  g.,  ACN  et  al.  Comments  at  27-  29. 

 436  See,  e.  g.,  Letter  from  Dee  May,  Vice  President,  Federal  Regulatory,  Verizon,  to  Marlene  Dortch,  Secretary,  FCC, 
 WC  Docket  No.  05-  75,  Suppl.  Exh.  15.  A.  1  ([  REDACTED].) 
 437  Bell  Atlantic  Mobile  Systems,  Inc.  and  NYNEX  Mobile  Communications  Company,  File  Nos.  00762-  CL-  AL-  1-  95 
 through  00803-  CL-  AL-  1-  95;  00804-  CL-  TC-  1-  95  through  00816-  CL-  TC-  1-  95;  00817-  CL-  AL-  1-  95  through  00824-  CL-  AL-  1-  95;  and  00825-  CL-  TC-  1-  95  through  00843-  CL-  TC-  1-  95,  Memorandum  Opinion  and  Order,  12  FCC  Rcd 

 22280,  22288,  para.  16  (1997)  (citing  SBC  Communications,  Inc.  v.  FCC,  56  F.  3d  1484,  1491-  92  (D.  C.  Cir.  1995)). 
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 G.  U.  S.  International  Services  Competition 
 152.  In  this  section  we  consider  the  competitive  effects  of  the  proposed  merger  in  the  markets  for  U.  S.  international  services.  438  We  conclude  that  the  merger  is  not  likely  to  result  in  anticompetitive  effects  for 
 international  services  provided  to  mass  market,  enterprise  or  global  telecommunications  customers.  439  Additionally,  we  find  that  the  merger  will  not  result  in  anticompetitive  effects  in  the  international 
 transport,  facilities-  based  IMTS,  or  international  private  line  markets. 
 153.  While  there  exist  specific  differences  between  domestic  and  international  long  distance  telecommunications  services,  both  types  of  services  reflect  fundamental  similarities.  As  with  access  to 
 domestic  long  distance  telecommunications,  mass  market  customers  may  presubscribe  to  a  stand  alone  domestic  long  distance  telecommunications  carrier  that  includes  access  to  international 
 telecommunications  services;  select  a  provider  of  bundled  local  and  long-  distance  service  that  includes  access  to  international  long  distance  telecommunications;  or  use  prepaid  calling  cards,  dial-  around 
 carriers,  VoIP  carriers,  or  wireless  telecommunications  carriers.  In  contrast  to  domestic  long  distance  service,  however,  mass  market  customers  of  international  long  distance  telecommunications  generally 
 appear  more  willing  to  access  carriers  other  than  their  presubscribed  carrier  through  the  use  of  prepaid  calling  cards  and  dial-  around  services. 

 154.  The  expressed  preferences  of  international  mass  market  telecommunications  users  reflect  several  distinct  attributes  of  international  telecommunications  that  differ  from  domestic  long  distance 
 telecommunications.  Specifically,  because  international  routes  differ  in  terms  of  traffic  capacity,  competition,  and  government  regulation,  the  wholesale  cost  and  consequently  retail  price  of  calls  to 
 different  international  destinations  vary.  For  example,  the  cost  to  terminate  international  services    the  settlement  rate    varies  for  each  market  and  is  usually  higher  than  that  for  domestic  services.  Because  of 
 this,  consumer  preferences  for  access  to  international  long  distance  telecommunications  will  differ  from  consumer  preferences  for  domestic  long  distance  telecommunications,  notwithstanding  that  the  same 
 modes  of  access  are  available  for  either  domestic  or  international  long  distance  telecommunications. 

 438  U.  S.  international  services  consist  of  all  U.  S.-  billed  telecommunications  services,  including  calls  that  originate  in 
 the  United  States  and  terminate  at  a  foreign  point  and  calls  that  originate  at  a  foreign  point  but  are  billed  by  a  U.  S.  carrier,  such  as  international  calling  card  or  prepaid  card  calls.  This  proceeding  includes  thirteen  applications  to 

 transfer  control  of  licenses  and  authorizations  covering  the  provision  of  U.  S.  international  services  and  the  underlying  facilities  used  to  provide  them:  seven  international  214  authorizations,  four  submarine  cable  landing 
 licenses,  and  two  earth  station  authorizations.  See  File  Nos.  ITC-  T/  C-  20050314-  00095,  ITC-  T/  C-  20050314-  00096,  ITC-  T/  C-  20050314-  00097,  ITC-  T/  C-  20050314-  00098,  ITC-  T/  C-  20050314-  00099,  ITC-  T/  C-  20050314-  00100, 
 ITC-  T/  C-  20050314-  00101  (International  section  214  Applications);  File  Nos.  SCL-  T/  C-  20050317-  00006,  SCL-T/  C-  20050317-  00007,  SCL-  T/  C-  20050317-  00008,  SCL-  T/  C-  20050317-  00009  (Submarine  Cable  Applications); 
 SES-  T/  C-  20050314-  00321  and  SES-  T/  C-  20050314-  00338  (Earth  Station  Applications).  See  also  Verizon  June  23  Ex  Parte  Letter  at  Attach. 

 439  Because  the  proposed  transfer  of  control  would  result  in  MCI  acquiring  affiliations  with  Verizons  market-  power 
 affiliates  in  the  Dominican  Republic,  Gibraltar  and  Venezuela,  our  rules  require  that  we  condition  grant  of  the  international  section  214  transfer  applications  on  MCIs  compliance  with  the  dominant  carrier  safeguards  set  out  in 

 section  63.10  of  our  rules  for  the  provision  of  service  on  each  of  these  routes.  See  47  C.  F.  R.    63.10.  Similarly,  for  the  U.  S.-  Dominican  Republic  and  U.  S.-  Venezuela  routes,  our  rules  require  that  we  condition  grant  of  the  submarine 
 cable  transfer  applications  on  MCIs  compliance  with  the  competitive  safeguards  contained  in  section  1.767(  1)  of  our  rules.  See  47  C.  F.  R.    1.767(  l).  We  find  that,  as  conditioned,  grant  of  the  international  section  214  and 
 submarine  cable  transfer  applications  is  unlikely  to  cause  vertical  harms  due  to  Verizons  market-  power  affiliates  in  the  Dominican  Republic,  Gibraltar  and  Venezuela. 
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 155.  There  generally  appear  to  be  few  barriers  to  entry  into  the  international  long  distance  telecommunications  industry  for  either  facilities-  based  or  resale  entrants.  Resale  entrants,  in  particular, 
 face  relatively  modest  costs  of  market  entry,  as  evidenced  by  the  presence  of  approximately  770  international  telecommunications  resellers.  These  low  entry  barriers  make  it  unlikely  that  Verizon  will  be 
 able  to  raise  price  or  restrict  output  after  the  merger. 
 156.  We  examine  below  three  separate  end-  user  product  markets:  the  mass  market,  enterprise  market,  and  global  telecommunications  market.  We  also  separately  examine  the  international  transport  capacity 
 market,  which  provides  the  physical  transmission  path  that  carriers  use  to  deliver  services  in  the  end-  user  markets,  and  two  wholesale,  or  intermediate,  markets,  namely,  facilities-  based  international  message 
 telecommunications  service  (IMTS)  and  private  line  service.  Input  markets,  particularly  international  transport  capacity,  are  a  significant  component  of  the  international  services  market.  Wholesale  markets 
 for  international  service  also  are  essential  components  to  the  delivery  of  end-  user  retail  services.  We  also  examine  the  Applicants  affiliations  with  foreign  carriers  and  the  application  of  the  Commissions  rules 
 providing  for  foreign  carrier  safeguards  on  three  international  routes. 
 1.  Input  Markets 
 a.  International  Transport  Market 
 157.  We  find  that  international  transport,  particularly  submarine  cable  capacity,  is  a  relevant  market  for  purposes  of  this  merger  analysis.  International  transport  refers  to  the  international  physical 
 transmission  paths  carriers  use  to  offer  services  between  the  United  States  and  other  countries.  International  traffic  can  be  transmitted  via  submarine  cable,  satellite  or  terrestrial  links.  Most  U.  S. 
 international  traffic,  however,  is  transmitted  over  submarine  cables.  440  Because  of  this,  and  because  neither  of  the  Applicants  owns  international  satellite  capacity,  we  focus  on  how  the  merger  will  affect 
 concentration  of  ownership  of  submarine  cables. 
 158.  In  evaluating  mergers  of  carriers  providing  international  service,  the  Commission  historically  has  recognized  that  it  must  separately  consider  the  effect  of  a  merger  on  routes  to  particular  countries.  In  the 
 last  decade,  however,  as  international  transport  capacity  has  increased  dramatically,  we  have  seen  that  U.  S.  licensed  international  submarine  cables  have  tended  to  serve  entire  regions.  441  We  have  also 
 observed  that  carriers  increasingly  have  been  willing  to  deliver  traffic  indirectly,  via  a  third  country,  if  that  permits  them  to  reduce  their  transport  or  termination  costs.  For  these  reasons,  the  Commission  has 
 employed  a  regional  approach  in  analyzing  the  international  transport  market,  although,  at  times,  it  also  has  examined  international  transport  capacity  on  particular  routes.  442  Here,  we  evaluate  submarine  cable 

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

 www.  fcc.  gov/  ib/  pd/  pf/  csmanual.  html;  International  Bureau  Releases  2003  Year-  End  Circuit  Status  Report  for  U.  S.  Facilities-  Based  International  Carriers;  Capacity  Use  Shows  Healthy  Growth,  News  Release  (IB  Dec.  23,  2004),  at 
 1. 
 441  See,  e.  g.,  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18073,  para.  84  (stating  that,  although  the  input  market  is  more 
 accurately  described  as  a  series  of  point-  to-  point  markets  and  although  it  may  be  necessary  to  examine  specific  country  routes  when  considering  the  effects  of  a  proposed  merger  on  relevant  input  markets,  it  is  appropriate  in  this 

 instance  to  adopt  a  regional  approach  to  analyzing  the  international  transport  market). 
 442  See,  e.  g.,  AT&  T/  British  Telecom  Order,  14  FCC  Rcd  at  19161-  64,  para.  48  (1999);  The  Merger  of  MCI 
 Communications  Corporation  and  British  Telecommunications,  Memorandum  Opinion  and  Order,  GN  Docket  No.  96-  245,  12  FCC  Rcd  15351,  15389-  97,  paras.  94-  122  (1997)  (BT/  MCI  Order). 
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 capacity  in  the  Atlantic,  Pacific,  and  Americas  regions.  443  We  examine  ownership  of  U.  S.  half-  circuits  (including  the  U.  S.  half  of  whole-  circuits),  because  MCI  and  Verizon  predominantly  own  capacity  on  the 
 U.  S.  end  of  cable  systems.  Our  concern  is  whether  the  proposed  merger  could  increase  ownership  concentration  of  U.  S.  half-  circuits  to  such  an  extent  that  the  combined  entity  would  have  the  ability  to 
 exercise  market  power  through  unilateral  or  coordinated  action.  444  We  examine  existing  submarine  cable  capacity  and  take  into  account  future  capacity  that  may  be  achieved  through  the  use  of  wavelength 
 division  multiplexing  (WDM)  technology  within  the  next  two  years.  445 
 159.  We  find  that  the  merger  will  not  increase  concentration  significantly  in  any  of  the  three  international  transport  market  regions,  and  is  not  likely  to  result  in  anticompetitive  effects  given  the 
 relatively  low  market  shares  of  the  Applicants,  the  low  barriers  to  entry,  and  the  substantial  amount  of  transport  capacity  available  now  and  upgradeable  with  WDM  technology  from  carriers  other  than  the 
 Applicants.  In  each  of  the  three  regions,  the  Atlantic  Region,  the  Americas  Region,  and  the  Pacific  Region,  MCI  and  Verizon  and  its  affiliates,  in  the  aggregate,  hold  less  than  [REDACTED]  percent  of  the 
 total  capacity  for  2005.  446  With  respect  to  low  barriers  to  entry,  we  note  that  the  planning  and 
 443  We  note  that  several  countries  (  thin  route  countries)  are  not  linked  to  the  United  States  by  cable  and  are  served 
 only  by  satellites.  See,  e.  g.,  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18073-  74,  para.  85.  MCI  and  Verizon  do  not  hold  any  ownership  interest  in  satellite  systems  or  satellite  transponder  capacity  that  would  serve  thin  route 

 countries.  Thus,  the  merger  will  not  increase  concentration  in  the  provision  of  transport  capacity  on  these  routes.  Additionally,  we  note  that  traffic  on  the  U.  S.-  Mexico  and  U.  S.-  Canada  routes  primarily  uses  terrestrial  facilities. 
 We  are  not  aware  of  any  shortage  of  capacity  on  these  routes.  See,  e.  g.,  2003  Circuit  Status  Report,  at  Table  4,  p.  22  (on  U.  S.-  Canada  route,  there  were  432,819  active  and  447,804  idle  circuits;  on  U.  S.-  Mexico  route,  there  were 
 265,495  active  and  366,558  idle  circuits).  Verizon  has  less  than  [REDACTED]  percent  of  U.  S.-  billed  minutes  on  these  routes.  Therefore,  we  do  not  review  either  the  thin  route  markets  or  the  U.  S.-  Mexico  and  U.  S.-  Canada  routes 
 as  part  of  our  transport  capacity  analysis  in  this  proceeding. 
 444  MCI  and  its  wholly-  owned  subsidiaries  MCI  Communications  Corporation,  MCI  International,  Inc.  and  MFS 
 Globenet,  Inc.  hold  ownership  interests  in  the  following  cables:  in  the  Atlantic  Region,  Columbus  II,  Columbus  III,  TAT-  12/  13,  TAT-  14;  in  the  Pacific  Region,  China-  U.  S.,  Guam-  Philippines,  Japan-  U.  S.,  Southern  Cross,  TPC-  5;  in 

 the  Americas  Region,  Americas-  1,  Americas-  2,  Antillas-  1,  Arcos-  1,  Bahamas-  2,  Maya-  1,  Pan  American,  Taino-Carib.  See  Submarine  Cable  Applications.  Following  consummation  of  the  transaction,  MCI  will  continue  to  own 
 the  stock  of  its  subsidiaries,  and  MCI  and  its  subsidiaries  will  continue  to  hold  all  of  the  Commission  authorizations  that  they  held  prior  to  the  transaction,  but  MCI  will  transfer  control  of  the  cable  landing  licenses  from  MCI  to 
 Verizon.  See  each  of  the  four  Submarine  Cable  Applications,  at  2.  In  addition,  Verizons  affiliates  Verizon  Dominicana  and  CANTV,  and  a  number  of  wholly-  owned  subsidiaries  in  Asia  and  Europe  that  are  part  of  a  group 
 of  companies  referred  to  as  Verizon  Global  Solutions  (VGS),  currently  hold  ownership  interests  in  the  following  submarine  cables:  in  the  Atlantic  Region,  Columbus  II,  Columbus  III,  TAT-  12/  13;  in  the  Pacific  Region,  Japan-U. 
 S.,  PacRimEast,  TPC-  5;  in  the  Americas  Region,  Americas-  1,  Americas-  2,  Antillas-  1,  Arcos-  1,  Bahamas-  2,  Maya-  1,  Pan  American,  Taino-  Carib.  The  VGS  companies  are  Verizon  Hawaii  International  Inc.,  GTE  Far  East 
 (Services)  Limited,  Verizon  Global  Solutions  Holdings  V  Limited  d/  b/  a/  Verizon  Global  Solutions  Japan,  Verizon  Global  Solutions  U.  K.  Ltd.,  Verizon  Global  Solutions  France  S.  A.  S.,  Verizon  Global  Solutions  Germany  GmbH, 
 Verizon  Global  Solutions  Netherlands  B.  V.,  Verizon  Global  Solutions  Belgium  B.  V.  B.  A.,  Verizon  Global  Solutions  Italy  S.  r.  l.,  Verizon  Global  Solutions  Spain  S.  r.  l.,  and  Verizon  Global  Solutions  Holdings  II  Ltd.  See  Verizon/  MCI 
 Application,  Verizon/  MCI  Lack/  Pilgrim  Decl.  at  3,  3  n.  2,  and  Exh.  1. 
 445  See,  e.  g.,  DOJ/  FTC  Guidelines,    3.2  Timeliness  of  Entry.  WDM  technology  dramatically  increases  the  carrying 
 capacity  of  fiber  infrastructure.  For  example,  adding  one  wavelength  to  a  40  Gbps  cable  (4  fiber  pairs  of  10  Gbps  each)  will  double  the  capacity  of  the  cable  to  80  Gbps,  and  upgrading  to  eight  wavelengths  will  increase  capacity  to 

 320  Gbps. 
 446  For  the  Atlantic  Region,  see  Verizon/  MCI  Lack/  Pilgrim  Decl.  at  4  (stating  Verizon  owns  less  than  1%  in  the 
 Atlantic  Region).  For  the  Americas  Region,  see  Verizon/  MCI  Lack/  Pilgrim  Decl.  at  4  (Verizon  less  than  2%).  For  the  Pacific  Region,  see  Verizon/  MCI  Lack/  Pilgrim  Decl.  at  4  (Verizon  less  than  1%).  For  MCI  shares  in  all  three 

 (continued.) 
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 construction  of  a  new  cable  system  can  be  implemented  within  two  years  while  WDM  upgrades  can  be  implemented  in  less  than  a  year.  447 
 160.  We  also  consider  separately  the  Applicants  ownership  shares  on  each  of  the  U.  S.-  Dominican  Republic  and  U.  S.-  Venezuela  routes,  where  Verizon  is  affiliated  with  a  market-  power  carrier  at  the 
 foreign  end  (Verizon  Dominicana  in  the  Dominican  Republic  and  CANTV  in  Venezuela).  448  We  find  that  there  likely  is  no  adverse  competitive  effect  because  the  combined  entity  will  have  small  post-  merger 
 market  shares.  On  the  U.  S.-  Venezuela  route,  we  find  the  combined  ownership  share  of  international  transport  capacity  to  be  less  than  [REDACTED]  percent.  On  the  U.  S.-  Dominican  Republic  route, 
 Verizon  Dominicana  holds  between  [REDACTED]  percent  (depending  on  whether  IRU  interests  are  included).  Because  MCIs  interests  are  small,  the  combined  entitys  interest  would  be  [REDACTED] 
 percent,  including  the  IRU  interest.  Thus,  we  find  that  the  merger  would  not  result  in  any  significant  increase  in  ownership  concentration.  449 

 b.  Foreign  Cable  Landing  Station  Access 
 161.  We  find  that  access  to  foreign  cable  landing  stations,  an  essential  input  for  the  provision  of  U.  S.  international  services,  is  also  a  relevant  product  market  in  this  merger.  450  Verizons  affiliates,  Verizon 

 (Continued  from  previous  page)  regions,  as  well  as  the  combined  MCI  and  Verizon  shares,  see  Confidential  Appendix  F  at  Table  1  and 
 accompanying  notes. 
 447  See,  e.  g.,  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18084,  para.  105  (stating  that  a  firm  can  decide  to  construct  and 
 begin  operating  a  new  cable  system  in  response  to  an  exercise  of  market  power  within  two  years);  id.  at  18081,  para.  101  (stating  that  WDM  upgrades  can  be  implemented  in  less  than  a  year).  With  WDM  technology,  capacity  can 

 now  be  added  to  submarine  cables  at  a  fraction  of  the  cost  necessitated  by  older  technologies,  in  large  part  because  with  WDM  there  is  no  need  to  lay  additional  cable  to  increase  capacity. 

 448  Verizon  indirectly  owns  100%  of  Verizon  Dominicana  C.  por  A.  (formerly  CODETEL  and  now  Verizon 
 Dominicana)  in  the  Dominican  Republic  and  28.5%  of  Compaia  Annima  Nacional  Telfonos  de  Venezuela  (CANTV)  in  Venezuela.  The  Commission  lists  these  foreign  providers  as  having  market  power.  See,  e.  g.,  The 

 International  Bureau  Revises  and  Reissues  the  Commissions  List  of  Foreign  Telecommunications  Carriers  that  are  Presumed  to  Possess  Market  Power  in  Foreign  Telecommunications  Markets,  Public  Notice,  DA  04-  1584,  19  FCC 
 Rcd  20385  (IB  2004)  (listing  CODETEL,  the  predecessor  to  Verizon  Dominicana,  and  CANTV  as  market-  power  operators  in,  respectively,  the  Dominican  Republic  and  Venezuela).  Verizon  Dominicana  provides  local,  wireless, 
 national  and  international  long  distance  and  Internet  access  services  throughout  the  Dominican  Republic.  CANTV  offers  local  services,  national  and  international  long  distance,  Internet  access,  and  wireless  services  in  Venezuela  as 
 well  as  public  telephone,  private  network,  data  transmission,  directory,  and  other  value-  added  services.  See,  e.  g.,  MCI,  Inc.,  Application  for  Authority  to  Transfer  Control  of  Cable  Landing  License,  File  No.  SCL-  T/  C-  20050317- 
 00006,  at  7;  Verizon  Communications  Inc.,  Form  10-  K  for  Fiscal  Year  Ended  December  31,  2004,  at  14,  available  at  www.  sec.  gov/  Archives/  edgar/  data/  732712/  000119312505049044/  0001193125-  05-  049044-  index.  htm. 

 449  Two  cables    Antillas-  1  and  Arcos-  1    serve  the  U.  S.-  Dominican  Republic  route.  Six  cables    Americas-  1, 
 Americas-  2,  Arcos-  1,  GlobeNet,  PAC,  and  Pan  American    serve  the  U.  S.-  Venezuelan  route.  See,  e.  g.,  2003  Circuit  Status  Report,  at  35,  Table  7.  See  also  Confidential  Appendix  F  at  Table  2. 

 450  See,  e.  g.,  Rules  and  Policies  on  Foreign  Participation  in  the  U.  S.  Telecommunications  Market,  IB  Docket  Nos. 
 97-  142  and  95-  22,  Report  and  Order  and  Order  on  Reconsideration,  12  FCC  Rcd  23891,  23953,  para.  145  (1997)  (Foreign  Participation  Order),  Order  on  Reconsideration,  15  FCC  Rcd  18158  (2000)  (identifying  cable  landing 

 station  access  as  relevant  input  for  provision  of  U.  S.  international  services);  Review  of  Commission  Consideration  of  Applications  under  the  Cable  Landing  License  Act,  Report  and  Order,  IB  Docket  No.  00-  106,  16  FCC  Rcd  22167, 
 22180,  para.  23  (2001)  (Submarine  Cable  Report  and  Order)  (same);  BT/  MCI  Order,  12  FCC  Rcd  at  15373,  para.  43  (same). 
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 Dominicana  and  CANTV,  own  all  or  the  majority  of  cable  landing  stations  for  cable  landing,  respectively,  in  the  Dominican  Republic  and  Venezuela.  451  MCI  and  its  foreign  affiliates,  however,  do 
 not  own  cable  landing  stations  in  either  the  Dominican  Republic  or  Venezuela.  The  proposed  merger,  therefore,  would  not  result  in  an  increase  in  concentration  in  this  input. 

 162.  Moreover,  although  we  identify  Verizon  Dominicana  and  CANTV  as  among  the  significant  participants  in  the  cable  landing  station  input  market  for  the  U.  S.-  Dominican  Republic  and  U.  S.  -Venezuela 
 routes,  respectively,  we  find,  as  discussed  below,  that  our  standard  foreign  affiliation  safeguards  will  serve  to  protect  against  any  anti-  competitive  conduct  by  these  affiliated  carriers 
 possessing  market  power  at  the  foreign  end  of  a  U.  S.-  licensed  cable.  452  Therefore,  we  do  not  find  that  the  proposed  merger  will  increase  Verizons  ability  to  use  the  market  position  of  its  two  foreign  affiliates  in 
 foreign  cable  landing  station  access  so  as  to  result  in  anticompetitive  effects  in  any  end-  user  market  for  U.  S.  international  services  on  these  two  routes. 

 2.  Intermediate  Facilities-  Based  Markets 
 a.  Facilities-  Based  IMTS 
 163.  IMTS  consists  of  telecommunications  services  provided  over  the  public  switched  networks  of  U.  S.  international  carriers.  In  recent  years,  IMTS  has  evolved  into  a  two-  sector  industry    a  wholesale 
 sector  in  which  carriers  can  buy  and  sell  bulk  IMTS  minutes  and  a  retail  sector  in  which  carriers  sell  minutes  to  end  users.  Wholesale  IMTS  minutes  are  ultimately  provided  by  facilities-  based  U.  S. 
 international  carriers  that  terminate  those  minutes  over  their  own  networks  through  interconnection  agreements  with  their  foreign  correspondents.  453  As  the  basis  for  all  IMTS  provisioning,  facilities-  based 
 IMTS  is  the  fundamental  international  service  provided  over  the  public  switched  network.  454 
 164.  According  to  data  filed  pursuant  to  section  43.61  of  the  Commissions  rules,  as  of  2003    the  most  recent  year  for  which  data  are  available    there  were  40  carriers  that  competed  in  the  markets  for 
 facilities-  based  IMTS.  These  carriers  generated  revenues  of  $8.9  billion  with  sales  of  48.0  billion  U.  S. 

 451  Verizon  Dominicana  owns  and  operates  the  two  cable  landing  stations  jointly  serving  the  two  submarine  cables 
 on  the  U.  S.-  Dominican  Republic  route,  the  Antillas-  1  and  Arcos-  1  cables.  CANTV  owns  and  operates  the  four  cable  landing  stations  serving  four  of  the  six  submarine  cables  on  the  U.  S.-  Venezuela  route  (two  stations  jointly 

 serving  Americas-  1  and  Americas-  2  and  two  stations  jointly  serving  Arcos-  1  and  Pan  American);  combined,  these  four  cables  provided,  in  2003-  2005,  929,880  of  the  routes  1,413,720  64-  Kbps  equivalent  circuits,  or  approximately 
 66%  of  capacity  on  this  route.  Two  additional  cables,  GlobeNet  and  PAC-  1,  each  with  241,920  64-  Kbps  equivalent  circuits,  provided  the  remaining  capacity  on  the  U.  S.-  Venezuela  route. 

 452  See  47  C.  F.  R.    1.767(  l),  1.768(  f)  (submarine  cable  foreign  affiliation  rules);  see  also,  infra,  at  paras.  178-  181. 
 (discussion  of  our  application  of  the  foreign  affiliation  rules  to  cable  landing  licensees  affiliated  with  a  market-power  provider  on  a  cables  destination  route). 

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

 http://  www.  fcc.  gov/  ib/  sand/  mniab/  traffic/.  U.  S.  facilities-  based  carriers  also  sell  IMTS  services  to  foreign  carriers,  many  of  which  find  it  profitable  to  terminate  their  international  calls  to  third  countries  via  the  United  States. 

 454  Facilities-  based  IMTS  is  the  first  point  in  a  supply  chain  of  international  inputs  at  which  full  end-  to-  end 
 connectivity  between  the  United  States  and  any  foreign  point  is  available  within  the  United  States. 
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 billed  minutes  for  all  international  routes  combined.  455  Overall,  AT&  T  and  MCI  were  the  largest  providers,  with  29.5  percent  and  29.2  percent,  respectively,  of  U.  S.  billed  minutes.  456  Other  carriers  with 
 large  shares  of  U.  S.-  billed  minutes  were  Sprint,  at  13.9  percent,  and  IDT,  at  7.3  percent.  457  None  of  the  remaining  carriers,  including  Verizon,  had  more  than  [REDACTED]  percent  of  U.  S.-  billed  minutes  for 
 2003.  458 
 165.  Evaluation  of  market  shares  on  a  route-  specific  basis  shows  that  Verizon  has  a  small  share  of  U.  S.  billed  minutes  except  on  a  few  routes.  459  Verizons  market  share  is  less  than  [REDACTED]  on  all 
 but  three  of  247  international  routes  (Dominican  Republic,  Libya,  and  Malawi).  Verizons  largest  market  share  is  on  the  U.  S.-  Dominican  Republic  route  [REDACTED].  Post  merger,  the  combined  entity  would 
 have  a  market  share  of  [REDACTED]  on  the  U.  S.-  Dominican  Republic  route.  With  this  exception,  the  increases  in  market  concentration  are  minor  and  reflect  the  fact  that  Verizon  has  a  small  portion  of  total 
 traffic  on  such  routes.  With  respect  to  the  U.  S.-  Dominican  Republic  route,  as  noted  below,  we  find  that  the  absence  of  significant  barriers  to  entry  will  serve  to  constrain  any  attempt  by  the  merging  parties  to 
 exercise  market  power  on  this  route. 
 166.  We  find  that  there  are  no  significant  barriers  to  entry  in  the  provision  of  facilities-  based  IMTS  on  most  U.  S.  international  routes.  For  facilities-  based  carriers,  substantial  international  transport  capacity 
 exists  in  all  regions.  Foreign  termination  services  are  available  on  almost  every  route,  as  shown  by  the  number  of  facilities-  based  carriers  serving  each  route.  The  2003  Section  43.61  Report  shows  that  there 
 are  ten  or  more  reporting  facilities-  based  IMTS  carriers  on  218  of  247  international  routes.  460  We  also  note  that  there  is  a  growing  spot  market  for  international  termination  services  whereby  carriers  with 
 excess  capacity  to  various  foreign  destinations  can  auction  foreign  termination  services  to  any  U.  S.  carrier 

 455  These  numbers  include  confidential  as  well  as  non-  confidential  data  filed  pursuant  to  section  43.61  of  the 
 Commissions  rules.  For  non-  confidential  data  only,  see  2003  Section  43.61  Report  at  Table  A1.  Although  facilities-  based  IMTS  may  be  provisioned  through  switches  serving  local  areas  or  regions,  this  product  can  be  resold 

 easily  and  at  very  little  cost  over  national  transmission  facilities.  Thus,  the  price  of  wholesale  IMTS  does  not  differ  significantly,  or  at  all,  between  locales  in  the  United  States.  Data  aggregated  to  the  nationwide  level  for  facilities-based 
 IMTS  are  available  in  the  Commissions  section  43.61  annual  data  reports  for  each  U.  S.  international  route  and  for  the  aggregation  of  all  U.  S.  international  routes,  termed  world  total  data. 

 456  These  numbers  were  calculated  using  approximately  46.3  billion  U.  S.-  billed  minutes  in  2003.  The  46.3  billion 
 minutes  include  confidential  as  well  as  non-  confidential  data  filed  pursuant  to  section  43.61  of  the  Commissions  rules.  For  non-  confidential  data  only,  see  2003  Section  43.61  Report  at  Table  A1. 

 457  See  id. 
 458  See  id.  See  also  Letter  from  Ann  D.  Berkowitz,  Verizon,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No. 
 05-  75  (filed  Sept.  2,  2005)  (Verizon  Sept.  2  Ex  Parte  Letter).  Verizon  offers  international  long  distance  services  to  end  users  in  the  United  States  through  various  subsidiaries  and  affiliates.  These  are:  Bell  Atlantic 

 Communications,  Inc.  d/  b/  a  Verizon  Long  Distance  (VLD);  NYNEX  Long  Distance  Company  d/  b/  a  Verizon  Enterprise  Solutions  (VES);  Verizon  Global  Solutions  Inc.  (VGSI);  Verizon  Select  Services  Inc.  (VSSI)  (VGSI  and 
 VSSI  merged  on  March  1,  2005);  Verizon  Airfone  Inc.  (formerly  GTE  Airfone  Incorporated);  Cellco  Partnership  d/  b/  a/  Verizon  Wireless;  CODETEL  International  Communications  Inc.  (CIC);  PRT  Larga  Distancia,  Inc;  Verizon 
 Hawaii  International  Inc.  (VHI);  and  GTE  Pacifica  Incorporated  d/  b/  a  Verizon  Pacifica  (Verizon  Pacifica).  See  Verizon/  MCI  Lack/  Pilgrim  Decl.  at  2. 

 459  See  2003  Section  43.61  Report  at  Table  A  (nonconfidential  filings  only). 
 460  For  instance,  the  number  of  U.  S.  facilities-  based  carriers  serving  the  Dominican  Republic,  Libya,  and  Malawi  is 
 23,  20,  and  17,  respectively. 
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 seeking  such  services.  461  Given  the  absence  of  significant  barriers  to  entry,  any  attempt  by  the  merging  parties  to  exercise  market  power  on  any  international  route  would  be  frustrated  by  the  entry  of 
 competitors  attracted  by  the  prospects  of  earning  supra-  competitive  profits. 
 167.  Another  factor  that  should  constrain  the  exercise  of  market  power  over  facilities-  based  IMTS  is  the  emergence  of  international  VoIP  services  as  a  substitute  for  facilities-  based  IMTS.  VoIP  from  the 
 United  States  to  foreign  destinations  is  provisioned  over  the  public  Internet  or  private  Internet  Protocol  networks,  which  use  either  private  lines  provided  by  common  carriers  or  non-  common  carrier  private 
 networks.  VoIP  enables  carriers  to  avoid  significant  termination  costs  associated  with  the  provision  of  facilities-  based  IMTS  over  the  public  switched  networks,  making  VoIP  a  low-  cost  alternative  to  facilities-based 
 IMTS.  Currently,  demand  for  international  VoIP  is  limited  due  to  various  problems  with  quality  of  service  and  customer  access,  but  these  problems  should  be  mitigated  in  the  future. 

 b.  International  Private  Line  Services 
 168.  We  also  identify  the  provision  of  facilities-  based  private  line  service,  a  fundamental  service  for  dedicated  connectivity  between  points  in  the  United  States  and  foreign  destinations,  as  a  relevant  product 
 market.  Private  lines  are  facilities  that  provide  dedicated  connectivity  between  two  geographically  distant  customer  points  and  are  sold  to  customers  as  common  carriage  offerings.  Private  line  facilities  are  offered 
 to  the  public  in  sizes  ranging  from  64-  Kbps  circuits  (DS0)  up  to  very  high  speed  trunks  equivalent  to  1,890  64-  Kbps  circuits  (STM-  1),  or  higher.  International  private  lines  provided  by  U.  S.  carriers  connect 
 customer  locations  in  the  United  States  to  locations  abroad. 
 169.  The  annual  section  43.61  report  shows  that  in  2003  there  were  42  carriers  that  competed  in  the  U.  S.  markets  for  international  private  line  services.  These  carriers  generated  revenues  of  $707  million, 
 with  sales  of  2.4  million  equivalent  64-  Kbps  circuits.  462  Nationally,  the  largest  participants  are  AT&  T,  KDDI  America,  Level  3  Communications,  NTT  America,  Qwest  Services,  Singapore  Telecom  USA, 
 Sprint,  and  T-  Systems  North  America,  each  with  between  five  and  sixteen  percent  of  total  equivalent  64-  Kbps  circuits.  Verizon  was  the  twelfth-  largest  participant  nationally  with  a  share  of  less  than 
 [REDACTED]  percent.  MCI  was  the  sixteenth-  largest  participant  nationally  with  a  share  of  less  than  one  percent.  Based  on  Verizons  and  MCIs  very  low  share  of  international  private  line  circuits,  we  find 
 that  the  merger  poses  no  competitive  concerns  with  regard  to  the  provision  of  international  private  line  service. 

 3.  End-  User  Markets 
 a.  Mass  Market 
 170.  The  mass  market  for  international  telecommunications  services  consists  of  international  telecommunications  services  sold  directly  to  residential  and  small  business  customers.  The  primary 
 suppliers  of  such  services  are  facilities-  based  IMTS  carriers  and  IMTS  resellers.  463  We  find  that  the 
 461  Arbinet  Exchange  is  an  example  of  a  company  bringing  buyers  and  sellers  of  international  termination  services 
 together. 
 462  These  data  were  calculated  using  both  confidential  as  well  as  non-  confidential  data  filed  pursuant  to  section 
 43.61  of  the  Commissions  rules.  For  non-  confidential  data  only,  see  2003  Section  43.61  Report  at  Table  B1. 
 463  Although  we  cannot  identify  precisely  which  VoIP  providers  should  be  included  in  the  same  market  as  mass 
 market  IMTS,  we  nevertheless  find  that  certain  VoIP  providers  should  be  included  as  participants  in  this  market.  Cf.  supra  Part  V.  D  (Mass  Market  Competition).  We  further  find  that  wireless  providers  of  IMTS  should  be 

 included  in  this  market. 
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 market  is  not  highly  concentrated  and  that  the  merger  is  not  likely  to  have  anticompetitive  effects.  We  also  find  that  structural  characteristics  of  the  IMTS  mass  market  facilitate  entry  and  will  ensure  that  the 
 market  remains  competitive. 
 171.  As  discussed  above,  464  a  mass  market  customers  presubscribed  interexchange  carrier  and/  or  wireless  carrier  will  be  the  presubscribed  carrier  for  both  the  domestic  and  international  long  distance 
 calls  placed  by  that  customer.  Presubscription,  however,  is  not  as  important  a  factor  in  a  consumers  choice  of  an  IMTS  provider  as  it  is  for  determining  his  choice  of  a  domestic  long  distance  provider. 
 Because  international  calls  are  relatively  more  expensive  than  domestic  long  distance  calls,  consumers  who  use  a  large  amount  of  international  telecommunications  services  often  choose  IMTS  providers  other 
 than  their  presubscribed  carrier  by  using  dial-  around  service  or  prepaid  calling  cards,  which  often  are  significantly  less  expensive.  465  The  facts  that  IMTS  resale  comprises  such  a  large  portion  of  IMTS 
 minutes,  and  dial-  around  carriers  and  prepaid  cards  make  up  a  high  proportion  of  IMTS  resale,  suggest  that  many  consumers  approach  IMTS  as  an  a  la  carte  service  often  purchased  from  providers  other  than 
 their  presubscribed  carrier,  including  independent  resellers.  466 
 172.  In  addition,  the  IMTS  mass  market  is  not  highly  concentrated.  There  are  approximately  40  facilities-  based  carriers  and  approximately  770  resellers  providing  IMTS  service.  Many  of  these  carriers 
 offer  service  on  all  or  most  international  routes  and  sell  directly  to  residential  and  small  business  customers.  Major  market  participants  include  MCI,  AT&  T,  IDT  Corporation,  and  Sprint,  as  well  as  a 
 number  of  other  highly  active  facilities-  based  carriers  and  resellers.  467  Within  the  last  several  years,  AT&  T,  MCI,  and  Sprint  have  begun  focusing  on  the  provision  of  wholesale  IMTS  to  resale  carriers. 
 Many  smaller,  highly  competitive  resellers  also  have  entered  in  recent  years  to  compete  against  the  traditional  carriers  in  the  provision  of  mass  market  IMTS.  As  a  result,  the  traditional  international  carriers 
 no  longer  hold  the  substantial  market  shares  in  the  IMTS  mass  market  that  they  once  held.  Although  Verizon  has  the  most  presubscribed  lines  of  any  carrier  within  its  footprint,  the  fact  that  Verizon  sold  only 
 [REDACTED]  IMTS  minutes  to  end  users  in  2004  is  evidence  that  it  possesses  only  a  limited  share  of  mass  market  IMTS  within  its  footprint.  468  Given  such  a  competitively  dynamic  environment,  we  find  that 
 the  merger  is  not  likely  to  result  in  anticompetitive  effects  in  the  IMTS  mass  market. 

 464  See  supra  at  paras.  84-  85  (Mass  Market  Competition). 
 465  Based  on  a  study  in  the  record  of  this  proceeding,  international  prepaid  minutes  constituted  approximately 
 [REDACTED]%  of  total  end-  user  international  minutes  for  2003.  See,  e.  g.,  Verizon  Info.  Req.  at  VZFCC-  Q23-  8251.  pdf;  FCC  2003  International  Telecommunications  Data  (sum  of  world  total  minutes  in  Tables  41  and  42). 

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

 service,  such  as  prepaid  calling  cards  or  dial-  around. 
 467  See  2003  Section  43.61  Report,  Tables  A-  D. 

 468  An  extremely  rough  upper  bound  on  Verizons  market  share  can  be  derived  as  follows:  Nationwide,  end-  user 
 IMTS  minutes  totaled  approximately  37  billion  minutes  in  2003.  See  2003  Section  43.61  Report,  Tables  41,  42.  Reflecting  growth  in  traffic,  it  is  likely  that  volume  grew  to  approximately  40  billion  end-  user  IMTS  minutes  in 

 2004.  The  proportion  of  residential  and  small  business  minutes  to  total  end-  user  minutes  is  approximately  60%,  so  that  the  residential  market  in  2004  consists  of  approximately  24  billion  minutes  nationwide.  Because  Verizon  has 
 approximately  32%  of  total  U.  S.  local  loops  in  its  footprint,  we  estimate  that  approximately  7.7  billion  residential  minutes  were  sold  by  all  carriers  in  the  Verizon  footprint  in  2004.  Verizon  reported  [REDACTED]  end-  user 
 minutes  in  2004.  If  all  of  Verizons  minutes  are  residential  and  small  business  minutes  (i.  e.,  if  Verizon  sells  no  (continued.) 
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 173.  We  also  find  that  various  structural  characteristics  of  the  IMTS  mass  market  will  ensure  that  the  market  remains  competitive.  As  explained  above,  mass  market  IMTS  customers  have  multiple  access 
 channels  through  which  to  obtain  international  service,  including  calling  plans  offered  by  their  presubscribed  long-  distance  carrier,  dial-  around  services,  prepaid  calling  cards,  as  well  as  important 
 emerging  access  channels  such  as  discounted  international  calling  plans  offered  by  wireless  carriers  and  VoIP  providers.  In  addition,  as  discussed  above,  there  are  no  significant  barriers  to  entry  in  the  provision 
 of  mass  market  IMTS.  For  facilities-  based  providers,  substantial  international  transport  capacity  exists  in  all  regions  and  foreign  termination  services  are  available  on  virtually  every  route.  Because  facilities-based 
 IMTS  minutes  are  a  crucial  input  for  resellers,  their  wide  availability  will  continue  to  sustain  a  highly  active  resale  sector.  Indeed,  the  presence  of  approximately  770  resellers  nationwide  demonstrates 
 that  successful  entry  into  the  IMTS  mass  market  is  feasible  even  for  smaller,  non-  facilities-  based  carriers. 
 b.  Enterprise  Market 
 174.  The  enterprise  market  for  international  telecommunications  services  consists  of  international  telecommunications  services  sold  directly  to  medium  and  large  business  customers.  As  discussed  above 
 in  the  context  of  domestic  enterprise  services,  we  find  that  medium  and  large  enterprise  customers  are  sophisticated  purchasers  of  telecommunications  services  likely  to  make  informed  choices  based  on  expert 
 advice  about  service  offerings  and  prices.  As  we  concluded  above,  so  long  as  no  structural  barriers  prevent  carriers  from  offering  services  to  such  customers,  they  will  seek  out  best-  priced  alternatives.  469 
 The  provision  of  international  services  to  larger  business  customers  depends  in  large  part  on  the  ability  to  obtain  critical  inputs,  such  as  international  transport  capacity  and  operating  agreements  with  carriers  on 
 the  foreign  end,  as  well  as  the  technical  ability  to  provide  the  specific  services  demanded  by  larger  business  customers.  Except  with  respect  to  the  three  routes  where  the  combined  entity  will  be  affiliated 
 with  a  market-  power  carrier  at  the  foreign  end  of  the  route,  the  combined  entity  would  not  have  the  ability  to  exercise  market  power  over  these  critical  inputs.  Given  the  standard  foreign  carrier  safeguards  we 
 apply  to  the  transfer  of  the  international  section  214  and  submarine  cable  authorizations  to  serve  the  three  routes,  as  discussed  below,  the  merger  also  will  not  have  anticompetitive  effects  on  the  ability  of  other 
 carriers  to  obtain  critical  inputs  on  these  three  routes.  Moreover,  we  find  that  many  carriers  have  the  technical  capability  to  provide  business  services.  In  light  of  these  facts,  we  conclude  that  the  merger  is 
 unlikely  to  reduce  competition  in  this  market. 
 c.  Global  Telecommunications  Services 
 175.  The  global  telecommunications  services  (GTS)  market,  also  known  as  the  global  seamless  services  market,  is  a  segment  of  the  enterprise  market  that  is  focused  on  large  multi-  national  customers 
 that  require  connectivity  to  multiple  locations  throughout  the  world,  not  just  within  the  United  States.  These  customers  are  generally  large  multi-  national  corporations  that  have  significant  expertise  in 
 telecommunications  issues.  470  The  Commission  has  defined  the  global  seamless  services  market  as  a  combination  of  voice,  data,  video,  and  other  telecommunications  services  that  are  offered  by  a  single 
 source  or  multiple  sources  over  an  integrated  global  or  regional  international  network  of  owned  or  leased 

 (Continued  from  previous  page)  IMTS  to  large  businesses)  then  it  has  approximately  [REDACTED]%  of  the  mass  market  in  its  footprint.  This  is  an 
 upper  limit  on  Verizons  mass  IMTS  market  share. 
 469  See  supra  Part  V.  C  (Retail  Enterprise  Competition). 

 470  AT&  T/  British  Telecom  Order,  14  FCC  Rcd  at  19151-  57,  paras.  22-  39. 
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 facilities,  and  that  have  equivalent  (though  not  identical)  quality,  characteristics,  features  and  capabilities  wherever  they  are  provided.  471 
 176.  We  are  not  persuaded  by  BT  Americas  claims  that  the  proposed  transaction  will  result  in  anticompetitive  effects  in  the  provision  of  global  telecommunications  services.  472  BT  Americas  primary 
 argument  is  that  the  merger  would  increase  Verizons  control  over  special  access  services  for  enterprise  networks,  a  critical  input  for  GTS.  473  We  have  already  addressed  the  wholesale  special  access  issue  in 
 this  Order.  474  We  do  not  find  any  unique  characteristics  with  respect  to  the  application  of  special  access  to  GTS  that  warrant  a  different  conclusion  as  to  that  market. 

 177.  We  also  reject  the  contention  of  BT  Americas  and  CompTel/  ALTS  that  the  merger  will  remove  a  potential  competitor  in  the  GTS  market.  475  The  Applicants  claim  that  the  merger  raises  no  horizontal 
 concerns  with  respect  to  GTS,  because  Verizon  provides  only  a  de  minimis  amount  of  services  to  multi-national  corporations  on  a  multi-  country  or  multi-  continent  basis.  476  Even  if  we  were  to  conclude  that 
 Verizon  has  entered  the  GTS  market,  we  find  that,  because  competitors  can  freely  obtain  the  necessary  inputs  and  have  the  technical  assets  and  capabilities  to  provide  GTS,  Verizon  does  not  have  a  unique 
 competitive  advantage  as  a  potential  entrant  in  the  GTS  market.  477  To  the  extent  that  Verizon  could  serve 
 471  AT&  T/  British  Telecom  Order,  14  FCC  Rcd  at  19153,  para.  28;  see  also,  e.  g.,  Sprint  Corporation,  Petition  for 
 Declaratory  Ruling  Concerning  Section  310(  b)(  4)  and  (d)  and  the  Public  Interest  Requirements  of  the  Communications  Act  of  1934,  as  amended,  File  No.  I-  S-  P-  95-  002,  Declaratory  Ruling  and  Order,  11  FCC  Rcd 

 1850,  1864,  para.  84  (1996)  (Sprint  Declaratory  Ruling);  United  States  v.  Sprint  Corp.,  Civil  Action  No.  95-  1304,  Complaint  at  paras.  18,  29,  39  (D.  D.  C.  filed  July  13,  1995)  (defining  market  of  seamless  international 
 telecommunications  services  that  is  distinct  for  purposes  of  antitrust  law). 
 472  See  generally  BT  Americas  May  6  Ex  Parte  Letter;  see  also,  e.  g.,  CompTel/  ALTS  Petition  at  20-  22  (stating  that 
 the  merger  would  harm  consumers  by  eliminating  Verizon  as  a  significant  new  competitor  of  MCI  in  the  provision  of  global  enterprise  services,  at  least  within  Verizons  footprint). 

 473  See,  e.  g.,  BT  Americas  May  6  Ex  Parte  Letter  at  3;  CompTel/  ALTS  Petition  at  11-  20. 
 474  See  supra  Part  V.  B  (Wholesale  Special  Access  Competition). 
 475  See  generally  BT  Americas  May  6  Ex  Parte  Letter;  see  also,  e.  g.,  CompTel/  ALTS  Petition  at  20-  22  (stating  that 
 the  merger  would  harm  consumers  by  eliminating  Verizon  as  a  significant  new  competitor  of  MCI  in  the  provision  of  global  enterprise  services,  at  least  within  Verizons  footprint). 

 476  In  particular,  the  Applicants  state  that  Verizon  does  not  serve  any  customers  that  it  considers  GTS  customers.   
 Although  Verizons  customers  include  many  multinational  corporations,  it  provides  only  a  de  minimis  amount  of  services  to  these  customers  on  a  multi-  country  or  multi-  continent  basis.  Response  of  Verizon  to  the  Commissions 

 May  26,  2005,  International  Document  and  Information  Request,  WC  Docket  No.  05-  75  (filed  June  10,  2005)  (Verizon  June  10  Response)  at  14.  The  Applicants  also  note  that  the  Ovum  Study,  although  it  does  not  purport  to 
 identify  all  entities  that  provide  global  services,  does  not  include  Verizon.  See  id.  at  15. 
 477  As  discussed  above,  we  have  concluded  that  the  merged  entity  does  not  have  the  ability  to  act  anticompetitively 
 in  the  provision  of  international  transport  in  any  of  the  three  geographic  regions  nor,  with  the  addition  of  the  standard  foreign  carrier  safeguards,  on  the  U.  S.-  Dominican  Republic  or  U.  S.-  Venezuela  routes,  where  Verizon  has  a 

 market-  power  foreign  affiliate  on  the  destination  end  of  each  route.  Moreover,  recent  European  Commission  analyses  suggest  that  the  GTS  market  is  a  bidding  market,  where  market  share  is  less  relevant  than  the  ability  of 
 customers  to  choose  alternative  suppliers.  See,  e.  g.,  BT/  Infonet,  Case  No.  COMP/  M.  3641  (European  Commission  2005),  available  at  http://  europa.  eu.  int/  comm/  competition/  mergers/  cases/  decisions/  m3641_  20050125_  en.  pdf 
 (stating,  in  addition,  that  GTS  customers  do  not  find  switching  to  alternative  suppliers  to  be  financially  prohibitive).  See  also  AT&  T/  BT  Order,  14  FCC  Rcd  at  19165,  para.  51  (for  sophisticated  customers  like  global  multinational 
 corporations,  retail  assets  and  capabilities  are  far  less  important  than  price  and  service  factors). 
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 to  constrain  the  exercise  of  market  power  as  an  entrant,  other  firms,  some  with  more  international  assets  and  operations,  and  thus  more  suited  to  entry  into  the  GTS  market  than  Verizon,  would  continue  to  exert 
 a  restraining  influence,  or,  if  entry  would  become  profitable,  would  recognize  the  opportunity  to  enter.  For  these  reasons,  we  also  are  not  persuaded  that  the  MCI-  Verizon  merger,  taken  in  combination  with  the 
 merger  of  SBC-  AT&  T,  would  likely  result  in  anticompetitive  effects  in  the  GTS  market.  478 
 4.  Foreign  Carrier  Affiliations  and  Related  Safeguards 
 178.  As  a  part  of  our  public  interest  analysis  under  section  214(  a)  of  the  Act,  we  also  consider  whether,  upon  consummation  of  the  proposed  transfers  of  control,  the  international  section  214 
 authorization  holders  will  become  affiliated  with  a  foreign  carrier  that  has  market  power  on  the  foreign  end  of  a  U.  S.  route  that  the  international  section  214  authorization  holders  have  the  authority  to  serve 
 pursuant  to  the  authorizations  that  will  be  transferred.  479  Under  rules  adopted  in  the  Foreign  Participation  Order,  the  Commission  classifies  a  U.  S.  carrier  as  dominant  on  a  particular  international  route  if  it  is,  or 
 is  affiliated  with,  a  foreign  carrier  that  has  market  power  on  the  foreign  end  of  that  route.  480  Similarly,  under  section  1.767(  a)(  8)  and  (a)(  11)  and  section  1.768  of  the  Commissions  rules,  a  submarine  cable 
 licensee  that  proposes  to  transfer  control  of  an  interest  in  a  submarine  cable  landing  license  granted  pursuant  to  the  Cable  Landing  License  Act  is  required  to  disclose  if  it  will  become  affiliated  with  a 
 foreign  carrier  as  a  result  of  the  transfer  of  control.  481  The  Commission  applies  competitive  safeguards  to  a  cable  landing  license  held  by  a  licensee  that  is,  or  is  affiliated  with,  a  carrier  with  market  power  in 
 relevant  input  markets  on  the  foreign  end  of  the  cable  that  could  result  in  harm  to  competition  in  the  U.  S.  market.  482 

 478  BT  Americas  May  6  Ex  Parte  Letter,  Attach.  at  11-  14. 
 479  47  U.  S.  C.    214(  a).  For  international  section  214  applicants,  the  terms  affiliated  and  foreign  carrier  are 
 defined  in  section  63.09  of  the  Commissions  rules,  47  C.  F.  R.    63.09. 
 480  Foreign  Participation  Order,  12  FCC  Rcd  at  23969-  70,  23987,  23991-  99,  paras.  177-  78,  215,  221-  39.  A  carrier 
 classified  as  dominant  on  a  particular  U.  S.  international  route  due  to  an  affiliation  with  a  foreign  carrier  that  has  market  power  on  the  foreign  end  of  the  route  is  subject  to  specific  international  dominant  carrier  safeguards  set  forth 

 in  section  63.10  of  the  rules.  See  47  C.  F.  R.    63.  10(  c),  (e).  These  safeguards  are  designed  to  address  the  possibility  that  a  foreign  carrier  with  control  over  facilities  or  services  that  are  essential  inputs  for  the  provision  of  U.  S. 
 international  services  could  discriminate  against  rivals  of  its  U.  S.  affiliates.  In  the  Foreign  Participation  Order,  the  Commission  concluded  that  these  safeguards,  in  conjunction  with  generally  applicable  international  safeguards,  are 
 sufficient  to  protect  against  vertical  harms  by  carriers  from  World  Trade  Organization  (WTO)  Member  countries  in  virtually  all  circumstances.  In  the  exceptional  case  where  an  application  poses  a  very  high  risk  to  competition  in  the 
 U.  S.  market    where  the  standard  safeguards  and  additional  conditions  would  be  ineffective    the  Commission  reserves  the  right  to  deny  the  applications.  Foreign  Participation  Order,  12  FCC  Rcd  at  23913-  14,  para.  51. 

 481  47  C.  F.  R.    1.767(  a)(  8),  (a)(  11),  1.768;  see  also  47  U.  S.  C.    34-  39;  Exec.  Ord.  No.  10530    5(  a),  reprinted  as 
 amended  in  3  U.  S.  C.    301.  For  submarine  cable  applicants,  the  terms  affiliated  and  foreign  carrier  are  defined  as  in    63.09  of  the  Commissions  rules,  47  C.  F.  R.    63.09,  except  that  the  term  foreign  carrier  also  shall  include 

 any  entity  that  owns  or  controls  a  cable  landing  station  in  a  foreign  market.  See  Note  to    1.767,  47  C.  F.  R.    1.767. 
 482  47  C.  F.  R.    1.767(  l),  1.768(  f);  see  also  Submarine  Cable  Report  and  Order,  16  FCC  Rcd  at  22180,  para.  25. 
 Relevant  foreign  carrier  input  markets  include  those  facilities  or  services  for  the  landing,  connection,  or  operation  of  submarine  cables.  Submarine  Cable  Report  and  Order,  16  FCC  Rcd  at  22180,  para.  23.  The  Commission  found 

 that  these  competitive  safeguards  should  be  sufficient  in  all  but  the  most  exceptional  of  circumstances  to  detect  and  deter  any  anti-  competitive  behavior  associated  with  market  power  in  WTO  Member  markets  where  U.  S.-  licensed 
 cable  systems  land  and  operate.  Id. 
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 179.  MCI  certifies  that  it  is  not  affiliated  with  any  market-  power  carrier  at  the  foreign  end  of  a  U.  S.  route.  483  Verizon  certifies  that  its  affiliation  with  market-  power  carriers  is  limited  to  the  U.  S.-  Gibraltar, 
 U.  S.-  Dominican  Republic,  and  U.  S.-  Venezuela  routes.  484  Verizons  authorized  subsidiaries  are  classified  as  dominant  international  carriers  on  these  three  routes.  485  Based  on  MCIs  and  Verizons  certifications, 
 we  find  that  Verizon  will  not  acquire  any  new  foreign  carrier  affiliations  upon  consummation  of  its  proposed  acquisition  of  MCI.  We  therefore  need  not  classify  Verizons  authorized  subsidiaries  as 
 dominant  international  carriers  on  any  new  U.  S.  routes.  MCI,  however,  will  acquire  affiliations  with  market-  power  carriers  on  the  U.  S.-  Gibraltar,  U.  S.-  Dominican  Republic,  and  U.  S.-  Venezuela  routes  once 
 Verizon  acquires  control  of  MCI.  MCI  subsidiaries  hold  international  section  214  authorizations  to  serve  all  three  routes.  486  The  Dominican  Republic,  Gibraltar  and  Venezuela  are  WTO  Member  countries.  Thus, 
 the  Applicants  are  entitled  to  a  presumption  that  grant  of  the  international  section  214  transfer  applications,  conditioned  on  MCIs  classification  as  a  dominant  international  carrier  on  these  three  U.  S. 
 routes,  will  protect  against  vertical  harms  (i.  e.,  discrimination  by  Verizons  affiliates  against  MCIs  U.  S.  rivals)  in  virtually  all  circumstances.  487  No  commenter  has  sought  to  rebut  this  presumption  and  we  find 
 no  evidence  in  the  record  to  suggest  that  grant  of  the  applications,  as  conditioned,  would  pose  a  risk  to  competition  in  the  U.  S.  market. 

 180.  We  find  similarly  with  respect  to  MCIs  interests  in  submarine  cable  landing  licenses.  MCI  holds  submarine  cable  landing  licenses  for  cables  landing  in  the  Dominican  Republic  and  Venezuela, 
 where  market-  power  affiliates  of  Verizon  are  the  foreign  cable  landing  parties  for,  respectively,  all  or  the  majority  of  international  transport  capacity  landing  in  those  destination  markets.  488  Because  the  proposed 

 483  See  Verizon/  MCI  Public  Interest  Statement,  at  67;  see  also  each  of  the  International  214  Applications,  at  5, 
 Answer  to  Question  14    Section  63.18(  i);  each  of  the  Submarine  Cable  Applications,  at  9,  Section  63.18(  i)    Affiliations  with  Foreign  Carriers. 

 484  Verizon  states  that  all  of  its  foreign  affiliates  except  for  Verizon  Dominicana,  CANTV,  and  Gibtelecom  lack 
 market  power  in  their  home  markets.  Verizon  indirectly  owns  50%  of  Gibtelecom  Limited,  a  market-  power  provider  of  domestic  wireline  communications  in  Gibraltar  and  international  telecommunications  services  between 

 Gibraltar  and  Spain.  See  each  of  the  International  section  214  Applications,  at  11,  Answer  to  Question  16    Section  63.10;  each  of  the  Submarine  Cable  Applications  at  9,  Section  63.18(  i)    Affiliations  With  Foreign  Carriers. 

 485  See,  e.  g.,  each  of  the  International  section  214  Applications,  at  Exhibit  2    Verizons  Foreign  Carrier  Affiliations 
 (stating  that  the  Verizon  international  section  214  authorization  holders  are  classified  as  dominant  in  their  provision  of  services  on  each  of  the  U.  S.-  Dominican  Republic,  U.  S.-  Gibraltar,  and  U.  S.-  Venezuela  routes). 

 486  See,  e.  g.,  each  of  the  International  section  214  Applications  at  12  (stating  that  each  of  the  MCI  international 
 section  214  authorization  holders  will  comply  with  the  dominant  carrier  requirements  of  47  C.  F.  R.    63.10  on  the  three  routes);  see  id.  at  Attachment  2  (listing  the  international  section  214  authorizations  of  the  applicable  MCI 

 authorization  holder).  In  addition,  Verizon  and  MCI  have  overlapping  foreign  carrier  affiliations  in  Belgium,  France,  Germany,  Hong  Kong,  Ireland,  Italy,  Japan,  the  Netherlands,  Singapore,  Spain,  Switzerland,  the  United 
 Kingdom,  and  Venezuela.  The  Applicants  certify  that  in  each  of  these  destination  markets,  except  for  Venezuela,  the  foreign  carrier  affiliates  of  Verizon  and  MCI  collectively  lack  50%  market  share  in  the  international  transport 
 and  local  access  markets,  and  thus  state  that  these  overlapping  affiliates,  except  in  Venezuela,  continue  to  be  entitled  to  a  presumption  of  non-  dominance  on  each  of  these  international  routes.  See,  e.  g.,  each  of  the  International  Section 
 214  Applications,  at  11,  Answer  to  Question  16    Section  63.10. 
 487  See  Foreign  Participation  Order,  12  FCC  Rcd  at  23913-  4,  para.  50,  23969-  70,  paras.  177-  78;  47  C.  F.  R.   
 63.10(  c),  (e).  See  also  supra  note  480. 
 488  See  supra  our  discussion  of  input  markets,  at  para.  161  &  note  451  (Verizon  Dominicana  owns  and  operates  the 
 two  Dominican  Republic  cable  landing  stations  for  the  two  cables    Antillas-  1  and  Arcos-  1    landing  in  the  Dominican  Republic  and  providing  100%  of  cable  capacity  on  the  U.  S.-  Dominican  Republic  route    and  CANTV 

 (continued.) 
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 transfer  of  control  would  result  in  MCI  acquiring  an  affiliation  with  Verizons  market-  power  affiliates  in  the  Dominican  Republic  and  Venezuela,  our  rules  require  that  we  condition  grant  of  the  submarine  cable 
 transfer  applications  on  MCIs  compliance  with  the  competitive  safeguards  contained  in  section  1.767(  l)  of  our  rules.  489  We  find  that,  as  conditioned,  grant  of  the  submarine  cable  transfer  applications  will 
 protect  against  vertical  harms  in  the  U.  S.  international  transport  market  by  Verizons  market-  power  affiliates  in  the  Dominican  Republic  and  Venezuela. 

 181.  Accordingly,  we  conclude  that  the  proposed  transfers  of  control  of  the  submarine  cable  landing  licenses,  and  the  international  section  214  authorizations,  from  MCI  to  Verizon,  as  conditioned,  are 
 consistent  with  our  foreign  carrier  affiliation  rules  and  policies.  490 
 5.  Submarine  Cable  Landing  Licensee  Notification 
 182.  Section  1.767  requires,  at  a  minimum,  that  each  entity  owning  or  controlling  a  cable  landing  station  in  the  United  States,  or  owning  or  controlling  a  five  percent  or  greater  interest  in  a  submarine 
 cable  system  licensed  by  the  Commission  and  using  the  U.  S.  points  of  the  cable  system,  be  a  licensee  of  the  submarine  cable  system.  491  Verizons  subsidiaries  and  affiliates  own  capacity  in  excess  of  five  percent 
 on  a  number  of  cables,  although  it  is  not  clear  from  the  Applications  whether  the  subsidiaries  and  affiliates  use  the  U.  S.  points  of  the  cable  system.  492  Within  forty-  five  days  after  the  release  of  this  Order, 
 we  require  Verizon  to  notify  the  International  Bureau  whether  any  of  its  subsidiaries  or  foreign  affiliates 
 (Continued  from  previous  page)  owns  and  operates  the  four  Venezuela  cable  landing  stations  serving  four  of  the  six  submarine  cables    Americas-  1, 

 Americas-  2,  Arcos-  1,  and  Pan  American    that  provide  66%  of  the  cable  capacity  on  the  U.  S.-  Venezuela  route). 
 489  See  supra  para.  178. 

 490  As  a  condition  to  the  grant  of  the  transfer  of  control  of  the  international  section  214  authorizations,  we  classify 
 each  MCI  authorization  holder  and  any  100%  direct  or  indirect  subsidiary  of  a  named  MCI  holder  that  uses  that  authorization  pursuant  to  47  C.  F.  R.    63.21  as  dominant  in  the  provision  of  service  on  each  of  the  U.  S.-  Dominican 

 Republic,  U.  S.-  Gibraltar,  and  U.  S.-  Venezuela  routes.  See  infra  para.  225  (Ordering  Clauses).  Additionally,  Verizon  and  its  subsidiaries  will  continue  to  be  classified  as  dominant  on  the  U.  S.-  Dominican  Republic,  U.  S.  -Gibraltar, 
 and  U.  S.-  Venezuela  routes  in  accordance  with  their  existing  international  section  214  authorizations.  As  a  condition  to  the  grant  of  the  transfer  of  control  of  the  interests  that  MCI  and  its  subsidiaries  hold  in  submarine 
 cable  licenses  for  the  Americas-  1,  Americas-  2,  Antillas-  1,  Arcos-  1,  and  Pan  American  cables,  we  require  MCI  and  its  U.  S.  subsidiaries  to  comply  with  the  quarterly  reporting  requirements  contained  in  section  1.767(  l)  of  our  rules 
 for  the  U.  S.-  Dominican  Republic  and  U.  S.-  Venezuela  routes.  See  infra  para.  226  (Ordering  Clauses). 
 491  47  C.  F.  R.    1.767(  h).  The  Commissions  adoption  of  this  rule  allows  other  investors,  unless  otherwise  required 
 in  a  particular  instance,  to  opt  out  of  becoming  a  submarine  cable  licensee.  In  adopting  this  rule,  the  Commission  defined  using  the  U.  S.  points  of  the  cable  system  to  include  use  of  U.  S.-  end  half-  circuits  for  transport  or  for  sale 

 of  capacity,  but  not  to  include,  for  example,  use  of  half-  circuits  strictly  at  the  foreign  end  or  of  full  circuits  strictly  between  various  non-  U.  S.-  end  destination  markets  in  a  ring  configuration  cable  system.  See  Submarine  Cable 
 Report  and  Order,  16  FCC  Rcd  at  22194,  para.  54  n.  119.  The  Commission  stated  that  it  would  not  require  foreign-authorized  carriers  to  become  U.  S.  licensees  of  cables  licensed  by  the  Commission  prior  to  the  effective  date  of  the 
 Submarine  Cable  Report  and  Order  in  circumstances  where  the  foreign-  authorized  carrier  had  purchased,  or  had  entered  into  an  agreement  to  purchase,  whole  circuits  in  the  cable  prior  to  the  effective  date  of  the  Submarine  Cable 
 Report  and  Order,  where  the  circuits  were  hard  patched  through  the  United  States  to  telecommunications  facilities  in  a  third  country,  with  no  breakout  of  traffic  to  the  U.  S.  public  switched  network.  Submarine  Cable 
 Report  and  Order,  16  FCC  Rcd  at  22194  n.  119. 
 492  It  appears  that  Verizon  and  its  subsidiaries  and  affiliates  together  own  more  than  5%  capacity  on  each  of  the 
 Americas-  1,  Americas-  2,  Antillas-  1,  Columbus  II,  and  Japan-  U.  S.  cables.  See  Verizon/  MCI  Lack/  Pilgrim  Decl.  at  Exhibit  1. 
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 owns  or  controls  a  five-  percent-  or-  greater  interest  in  any  submarine  cable  licensed  by  the  Commission  and  uses  any  of  the  U.  S.  points  of  the  cable  system.  493  We  retain  the  right  to  require  any  such  subsidiary 
 or  affiliate  to  become  a  licensee  on  the  applicable  cable  system. 
 H.  Verizons  Qualifications  to  Acquire  Control  of  MCIs  Licenses 
 183.  As  previously  noted,  section  310(  d)  of  the  Communications  Act  provides  that  no  station  license  may  be  transferred,  assigned,  or  disposed  of  in  any  manner  except  upon  a  finding  by  the  Commission  that 
 the  public  interest,  convenience  and  necessity  will  be  served  thereby.  494  Among  the  factors  that  the  Commission  considers  in  its  public  interest  inquiry  is  whether  the  applicant  for  a  license  or  license 
 transfer  has  the  requisite  citizenship,  character,  financial,  technical,  and  other  qualifications.  495  Therefore,  as  a  threshold  matter,  the  Commission  must  determine  whether  the  parties  meet  the  requisite 
 qualifications  to  hold  and  transfer  licenses  under  section  310(  d)  of  the  Act  and  the  Commissions  rules.  496  In  making  this  determination,  the  Commission  does  not,  as  a  general  rule,  reevaluate  the  qualifications  of 
 transferors  unless  issues  related  to  basic  qualifications  have  been  designated  for  hearing  by  the  Commission  or  have  been  sufficiently  raised  in  petitions  to  warrant  the  designation  of  a  hearing.  In  this 
 proceeding,  no  issues  have  been  raised  with  respect  to  the  basic  qualifications  of  MCI,  and  we  thus  find  that  MCI  has  the  requisite  qualifications.  Conversely,  section  310(  d)  requires  the  Commission  to 
 consider  whether  Verizon,  the  proposed  transferee,  is  qualified  to  hold  a  Commission  license.  497 
 184.  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.  498  With  respect  to  Commission-  related  conduct,  the  Commission  has  stated  that  it 
 would  treat  any  violation  of  any  provision  of  the  Act,  or  of  the  Commissions  rules,  as  predictive  of  an  applicants  future  truthfulness  and  reliability  and,  thus,  as  having  a  bearing  on  an  applicants  character 

 493  See  infra  para.  227  (Ordering  Clauses). 
 494  47  U.  S.  C.    310(  d). 
 495  See  SBC/  SNET  Order,  13  FCC  Rcd  at  21305,  para.  26. 
 496  See  47  U.  S.  C.    310(  d);  47  C.  F.  R.    1.948,  25.119. 
 497  See  SBC/  BellSouth  Order,  15  FCC  Rcd  at  25465,  para.  14. 
 498  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20092-  93,  para.  236. 
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 qualifications.  499  In  prior  merger  orders,  the  Commission  has  used  the  Commissions  character  policy  in  the  broadcast  area  as  guidance  in  resolving  similar  questions  in  transfer  of  licenses  proceedings.  500 
 185.  We  disagree  with  commenters  who  question  Verizons  character  qualifications  by  pointing  to  the  fact  that  Verizon  has  entered  into  consent  decrees  with  the  Commission  as  a  result  of  its  past  record  of 
 non-  compliance  with  merger  conditions  and  other  rules  intended  to  prevent  anticompetitive  behavior.  501  The  Commission  has  previously  stated  that  consent  decrees  that  are  voluntarily  entered  into  do  not  call 
 into  question  a  carriers  authority  to  hold  Commission  licenses  and  authorizations.  502 
 186.  We  also  reject  commenters  allegations  against  Verizons  character  qualifications  based  on  prior  section  208  and  other  proceedings  before  the  Commission.  503  We  have  held  that  merger  proceedings 
 should  not  be  used  as  an  occasion  to  revisit  prior  decisions  in  which  the  Commission  has  determined  that  license  revocation  was  not  an  appropriate  penalty.  504  While  Verizons  violation  of  a  merger  condition 

 499  Policy  Regarding  Character  Qualifications  in  Broadcast  Licensing,  102  FCC  2d  1179,  1209-  10  at  para.  57 
 (1986)  (Character  Qualifications),  modified,  5  FCC  Rcd  3252  (1990)  (Character  Qualifications  Modification),  recon.  granted  in  part,  6  FCC  Rcd  3448  (1991),  modified  in  part,  7  FCC  Rcd  6564  (1992)  (Further  Character 

 Qualifications  Modification);  MCI  Telecommunications  Corp.,  Order  and  Notice  of  Apparent  Liability,  3  FCC  Rcd  509  (1988)  (stating  that  character  qualifications  standards  adopted  in  the  broadcast  context  can  provide  guidance  in 
 the  common  carrier  context).  The  Commission  has  also  determined  that  allegations  that  an  applicant  has  engaged  in  unreasonable  or  anticompetitive  conduct  is  relevant  to  the  Commissions  public  interest  analysis.  SBC/  SNET  Order, 
 13  FCC  Rcd  at  21306-  07,  paras.  28-  30. 
 500  See,  e.  g.,  SBC/  SNET  Order,  13  FCC  Rcd  at  21305,  para.  26;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20092- 
 93,  para.  236;  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21548-  51,  paras.  47-  56;  Sprint/  Nextel  Order,  FCC  05-  148  at  paras.  24-  25. 

 501  See  Cbeyond  et  al.  Petition  at  13-  14  (citing  Consent  Decrees  between  Verizon  and  the  Commission); 
 CompTel/  ALTS  Petition  at  53-  58  (same). 
 502  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21550,  paras.  53-  54.  Furthermore,  we  disagree  with 
 CompTel/  ALTS  that  we  should  consider  the  conduct  leading  up  to  a  consent  decree  in  determining  an  applicants  fitness  to  hold  a  Commission  license.  CompTel/  ALTS  Petition  at  58-  59.  As  we  have  stated  before,  the 

 Commission  does  not  consider  matters  resolved  in  consent  decrees  adjudicated  misconduct  for  the  purposes  of  assessing  an  applicants  character  qualifications.  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21550,  para. 
 53  (citing  1986  Character  Qualifications  Policy  Statement,  102  FCC  2d  at  1205). 
 503  See,  e.  g.,  Cbeyond  et  al.  Petition  at  14  (citing  Starpower  Communications,  Inc.,  Memorandum  Opinion  and 
 Order,  18  FCC  Rcd  23265,  para.  14  (2003)  (finding  that  Verizon  violated  an  interconnection  agreement  with  Starpower);  id.  at  17  n.  46  (citing  news  reports  regarding  fines  assessed  on  Verizon  by  state  commissions); 

 CompTel/  ALTS  Petition  at  57  (citing  Core  Communications,  Inc.  v.  Verizon  Maryland,  Inc.,  File  No.  EB-  01-  MD-007,  Memorandum  Opinion  and  Order,  FCC  03-  96  (released  Apr.  23,  2003)  (finding  that  Verizon  violated  section 
 251  and  Commission  rules  by  failing  to  interconnect  with  a  competitive  LEC  on  just  and  reasonable  terms).  In  addition,  Cbeyond  et  al.  cite  a  Commission  finding  that  Verizon  Wireless  violated  tower  structure  requirements. 
 Cbeyond  et  al.  Petition  at  14  (citing  Verizon  Wireless  (VAW)  LLC,  Notice  of  Apparent  Liability  for  Forfeiture  in  File  No.  EB-  02-  DV-  119,  NAL/  Acct.  No.  200332800002  (Oct.  29,  2002);  Verizon  Wireless  (VAW)  LLC,  Forfeiture 
 Order,  18  FCC  Rcd  854  (2003);  Verizon  Wireless  (VAW)  LLC,  Order,  18  FCC  Rcd  3246  (2003)  (setting  aside  the  January  2003  Forfeiture  Order)).  These  orders,  which  concerned  Verizon  Wireless,  did  not  result  in  the  revocation 
 of  licenses,  and,  as  the  Commission  held  in  the  Cingular/  AT&  T  Wireless  Order,  a  carrier  which  is  one  step  removed,  should  not  be  treated  more  harshly  than  the  carrier  that  was  investigated.  Cingular/  AT&  T  Wireless 
 Order,  19  FCC  Rcd  at  21551,  para.  54. 
 504  See  Cingular/  AT&  T  Wireless  Order,  19  FCC  Rcd  at  21550,  para.  53. 
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 from  a  prior  merger,  cited  by  commenters,  does  raise  a  concern,  we  do  not  find  that  such  a  violation,  standing  alone,  renders  Verizon  unqualified  to  acquire  MCIs  licenses.  505 
 187.  We  likewise  reject  the  claims  of  commenters  expressing  concerns  about  Verizons  character  qualifications  based  on  its  exercise  of  its  legal  rights,  such  as  petitioning  courts  and  regulatory  bodies.  506 
 As  the  Commission  previously  has  concluded,  an  applicants  lawful  exercise  of  its  rights  does  not  raise  character  concerns,  even  if  the  activity  arguably  has  the  effect  of  delaying  and  minimizing  the 
 emergence  of  competition.  507 
 188.  We  also  do  not  agree  with  commenters  alleged  character  concerns  based  upon  specific,  unresolved  disputes  with  the  Applicants.  508  Some  of  the  alleged  violations  of  the  Act  or  Commission 
 rules  involve  legal  interpretations  that  would  apply  to  numerous  companies  in  the  industry.  The  Commission  has  previously  declined  to  address  in  merger  proceedings  matters  for  which  the  public 
 interest  would  be  better  served  by  addressing  the  matter  in  the  broader  proceeding  of  general  applicability.  509  Moreover,  we  also  note  that  many  allegations  concerning  the  Applicants  conduct  have 
 been  specifically  rebutted  by  evidence  proffered  by  the  Applicants.  510  We  conclude  that  none  of  the  foregoing  allegations  provides  a  basis  for  finding  that  Verizon  lacks  the  fitness  to  acquire  licenses  and 
 authorizations  currently  held  by  MCI. 
 I.  Other  Issues 
 189.  We  disagree  with  commenters  that  the  loss  of  MCI  as  an  advocate  for  competitive  LEC  viewpoints  in  state  and  federal  regulatory  proceedings  justifies  our  designating  this  merger  for  hearing.  511 

 505  Cbeyond  et  al.  Petition  at  17  (citing  Global  NAPs  v.  Verizon,  Memorandum  Opinion  and  Order,  17  FCC  Rcd 
 4031  (2002)  (finding  a  violation  of  a  merger  condition  regarding  the  right  of  carriers  to  opt-  in  to  certain  interconnection  agreements));  see  also  CompTel/  ALTS  Petition  at  56  (same). 

 506  See,  e.  g.,  Cox  Comments  at  8  (discussing  Verizons  positions  in  state  interconnection  arbitrations). 
 507  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14950,  para.  571. 
 508  See,  e.  g.,  Broadwing  and  SAVVIS  Petition  at  31  (citing  section  272  audit  reports  identifying  minor  differences  in 
 treatment);  Cbeyond  et  al.  Petition  at  52  (alleging  that  Verizon  failed  to  compete  sufficiently  with  SBC  despite  Verizons  commitment  to  enter  more  than  20  major  markets  as  a  condition  of  its  merger  with  GTE);  CloseCall 

 Comments  at  2-  5  (claiming  that  Verizon  requires  a  customer  to  disconnect  DSL  service  before  executing  that  customers  number  portability  request,  ties  its  DSL  service  to  its  local  exchange  service,  enters  into  resale 
 agreements  with  certain  competitive  LECs  but  not  others,  and  does  not  ensure  dialing  parity  for  competitive  LEC  customers);  see  also  Lightpath  Reply  at  10-  11  (arguing  that  provisioning  parameters  for  number  porting  and  timely 
 billing  practices  are  needed).  To  the  extent  that  Lightpath  is  hindered  in  its  ability  to  offer  competitive  services  due  to  number  portability  and  billing  problems  with  Verizon,  Lightpath  fails  to  explain  how  this  is  a  merger-  specific 
 concern  to  be  addressed  in  this  proceeding. 
 509  See  SBC/  Ameritech  Order,  14  FCC  Rcd  14950,  para.  571;  see  also  SBC/  SNET  Order,  13  FCC  Rcd  at  21306, 
 para.  29. 
 510  See,  e.  g.,  Verizon/  MCI  Reply  at  89  (noting  that  any  differences  in  treatment  identified  in  section  272  audit 
 reports  were  limited  and  were  remedied  without  a  determination  that  license  revocations  were  justified);  id.  at  89  n.  131  (noting  that  the  Maryland  Commission  rejected  CloseCalls  claim  that  Verizon  enters  resale  agreements  with 

 some  competitive  LECs  that  are  unavailable  to  others);  id.  (explaining  that  CloseCalls  dialing  parity  concerns  resulted  from  a  software  problem  that  was  resolved  more  than  a  year  ago). 

 511  See,  e.  g.,  Cox  Comments  at  11;  NASUCA  Comments  at  14;  New  Jersey  Ratepayer  Advocate  Comments  at  11- 
 12;  Global  Crossing  Comments  at  22-  23,  25;  United  States  Cellular  Comments  at  2-  3;  Lightpath  Reply  at  4-  8.  In  (continued.) 
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 As  the  Applicants  point  out,  there  will  continue  to  be  numerous  competing  carriers,  trade  associations,  and  other  interested  parties  that  remain  free  to  express  their  positions  in  regulatory  proceedings.  512 
 Indeed,  we  note  that  dozens  of  commenters  participated  in  the  present  proceeding,  representing  a  variety  of  viewpoints.  513  Thus,  we  do  not  find  that  the  loss  of  MCI  as  an  advocate  of  competitive  LEC  interests 
 will  unduly  weaken  the  ability  of  competitors  to  participate  and  express  their  views  in  Commission  and  state  proceedings. 

 190.  We  reject  NASUCAs  concerns  about  the  Applicants  compliance  with  section  272  of  the  Act.  514  As  the  Applicants  point  out,  Verizon  intends  to  operate  MCI  in  accordance  with  any  applicable  section 
 272  obligations.  515  Thus,  the  merger  does  not  appear  to  raise  concerns  about  compliance  with  Verizons  applicable  section  272  obligations. 

 191.  We  conclude  as  a  general  matter  that  many  of  the  concerns  expressed  by  WorldNet  regarding  Puerto  Rico  Telephone  Company  (PRTC)  are  not  merger-  specific,  516  and  thus  need  not  be  addressed  in 
 this  proceeding.  517  Furthermore,  because  we  do  not  find  any  likely  anticompetitive  effects  requiring  remedy,  as  described  above,  we  reject  WorldNets  request  for  conditions.  518 

 192.  Finally,  we  reject  the  claims  of  APCC  that  the  merger  will  harm  competitively-  owned  payphone  service  providers  (PSPs)  through  either  discrimination  against  competitive  PSPs  or  actions  that  will 
 negatively  affect  payments  to  all  payphone  owners.  519  We  find  these  concerns  speculative,  and  in  any  event  we  agree  with  the  Applicants  that  concerns  expressed  by  APCC  are  adequately  addressed  by 

 (Continued  from  previous  page)  particular,  Global  Crossing  suggests  that  the  Commission  consider  adopting  a  baseball-  style,  alternative  dispute 
 resolution  process  in  this  proceeding  because  the  proposed  merger  will  diminish  the  diversity  of  voices  in  the  telecommunications  public  policy  arena  and  dramatically  widen  the  resource  gap  between  SBC  and  its  competitors. 
 Global  Crossing  Comments  at  25.  To  the  extent  that  the  resources  required  for  Global  Crossing  to  pursue  a  section  208  complaint  against  SBC  outweigh  the  possible  benefits  in  particular  instances,  this  is  not  a  merger-  specific 
 concern  to  be  addressed  in  this  proceeding.  Moreover,  as  the  Applicants  note,  it  is  not  clear  that  Global  Crossings  proposed  alternative  to  the  section  208  complaint  process  necessarily  would  be  superior.  Verizon/  MCI  Reply  at  91. 

 512  See  Verizon/  MCI  Reply  at  90. 
 513  See  Appendix  A. 
 514  NASUCA  Comments,  Attach.  at  51. 
 515  Verizon  Info.  Req.  at  155. 
 516  See  WorldNet  Comments  at  5-  9. 
 517  In  addition,  we  note  that  a  number  of  issues  raised  by  WorldNet  are  the  subject  of  pending  proceedings.  See 
 Verizon/  MCI  Reply  at  94  (noting  that  the  Puerto  Rico  Board  currently  is  considering  a  WorldNet  complaint  regarding  PRTCs  ability  to  enter  contract  tariffs  for  intrastate  services  with  large  enterprise  customers  in  WorldNet 

 Telecommunications  Inc.  s  Request  for  Suspension  and  Investigation  of  Tariff  Pursuant  to  Art.  III-  7(  c)  of  Act  213,  JRT-  2003-  Q-  0143  (filed  Aug.  15,  2003));  id.  (noting  that  issues  regarding  whether  PRTC  must  allow  resale  of  non-telecommunication 
 services  are  the  subject  of  an  adjudicatory  proceeding  pending  before  a  federal  district  court  in  WorldNet  Telecommunications,  Inc.  v.  Telecommunications  Regulatory  Board  of  Puerto  Rico  et  al.,  Nos.  04-  2051 
 &  04-  2073  (D.  P.  R.)). 
 518  See  WorldNet  Comments  at  2. 

 519  See  generally  APCC  Petition,  Attach.  A  competitively-  owned  payphone  is  one  that  is  not  owned  by  a  LEC. 
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 existing  law.  520  Competitive  payphone  owners  that  believe  the  merged  company  has  violated  these  rules  or  statutory  requirements  can  avail  themselves  of  the  Commissions  complaint  process.  Regarding 
 APCCs  concern  that  the  combined  company  may  fail  to  pay  dial-  around  compensation  on  calls  that  are  routed  at  least  partially  in  IP  networks,  we  note  that  this  issue  is  the  subject  of  an  ongoing  proceeding, 
 and  is  properly  dealt  with  there.  521 
 VI.  POTENTIAL  PUBLIC  INTEREST  BENEFITS 
 A.  Introduction 
 193.  In  addition  to  assessing  the  potential  competitive  harms  of  the  proposed  transaction,  we  also  consider  whether  the  combination  of  these  companies  operations  is  likely  to  generate  verifiable,  merger-specific 
 public  interest  benefits.  522  In  doing  so,  we  ask  whether  the  combined  entity  will  be  able,  and  is  likely,  to  pursue  business  strategies  resulting  in  demonstrable  and  verifiable  benefits  that  could  not  be 
 pursued  but  for  the  combination.  As  discussed  below,  we  find  that  the  proposed  transaction  is  likely  to  generate  several  significant  merger-  specific  public  interest  benefits,  although  it  is  difficult  to  quantify 
 precisely  the  magnitude  of  some  of  these  benefits. 
 B.  Analytical  Framework 
 194.  The  Commission  has  recognized  that  [  e]  fficiencies  generated  through  a  merger  can  mitigate  competitive  harms  if  such  efficiencies  enhance  the  merged  firms  ability  and  incentive  to  compete  and 
 therefore  result  in  lower  prices,  improved  quality,  enhanced  service  or  new  products.  523  Under 

 520  See,  e.  g.,  47  C.  F.  R.    64.1300  et  seq.;  Implementation  of  the  Pay  Telephone  Reclassification  and  Compensation 
 Provisions  of  the  Telecommunications  Act  of  1996,  CC  Docket  No.  96-  128,  Report  and  Order,  18  FCC  Rcd  19975  (2003);  Implementation  of  the  Pay  Telephone  Reclassification  and  Compensation  Provisions  of  the 

 Telecommunications  Act  of  1996,  CC  Docket  No.  96-  128,  Order  on  Reconsideration,  19  FCC  Rcd  21457  (2004);  see  also  47  U.  S.  C.    276(  2)  (stating  that  a  BOC,  such  as  Verizon,  (  1)  shall  not  subsidize  its  payphone  service 
 directly  or  indirectly  from  its  telephone  exchange  service  operations  or  its  exchange  access  operations;  and  (2)  shall  not  prefer  or  discriminate  in  favor  of  its  payphone  service).  We  also  are  not  persuaded  by  APCC  that  the  merged 
 entity  could  use  completed  dial-  around  call  volume  information  to  provide  an  unwarranted  competitive  advantage  to  Verizons  payphone  affiliates.  We  note  that  to  the  extent  that  the  information  of  concern  to  APCC  constitutes 
 carrier  proprietary  information  within  the  meaning  of  section  222(  b),  or  to  the  extent  that  Verizons  conduct  would  have  the  effect  of  prefer[  ring]  its  payphone  service  within  the  meaning  of  section  276(  a)(  2),  the  Act 
 already  prohibits  the  behavior  about  which  APCC  is  concerned.  See  47  U.  S.  C.    222(  b),  276(  a)(  2).  Moreover,  we  conclude  that  the  likelihood  of  harm  expressed  by  APCC  is  remote.  For  example,  APCC  has  not  demonstrated  a 
 factual  basis  for  its  concern  that  the  merged  company  would  have  the  specific  location  information  necessary  to  take  action  with  respect  to  the  call  volume  information. 

 521  See  Pleading  Cycle  Established  for  Comments  on  American  Public  Communications  Councils  Petition  For 
 Declaratory  Ruling  and  Rulemaking  Regarding  IP-  Enabled  Dial-  Around  Calls  From  Payphones,  Docket  No.  05-  176,  Public  Notice,  DA  05-  1106  (rel.  Apr.  21,  2005). 

 522  Bell  Atlantic/  GTE  Order,  15  FCC  Rcd  at  14130,  para.  209;  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14825,  para. 
 255;  WorldCom/  MCI  Order,  13  FCC  Rcd  at  18134-  35,  para.  194. 
 523  See  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20630,  para.  188;  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 20063,  para.  158;  see  also  DOJ/  FTC  Guidelines    4. 
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 Commission  precedent,  the  Applicants  bear  the  burden  of  demonstrating  that  the  potential  public  interest  benefits  of  the  proposed  transfer  outweigh  the  potential  public  interest  harms.  524 
 195.  There  are  several  criteria  the  Commission  applies  in  deciding  whether  a  claimed  benefit  is  cognizable.  First,  the  claimed  benefit  must  be  transaction-  or  merger-  specific.  This  means  that  the 
 claimed  benefit  must  be  likely  to  be  accomplished  as  a  result  of  the  merger  but  unlikely  to  be  realized  by  other  means  that  entail  fewer  anticompetitive  effects.  525  Second,  the  claimed  benefit  must  be  verifiable. 
 Because  much  of  the  information  relating  to  the  potential  benefits  of  a  merger  is  in  the  sole  possession  of  the  Applicants,  they  are  required  to  provide  sufficient  evidence  supporting  each  benefit  claim  so  that  the 
 Commission  can  verify  the  likelihood  and  magnitude  of  the  claimed  benefit.  526  In  addition,  as  the  Commission  has  noted,  the  magnitude  of  benefits  must  be  calculated  net  of  the  cost  of  achieving 
 them.  527  Furthermore,  speculative  benefits  that  cannot  be  verified  will  be  discounted  or  dismissed.  Thus,  as  the  Commission  explained  in  the  EchoStar/  DirecTV  Order,  benefits  that  are  to  occur  only  in  the 
 distant  future  may  be  discounted  or  dismissed  because,  among  other  things,  predictions  about  the  more  distant  future  are  inherently  more  speculative  than  predictions  about  events  that  are  expected  to  occur 
 closer  to  the  present.  528  Third,  the  Commission  has  stated  that  it  will  more  likely  find  marginal  cost  reductions  to  be  cognizable  than  reductions  in  fixed  cost.  529  The  Commission  has  justified  this  criterion 
 on  the  ground  that,  in  general,  reductions  in  marginal  cost  are  more  likely  to  result  in  lower  prices  for  consumers.  530 

 196.  Finally,  the  Commission  applies  a  sliding  scale  approach  to  evaluating  benefit  claims.  Under  this  sliding  scale  approach,  where  potential  harms  appear  both  substantial  and  likely,  the  Applicants 
 demonstration  of  claimed  benefits  also  must  reveal  a  higher  degree  of  magnitude  and  likelihood  than  we 

 524  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20630,  para.  188;  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14825,  para. 
 256;  see  also  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at  20063,  para.  157. 
 525  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20630,  para.  189;  see  also  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 20063-  64,  para.  158  (  Pro-  competitive  efficiencies  include  only  those  efficiencies  that  are  merger-  specific,  i.  e.,  that  would  not  be  achievable  but  for  the  proposed  merger.  Efficiencies  that  can  be  achieved  through  means  less  harmful 

 to  competition  than  the  proposed  merger  .  .  .  cannot  be  considered  to  be  true  pro-  competitive  benefits  of  the  merger.)  (footnote  omitted);  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14825,  para.  255  (  Public  interest  benefits  also 
 include  any  cost  saving  efficiencies  arising  from  the  merger  if  such  efficiencies  are  achievable  only  as  a  result  of  the  merger.  .  .);  AT&  T/  Comcast  Order,  17  FCC  Rcd  at  23313,  para.  173  (Commission  considers  whether  benefits  are 
 merger-  specific);  cf.  DOJ/  FTC  Guidelines    4. 
 526  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20630,  para.  190;  see  also  Bell  Atlantic/  NYNEX  Order,  12  FCC  Rcd  at 
 20063,  para.  157  (  These  pro-  competitive  benefits  include  any  efficiencies  arising  from  the  transaction  if  such  efficiencies  .  .  .  are  sufficiently  likely  and  verifiable  .  .  .  .);  AT&  T/  Comcast  Order,  17  FCC  Rcd  at  23313,  para.  173 

 (Commission  considers  whether  benefits  are  verifiable);  SBC/  Ameritech  Order,  14  FCC  Rcd  at  14825,  para.  255;  DOJ/  FTC  Guidelines    4  ([  T]  he  merging  firms  must  substantiate  efficiency  claims  so  that  the  Agency  can  verify 
 by  reasonable  means  the  likelihood  and  magnitude  of  each  asserted  efficiency,  how  and  when  each  would  be  achieved  (and  any  costs  of  doing  so),  [and]  how  each  would  enhance  the  merged  firm's  ability  to  compete.  .  .). 

 527  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20630,  para.  190. 
 528  Id. 
 529  Id.  at  20631,  para.  191;  see  also  DOJ/  FTC  Guidelines    4. 
 530  See  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20631,  para.  191;  see  also  DOJ/  FTC  Guidelines    4. 
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 would  otherwise  demand.  531  On  the  other  hand,  where  potential  harms  appear  less  likely  and  less  substantial,  as  in  this  case,  we  will  accept  a  lesser  showing  to  approve  the  merger. 
 C.  Enhancements  to  National  Security  and  Government  Services 
 197.  We  take  considerations  of  national  security  extremely  seriously,  and  we  find  that  the  merger  has  the  potential  to  generate  benefits  arising  from  more  efficient  routing  and  greater  redundancy. 
 Additionally,  we  believe  that  the  combined,  nonoverlapping  IP  networks  can  provide  the  government  with  additional  security  and  routing  efficiency  for  vital  and  sensitive  government  communications. 

 198.  We  agree  with  the  Applicants  that  the  merger  will  enhance  service  to  U.  S.  government  customers  and  strengthen  U.  S.  national  security.  Both  Verizon  and  MCI  provide  substantial 
 telecommunications  and  technology  services  to  federal  and  state  government  agencies  involved  in  national  security.  We  find  that  the  merger  will  create  a  stable,  reliable,  U.  S.-  owned  company  that  will 
 provide  improved  service  to  government  customers.  532  The  Applicants  contend,  and  we  agree,  that  the  merger  will  strengthen  Verizon  by  transforming  it  into  a  strong,  full-  service,  facilities-  based  provider  that 
 is  capable  of  delivering  integrated  end-  to-  end  services  to  the  government  on  a  national  or  international  basis.  533  Moreover,  we  find  that  the  merger  will  help  Verizon  improve  communications  security  and 
 network  efficiency,  which  in  turn  should  benefit  national  defense  and  homeland  security.  534 
 199.  We  reject  commenters  arguments  that  the  merger  will  not  benefit  national  security  or  government  customers.  ACN  et  al.  argue  that  we  should  discount  the  benefits  of  a  unified  network 
 because  the  merger  will  bring  end-  to-  end  service  to  only  a  portion  of  the  United  States.  535  Cbeyond  et  al.  assert  that  MCI  is  capable  of  conducting  its  government  services  business  without  the  help  of  Verizon, 
 and  that  the  merger  will  not  result  in  any  change  in  the  quality  of  service  provided  to  the  government.  536  Cbeyond  et  al.  further  argue  that  the  merger  will  result  in  Verizons  taking  over  MCIs  government 
 contracts,  which  would  undermine  national  security  by  overriding  the  government  selection  process.  537  While  we  acknowledge  that  Verizons  claimed  benefits  relating  to  end-  to-  end  services  are  largely  limited 
 to  Verizon  service  territories,  we  nevertheless  expect  that  benefits  will  result.  Moreover,  as  discussed 

 531  EchoStar/  DirecTV  Order,  17  FCC  Rcd  at  20631,  para.  192  (quoting  SBC/  Ameritech  Order,  14  FCC  Rcd  at 
 14825);  cf.  DOJ/  FTC  Guidelines    4  (  The  greater  the  potential  adverse  competitive  effect  of  a  merger  .  .  .  the  greater  must  be  cognizable  efficiencies  in  order  for  the  Agency  to  conclude  that  the  merger  will  not  have  an 

 anticompetitive  effect  in  the  relevant  market.  When  the  potential  adverse  competitive  effect  of  a  merger  is  likely  to  be  particularly  large,  extraordinarily  great  cognizable  efficiencies  would  be  necessary  to  prevent  the  merger  from 
 being  anticompetitive.). 
 532  Verizon/  MCI  Public  Interest  Statement  at  11. 

 533  Id.;  Verizon  Info.  Req.  at  168-  169. 
 534  Verizon  Info.  Req.  at  168-  169. 
 535  For  example,  ACN  et  al.  contend  that  the  merged  company  will  be  able  to  provide  end-  to-  end  service  in  only 
 35%  of  the  nation.  ACN  et  al.  Comments  at  49. 
 536  Cbeyond  et  al.  Petition  at  82-  84. 

 537  Id.  at  83. 
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 below,  we  find  significant  efficiencies  arising  from  vertical  integration,  which  are  likely  to  improve  the  quality  of  services  that  Verizon  provides  to  government  customers.  538 
 200.  We  likewise  reject  CompTel/  ALTS  arguments  that  a  billing  dispute  between  Verizon  and  the  government  of  the  District  of  Columbia  is  indicative  of  Verizons  market  power  and  that  the  merger  will 
 vitiate  an  agreement  that  the  Districts  government  entered  into  with  MCI.  539  We  find  that  Verizons  billing  dispute  with  the  District  of  Columbia  government  was  no  more  than  that    a  contractual  dispute   
 and  that  it  is  not  indicative  of  any  market  power  on  the  part  of  Verizon.  With  respect  to  MCIs  contract  with  the  District,  we  have  no  reason  to  believe  that  the  District  of  Columbia  government  will  not  be 
 satisfied  with  the  agreement,  solely  because  of  the  merger.  In  addition,  as  previously  discussed,  we  conclude  that,  after  the  merger,  there  will  remain  numerous  carriers  that  are  willing  and  able  to  offer 
 services  to  large  government  customers  like  the  District  of  Columbia  government.  540 
 201.  We  also  note  the  Applicants  commitments  541  in  the  IP-  Enabled  Services  proceeding  to  meet  the  Commissions  recently-  adopted  E911  obligations  for  interconnected  VoIP  services.  542  Those 
 requirements  extend  our  longstanding  and  continuing  commitment  to  a  nationwide  communications  system  that  promotes  the  safety  and  welfare  of  all  Americans  by  serving  to  promote  cooperative  efforts 
 by  state  and  local  governments,  public  safety  answering  point  (PSAP)  administrators,  911  systems  service  providers,  and  interconnected  VoIP  providers  that  will  lead  to  improved  emergency  services.  543  The 
 Applicants  actions  thus  help  ensure  the  timely  deployment  of  E911  services  for  interconnected  VoIP  in  order  to  advance  the  safety  and  welfare  of  the  public. 

 D.  Efficiencies  Related  to  Vertical  Integration 
 202.  As  the  Commission  has  previously  recognized,  vertical  transactions  may  generate  significant  efficiencies.  544  For  example,  vertical  integration  may  produce  a  more  efficient  organizational  form,  which 
 can  reduce  transaction  costs,  limit  free-  riding  by  internalizing  incentives,  and  take  advantage  of  technological  economies.  545  Vertical  integration  also  may  reduce  prices  in  the  downstream  market 
 because  the  integrated  firm,  in  determining  the  costs  of  producing  the  downstream  product  and  consequently  the  final  price  charged  to  consumers,  may  consider  the  real  economic  cost  of  the  input 

 538  See  infra  para.  202. 
 539  CompTel/  ALTS  Petition  at  49-  50. 
 540  See  supra  Part  V.  C  (Retail  Enterprise  Services). 
 541  See  Letter  from  Curtis  L.  Groves,  MCI,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  196  (filed 
 Sept.  27,  2005);  Letter  from  Susanne  A.  Guyer,  Senior  Vice  President    Federal  Regulatory  Affairs,  Verizon,  to  Marlene  H.  Dortch,  Secretary,  FCC,  WC  Docket  Nos.  04-  36,  05-  196  (filed  Oct.  21,  2005). 

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

 543  Id.  at  para.  5. 
 544  News  Corp./  Hughes  Order,  19  FCC  Rcd  at  507-  08,  para.  70. 
 545  Id. 
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 rather  than  the  higher  price  (including  the  upstream  profit  margin)  previously  charged  by  the  unintegrated  upstream  firm.  This  is  referred  to  as  the  elimination  of  double  marginalization.  546 
 203.  We  find  that  significant  benefits  are  likely  to  result  from  the  vertical  integration  of  the  largely  complementary  networks  and  facilities  of  Verizon  and  MCI.  The  Applicants  assert  that  their  networks  are 
 complementary,  with  Verizon  providing  an  extensive  network  with  substantial  local  fiber,  Verizon  Wireless  having  an  advanced  and  extensive  wireless  network,  and  MCI  providing  global  fiber  optic  long-distance 
 network  and  global  data  capabilities.  They  claim  that  the  combined  company  will  be  able  to  offer  services  over  a  centrally  managed  network  and  provide  customers  with  end-  to-  end  communications 
 and  comprehensive  network  management  as  well.  547  The  Applicants  maintain  that  the  combination  of  their  services  will  benefit  large  enterprise  and  wholesale  customers  by  enhancing  the  merged  entitys 
 ability  to  make  available  the  broad  range  of  communications  services  and  global  reach  that  those  customers  demand.  548  We  find  that  the  merger  will  permit  the  integration  of  the  complementary  networks 
 and  assets  of  Verizon  and  MCI,  giving  each  carrier  facilities  it  previously  lacked.  We  further  find  that  this  network  integration  will  permit  the  merged  entity  to  offer  a  wider  range  of  services  to  its  broad  range 
 of  customers.  Moreover,  customers  will  benefit  not  only  from  new  services,  but  also  from  the  improvements  in  performance  and  reliability  resulting  from  the  network  integration. 

 204.  We  reject  Cbeyond  et  al.  s  assertion  that  Verizon  would  not  add  to  MCIs  global  competitiveness,  and  that  a  unified  network  would  offer  no  new  public  interest  benefit.  549  We  find  that 
 the  combined  company  will  be  able  to  provide  network  management  services  more  efficiently  to  large  enterprise  and  wholesale  customers,  and  customers  will  value  the  merged  entitys  ability  to  provide  one-stop 
 shopping. 
 E.  Economies  of  Scope  and  Scale 
 205.  We  find  that  the  merger  of  Verizon  and  MCI  is  likely  to  give  rise  to  significant  economies  of  scope  and  scale,  as  well,  although  these  are  difficult  to  quantify.  While  Verizon  and  MCI  compete  in 
 many  of  the  same  markets,  the  focus  and  success  of  their  efforts  has  often  come  in  different  segments  of  these  markets.  550  The  merger  thus  not  only  gives  the  combined  company  a  larger  total  customer  base,  but 
 also  significant  shares  of  customers  across  a  wider  range  of  communications  markets  than  either  carrier 
 546  Id.  Double  marginalization  occurs  when  an  upstream  firm  sells  an  input  to  a  downstream  firm  at  a  price  that 
 exceeds  marginal  cost,  and  the  downstream  firm  then  sells  its  product  in  the  downstream  market  at  a  price  that  exceeds  its  marginal  cost.  The  margin  charged  by  the  upstream  firm  increases  the  marginal  cost  of  the  downstream 

 firm,  which  results  in  a  higher  end-  user  price  than  would  occur  if  the  input  had  been  priced  at  marginal  cost.  Vertical  integration  in  theory  reduces  the  problem  of  double  marginalization  because  the  integrated  firm,  in 
 determining  the  uniform  price  at  which  it  will  sell  the  downstream  product,  will  consider  the  real  economic  cost  of  producing  the  input.  Because  vertical  integration  effectively  reduces  the  marginal  cost  of  the  input,  it  is  likely  to 
 result  in  the  integrated  firms  setting  a  lower  price  for  the  downstream  products,  which  will  benefit  consumers.  The  extent  of  this  benefit,  however,  will  depend  crucially  on  the  elasticity  of  demand  for  the  downstream  product.  The 
 less  elastic  is  the  demand,  the  greater  is  the  benefit.  JEAN  TIROLE,  THE  THEORY  OF  INDUSTRIAL  ORGANIZATION  239  (1988)  at  174-  75;  Michael  H.  Riordan  and  Steven  Salop,  Evaluating  Vertical  Mergers:  A  Post-  Chicago  Approach 
 63  ANTITRUST  L.  J.,  513,  523-  36  (1995). 
 547  Verizon/  MCI  Public  Interest  Statement  at  11-  13. 

 548  Id.  at  13-  14. 
 549  Cbeyond  et  al.  Petition  at  71-  76. 
 550  See  supra  note  236. 
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 had  before  the  merger.  The  Commission  has  recognized  in  the  past  that,  when  a  transaction  enables  the  parties  to  combine  their  R&  D  efforts  and  to  spread  the  cost  of  those  R&  D  efforts  over  a  more  extensive 
 customer  base,  this  could  result  in  new  products  and  services  that  would  not  have  been  introduced  absent  the  proposed  transaction.  551  Likewise,  the  Commission  has  found  that,  if  the  merged  entity  can  secure 
 larger  volume  discounts  from  suppliers,  and  then  pass  those  lower  costs  through  to  consumers  in  the  form  of  lower  end-  user  prices,  this  likewise  would  constitute  a  public  interest  benefit  that  should  be  considered 
 in  balancing  the  potential  harms  and  benefits  of  the  proposed  transaction.  552 
 206.  In  this  regard,  the  Applicants  stress  that  Verizon  has  a  larger  base  of  mass  market  customers,  while  MCI  has  a  larger  base  of  large  enterprise  customers.  Similarly,  Verizon  has  been  most  successful  in 
 offering  consumer  voice  and  broadband  services,  wireless  services,  and  local  connectivity,  equipment,  and  professional  services  to  local  or  regional  business  customers,  while  MCI  has  had  success  offering 
 large  enterprise  services,  especially  those  with  a  global  reach.  553  The  Applicants  further  contend  that  Verizon  will  bring  its  investment-  oriented  focus  to  the  merged  firm  and  that  Verizons  deep  financial 
 resources  will  ensure  that  its  networks,  including  critical  national  defense  networks,  remain  robust  and  technologically  advanced.  Finally,  they  claim  that  the  transaction  will  accelerate  service  innovations, 
 such  as  Verizons  seamless  mobility  service.  554 
 207.  We  agree  with  the  Applicants  that,  by  broadening  its  customer  base,  the  merged  entity  will  have  an  increased  incentive  to  engage  in  basic  research  and  development.  We  further  find  that  continued 
 intense  competition  from  other  carriers  will  provide  sufficient  incentives  for  the  merged  company  to  continue  to  invest  in  more  applied  research  and  product  development.  As  Verizon  points  out,  it  will  have 
 little  choice  but  to  continue  investment  and  innovation,  and  it  expects  the  combined  company  to  spend  at  least  as  much  on  innovation  and  investment  in  network  infrastructure  as  the  standalone  companies  did 
 prior  to  the  transaction.  555  Thus,  we  reject  commenters  claims  that  the  merged  firm  will  be  less  innovative.  556 

 F.  Cost  Synergies 
 208.  As  discussed  below,  we  credit  certain  cost  reductions  as  benefits  resulting  from  the  merger.  The  Applicants  assert  that  the  merger  will  result  in  a  net  present  value  of  $7  billion  in  incremental  revenues 
 and  operational  cost  savings.  They  contend  that  the  cost  savings  would  come  from  the  elimination  of  duplicative  network  facilities,  staff,  and  information  and  operation  systems;  reduction  of  procurement 
 costs;  rationalization  of  the  companies  real  estate  assets;  and  more  efficient  use  of  existing  networks.  557  The  Applicants  filed  a  synergies  model  in  the  record,  which  estimated  both  cost  and  revenue  synergies.  558 

 551  News  Corp./  Hughes  Order,  19  FCC  Rcd  at  619,  para.  342. 
 552  Id.  at  620,  para.  343. 
 553  See,  e.  g.,  Verizon/  MCI  Public  Interest  Statement  at  4-  5. 
 554  Verizon/  MCI  Public  Interest  Statement  at  15-  16. 
 555  Verizon  Info.  Req.  at  162-  163;  see  also  Ad  Hoc  Telecom  Manufacturers  Comments  at  1-  3  (asserting  that  the 
 merged  entity  is  likely  to  invest  more  than  the  two  companies  would  if  the  acquisition  did  not  occur). 
 556  ACN  et  al.  Comments  at  43-  45;  Cbeyond  et  al.  Petition  at  84-  90;  Qwest  Petition  at  27-  30. 

 557  Verizon/  MCI  Public  Interest  Statement  at  15. 
 558  Verizon  Info.  Req.,  VZFCC-  007-  0001110.  xls  (hereinafter  synergy  model). 
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 209.  No  commenter  discusses  the  synergy  model  itself.  Cbeyond  et  al.  argue  generally,  however,  that  to  the  extent  much  of  the  cost  savings  are  reportedly  due  to  increased  elimination  of  personnel,  it  is  not 
 clear  that  they  should  be  counted  as  a  benefit  under  the  Commissions  public  interest  standard.  559 
 210.  After  careful  examination  of  the  Applicants  synergy  model,  we  find  that  we  cannot  credit  the  $7  billion  savings  in  its  entirety.  First,  the  models  calculations  assume  that  all  of  the  models  synergies 
 continue  in  perpetuity.  560  As  mentioned  above,  benefits  that  are  to  occur  in  the  distant  future  may  be  discounted  or  dismissed  because,  among  other  things,  predictions  about  the  more  distant  future  are 
 inherently  more  speculative  than  predictions  about  events  that  are  expected  to  occur  closer  to  the  present.  We  thus  evaluate  the  evidence  of  synergy  benefits  over  shorter  and  more  reasonable  timeframes  included 
 in  the  model.  Therefore,  we  will  examine  the  claimed  [REDACTED]  in  cost  synergies  that  the  Applicants  expect  to  accrue  through  [REDACTED].  561 

 211.  We  reject  commenters  assertions  562  that  the  costs  savings  of  headcount  reductions  will  produce  no  cognizable  benefits.  According  to  the  synergy  model,  much  of  the  cost  savings  are  from  headcount 
 reductions,  and  those  calculations  seem  reasonable.  563  We  have  no  reason  to  doubt  that  many  overhead  positions  can  be  eliminated  after  the  merger.  But  because  most  of  these  positions  are  overhead  and  thus 
 represent  savings  in  fixed  costs,  we  will  not  give  them  the  same  weight  as  savings  in  marginal  cost  (which  are  more  likely  to  flow  through  in  the  form  of  retail  price  reductions).  We  recognize,  however,  that  some 
 of  the  headcount  savings  are  likely  to  come  from  positions  where  compensation  is  based  primarily  on  commission;  savings  in  those  positions  should  reduce  variable  costs.  564 

 212.  We  also  find  that  some  of  the  Applicants  other  claimed  cost  reductions  may  result  in  price  reductions.  Specifically,  we  credit  Verizon  with  [REDACTED]  in  variable  cost  savings  on  transport 
 costs.  565  This  figure  is  reduced  from  the  amount  claimed  by  Verizon  in  its  synergy  model  since  the  synergy  model  appears  to  calculate  transport  savings  by  [REDACTED]  566  We  find  that  cost  reductions 
 in  Verizons  transport  and  long  distance  charges  are  likely,  but  those  cost  reductions  are  unlikely  to  be 

 559  Cbeyond  et  al.  Wilkie  Decl.  at  para.  51  (arguing  that  marginal  cost  reductions  are  more  likely  to  be  cognizable 
 than  fixed  cost  reductions,  but  that  the  bulk  of  the  headcount  savings  will  be  fixed  cost  reductions);  see  also  NASUCA  Comments  at  18  (asserting  that  the  purported  benefit  of  cost  savings  is  insignificant  and  that  such 

 benefits  did  not  accrue  after  the  Bell  Atlantic/  GTE  merger  was  approved). 
 560  The  synergy  model  calculates  the  synergies  as  the  present  value  of  the  infinitely-  lasting  stream  of  extra  income 
 and  reduced  costs.  The  Commission  does  not  dispute  the  use  of  the  net  present  value  concept  (to  quantify  future  incomes  and  cost  reductions)  itself. 

 561  The  synergy  model  presented  in  the  SBC/  AT&  T  Order  presented  present  discounted  values  at  specified  dates.  In 
 that  order,  we  choose  the  shortest  period  over  which  the  synergy  model  allowed  us  to  easily  calculate  benefits.  See  SBC/  AT&  T  Order,  FCC  05-  183,  at  paras.  198-  199. 

 562  Cbeyond  et  al.  state  generally  that,  of  the  7,000  jobs  that  Verizon  has  stated  would  be  eliminated  as  a  result  of 
 the  merger,  reductions  in  personnel  and  overhead  would  reduce  the  merged  companys  fixed  costs,  not  its  marginal  costs,  and,  thus,  would  not  be  passed  on  as  a  benefit  to  consumers.  Cbeyond  et  al.  Petition  at  79-  80. 

 563  Verizon  Info.  Req.,  VZFCC-  007-  0001110.  xls,  Synergy_  G&  ASavings  tab. 
 564  Id. 
 565  Verizon  Info.  Req.,  Exh.  20.  B. 
 566  Id.;  see  also  Verizon  Info.  Req.,  VZFCC-  007-  0001110.  xls,  Synergy_  G&  ASavings  tab. 
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 more  than  50  percent  of  what  Verizon  is  paying  now.  Verizon  also  claims  operations  savings  of  [REDACTED].  567  Because  we  could  not  reproduce  this  figure,  and  because  the  estimate  assumes  these 
 benefits  last  in  perpetuity,  we  afford  it  no  weight. 
 213.  Certain  other  claimed  cost  synergies  are  unexplained.  Although  we  find  some  merit  to  Verizons  financial  stability  claim  and  believe  that  a  more  financially  sound  MCI  will  have  a  better  chance  of 
 retaining  its  customers,  we  cannot  credit  all  the  revenue  synergies  that  the  Applicants  claim,  because  there  is  insufficient  justification.  The  Applicants  did  not  provide  sufficient  details  of  their  methodology  used  in 
 generating  their  financial-  stability  and  go-  to-  market  revenue  figures.  568  Additionally,  Verizons  synergy  model  failed  to  provide  adequate  justification  of  the  EBITDA  figures  that  were  used  to  calculate  the 
 profits  from  the  projected  increased  revenues.  569 
 214.  In  summary,  we  find  that  the  proposed  transaction  is  likely  to  generate  several  significant  public  interest  benefits,  although  it  is  difficult  to  quantify  precisely  the  magnitude  of  some  of  these  benefits. 

 VII.  PROCESS  AND  ENFORCEMENT 
 215.  As  discussed  in  various  sections  above,  the  Applicants  have  offered  a  number  of  voluntary  commitments.  Because  we  find  these  commitments  serve  the  public  interest,  we  accept  them  and  adopt 
 them  as  express  conditions  of  our  merger  approval  order.  In  order  to  ensure  that  the  full  benefits  of  these  commitments  are  realized,  we  also  establish  certain  procedural  and  enforcement  rules.  First,  where 
 commitments  involve  the  filing  of  tariff  revisions,  we  require  the  Applicants  to  file  such  revisions  within  30  days  of  the  effective  date  of  the  Order.  Second,  we  require  the  Applicants  to  file  annually  a 
 declaration  by  an  officer  of  the  corporation  attesting  that  Verizon/  MCI  has  substantially  complied  with  the  terms  of  the  conditions  in  all  material  respects.  Third,  the  term  of  each  condition  will  be  as  specified 
 in  Appendix  G. 
 216.  In  addition,  we  will  continue  to  monitor  the  markets  within  which  the  Applicants  compete.  If  the  Commission  determines  that  out-  of-  region  competition  is  failing  to  develop,  then  it  will  revisit  the  merger 
 conditions  on  its  own  motion  or  pursuant  to  a  petition  of  a  party.  Similarly,  if  the  Commission  determines  that  the  Applicants  are  acting  to  exclude  competitors,  it  will  revisit  the  merger  conditions  on 
 its  own  motion  or  pursuant  to  a  petition  of  a  party.  570 
 217.  In  addition,  as  noted  above,  the  Applicants  have  made  a  voluntary  commitment  to  offer  stand-alone  DSL.  571  In  order  to  ensure  that  this  commitment  benefits  consumers,  we  will  monitor  all  consumer-related 
 problems  concerning  this  service,  including  reviewing  consumer  complaints  and  other 
 567  Id. 

 568  In  response  to  our  information  request,  Verizon  stated  that  the  revenue  enhancements  were  the  [REDACTED] 
 but  we  did  not  have  sufficient  detail  to  examine  how  those  quantities  were  created.  See  Verizon  Info.  Req.,  Exh.  20.  A.  2  at  3.  We  note  that  the  same  revenue  enhancement  dollar  figures  were  included  in  a  file  supplied  in 

 Verizons  response  to  our  information  request.  In  this  case,  it  was  in  a  file  that  appeared  to  be  created  by  Bear  Stearns,  but  again,  those  amounts  were  unexplained.  See  Verizon  Response  to  Information  Request,  VZFCC-  Q20- 
 0001943. 
 569  [REDACTED] 

 570  In  addition,  the  public  may  pursue  a  claim  in  accordance  with  either  section  207  or  section  208  of  the  Act.  See 
 47  U.  S.  C.    207,  208. 
 571  See  Verizon  Oct.  31  Ex  Parte  Letter  at  5;  see  also  Appendix  G. 
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 information.  We  expect  that  the  terms  and  conditions  for  these  services  will  reflect  the  underlying  competitiveness  of  the  market.  The  Commission  retains  its  historical  discretion  to  monitor  the  market  and 
 take  corrective  action  if  necessary  in  the  public  interest. 
 218.  More  generally,  due  to  the  Commissions  interest  in  widespread  broadband  availability,  the  Commission  commits  to  seek  comment  and  issue  an  annual  report  assessing  the  competitiveness  of  the 
 broadband  market  and  whether  there  is  evidence  of  anticompetitive  conduct  in  this  market. 
 VIII.  CONCLUSION 
 219.  We  find  that  public  interest  benefits  are  likely  to  result  from  the  proposed  transaction  and  that,  in  light  of  the  DOJ  Consent  Decree,  the  merger  is  not  likely  to  have  anticompetitive  effects  in  any  relevant 
 markets.  As  we  discuss  above,  we  recognize  that  there  will  be  an  increase  in  market  concentration  with  respect  to  certain  services,  including  special  access  services,  retail  enterprise  services,  mass  market 
 services,  and  Internet  backbone  services.  Nonetheless,  in  each  case  we  find  that  the  possible  harms  identified  by  commenters  do  not  justify  designating  this  application  for  hearing. 

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

 221.  We  therefore  conclude  that  on  balance,  the  positive  public  interest  benefits  likely  to  arise  from  this  transaction  are  sufficient  to  support  the  Commissions  approval  of  Verizons  and  MCIs  application 
 under  the  public  interest  test  of  sections  214  and  310(  d)  of  the  Communications  Act.  Finally,  we  note  that  the  Applicants  offered  certain  commitments  related  to  special  access,  stand-  alone  DSL,  the 
 Commissions  Internet  Policy  Statement,  and  Internet  backbone  services.  We  find  that  these  commitments  serve  the  public  interest,  and,  accordingly,  we  accept  them  and  adopt  them  as  express 
 conditions  of  our  merger  approval.  572 
 IX.  ORDERING  CLAUSES 
 222.  Accordingly,  having  reviewed  the  applications,  the  petitions,  and  the  record  in  this  matter,  IT  IS  ORDERED  that,  pursuant  to  sections  4(  i)  and  (j),  214,  309,  310(  d)  of  the  Communications  Act  of  1934, 
 as  amended,  47  U.  S.  C.    154(  i),  (j),  214,  309,  310(  d),  section  2  of  the  Cable  Landing  License  Act,  47  U.  S.  C    35  and  Executive  Order  No.  10530,  the  applications  for  the  transfer  of  control  of  licenses  and 
 authorizations  from  MCI  to  Verizon  as  discussed  herein  and  set  forth  in  Appendix  B  ARE  GRANTED  subject  to  the  conditions  stated  below. 

 223.  IT  IS  FURTHER  ORDERED  that  as  a  condition  of  this  grant  Verizon  and  MCI  shall  comply  with  the  conditions  set  forth  in  Appendix  G  of  this  Order. 
 224.  IT  IS  FURTHER  ORDERED  that,  pursuant  to  sections  4(  i)  and  (j),  309,  and  310(  d)  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.    154(  i),  (j),  309,  310(  d),  the  Petitions  to  Deny  the 
 transfer  of  control  of  licenses  and  authorizations  from  MCI  to  Verizon  filed  by  American  Public  Communications  Council;  Broadwing  Communications,  LLC,  and  SAVVIS  Communications 
 Corporation;  Cbeyond  Communications,  et  al.;  CompTel/  ALTS;  Consumer  Federation  of  America,  et  al.; 

 572  See  generally  Verizon  Oct.  31  Ex  Parte  Letter. 
106
 Federal  Communications  Commission  FCC  05-  184 
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 EarthLink,  Inc.;  and  Qwest  Communications  International  Inc.  ARE  DENIED  for  the  reasons  stated  herein. 
 225.  IT  IS  FURTHER  ORDERED  that,  pursuant  to  section  214  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.    214,  and  section  63.10  of  the  Commissions  rules,  47  C.  F.  R.    63.10,  each  of 
 MCI,  Inc.  and  its  international  section  214  subsidiaries  MCI  Communications  Services,  Inc.,  MFS  Globenet,  Inc.,  MCI  International  Services,  Inc.,  MCI  Network  Services,  Inc.,  MCI  International,  Inc., 
 and  MCI  Communications  Corporation,  any  successor  company  thereto,  and  any  direct  or  indirect  subsidiary  of  a  named  MCI  international  section  214  holder  that  uses  that  authorization  pursuant  to 
 section  63.21  of  the  Commissions  rules,  47  C.  F.  R.    63.21,  SHALL  BE  CLASSIFIED  as  a  dominant  international  carrier  in  its  provision  of  services  on  the  U.  S.-  Dominican  Republic,  U.  S.-  Gibraltar,  and 
 U.  S.-  Venezuela  routes,  and  SHALL  FILE  the  reports  as  required  by  section  43.61(  c)  of  the  Commissions  rules,  47  C.  F.  R.    43.61(  c). 

 226.  IT  IS  FURTHER  ORDERED  that,  pursuant  to  section  2  of  the  Cable  Landing  License  Act,  47  U.  S.  C.    35,  and  section  1.767(  l)  of  the  Commissions  rules,  47  C.  F.  R.    1.767(  l),  each  of  MCI,  Inc.,  MCI 
 Communications  Corporation,  and  MCI  International,  Inc.,  and  any  successor  company  thereto,  SHALL  FILE  the  reports  required  by  section  1.767(  l)  of  the  Commissions  rules,  47  C.  F.  R.    1.767(  l),  for  each  of 
 the  Americas-  1,  Americas-  2,  Antillas-  1,  Arcos-  1,  and  Pan  American  cables  for,  as  applicable,  the  U.  S.  -Dominican  Republic  and  the  U.  S.-  Venezuela  routes. 

 227.  IT  IS  FURTHER  ORDERED  that,  pursuant  to  section  2  of  the  Cable  Landing  License  Act,  47  U.  S.  C.    35,  and  section  1.767(  h)  of  the  Commissions  rules,  47  C.  F.  R.    1.767(  h),  within  forty-  five  (45) 
 days  after  the  release  of  this  Order,  Verizon  SHALL  NOTIFY  the  International  Bureau  whether  any  of  its  subsidiaries  or  foreign  affiliates  owns  or  controls  a  five-  percent-  or-  greater  interest  in  any  submarine  cable 
 licensed  by  the  Commission  and  uses  any  of  the  U.  S.  points  of  the  cable  system. 
 228.  IT  IS  FURTHER  ORDERED  that  this  Memorandum  Opinion  and  Order  SHALL  BE  EFFECTIVE  upon  release.  Petitions  for  reconsideration  under  section  1.106  of  the  Commissions  rules, 
 47  C.  F.  R.    1.106,  may  be  filed  within  30  days  of  the  date  of  public  notice  of  this  Order. 

 FEDERAL  COMMUNICATIONS  COMMISSION 

 Marlene  H.  Dortch  Secretary 
107
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 APPENDIX  A 
 List  of  Commenters 

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

 ACN  et  al. 

 Ad  Hoc  Telecom  Manufacturer  Coalition  Ad  Hoc  Telecom  Manufacturers  Alliance  for  Public  Technology  APT 
 American  Antitrust  Institute  AAI  CloseCall  America,  Inc.  CloseCall 
 Cox  Communications,  Inc.  Cox  Global  Crossing  North  America,  Inc.  Global  Crossing 
 Independent  Alliance  Independent  Alliance  New  Jersey  Division  of  the  Ratepayer  Advocate  New  Jersey  Ratepayer  Advocate 
 National  Association  of  State  Utility  Consumer  Advocates  NASUCA  PAETEC  Communications,  Inc.  Paetec 
 Progress  and  Freedom  Foundation  PFF  State  of  New  York  Office  of  the  Attorney  General  New  York  Attorney  General 
 Telecommunications  Consultants  Coalition  Telecom  Consultants  Texas  Office  of  Public  Utility  Counsel  Texas  OPC 
 United  States  Cellular  Corporation  United  States  Cellular  Vonage  Holdings  Corp.  Vonage 
 WorldNet  Telecommunications,  Inc.  WorldNet 
108
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 Petitioners  Abbreviation  American  Public  Communications  Council  APCC 
 Broadwing  Communications  LLC  and  SAVVIS  Communications,  Inc.  Broadwing  and  SAVVIS 
 Cbeyond  Communications  Conversent  Communications 
 Eschelon  Communications  NuVox  Communications 
 TDS  Metrocom  XO  Communications 

 Cbeyond  et  al. 

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

 Reply  Commenters  Abbreviation  Ad  Hoc  Telecommunications  Users  Committee  Ad  Hoc  Telecom  Users 
 Advance/  Newhouse  Communications  Advance 
 American  Public  Communications  Council  APCC 
 CableVision  Lightpath,  Inc.  Lightpath  Competitive  Enterprise  Institute  CEI 

 Cox  Communications,  Inc.  Cox  National  Association  of  State  Utility  Consumer  Advocates  NASUCA 
 New  Jersey  Board  of  Public  Utilities  New  Jersey  Board  New  Jersey  Division  of  the  Ratepayer  Advocate  New  Jersey  Ratepayer  Advocate 
 Office  of  the  Peoples  Counsel  for  the  District  of  Columbia  DC  OPC  Pacific  LightNet,  Inc.  Pacific  LightNet 
 Qwest  Communications  International  Inc.  Qwest  T-  Mobile  USA,  Inc.  T-  Mobile 
 Verizon  Communications  Inc.  and  MCI,  Inc  Verizon/  MCI 
109
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 APPENDIX  B 
 Licenses  and  Authorizations  To  Be  Transferred 
 SECTION  214  AUTHORIZATIONS 
 A.  Part  63    Domestic  Section  214  Authority 
 MCI  Affiliates  and  Subsidiaries  Holding  Domestic  214  Authority  Intermedia  Communications  LLC 
 Intermedia  Communications  of  Virginia,  Inc.  MCI  Broadband  Solutions,  Inc. 
 MCI  Communications  Corporation  MCI  Communications  Services,  Inc. 
 MCI  International  Mobile  Services,  Inc.  MCI  International  Services,  Inc. 
 MCI  International,  Inc.  MCI  Network  Services,  Inc. 
 MCI  WORLDCOM  Communications  of  Virginia,  Inc.  MCI  Network  Services  of  Virginia,  Inc. 
 MCI,  Inc.  MCImetro  Access  Transmission  Services  LLC 
 MCImetro  Access  Transmission  Services  of  Virginia,  Inc  Metropolitan  Fiber  Systems  of  New  York.  Inc. 
 MFS  CableCo  U.  S.,  Inc.  MFS  Globenet,  Inc. 
 Mtel  Latin  America,  Inc  SkyTel  Corp. 
 Southemet,  Inc.  Telecom*  USA,  Inc. 
 Teleconnect  Company  Teleconnect  Long  Distance  Services  &  Systems  Co. 
 TTI  National,  Inc. 
 B.  Part  63    International  Section  214  Authorizations 
 File  No.  Authorization  Holder  Authorization  Number 
 ITC-  T/  C-  20050314-  00095  MCI  Communications,  Inc.  ITC-  93-  065,  et  al.  ITC-  T/  C-  20050314-  00096  MFS  Globenet,  Inc.  ITC-  98-  622,  et  al. 
 ITC-  T/  C-  20050314-  00097  MCI,  Inc.  ITC-  214-  19961212-  00626,  et  al.  ITC-  T/  C-  20050314-  00098  MCI  International  Services,  Inc.  ITC-  214-  19961003-  00486,  et  al. 
 ITC-  T/  C-  20050314-  00099  MCI  Network  Services,  Inc.  ITC-  87-  184,  et  al.  ITC-  T/  C-  20050314-  00100  MCI  International,  Inc.  ITC-  89-  155,  et  al. 
 ITC-  T/  C-  20050311-  00110  MCI  Communications  Corporation  ITC-  90-  128,  et  al. 
110
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 CABLE  LANDING  LICENSE  APPLICATIONS 
 File  No.  Authorization  Holder  Authorization  Number 
 SCL-  T/  C-  20050317-  00006  MCI,  Inc.  SCL-  LIC-  19970421-  00002,  et  al.  SCL-  T/  C-  20050317-  00007  MCI  Communications 
 Corporation  SCL-  92-  002,  et  al.  SCL-  T/  C-  20050317-  00008  MCI  International,  Inc.  SCL-  92-  002,  et  al. 
 SCL-  T/  C-  20050317-  00009  MFS  Globenet,  Inc.  SCL-  LIC-  19971014-  00009 
 SECTION  310(  d)  APPLICATIONS  A.  Part  25    Satellite  Earth  Station  Authorization  Applications 

 File  No.  Licensee  Lead  Call  Sign 
 SES-  T/  C-  20050314-  00321  MCI  International  Services,  Inc.  E881473,  et  al.  SES-  T/  C-  20050311-  00338  MCI  Network  Services,  Inc.  E000204,  et  al. 

 B.  Parts  22,  24,  90  and  101    Wireless  Radio  Services  Applications 
 File  No.  Licensee  Lead  Call  Sign 
 0002071888  SkyTel  Corp.  KNKG783,  et  al.  0002071884  MCI  Communications  Services,  Inc.  WPNU610,  et  al. 
 0002071881  MCI  Network  Services,  Inc.  WAX65,  et  al.  0002071879  Intermedia  Communications  LLC  KCL96,  et  al. 
111
 Federal 
 Communications 

 Commission 

 FCC 
 05- 
 184 

 112  APPENDIX 
 C 

 TABLE 
 1A 
 - 
 2004 

 LOCAL 

 VOICE 
 CUSTOMER 

 SHARES 
 - 
 LARGE 

 ENTERPRISE 

 CUSTOMERS 

 Verizon 
 In- 
 Region 

 States 

 ALL 
 DC 
 DE 
 MA 
 MD 
 ME 
 NH 

 NJ 
 NY 

 PA 
 RI 
 VA 

 VT 
 WV 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Median 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share  Serving 
 Carriers 

 as 
 identified 

 in 
 the 

 survey 

 Pre- 
 merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
 TABLE 
 1B 
 - 
 2004 

 LOCAL 

 VOICE 
 CUSTOMER 

 SHARES 
 - 
 LARGE 

 ENTERPRISE 

 CUSTOMERS 

 Verizon 
 Out- 
 of- 
 Region 

 (GTE) 
 MSAs 

 ALL 
 Dallas-  FT  Worth, 
 TX 

 Los  Angeles- 
 LngBc, 

 CA 
 Portland-  Vncvr,  OR-  WA 

 Raleigh-  Durham,  NC 
 Seattle-  Tcoma-  Oly,  WA 
 Tampa-  St  Petrsbrg, 
 FL 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Median 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Serving 
 Carriers 

 as 
 identified 

 in 
 the 

 survey 

 Pre- 
 merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
112
 Federal 
 Communications 

 Commission 

 FCC 
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 184 

 113 
 TABLE 
 1C 
 - 
 2004 

 LONG 

 DISTANCE 

 CUSTOMER 

 SHARES 
 - 
 LARGE 

 ENTERPRISE 

 CUSTOMERS 

 Verizon 
 In- 
 Region 

 States 

 ALL 
 DC 
 DE 
 MA 
 MD 
 ME 
 NH 

 NJ 
 NY 

 PA 
 RI 
 VA 

 VT 
 WV 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 
 share 
 Median 

 Post- 
 merger 

 (Verizon 

 + 

 MCI) 
 market 

 share 

 Serving 
 Carriers 

 as 
 identified 

 in 

 the 
 survey  Pre-  merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
 TABLE 
 1D 
 - 
 2004 

 LONG 

 DISTANCE 

 CUSTOMER 

 SHARES 
 - 
 LARGE 

 ENTERPRISE 

 CUSTOMERS 

 Verizon 
 Out- 
 of- 
 Region 

 (GTE) 
 MSAs 

 ALL 
 Dallas-  FT  Worth, 
 TX 

 Los  Angeles- 
 LngBc, 

 CA 
 Portland-  Vncvr,  OR-  WA 

 Raleigh-  Durham,  NC 
 Seattle-  Tcoma-  Oly,  WA 
 Tampa-  St  Petrsbrg, 
 FL 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Median 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Serving 
 Carriers 

 as 
 identified 

 in 
 the 

 survey 

 Pre- 
 merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
113
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 Communications 

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 FCC 
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 114 
 TABLE 
 1E 
 - 
 2004 

 FRAME 

 RELAY 
 CUSTOMER 

 SHARES 
 - 
 LARGE 

 ENTERPRISE 

 CUSTOMERS 

 Verizon 
 In- 
 Region 

 States 

 ALL 
 DC 
 DE 
 MA 
 MD 
 ME 
 NH 

 NJ 
 NY 

 PA 
 RI 
 VA 

 VT 
 WV 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Median 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share  Serving 
 Carriers 

 as 
 identified 

 in 
 the 

 survey 

 Pre- 
 merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
 TABLE 
 1F 
 - 
 2004 

 FRAME 

 RELAY 
 CUSTOMER 

 SHARES 
 - 
 LARGE 

 ENTERPRISE 

 CUSTOMERS 

 Verizon 
 Out- 
 of- 
 Region 

 (GTE) 
 MSAs 

 ALL 
 Dallas-  FT  Worth, 
 TX 

 Los  Angeles- 
 LngBc, 

 CA 
 Portland-  Vncvr,  OR-  WA 

 Raleigh-  Durham,  NC 
 Seattle-  Tcoma-  Oly,  WA 
 Tampa-  St  Petrsbrg, 
 FL 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Median 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Serving 
 Carriers 

 as 
 identified 

 in 
 the 

 survey 

 Pre- 
 merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
114
 Federal 
 Communications 

 Commission 

 FCC 
 05- 
 184 

 115 
 TABLE 
 1G 
 - 
 2004 

 T1 
 CUSTOMER 

 SHARES 
 - 
 LARGE 

 ENTERPRISE 

 CUSTOMERS 

 Verizon 
 In- 
 Region 

 States 

 ALL 
 DC 
 DE 
 MA 
 MD 
 ME 
 NH 

 NJ 
 NY 

 PA 
 RI 
 VA 

 VT 
 WV 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 

 (Across 
 all 
 Verizon 

 states) 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Median 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share  Serving 
 Carriers 

 as 
 identified 

 in 
 the 

 survey 

 Pre- 
 merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
 TABLE 
 1H 
 - 
 2004 

 T1 
 CUSTOMER 

 SHARES 
 - 
 LARGE 

 ENTERPRISE 

 CUSTOMERS 

 Verizon 
 Out- 
 of- 
 Region 

 (GTE) 
 MSAs 

 ALL 
 Dallas-  FT  Worth, 
 TX 

 Los  Angeles- 
 LngBc, 

 CA 
 Portland-  Vncvr,  OR-  WA 

 Raleigh-  Durham,  NC 
 Seattle-  Tcoma-  Oly,  WA 
 Tampa-  St  Petrsbrg, 
 FL 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Median 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Serving 
 Carriers 

 as 
 identified 

 in 
 the 

 survey 

 Pre- 
 merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
115
 Federal 
 Communications 

 Commission 

 FCC 
 05- 
 184 

 116 
 TABLE 
 2A 
 - 
 2004 

 LOCAL 

 VOICE 
 CUSTOMER 

 SHARES 
 - 
 MEDIUM 

 ENTERPRISE 

 CUSTOMERS 

 Verizon 
 In- 
 Region 

 States 

 ALL 
 DC 
 DE 
 MA 
 MD 
 ME 
 NH 

 NJ 
 NY 

 PA 
 RI 
 VA 

 VT 
 WV 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Median 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share  Serving 
 Carriers 

 as 
 identified 

 in 
 the 

 survey 

 Pre- 
 merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
 TABLE 
 2B 
 - 
 2004 

 LOCAL 

 VOICE 
 CUSTOMER 

 SHARES 
 - 
 MEDIUM 

 ENTERPRISE 

 CUSTOMERS 

 Verizon 
 Out- 
 of- 
 Region 

 (GTE) 
 MSAs 

 ALL 
 Dallas-  FT  Worth, 
 TX 

 Los  Angeles- 
 LngBc, 

 CA 
 Portland-  Vncvr,  OR-  WA 

 Raleigh-  Durham,  NC 
 Seattle-  Tcoma-  Oly,  WA 
 Tampa-  St  Petrsbrg, 
 FL 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Median 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Serving 
 Carriers 

 as 
 identified 

 in 
 the 

 survey 

 Pre- 
 merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
116
 Federal 
 Communications 

 Commission 

 FCC 
 05- 
 184 

 117 
 TABLE 
 2C 
 - 
 2004 

 LONG 

 DISTANCE 

 CUSTOMER 

 SHARES 
 - 
 MEDIUM 

 ENTERPRISE 

 CUSTOMERS 

 Verizon 
 In- 
 Region 

 States 

 ALL 
 DC 
 DE 
 MA 
 MD 
 ME 
 NH 

 NJ 
 NY 

 PA 
 RI 
 VA 

 VT 
 WV 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 
 share 
 Median 

 Post- 
 merger 

 (Verizon 

 + 

 MCI) 
 market 

 share 

 Serving 
 Carriers 

 as 
 identified 

 in 

 the 
 survey  Pre-  merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
 TABLE 
 2D 
 - 
 2004 

 LONG 

 DISTANCE 

 CUSTOMER 

 SHARES 
 - 
 MEDIUM 

 ENTERPRISE 

 CUSTOMERS 

 Verizon 
 Out- 
 of- 
 Region 

 (GTE) 
 MSAs 

 ALL 
 Dallas-  FT  Worth, 
 TX 

 Los  Angeles- 
 LngBc, 

 CA 
 Portland-  Vncvr,  OR-  WA 

 Raleigh-  Durham,  NC 
 Seattle-  Tcoma-  Oly,  WA 
 Tampa-  St  Petrsbrg, 
 FL 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Median 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Serving 
 Carriers 

 as 
 identified 

 in 
 the 

 survey 

 Pre- 
 merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
117
 Federal 
 Communications 

 Commission 

 FCC 
 05- 
 184 

 118 
 TABLE 
 2E 
  
 2004 

 FRAME 

 RELAY 
 CUSTOMER 

 SHARES 
 - 
 MEDIUM 

 ENTERPRISE 

 CUSTOMERS 

 Verizon 
 In- 
 Region 

 States 

 ALL 
 DC 
 DE 
 MA 
 MD 
 ME 
 NH 

 NJ 
 NY 

 PA 
 RI 
 VA 

 VT 
 WV 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Median 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share  Serving 
 Carriers 

 as 
 identified 

 in 
 the 

 survey 

 Pre- 
 merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
 TABLE 
 2F 
 - 
 2004 

 FRAME 

 RELAY 
 CUSTOMER 

 SHARES 
 - 
 MEDIUM 

 ENTERPRISE 

 CUSTOMERS 

 Verizon 
 Out- 
 of- 
 Region 

 (GTE) 
 MSAs 

 ALL 
 Dallas-  FT  Worth, 
 TX 

 Los  Angeles- 
 LngBc, 

 CA 
 Portland-  Vncvr,  OR-  WA 

 Raleigh-  Durham,  NC 
 Seattle-  Tcoma-  Oly,  WA 
 Tampa-  St  Petrsbrg, 
 FL 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Median 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Serving 
 Carriers 

 as 
 identified 

 in 
 the 

 survey 

 Pre- 
 merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
118
 Federal 
 Communications 

 Commission 

 FCC 
 05- 
 184 

 119 
 TABLE 
 2G 
 - 
 2004 

 T1 
 CUSTOMER 

 SHARES 
 - 
 MEDIUM 

 ENTERPRISE 

 CUSTOMERS 

 Verizon 
 In- 
 Region 

 States 

 ALL 
 DC 
 DE 
 MA 
 MD 
 ME 
 NH 

 NJ 
 NY 

 PA 
 RI 
 VA 

 VT 
 WV 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Median 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share  Serving 
 Carriers 

 as 
 identified 

 in 
 the 

 survey 

 Pre- 
 merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
 TABLE 
 2H 
 - 
 2004 

 T1 
 CUSTOMER 

 SHARES 
 - 
 MEDIUM 

 ENTERPRISE 

 CUSTOMERS 

 Verizon 
 Out- 
 of- 
 Region 

 (GTE) 
 MSAs 

 ALL 
 Dallas-  FT  Worth, 
 TX 

 Los  Angeles- 
 LngBc, 

 CA 
 Portland-  Vncvr,  OR-  WA 

 Raleigh-  Durham,  NC 
 Seattle-  Tcoma-  Oly,  WA 
 Tampa-  St  Petrsbrg, 
 FL 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Median 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Serving 
 Carriers 

 as 
 identified 

 in 
 the 

 survey 

 Pre- 
 merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
119
 Federal 
 Communications 

 Commission 

 FCC 
 05- 
 184 

 120 
 TABLE 
 3A 
  
 2004 

 LOCAL 

 VOICE 
 CUSTOMER 

 SHARES 
 - 
 SMALL 

 ENTERPRISE 

 CUSTOMERS 

 ALL 
 NY, 
 MA,  and  PA 

 RI, 
 VT, 

 ME, 

 NJ, 
 NH, 

 DE 

 MD, 
 WV,  VA,  DC 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Median 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Serving 
 Carriers 

 as 
 identified 

 in 
 the 

 survey 

 Pre- 
 merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
 TABLE 
 3B 
 - 
 2004 

 LONG 

 DISTANCE 

 CUSTOMER 

 SHARES 
 - 
 SMALL 

 ENTERPRISE 

 CUSTOMERS 

 ALL 
 NY, 
 MA,  and  PA 

 RI, 
 VT, 

 ME, 

 NJ, 
 NH, 

 DE 

 MD, 
 WV,  VA,  DC 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Median 
 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Median 
 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Serving 
 Carriers 

 as 
 identified 

 in 
 the 

 survey 

 Pre- 
 merger 

 HHI 

 Median 
 Pre- 
 merger 

 HHI 

 Post- 
 merger 

 HHI 

 Median 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
120
 Federal 
 Communications 

 Commission 

 FCC 
 05- 
 184 

 121  TABLE 
 4A 

 2004 
 LOCAL 

 VOICE 
 CUSTOMER 

 SHARES 
 - 
 SMALL 

 ENTERPRISE 

 CUSTOMERS 
 Dallas, 
 Portland, 

 Raleigh, 

 Seattle, 
 Tampa 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Carriers 
 identified 

 in 
 the 

 survey 

 as 
 serving 

 customers 

 in 
 the 

 MSAs  Pre-  merger 
 HHI 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
 TABLE 
 4B 

 2004 
 LONG 

 DISTANCE 

 CUSTOMER 

 SHARES 
 - 
 SMALL 

 ENTERPRISE 

 CUSTOMERS 
 Dallas, 
 Portland, 

 Raleigh, 

 Seattle, 
 Tampa 

 Pre- 
 merger 

 Verizon 

 market 
 share 

 Post- 
 merger 

 (Verizon 

 + 
 MCI) 

 market 

 share 

 Carriers 
 identified 

 in 
 the 

 survey 

 as 
 serving 

 customers 

 in 
 the 

 MSAs  Pre-  merger 
 HHI 
 Post- 
 merger 

 HHI 

 Delta 

 REDACTED 
121
 Federal  Communications  Commission  FCC  05-  184 
 122 
 APPENDIX  D 
 Mass  Market  Data  (%  Share) 

 Local  Service  Long  Distance  Service  Local  and  Long  Distance  Bundle  State  Verizon 
 Pre-  Merger  %  Verizon  Post-  Merger  %  Verizon  Pre-  Merger  %  Verizon  Post-  Merger  %  Verizon  Pre-  Merger  %  Verizon  Post-  Merger  % 
 CA 
 DC 
 DE 
 FL 
 ID 
 IL 
 IN 
 MA 
 MD 
 ME 
 MI 
 NC 
 NH 
 NJ 
 NV 
 NY/  CT 
 OH 
 OR 
 PA 
 RI 
 SC 
 TX 
 VA 
 VT 
 WA 
 WI 
 WV 
 Minimum 
 Maximum 
 Median 

 REDACTED 

 Note:  See  para.  103  &  nn.  307-  309  for  the  underlying  assumptions.  Data  are  as  of  March,  2005.  Data  for  New  York  and  Connecticut  are  combined  because  Verizon  does  not  report  data  separately  for  these  states.  We  do  not  report  data 
 for  Hawaii  because  control  of  Verizon  Hawaii  was  transferred  to  Hawaiian  TelCom  Communications  on  May  2,  2005.  See  Letter  from  Jeffrey  A.  Marks  and  Nia  C.  Mathis,  Latham  &  Watkins  LLP,  to  Marlene  H.  Dortch,  Secretary,  FCC, 
 WC  Docket  No.  04-  234  (filed  May  5,  2005).  Sources:  Verizon  Info.  Req.,  Exh.  18.  A.  1,  18.  A.  2,  18.  A.  4  and  Suppl.  Exh.  18.  B.  6;  MCI  Info.  Req.,  Exh.  18(  a)(  b)(  d),  Tab  8;  Numbering  Resource  Utilization  /  Forecast  (  NRUF)  database. 
122
 Federal  Communications  Commission  FCC  05-  184 
 123 
 Appendix  E 
 Internet  Backbone  Data 
 Table  1:  Market  Shares  and  HHIs  of  Tier  1  Backbone  Providers* 

 Tier  1  Provider  Pre-  merger  Revenue  ($  M)  %  Share  (pre-  merger)  Post-  merger  Revenue  ($  M)  %  Share  (post-  merger) 

 REDACTED 

 Pre-  merger  HHI  Post-  merger  HHI 
 Change  in  HHI  REDACTED  *MCI  Info.  Req.  at  Exh.  8(  a)(  3);  SBC/  AT&  T  Oct.  14  Ex  Parte  Letter  at  Attachments  (IDC  2003  Revenue  Data; 
 AT&  T  Corp.  Response,  WC  Docket  No.  05-  65,  Exhs.  8(  b)(  3)-  I,  II,  and  III  (lists  of  MCI  peers);  and  SBC  Exh.  9.  b  (SBC  2004  transit  payments)).  Market  shares  are  calculated  from  reported  revenues  for  dedicated  Internet  access 
 and  upstream  wholesale  transit.  We  note  that  the  post-  merger  market  share  for  MCI  is  calculated  based  on  the  assumption  that  the  parallel  pending  merger  of  SBC  and  AT&  T  is  consummated.  In  addition,  the  post-  merger 
 revenue  shares  of  [REDACTED]  were  adjusted  based  on  available  data  regarding  transit  revenues  previously  paid  to  those  IBPs  by  SBC  and  Verizon.  See  SBC/  AT&  T  Oct.  14  Ex  Parte  Letter  at  Attach.  (SBC  2004  transit 
 payments);  Verizon  Info.  Req.,  Exh.  10.  c  (Verizon  2004  transit  payments). 

 Table  2:  MCI  pre-  merger  traffic  ratios** 
 MCI  Peer  3/  2004  Ratio  6/  2004  Ratio  9/  2004  Ratio  12/  2004  Ratio  3/  2005  Ratio 

 REDACTED 
 **  MCI  submitted  average  inbound  and  outbound  traffic  flows  with  its  peers  for  the  final  month  in  each  quarter  in  2004  and  the  first  quarter  of  2005.  See  Letter  from  Mark  D.  Schneider,  Counsel  to  MCI,  to  Ms.  Marlene 
 Dortch,  Secretary,  FCC,  WC  Docket  No.  05-  75,  Attach.  at  Exh.  8(  a)(  4)  (filed  July  5,  2005)  (MCI  Supp.  Info.  Req.). 
123
 Federal 
 Communications 

 Commission 

 FCC 
 05- 
 184 

 125 
 Total 
 Americas 

 Region 
125
 Federal 
 Communications 

 Commission 

 FCC 
 05- 
 184 

 127  APPENDIX 
 F 

 International 
 Data 

 Table 
 2: 
 Cable 

 Route 
 Analysis 

 U. 
 S.- 
 Dominican 

 Republic 
 and 
 U. 
 S.- 
 Venezuela 

 Verizon 

 MCI 
 MCI 
 + 
 Verizon 

 U. 
 S.- 

 DR 

 U. 
 S.- 

 DR 

 U. 
 S.- 

 DR 

 U. 
 S. 
 - 

 Ven. 

 U. 
 S. 
 - 

 Ven. 

 U. 
 S. 
 - 

 Ven. 

 Cable 
 2005 
 Est. 

 % 
 of  Regiona 

 l 
 Share 

 Own 

 IRU 
 Total 
 Own 
 IRU 
 Total 

 U. 
 S. 
 - 

 DR 

 U. 
 S.-  Ven. 

 U. 
 S. 
 - 

 DR. 

 U. 
 S.-  Ven. 

 U. 
 S. 

 - 
 Dominican 

 Republic 
 * 

 Antillas 
 1 
 Arcos- 
 1 

 Total 
 Cables 

 to 
 DR 

 % 
 of 
 Total 

 Cable 

 to 

 DR  Without 
 IRU 
 Total 

 Cables 
 to 
 DR 

 Without 
 IRU 
 % 
 of 

 Total 
 Cables 

 to 

 Dominican 
 Republic 

 REDACTED 

 U. 
 S. 

 - 
 Venezuela 

 ** 

 Americas- 
 1 
 Pan 
 American  Cable  System  Americas-  2  Arcos-  1  PAC  -1  GlobeNet  Total  Cables  to  Ven.  %  of  Total  Cable 

 to 

 Venezuela 

 REDACTED 

 Sources: 
 Verizon 
 June 
 10 
 Response; 

 MCI 
 June 
 10 
 Response. 

 * 
 Verizon 

 Dominicana 

 owns 
 all 
 four 

 cable 

 stations 

 in 
 the 
 Dominican 

 Republic 
 (at 
 Punta 

 Cana 
 and 
 Santo 

 Domingo 

 for 
 the 
 Antillas- 

 1 
 cable 

 and 
 at 
 Puerto 

 Plata 
 and 
 Punta 

 Cana 
 for 

 the 
 Arcos- 

 1 
 cable). 

 ** 
 CANTV 

 owns 
 four 
 cable 

 stations 

 in 
 Venezuela 

 (at 
 Camuri 

 and 
 Estaco 

 Vargas 

 for 
 the 
 Americas 

 I 
 and 

 Americas 

 II 
 cables 

 and 
 at 
 Punto 

 FiJo 
 and 
 Estado 

 Falcon 
 for 
 the 
 Pan 

 American 
 Cable 
 System 

 and 
 Arcos- 

 1 
 cable). 
127
 Federal  Communications  Commission  FCC  05-  184 
 128 
 APPENDIX  G 
 Conditions 
 The  Applicants  have  offered  certain  voluntary  commitments,  enumerated  below.  Because  we  find  these  commitments  will  serve  the  public  interest,  we  accept  them  and  adopt  them  as  Conditions  of 
 our  approval  of  the  merger.  Unless  otherwise  specified  herein,  the  Conditions  described  herein  shall  become  effective  10  business  days  after  the  Merger  Closing  Date.  The  Conditions  described  herein  shall 
 be  null  and  void  if  Verizon  and  MCI  do  not  merge  and  there  is  no  Merger  Closing  Date. 
 It  is  not  the  intent  of  these  Conditions  to  restrict,  supersede,  or  otherwise  alter  state  or  local  jurisdiction  under  the  Communications  Act  of  1934,  as  amended,  or  over  the  matters  addressed  in  these 
 Conditions,  or  to  limit  state  authority  to  adopt  rules,  regulations,  performance  monitoring  programs,  or  other  policies  that  are  not  inconsistent  with  these  Conditions. 

 For  the  purposes  of  these  Conditions,  the  term  Verizon/  MCI  refers  to  Verizon  Communications  Inc.  and  its  wholly-  owned  domestic  U.  S.  wireline  operating  companies  which  include  Bell  Atlantic 
 Communications,  Inc.  d/  b/  a  Verizon  Long  Distance,  Contel  of  the  South,  Inc.  d/  b/  a  Verizon  Mid-  States,  GTE  Southwest  Incorporated  d/  b/  a  Verizon  Southwest,  NYNEX  Long  Distance,  Inc.  d/  b/  a  Verizon 
 Enterprise  Solutions,  Verizon  Global  Networks  Inc.,  Verizon  California  Inc.,  Verizon  Delaware  Inc.,  Verizon  Florida  Inc.,  Verizon  Maryland  Inc.,  Verizon  New  England  Inc.,  Verizon  New  Jersey  Inc., 
 Verizon  New  York  Inc.,  Verizon  North  Inc.,  Verizon  Northwest  Inc.,  Verizon  Pennsylvania  Inc.,  Verizon  Select  Services  Inc.,  Verizon  South  Inc.,  Verizon  Virginia  Inc.,  Verizon  Washington,  DC  Inc.,  Verizon 
 West  Coast  Inc.,  Verizon  West  Virginia  Inc.,  as  well  as  MCI,  Inc.  and  all  of  its  domestic  wireline  operating  companies. 

 For  the  purposes  of  these  Conditions,  the  term  Merger  Closing  Date  means  the  day  on  which,  pursuant  to  their  Merger  Agreement,  Verizon  and  MCI  cause  a  Certificate  of  Merger  to  be  executed, 
 acknowledged,  and  filed  with  the  Secretary  of  the  state  of  Delaware  as  provided  in  Delaware  Corporation  Law. 

 Unbundled  Network  Elements 
 1.  For  a  period  of  two  years,  beginning  on  the  Merger  Closing  Date,  Verizon's  incumbent  local  telephone  companies  573  will  not  seek  any  increase  in  state-  approved  rates  for  unbundled  network 
 elements  (UNEs)  that  are  currently  in  effect,  provided  that  this  restriction  shall  not  apply  to  the  extent  any  UNE  rate  currently  in  effect  is  subsequently  deemed  invalid  or  is  remanded  to  a  state 
 commission  by  a  court  of  competent  jurisdiction  in  connection  with  an  appeal  that  is  currently  pending  (i.  e.,  for  appeals  of  state  commission  decisions  in  California,  Maine,  New  Hampshire  and 
 Pennsylvania).  In  the  event  of  a  UNE  rate  increase  in  California,  Maine,  New  Hampshire  or  Pennsylvania  during  the  two  year  period  following  a  court  decision  invalidating  or  remanding  a 
 UNE  rate,  Verizon/  MCI  may  implement  that  UNE  rate  increase  but  shall  not  seek  any  further  increase  in  the  UNE  rates  in  that  state  during  the  two  year  period.  This  condition  shall  not  limit 
 the  ability  of  Verizon/  MCI  and  any  telecommunications  carrier  to  agree  voluntarily  to  any  UNE  rate  nor  does  it  supersede  any  current  agreement  on  UNE  rate. 

 573  As  used  in  these  conditions,  the  term  incumbent  local  telephone  company,  incumbent  local  exchange  carrier 
 or  ILEC  shall  mean  an  incumbent  local  exchange  carrier  as  set  forth  in  47  U.  S.  C.    251  (h)(  1)(  A)  and  (B)(  i). 
128
 Federal  Communications  Commission  FCC  05-  184 
 129 
 2.  Within  30  days  after  the  Merger  Closing  Date,  Verizon/  MCI  shall  exclude  fiber-  based  collocation  arrangements  established  by  MCI  or  its  affiliates  in  identifying  wire  centers  in  which  Verizon 
 claims  there  is  no  impairment  pursuant  to  section  51.319(  a)-(  e)  of  the  Commissions  rules.  Verizon/  MCI  shall  file  with  the  Commission,  within  30  days  of  the  Merger  Closing  Date,  revised 
 data  or  lists  that  reflect  the  exclusion  of  MCI  collocation  arrangements,  as  required  by  this  condition. 

 Special  Access 
 1.  Verizon/  MCI  affiliates  that  meet  the  definition  of  an  incumbent  local  exchange  carrier  contained  in  Section  251  (h)(  1)(  A)  and  (B)(  i)  of  the  Act  (  Verizons  ILECs)  shall,  for  the  Verizon  Service 
 Area,  574  provide  to  the  Commission  performance  metric  results  contained  in  the  Service  Quality  Measurement  Plan  for  Interstate  Special  Access  Services  (  The  Plan),  as  described  herein  and  in 
 Attachment  A.  The  Verizon  ILECs  shall  provide  the  Commission  with  performance  measurement  results  on  a  quarterly  basis,  which  shall  consist  of  the  data  collected  according  to 
 the  performance  measurements  listed  in  Attachment  A.  Such  reports  shall  be  provided  in  an  Excel  spreadsheet  format  and  shall  be  designed  to  demonstrate  the  Verizons  ILECs  monthly 
 performance  in  delivering  interstate  special  access  services  within  each  of  the  states  in  the  Verizon  Service  Area.  These  data  shall  be  reported  on  an  aggregated  basis  for  interstate  special 
 access  delivered  to  (i)  Verizon/  MCIs  Section  272  affiliates,  (ii)  Verizons  other  affiliates,  and  (iii)  non-  affiliates.  575  The  Verizon  ILECs  shall  provide  performance  measurement  results  (broken 
 down  on  a  monthly  basis)  for  each  quarter  to  the  Commission  by  the  45th  day  after  the  end  of  the  quarter.  The  Verizon  ILECs  shall  implement  the  Plan  for  the  first  full  quarter  following  the 
 Merger  Closing  Date.  This  condition  shall  terminate  on  the  earlier  of  (i)  30  months  and  45  days  after  the  beginning  of  the  first  full  quarter  following  the  Merger  Closing  Date  (that  is,  when 
 Verizon/  MCI  file  their  10th  quarterly  report);  or  (ii)  the  effective  date  of  a  Commission  order  adopting  performance  measurement  requirements  for  interstate  special  access  services. 

 2.  For  a  period  of  thirty  months  following  the  Merger  Closing  Date,  Verizon/  MCI  shall  not  increase  the  rates  paid  by  MCIs  existing  customers  (as  of  the  Merger  Closing  Date)  of  the  DS1  and  DS3 
 wholesale  metro  private  line  services  that  MCI  provides  in  Verizon's  incumbent  local  telephone  company  service  areas  above  their  level  as  of  the  Merger  Closing  Date.  576 

 3.  For  a  period  of  thirty  months  following  the  Merger  Closing  Date,  Verizon's  incumbent  local  telephone  companies  will  not  provide  special  access  offerings  to  their  wireline  affiliates  that  are 
 not  available  to  other  similarly  situated  special  access  customers  on  the  same  terms  and  conditions. 

 4.  For  a  period  of  30  months  following  the  Merger  Closing  Date,  before  Verizon's  incumbent  local  telephone  companies  provide  a  new  or  modified  contract  tariffed  service  under  section  69.727(  a) 
 of  the  Commission's  rules  to  their  own  section  272(  a)  affiliate(  s),  they  will  certify  to  the 

 574  For  purposes  of  this  condition,  Verizon  service  area  means  the  areas  within  Verizons  service  territory  where 
 Verizons  incumbent  LEC  subsidiaries,  as  defined  in  47  U.  S.  C.    251  (h)(  1)(  A)  and  (B)(  i  ),  are  incumbent  local  exchange  carriers. 

 575  Data  in  categories  (i)  and  (ii)  shall  not  include  Verizon/  MCI  retail  data. 
 576  For  purposes  of  these  conditions,  Verizons  incumbent  local  telephone  company  service  areas  means  the  areas 
 within  Verizons  service  territory  in  which  a  Verizon  operating  company  is  the  incumbent  local  exchange  carrier,  as  defined  in  47  U.  S.  C.    251  (h)(  1)(  A)  and  (B)(  i). 
129
 Federal  Communications  Commission  FCC  05-  184 
 130 
 Commission  that  they  provide  service  pursuant  to  that  contract  tariff  to  an  unaffiliated  customer  other  than  SBC/  ATT  or  its  wireline  affiliates.  Verizons  incumbent  local  telephone  companies 
 also  will  not  unreasonably  discriminate  in  favor  of  their  affiliates  in  establishing  the  terms  and  conditions  for  grooming  special  access  facilities. 

 5.  Verizons  incumbent  local  telephone  companies  will  not  increase  the  rates  in  their  interstate  tariffs,  including  contract  tariffs,  for  DS1,  DS3  and  OCn  special  access  services  that  Verizons 
 incumbent  local  telephone  companies  provide  in  their  local  service  areas,  as  set  forth  in  Verizons  tariffs  on  file  with  the  Commission  on  the  merger  closing  date.  577  This  condition  shall  terminate 
 30  months  from  the  Merger  Closing  Date. 
 Internet  Backbone 
 1.  For  a  period  of  three  years  after  the  Merger  Closing  Date,  Verizon/  MCI  will  maintain  at  least  as  many  settlement  free  U.  S.  peering  arrangements  for  Internet  backbone  services  with  domestic 
 operating  entities  as  they  did  in  combination  on  the  Merger  Closing  Date.  Verizon/  MCI  may  waive  the  terms  of  its  published  peering  policies  to  the  extent  necessary  to  maintain  the  number 
 of  peering  arrangements  required  by  this  condition. 
 2.  Within  30  days  of  the  Merger  Closing  Date,  and  continuing  for  two  years  thereafter,  Verizon/  MCI  will  post  its  Internet  backbone  peering  policy  or  policies  on  a  publicly  accessible 
 website.  During  the  term  of  this  condition,  Verizon/  MCI  will  post  any  revisions  to  its  peering  policy  or  policies  on  a  timely  basis  as  they  occur. 

 ADSL  Service 
 1.  Within  twelve  months  of  the  Merger  Closing  Date,  Verizon  will  deploy  and  offer  stand-  alone  ADSL  within  the  local  service  areas  of  Verizons  incumbent  local  telephone  companies.  Stand-alone 
 ADSL  means  ADSL  service  on  ADSL-  equipped  lines  without  requiring  customers  to  also  purchase  circuit  switched  voice  grade  telephone  service.  This  service  will  be  available  both  for 
 existing  Verizon  voice  and  ADSL  customers  who  wish  to  port  their  voice  service  to  a  VoIP  provider  or  to  another  facilities-  based  provider  such  as  cable  or  wireless,  and  for  new  customers 
 who  wish  to  subscribe  only  to  Verizon's  ADSL  and  not  to  its  voice  service.  This  service  will  remain  available  in  a  given  state  for  two  years  after  the  implementation  date  in  that  state.  For 
 purposes  of  this  condition,  the  implementation  date  for  a  state  shall  be  the  date  that  Verizon  can  offer  this  service  on  eighty  percent  of  Verizons  ADSL-  equipped  lines  in  Verizon's  local  service 
 area  in  that  state.  Within  twenty  days  after  meeting  the  implementation  date  in  a  state,  Verizon/  MCI  will  file  a  letter  with  the  Commission  certifying  to  that  effect.  In  any  event,  this 
 commitment  will  terminate  no  later  than  three  years  from  the  Merger  Closing  Date. 
 Net  Neutrality 
 1.  Effective  on  the  Merger  Closing  Date,  and  continuing  for  two  years  thereafter,  Verizon/  MCI  will  conduct  business  in  a  manner  that  comports  with  the  principles  set  forth  in  the  FCCs  Policy 
 Statement,  issued  September  23,  2005  (FCC  05-  151). 

 577  This  condition  does  not  apply  to  Advanced  Services  that  would  have  been  provided  by  a  separate  Advanced 
 Services  affiliate  under  the  terms  of  the  Bell  Atlantic/  GTE  Order,  15  FCC  Rcd  14032,  App.  D. 
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 Annual  Certification 
 1.  For  three  years  following  the  Merger  Closing  Date,  Verizon/  MCI  shall  file  annually  a  declaration  by  an  officer  of  the  corporation  attesting  that  Verizon/  MCI  has  substantially  complied  with  the 
 terms  of  these  conditions  in  all  material  respects.  The  first  declaration  shall  be  filed  45  days  following  the  one-  year  anniversary  of  the  Merger  Closing  Date,  and  the  second  and  third 
 declaration  shall  be  filed  one  and  two  years  thereafter  respectfully. 
 Sunset 
 1.  For  the  avoidance  of  doubt,  unless  expressly  stated  to  the  contrary  above,  all  conditions  and  commitments  contained  in  this  letter  shall  end  on  the  second  anniversary  of  the  Merger  Closing 
 Date. 
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 Conditions  Attachment  A 
 Service  Quality  Measurement  Plan  For  Interstate  Special  Access 
 Contents  Section  1:  Ordering 
 FOCT:  Firm  Order  Confirmation  (FOC)  Timeliness 
 Section  2:  Provisioning  PIAM:  Percent  Installation  Appointments  Met 
 NITR:  New  Installation  Trouble  Report  Rate 
 Section  3:  Maintenance  and  Repair  CTRR:  Failure  Rate/  Trouble  Report  Rate 
 MAD:  Average  Repair  Interval/  Mean  Time  to  Restore 
 Section  4:  Glossary 
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 Section  1:  Ordering 
 FOCT:  Firm  Order  Confirmation  (FOC)  Timeliness 
 Definition  Firm  Order  Confirmation  (FOC)  Timeliness  measures  the  percentage  of  FOCs  returned  within  the 
 Company-  specified  standard  interval. 
 Exclusions  Service  requests  identified  as  Projects  or  ICBs 
 Service  requests  cancelled  by  the  originator  Weekends  and  designated  holidays  of  the  service  center 
 Unsolicited  FOCs  Administrative  or  test  service  requests 
 Service  requests  that  indicate  that  no  confirmation/  response  should  be  sent  Other  exclusions  as  defined  by  each  RBOC  to  reflect  system  and  operational  differences 

 Business  Rules  Counts  are  based  on  the  first  instance  of  a  FOC  being  sent  in  response  to  an  ASR.  Activity  starting  on  a 
 weekend  or  holiday  will  reflect  a  start  date  of  the  next  business  day.  Activity  ending  on  a  weekend  or  holiday  will  be  calculated  with  an  end  date  of  the  last  previous  business  day.  Requests  received  after  the 
 companys  stated  cutoff  time  will  be  counted  as  a  zero  day  interval  if  the  FOC  is  sent  by  close  of  business  on  the  next  business  day.  The  standard  interval  will  be  that  which  is  specified  in  the  company-specific 
 ordering  guide. 
 Calculation  Firm  Order  Confirmation  (FOC)  Interval  =  (a  -  b) 
 a  =  Date  and  time  FOC  is  returned  b  =  Date  and  time  valid  access  service  request  is  received 

 Percent  within  Standard  Interval  =  (c  /  d)  X  100  c  =  Number  of  service  requests  confirmed  within  the  designated  interval 
 d  =  Total  number  of  service  requests  confirmed  in  the  reporting  period 
 Report  Structure  Non-  Affiliates  Aggregate 
 RBOC  Affiliates  Aggregate  -  RBOC  272  Affiliates  Aggregate 

 Geographic  Scope  State 
 SQM  Disaggregation  (Percent  FOCs  returned  within  Standard  Interval)  Special  Access    DS0 
 Special  Access    DS1  Special  Access    DS3  and  above 
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 Section  2:  Provisioning 
 PIAM:  Percent  Installation  Appointments  Met 
 Definition  Percent  Installation  Appointments  Met  measures  the  percentage  of  installations  completed  on  or  before 
 the  confirmed  due  date. 
 Exclusions  Orders  issued  and  subsequently  cancelled 
 Orders  associated  with  internal  or  administrative  (including  test)  activities  Disconnect  Orders 
 Other  exclusions  as  defined  by  each  RBOC  to  reflect  system  and  operational  differences 
 Business  Rules  This  measurement  is  calculated  by  dividing  the  number  of  service  orders  completed  during  the  reporting 
 period,  on  or  before  the  confirmed  due  date,  by  the  total  number  of  orders  completed  during  the  same  reporting  period.  Installation  appointments  missed  because  of  customer  caused  reasons  shall  be  counted 
 as  met  and  included  in  both  the  numerator  and  denominator.  Where  there  are  multiple  missed  appointment  codes,  each  RBOC  will  determine  whether  an  order  is  considered  missed. 

 Calculation  Percent  Installation  Appointments  Met  =  (a  /  b)  X  100 
 a  =  Number  of  orders  completed  on  or  before  the  RBOC  confirmed  due  date  during  the  reporting  period 
 b  =  Total  number  of  orders  where  completion  has  been  confirmed  during  the  reporting  period 
 Report  Structure  Non-  Affiliates  Aggregate 
 RBOC  Affiliates  Aggregate  -  RBOC  272  Affiliates  Aggregate 

 Geographic  Scope  State 
 SQM  Disaggregation  Special  Access    DS0 
 Special  Access    DS1  Special  Access    DS3  and  above 
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 NITR:  New  Installation  Trouble  Report  Rate 
 Definition  New  Installation  Trouble  Report  Rate  measures  the  percentage  of  circuits  or  orders  where  a  trouble  was 
 found  in  RBOC  facilities  or  equipment  within  thirty  days  of  order  completion. 
 Exclusions  Trouble  tickets  issued  and  subsequently  cancelled 
 Customer  Provided  Equipment  (CPE)  or  customer  caused  troubles  Troubles  closed  by  the  technician  to  disposition  codes  of  IEC  (Inter-  exchange  Carrier)  or  INF 
 (Information)  RBOC  troubles  associated  with  administrative  service 
 No  Trouble  Found  (NTF)  and  Test  OK  (TOK)  Other  exclusions  defined  by  each  RBOC  to  reflect  system  and  operational  differences 
 Subsequent  trouble  reports 
 Business  Rules  Only  the  first  customer  direct  trouble  report  received  within  thirty  calendar  days  of  a  completed  service 
 order  is  counted  in  this  measure.  Only  customer  direct  trouble  reports  that  required  the  RBOC  to  repair  a  portion  of  the  RBOC  network  will  be  counted  in  this  measure.  The  RBOC  completion  date  is  when  the 
 RBOC  completes  installation  of  the  circuit  or  order. 
 Calculation  Trouble  Report  Rate  within  30  Calendar  Days  of  Installation  =  (a  /  b)  X  100 
 a  =  Count  of  circuits/  orders  with  trouble  reports  within  30  calendar  days  of  installation  b  =  Total  number  of  circuits/  orders  installed  in  the  reporting  period 

 Report  Structure  Non-  Affiliates  Aggregate 
 RBOC  Affiliates  Aggregate  -  RBOC  272  Affiliates  Aggregate 

 Geographic  Scope  State 
 SQM  Disaggregation  Special  Access    DS0 
 Special  Access    DS1  Special  Access    DS3  and  above 
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 Section  3:  Maintenance  &  Repair 
 CTRR:  Failure  Rate/  Trouble  Report  Rate 
 Definition  The  percentage  of  initial  and  repeated  circuit-  specific  trouble  reports  completed  per  100  in-  service 
 circuits  for  the  reporting  period. 
 Exclusions  Trouble  reports  issued  and  subsequently  cancelled 
 Employee  initiated  trouble  reports  Trouble  reports/  circuits  associated  with  internal  or  administrative  activities 
 Customer  Provided  Equipment  (CPE)  or  customer  caused  troubles  Troubles  closed  by  the  technician  to  disposition  codes  of  IEC  (Inter-  exchange  Carrier)  or  INF 
 (Information)  Tie  Circuits 
 No  Trouble  Found  (NTF)  and  Test  OK  (TOK)  Other  exclusions  as  defined  by  each  RBOC  to  reflect  system  and  operational  differences 

 Business  Rules  Only  customer  direct  trouble  reports  that  require  the  RBOC  to  repair  a  portion  of  the  RBOC  network  will 
 be  counted  in  this  report.  The  trouble  report  rate  is  computed  by  dividing  the  number  of  completed  trouble  reports  handled  during  the  reporting  period  by  the  total  number  of  in-  service  circuits  for  the  same 
 period. 
 Calculation  Percent  Trouble  Report  Rate  =  (a  /  b)  X  100 
 a  =  Number  of  completed  circuit-  specific  trouble  reports  received  during  the  reporting  period  b  =  Total  number  of  in-  service  circuits  during  the  reporting  period 

 Report  Structure  Non-  Affiliates  Aggregate 
 RBOC  Affiliates  Aggregate  -  RBOC  272  Affiliates  Aggregate 

 Geographic  Scope  State 
 SQM  Disaggregation  Special  Access    DS0 
 Special  Access    DS1  Special  Access    DS3  and  above 
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 MAD:  Average  Repair  Interval/  Mean  Time  to  Restore 
 Definition  The  Average  Repair  Interval/  Mean  Time  to  Restore  is  the  average  time  between  the  receipt  of  a  customer 
 trouble  report  and  the  time  the  service  is  restored.  The  average  outage  duration  is  only  calculated  for  completed  circuit-  specific  trouble  reports. 

 Exclusions  Trouble  reports  issued  and  subsequently  cancelled 
 Employee  initiated  trouble  reports  Trouble  reports  associated  with  internal  or  administrative  activities 
 Customer  Provided  Equipment  (CPE)  or  customer  caused  troubles  Troubles  closed  by  the  technician  to  disposition  codes  of  IEC  (Inter-  exchange  Carrier)  or  INF 
 (Information)  Tie  Circuits 
 No  Trouble  Found  (NTF)  and  Test  OK  (TOK)  Other  exclusions  as  defined  by  each  RBOC  to  reflect  system  and  operational  differences 

 Business  Rules  Only  customer  direct  trouble  reports  that  require  the  RBOC  to  repair  a  portion  of  the  RBOC  network  will 
 be  counted  in  this  measure.  The  average  outage  duration  is  calculated  for  each  restored  circuit  with  a  trouble  report.  The  start  time  begins  with  the  receipt  of  the  trouble  report  and  ends  when  the  service  is 
 restored.  This  is  reported  in  a  manner  such  that  customer  hold  time  or  delay  maintenance  time  resulting  from  verifiable  situations  of  no  access  to  the  end  user  premise,  other  CLEC/  IXC  or  RBOC  retail  customer 
 caused  delays,  such  as  holding  the  ticket  open  for  monitoring,  is  deducted  from  the  total  resolution  interval  (  stop  clock  basis). 

 Calculation  Repair  Interval  =  (a    b) 
 a  =  Date  and  time  trouble  report  was  restored  b  =  Date  and  time  trouble  report  was  received 

 Average  Repair  Interval  =  (c  /  d)  c  =  Total  of  all  repair  intervals  (in  hours/  days)  for  the  reporting  period 
 d  =  Total  number  of  trouble  reports  closed  during  the  reporting  period 
 Report  Structure  Non-  Affiliates  Aggregate 
 RBOC  Affiliates  Aggregate  -  RBOC  272  Affiliates  Aggregate 

 Geographic  Scope  State 
 SQM  Disaggregation  Special  Access    DS0 
 Special  Access    DS1  Special  Access    DS3  and  above 
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 GLOSSARY 
 Access  Service  Request  (ASR)  A  request  to  the  RBOC  to  order  new  access  service,  or  request  a  change  to  existing  service,  which  provides  access  to  the  local  exchange  companys  network 
 under  terms  specified  in  the  local  exchange  companys  special  or  switched  access  tariffs. 

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

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

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

 Service  Orders  Refers  to  all  orders  for  new  or  additional  lines/  circuits.  For  change  order  types,  additional  lines/  circuits  consist  of  all  C  order  types  with  I  and  T  action  coded 
 line/  circuit  USOCs  that  represent  new  or  additional  lines/  circuits,  including  conversions  for  RBOC  to  Carrier  and  Carrier  to  Carrier. 
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 STATEMENT  OF  CHAIRMAN  KEVIN  J.  MARTIN 
 Re:  Verizon  Communications  Inc.  and  MCI,  Inc.  Applications  for  Approval  of  Transfer  of  Control,  Memorandum  Opinion  and  Order,  WC  Docket  No.  05-  75 
 Today,  we  vote  to  approve  the  mergers  of  SBC  and  AT&  T  as  well  as  Verizon  and  MCI.  These  mergers  will  create  national  facilities-  based  providers  of  telecommunications  services  that  will  provide 
 new  and  advanced  services  to  both  mass  market  and  enterprise  customers.  As  end-  to-  end  providers  of  communications  services,  these  companies  will  make  significant  investments  in  fiber-  optic  networks  and 
 use  these  networks  to  provide  customers  a  broad  array  of  voice,  data,  and  video  services. 
 I  believe  that  the  transactions  we  approve  today  are  consistent  with  and  will  further  many  of  the  Commissions  competition,  broadband,  and  public  safety  priorities.  For  example,  these  mergers  create 
 strong  global  carriers  that  will  vigorously  compete  both  internationally  and  domestically.  Further,  the  complement  of  the  local  and  long  distance  network  facilities  will  permit  the  merged  entities  to  offer  a 
 more  diverse  array  of  services  to  a  broader  range  of  customers.  It  is  my  expectation  that  these  mergers  will  only  increase  the  incentive  and  ability  of  the  merged  entities  to  invest  in  broadband  infrastructure  and 
 spread  the  deployment  of  advanced  services  to  all  Americans.  Of  particular  importance  to  me,  the  mergers  will  further  the  goal  of  public  safety  by  virtue  of  the  commitments  that  have  been  made  with 
 regard  to  compliance  with  the  Commissions  November  28  th  deadline  to  deploy  a  911  solution  for  VoIP  customers. 

 I  know  that  many  have  expressed  questions  about  these  mergers.  For  example,  some  are  concerned  that  these  transactions  will  adversely  affect  competing  providers  that  rely  on  the  merger 
 applicants  for  wholesale  inputs.  Others  have  been  concerned  about  the  effect  of  these  mergers  on  end  users    particularly  business  end  users  that  purchase  special  access  services.  I  believe  that  the  remedy 
 imposed  by  the  Department  of  Justice  should  adequately  address  any  concerns  in  this  regard.  Moreover,  I  note  that  under  the  commitments  made  by  the  Applicants,  UNE  rates  are  effectively  capped  for  two  years 
 and  special  access  prices  are  essentially  frozen  for  30  months  from  the  merger  closing  date. 
 Concerns  have  also  been  raised  about  the  impact  of  this  merger  on  the  Internet  backbone  market.  We  have  found  this  market,  which  has  never  been  regulated,  to  be  sufficiently  competitive.  It  is  the 
 Commissions  prediction  that  these  mergers  will  in  no  way  alter  this  dynamic.  In  any  event,  the  Applicants  have  committed  to  publicly  post  their  peering  criteria  and  to  continue  settlements-  free  peering 
 arrangements  with  the  same  number  of  providers  post-  merger  as  they  did,  in  combination,  pre-  merger. 
 Let  me  say  that  I  do  not  believe  that  all  of  the  conditions  imposed  today  are  necessary.  I  believe  that  the  affected  markets  would  remain  vibrantly  competitive  absent  these  conditions.  Nevertheless,  the 
 parties  involved  have  chosen  to  make  these  commitments  now  in  order  to  obtain  the  certainty  of  immediate  Commission  approval  for  their  mergers.  I  understand  their  desire  to  move  forward,  and  agree 
 that  the  public  interest  will  be  well  served  by  providing  certainty  sooner  rather  than  later. 
 The  fiber  optic  networks  of  today  that  are  capable  of  delivering  over  100  mbps  worth  of  capacity  have  come  a  long  way  from  the  microwave  transmission  technology  that  was  first  used  to  compete  several 
 decades  ago.  We  are  seeing  both  intermodal  and  intramodal  providers  aggressively  competing  for  customers  using  a  multitude  of  new  technologies  and  platforms.  The  telecommunications  industry  is  a 
 constantly  evolving  one,  and  the  consummation  of  these  mergers  represents  the  opening  of  a  new  chapter  in  communications  history.  I  look  forward  to  the  promise  of  continued  technological  innovation. 
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 Finally,  I  would  like  to  thank  my  colleagues  for  their  rigorous  review  of  these  transactions.  I  know  that  these  mergers  presented  difficult  issues  for  them  to  consider  and  I  appreciate,  as  always,  their 
 professionalism  and  willingness  to  always  do  what  it  is  in  the  public  interest. 
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 STATEMENT  OF  COMMISSIONER  KATHLEEN  Q.  ABERNATHY 
 Re:  Verizon  Communications  Inc.  and  MCI,  Inc.  Applications  for  Approval  of  Transfer  of  Control,  Memorandum  Opinion  and  Order,  WC  Docket  No.  05-  75 
 It  has  often  been  said  that  nothing  is  constant  except  for  change.  And  we  as  telecommunications  regulators  need  to  be  particularly  mindful  of  this  because  change  is  the  engine  that  drives  progress. 
 Unfortunately,  today  we  focus  too  much  on  micromanaging  the  growth  and  pace  of  change,  rather  than  how  to  harness  it  to  benefit  consumers. 

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

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

 These  mergers  must  be  viewed  in  the  context  of  these  changes,  precisely  because  they  are  the  natural  outgrowth  of  these  changes.  As  proposed,  each  of  these  transactions  would  marry  a  Bell 
 Operating  Companys  extensive  local  residential  facilities  and  broadband  Internet  access  offerings  with  an  established  interexchange  carriers  business  service  offerings,  long-  distance  facilities,  and  Internet 
 backbone  assets.  The  combination  of  these  capabilities  expands  the  merged  companies  scope  and  scale  outside  their  own  regions,  improves  operational  efficiencies,  enlarges  the  companies  range  of  offerings, 
 and  reduces  prices  for  business  and  residential  consumers  alike.  In  short,  these  mergers  are  intended  to  give  birth  to  strong,  nimble  competitors,  able  to  meet  the  demands  placed  on  twenty-  first  century 
 providers  by  customers  with  widely  disparate  needs. 
 As  approved,  however,  I  fear  that  many  of  these  potential  gains  will  be  delayed  or  compromised.  In  my  judgment,  the  conditions  included  in  the  Orders  before  us  require  the  merged  companies  to  provide 
 offerings  that  the  market  might  not  demand,  to  sacrifice  synergies  by  needlessly  treating  their  affiliates  at  arms  length,  and  to  maintain  business  relationships  based  on  current  assumptions  even  if  those 
 assumptions  cease  to  reflect  economic  reality.  Moreover,  the  companies  will  have  to  abide  by  these 
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 conditions  while  their  most  aggressive  competitors    whether  they  use  wireline,  wireless,  cable,  or  other,  next-  generation  facilities    remain  exempt. 
 I  have  consistently  opposed  this  kind  of  micromanaged  regulatory  oversight  in  situations  where  competitive  forces  discipline  market  behavior.  In  addition,  it  is  difficult  for  me  to  understand  how  this 
 approach  is  consistent  with  this  Commissions  support  for  regulatory  parity  and  competitive  neutrality.  It  is  no  answer  to  say  that  the  applicants  have  agreed  to  accept  these  conditions,  and  therefore  they  must 
 certainly  be  good,  or  at  least  not  all  that  bad.  That  position  fails  to  take  into  account  that  such  conditions  are  the  quid  pro  quo  that  merger  applicants  must  accept  in  order  to  get  timely  approval. 

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

 I  am  not  suggesting  that  DOJs  evaluation  is,  or  should  be,  co-  extensive  with  ours.  But  what  I  would  suggest  is  that  it  effectively  places  on  the  Commission  the  burden  of  showing  the  existence  of 
 other  problems  so  grave  and  immediate  that  conditioning  the  merger  agreement  is  the  only  effective  remedy.  It  should  not  be  standard  operating  procedure  to  craft  company-  specific  merger  conditions  to 
 address  unknown  and  hypothetical  competitive  threats.  After  all,  the  customary  administrative  weaponry  in  the  Commissions  arsenal    rulemaking,  enforcement,  and  so  on    does  not  suddenly  evaporate  once  a 
 merger  is  approved.  We  always  have  these  tools  and  we  can  always  use  them  when  and  if  necessary. 
 The  competition  unleashed  by  the  convergence  of  formerly  separate  lines  of  business  places  an  additional  premium  on  taking  a  more  circumspect  approach  to  conditioning  mergers.  Competition  is  a 
 process,  not  a  product.  This  new  competitive  market  is  still  developing,  and  it  needs  to  be  given  reasonable  regulatory  elbow-  room  to  do  so.  Imposing  ad  hoc  conditions  that  do  not  reflect  the  realities  of 
 todays  market  hamstrings  this  development  rather  than  helps  it  and  creates  market  distortions.  Therefore,  it  is  my  view  that  we  should  resort  to  imposing  such  conditions  only  first,  where  the  perceived 
 harm  is  an  obvious  consequence  of  the  merger,  not  merely  a  prediction  about  what  might  go  wrong;  and  second,  where  other  administrative  remedies  are  inadequate  to  address  this  harm.  That  simply  isnt  the 
 case  in  these  mergers,  with  these  conditions. 
 The  applicants  have  looked  at  their  business  plans  and  determined  that  change  is  not  only  inevitable,  but  necessary,  if  they  are  to  continue  to  respond  to  consumer  demand  for  lower  prices  and 
 better  technology.  I  agree.  They  argue  that  the  explosion  of  competition  has  rendered  extensive  conditions  unnecessary.  Again,  I  agree.  These  companies,  their  customers,  and  their  competitors  all 
 understand  that  we  no  longer  live  in  the  monopoly  world  of  years  past  and  that  our  job  as  regulators  is  to  keep  pace  with  change,  embrace  competition  and  focus  on  consumer  protection,  not  the  protection  of  the 
 status  quo. 
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 Because,  in  practice,  such  stratagems  can  mean  filtering  technologies  that  restrict  use  of  Internet-  calling  services  or  that  make  it  difficult  to  watch  videos  or  listen  to  music  over  the  web.  The  conditions  we  adopt 
 today  speak  directly  to  this  issue  before  increased  concentration  of  last  mile  facilities  and  the  Internet  backbone  make  it  intractable.  This  is  why  stand-  alone  DSL,  enforceable  net  neutrality  principles,  and 
 peering  in  the  Internet  backbone  are  so  vital. 
 I  also  am  pleased  that  these  conditions  now  express  a  measure  of  concern  for  the  effects  of  these  mergers  on  competitive  wireline  providers.  Competitive  carriers  will  benefit  from  the  reforms  we  put  in 
 place  for  special  access  and  UNEs.  This  will  provide  at  least  some  latitude  for  competitive  players  trying  to  crack  open  an  increasingly  concentrated  marketplace.  We  need  active  and  engaged  competitive 
 carriers  to  keep  rates  low.  This  is  especially  important  for  small  business  customers. 
 In  addition,  this  Order  takes  a  cautious  view  of  the  impact  of  these  mergers  on  rural  America.  We  share  a  concern  that  the  mergers  not  be  allowed  to  jeopardize  interconnection  for  small  and  rural 
 providers.  To  this  end,  the  Commission  commits  to  monitoring  the  situation  on  an  ongoing  basis.  This  is  important  because  the  wrong  policies  here  could  actually  put  rural  America  at  further  disadvantage 
 compared  to  the  rest  of  the  country.  I,  for  one,  will  be  vigilant  in  making  sure  this  never  happens. 
 Looking  beyond  the  transaction  before  us,  it  is  obvious  that  the  whole  telecommunications  landscape  continues  to  change  dramatically.  But  despite  all  of  the  advances  in  technology  and  efficiency 
 over  the  last  decade,  local  phone  rates  have  failed  to  decline.  Household  phone  penetration  is  at  the  lowest  rate  in  17  years.  Surely  being  16  th  in  the  world  in  broadband  penetration  is  nothing  to  crow  to 
 about.  And,  yes,  we  still  have  enormous  digital  gaps  from  the  inner  city  to  the  rural  village,  and  there  is  a  real  threat  that  current  policies  may  widen  rather  than  close  those  gaps.  So  there  are  already  ample 
 warning  signs  something  is  not  right.  And  it  is  long  past  time  for  the  Commission  to  pay  heed. 
 It  may  be  that  we  can  address  all  these  concerns  in  a  big  carrier  environment.  Conversely,  it  may  be  that  we  are  tacking  back  in  time  toward  an  era  when  concentrated  power  dictated  what  limited  services 
 we  could  and  could  not  have  and  we  had  no  recourse  but  to  accept  what  was  offered.  In  any  case,  I  am  mindful  that  there  are  large  and  portentous  questions  here  and  that  their  ultimate  resolutions  often  range 
 beyond  the  boundaries  of  FCC  jurisdiction.  The  Commission  important  as  its  work  is  does  not  design  the  legal  landscape  for  telecommunications.  Congress  is  looking  at  these  issues  and  will  hopefully  be 
 updating  our  telecommunications  statute  in  the  months  or  year  ahead  and  there  is  no  substitute  for  that  kind  of  guidance.  I  also  believe  we  need  some  real  national  dialogue  on  these  issues  regarding  consumer 
 rights,  Internet  openness,  broadband  deployment  and  many  more.  I  think  we  will  find  the  American  people  more  than  happy  to  engage  such  a  discussion.  They  understand  that  how  these  issues  are  decided 
 is  important  to  them.  The  bottom  line  here  is  that  these  issues  are  vitally  important  to  the  future  of  our  country.  Telecommunications  are  going  to  be  a  major  driver  of  our  economy  in  this  new  century.  We 
 just  have  to  get  the  legal  and  regulatory  landscape  right.  If  we  get  it  wrong,  American  consumers  will  pay  and  so  will  American  technology,  innovation  and  entrepreneurship.  No  less  than  our  global 
 competitiveness  in  the  new  information  age  is  at  stake. 
 Above  all,  we  must  have  some  humility  about  what  we  do.  There  are  honest  disagreements  over  these  issues  and  I  dont  believe  that  any  one  of  us  has  it  all  figured  out.  So  we  have  to  be  always  open  to 
 new  facts  and  always  follow  up  on  the  real-  world  consequences  of  our  actions.  If  rates  go  up  for  residential  and  business  users  as  a  result  of  our  decision  today,  if  our  broadband  penetration  rates  fall 
 further  in  comparison  with  what  other  countries  with  different  policies  are  experiencing,  and  if  consumers  find  that  their  Internet  freedom  is  being  shackled  by  monopoly  or  duopoly  control,  then  we  have  a  clear 
 and  pressing  duty  to  revisit  what  we  have  done.  So  we  need  to  put  as  much  or  more  effort  and  resources  into  monitoring  the  consequences  of  our  actions  as  we  do  in  bringing  them  forward  for  a  vote.  I  have 
 worked  in  this  proceeding  to  protect  against  injurious  consequences,  as  best  I  can  under  the 
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 circumstances,  and  while  I  would  have  liked  more,  I  will  concur  in  these  Orders  and  pledge  my  close  attention  to  their  unfolding  consequences. 
 We  at  this  table  are  all  indebted  to  the  work  of  the  Bureau  and  to  the  tireless  dedication  of  our  personal  staffs  as  these  items  matured  and  particularly  their  often  heroic  efforts  over  the  past  week.  For 
 my  part  I  want  to  extend  my  appreciation  and  admiration  to  Jessica  Rosenworcel.  Her  tenacity  and  creativity  through  all  of  this  have  been  an  inspiration. 
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 STATEMENT  OF  COMMISSIONER  JONATHAN  S.  ADELSTEIN, 
 CONCURRING 
 Re:  Verizon  Communications  Inc.  and  MCI,  Inc.  Applications  for  Approval  of  Transfer  of  Control,  Memorandum  Opinion  and  Order,  WC  Docket  No.  05-  75  (Concurring) 

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

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

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

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

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