WPC9 2m ZB.\\SB\MIDLER_5NXN\  PXPa1Right ParRight-Aligned Paragraph Numbers8@   a2Right ParRight-Aligned Paragraph NumbersA@` `  ` ` ` a3Right ParRight-Aligned Paragraph NumbersJ@  ` `  2La4Right ParRight-Aligned Paragraph NumbersS@  a5Right ParRight-Aligned Paragraph Numbers\  @hh# hhh a6Right ParRight-Aligned Paragraph Numberse  @( hh# a7Right ParRight-Aligned Paragraph Numbersn @- ( 2m  < a8Right ParRight-Aligned Paragraph Numbersw@pp2 -ppp a1TechnicalTechnical Document Style 4!     a2TechnicalTechnical Document Style *    a3TechnicalTechnical Document Style '   2  3  = a4TechnicalTechnical Document Style &   a5TechnicalTechnical Document Style &  . a6TechnicalTechnical Document Style&  . a7TechnicalTechnical Document Style&  . 2[  y 3  a8TechnicalTechnical Document Style&   . a1DocumentDocument StyleF!" *  ׃  a2DocumentDocument Style*# $   a3DocumentDocument Style0% &    28q e ecpa4DocumentDocument Style'( . a5DocumentDocument Style )* a6DocumentDocument Style +, a7DocumentDocument Style-.` ` ` 2pj/a8DocumentDocument Style/0` ` ` X0Í Í X0Í Í footnote tex'12'#A\  P)P# #XN\  P*XP#footnote ref*34*#4\  P+P##XN\  P,XP#2  Body Text 2C566 X #X P-7XP# #XN\  P.XP#PleadingHeader for numbered pleading paper78   , X  y*dddyy*dddy H\1 H\2 H\3 H\4 H\5 H\6 H\7 H\8 H\9 H10 H11 H12 H13 H14 H15 H16 H17 H18 H19 H20 H21 H22 H23 H24 H25 H26 H27 H28   ӕTech InitInitialize Technical Style9: 1 .1 .1 .1 .1 .1 .1 .1 TechnicalDoc InitInitialize Document Style;<    I. 1. A. a.(1)(a) i) a)DocumentҲ28n0gmBibliogrphyBibliography=> XN\  PXP(hH  Z 6Times New Roman RegularXPXXXN\  PXP(hH  Z 6Times New Roman RegularXPXXXN\  PXP(hH  Z 6Times New Roman RegularXXN\  PXP(hH  Z6Times New Roman RegularXXN\  PXP(hH  Z 6Times New Roman RegularXXN\  PXP(hH  Z6Times New Roman RegularXXN\  PXP(hH  Z 6Times New Roman RegularXXN\  P XP(hH  Z6Times New Roman RegularXXN\  P XP(hH  Z 6Times New Roman RegularXXN\  P XP(hH  Z 6Times New Roman RegularXXN\  P XP(hH  Z6Times New Roman RegularXXN\  P XP(hH  Z 6Times New Roman RegularXXN\  PXP(hH  Z 6Times New Roman RegularXXN\  PXP(hH  Z6Times New Roman RegularXXN\  PXP(hH  Z 6Times New Roman RegularXPXN\  PXP(hH  Z6Times New Roman RegularXXN\  PXP(hH  Z 6Times New Roman RegularXXN\  PXP\  `*Times New RomanTTXXN\  PXP(hH  Z 6Times New Roman RegularXXN\  PXP\  `*Times New RomanTTXXN\  PXP(hH  Z 6Times New Roman RegularXXN\  PXP\  `$Times NewRomanXXN\  PXP(hH  Z 6Times New Roman RegularXXN\  PXP\  `*Times New RomanTTXXN\  PXP(hH  Z 6Times New Roman RegularXXN\  PXP'r Z6Times New Roman RegularXXN\  PXP'r Z6Times New Roman RegularXXN\  PXP'r Z6Times New Roman RegularXXN\  PXP(hH  Z 6Times New Roman RegularXXN\  P XP(hH  Z 6Times New Roman RegularXP!XXXN\  P"XP(hH  Z 6Times New Roman RegularXXN\  P#XP\  `*Times New RomanTTXXN\  P$XP\  `$Times NewRomanXXN\  P%XP(hH  Z 6Times New Roman RegularXXN\  P&XP\  `*Times New RomanTTXXN\  P'XP(hH  Z6Times New Roman RegularXXN\  P(XP(hH  Z 6Times New Roman RegularXA\  P)P\  `$Times NewRomanXN\  P*XP\  `$Times NewRomanX4\  P+P\  `$Times NewRomanXN\  P,XP\  `$Times NewRomanXX P-7XP2 `CG TimesXXN\  P.XP\  `$Times NewRomanX2993|xA_DOCTRLR& Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 ă In the Matter of) ) Applications of WorldCom, Inc. and) MCI Communications Corporation for)CC Docket No. 97211 Transfer of Control of MCI Communications) Corporation to WorldCom, Inc.) To:The Commission !SECOND JOINT REPLY OF WORLDCOM, INC. AND MCI COMMUNICATIONS CORPORATION * MCI COMMUNICATIONSWORLDCOM, INC. CORPORATION Michael H. SalsburyAndrew D. Lipman Mary L. BrownJean L. Kiddoo Larry A. BlosserMichael W. Fleming MCI COMMUNICATIONSSWIDLER & BERLIN, CHTD. CORPORATION3000 K Street, N.W., Suite 300 1801 Pennsylvania Ave., N.W.Washington, D.C. 20007 Washington, D.C. 200063606(202) 4247500 (202) 8721600   Anthony C. Epstein  Catherine R. Sloan John B. MorrisRobert S. Koppel Ian H. GershengornWORLDCOM, INC. JENNER & BLOCK1120 Connecticut Avenue, N.W. 601 Thirteenth St., N.W.Washington, D.C. 20036 Washington, D.C. 20005(202) 7761550 (202) 6596000 Dated: March 20, 1998 Revised per Errata filed April 1, 1998   #PX#  #XN\  PXP#X0Í Í X0Í Í !TABLE OF CONTENTS `!(#GPageă   SUMMARYp"(#Jv  I. INTRODUCTIONp"(#I 2 II.LOCAL EXCHANGE MARKETp"(#I 5 ` ` ` A.` ` Relevant product and geographic markets.p"(#I 5 ` ` ` B. ` ` Actual and potential competitorsp"(#I 9 ` ` ` C.` ` The merger will enhance competition in local exchange and exchange  access marketsp`"(#I11 ` ` ` ` ` 1. A new entrant without market power cannot engage in unilateral action to the detriment of consumers and competitionp."(#H 12 ` ` ` ` ` 2. Bundled services provide no opportunity for MCI WorldCom to exercise market powerp."(#H 13  3. No opportunity for coordinated interaction is presented by the merger of WorldCom and MCIp`"(#I14 ` ` ` ` ` 4. The merged company will promote marketopening public policiesp."(#H 16 ` ` ` ` ` 5. Barriers to entry or expansionp."(#H 17 ` ` ` ` ` 6. Potential Competition Doctrine and Measurement of Market Concentrationp`"(#I18  D.` ` Other competitive effects p."(#H 18 ` ` ` E.` ` Conclusionp`"(#I19  III.INTEREXCHANGE MARKETp`"(#I20 ` ` ` A.` ` Relevant product and geographic marketsp!(#H 23 ` ` ` ` ` 1. Wholesale and resale are not separate markets; and in  any event, separate analysis does not change the resultp."(#H 232. While there are different customer classes that can usefully be identified for long distance, there are no separate customer product markets. . . . . .24  3. The long distance market is a national one.p!(#H 27 ` ` ` B.` ` Actual, potential and precluded competitorsp."(#H 29 ` ` ` ` ` 1. Significant actual competitors are not limited to the largest carriersp."(#H 29 ` ` ` 2. There are several significant potential competitors.p."(#H 33 ` ` ` C.` ` Barriers to entry or expansion.p."(#H 36 ` ` ` ` ` 1. Barriers to entry or expansion are not sufficient to deter significant new competition within the next two yearsp."(#H 36 ` ` ` 2. GTE has greatly exaggerated the barriers to entry and expansion.p."(#H 37 ` ` ` D.` ` Potential competitive effects and efficienciesp."(#H 41 ` ` ` ` ` 1. The efficiencies resulting from the merger will be significant.p."(#H 41 ` ` ` ` ` 2. There is no basis for the argument that the merged company will stop offering significant wholesale discounts. p."(#H 41 ` ` ` ` ` 3. The longdistance market is currently competitive  and will remain so after the mergerp."(#H 43  IV.AS PREVIOUSLY DEMONSTRATED BY MCI/WORLDCOM, THE PROPOSED MERGER WILL HAVE PROCOMPETITIVE EFFECTS AND WILL NOT REDUCE COMPETITION IN ANY INTERNATIONAL END USER OR INPUT MARKETp."(#H 45 ` ` ` A.` ` The Merger Will Have Significant Procompetitive Effectsp`"(#I45 ` ` ` B.` ` ` Relevant Product and Geographic Marketsp."(#H 47 ` ` ` ` ` 1. The Relevant Product Market is U.S. International Services.p."(#H 47 ` ` ` ` ` 2. There is No Reason to Analyze Each Country Route Separately In This Proceeding p!(#H 49 ` ` ` C.` ` ` Actual, Potential, and Precluded Competitorsp."(#H 51 ` ` ` D.` ` ` There are Low Barriers, If Any, to Entry and Expansion in the Relevant Marketsp."(#H 54  ` ` ` E.` ` ` The Merger Will Not Have Anticompetitive Effects In Any of the Relevant Marketsp`"(#I55 ` ` ` F.` ` Conclusionp."(#H 59  V.THE MERGER WILL NOT REDUCE COMPETITION IN  THE PROVISION OF INTERNET SERVICESp."(#H 60 ` ` ` A.` ` ` The relevant product and geographic marketsp."(#H 62 ` ` ` ` ` 1. Product marketsp."(#H 62 ` ` ` ` ` 2. The relevant geographic marketp."(#H 67 ` ` ` B.` ` ` Market participantsp."(#H 68 ` ` ` C.` ` ` The effect of the merger on competitionp`"(#I68  VI.OTHER ISSUESp."(#H 87 ` ` ` A.` ` Hearings are not necessary to resolve the issues in this proceeding.p."(#H 87 ` ` ` B.` ` ` There is no legal or policy basis for linking the merger to BOC InterLATA entryp."(#H 88 ` ` ` C.` ` ` Individual grievances against the Applicants are more appropriate  in other forap."(#H 88 ` ` ` D.` ` ` The Commission should not require submission of condifential documents submitted under the HartScottRodino Act. p."(#H 90 E.` ` ` Allegations of redlining or discriminatory conduct are without merit p`"(#I92  ` ` ` F.` ` ` The Applicants opposition to RBOC provision of inregion  interLATA service is wholly supportable.p."(#H 95 ` ` ` G.` ` ` The Board of Directors of MCI WorldCom Reflects the Diversity of the Populationp`"(#I95 ` ` ` H.` ` The proposed transaction will enhance universal service.p."(#H 96 I.CWAs concerns about job loss are misplacedp`"(#I96  VII.THE APPLICANTS HAVE DEMONSTRATED THAT THE PROPOSED TRANSACTION WILL HAVE SIGNIFICANT PUBLIC BENEFITSp!(#H 97 ` ` ` A. The Commissions standard is not the rigorous demonstration  suggested by the commenters.p."(#H 97 ` ` ` B. The Applicants Have Demonstrated Specific Public Benefitsp."(#H 99 C.Conclusionp!(#G 105 VIII.CONCLUSION p!(#G 106 & SUMMARY ă Application of the four factors for merger analysis set forth in Bell Atlantic/NYNEX and BT/MCI strongly supports the conclusion that the merger of MCI and WorldCom is in the public interest and will enhance competition.  1.Local exchange market. The local exchange is a market of over $100 billion, dominated almost totally by the incumbent local exchange carriers who control more than 98 percent of local revenues and access lines. Since all the different geographic local markets share the basic characteristic of neartotal incumbent domination, the local markets should be analyzed on a nationwide aggregate basis. The incumbents have been extraordinarily successful at maintaining barriers to entry and keeping out any significant competition. They have defended their entrenched position, despite the marketopening provisions of the Telecommunications Act of 1996 and this Commissions procompetitive decisions. In particular, the incumbents have managed to frustrate attempts to introduce significant competition from carriers seeking to engage in local resale or access to the incumbent carriers unbundled network elements. The only nearterm prospect for local competition is through the slowest, and most capitalintensive method-- construction of local facilities by new entrants. For meaningful, facilitiesbased competition to develop, what is required is not more competitors, but stronger competitors. The merger will create a more forceful local competitor by combining two companies with complementary advantages. MCI has a broadbased marketing experience, and an expansive residential and large business base. WorldCom has a diverse business base and the local networks of MFS Communications, Inc. and Brooks Fiber Properties, Inc. Because the merged company can expand and accelerate the reach of its local facilities and draw on the existing customer bases of the two companies, it will be far better able to compete in more locations than would either entity standing alone. Moreover, expansion of the combined companys local exchange networks will enable it to achieve significant savings in access charges paid to the incumbents. These and other savings resulting from the merger will make the combined companys operations more efficient and better enable it to expand its networks and provide quality service at a competitive price. The mergers potential for enhancing consumer benefit by reducing the incumbents monopoly margin in the $100 billion local market is enormous. At the same time, the merged company poses no risk of domination of any market, and hence no offsetting threat to consumer welfare. In the local exchange, the overwhelming competitive problem is the incumbents neartotal monopoly domination-- not the number of competitors sharing the minuscule remaining market share. Decreasing that number by one is actually procompetitive because it will result in a stronger competitor than either of the two companies standing alone. Mergers are anticompetitive when they increase the danger of collusion. The only plausible competitive strategy for the merger company will be to compete vigorously with the incumbents in order to diminish their market dominance. There is simply no danger that the merger company would collude with the incumbents.  2.Interexchange market. The interexchange market is properly defined as a single product, nationwide market. It is robustly competitive today, and that competition benefits all areas of the country. Rapid growth fueled by declining prices, coupled with falling costs, has induced new facilitiesbased entry with significant nationwide coverage. The Bell Companies, once they satisfy the requisite statutory criteria and are permitted to provide longdistance service in their regions, will provide additinal future competition with nationwide coverage. In the interexchange market, both resellers and business customers bargain for special deals to purchase bulk services, driving prices down to competitive levels. Residential retail consumers frequently change their carriers, in response to fiercely competitive pricing, marketing and advertising. Competition reaches all levels of the market, and the merger will permit MCI and WorldCom to compete more efficiently in this dynamically competitive market.  3.International. The international market should be defined as a single worldwide market, since there is no evidence that the merging companies will be dominant in any particular route or in any particular country. The international market is presently highly competitive. There are a large number of significant actual competitors, as well as potential competitors, including, among others, the Bell Companies and incumbent foreign carriers seeking to originate traffic in the U.S. market. Transoceanic cable capacity is rapidly expanding, and ownership of that capacity is divided among several wellestablished competitors. The merger will not diminish competition in the international market. The merged company will not be able to dominate any international routes. No foreign carrier is involved directly in the merger, and there is no danger that the merged company would be able to control international access to any particular country. After the merger, there will be a large number of carriers competing for the international business of business customers. And the elimination of WorldCom as a separate competitor for mass market international customers will not adversely affect competition. WorldCom is not among the most significant participants in this market segment, because it lacks the brand name recognition and customer base of AT&T, MCI, Sprint, GTE, and the Bell Companies. The merger will result in significant savings in the international market, including a decrease in abovecost termination rates that MCI and WorldCom must presently pay to foreign carriers and pass on to their U.S. customers.  4.Internet. The Internet should be analyzed as a single product market, national, if not international, in geographic scope. The Internet is characterized by vigorous competition, easy entry, open architecture and-- as a result-- dramatic growth and a large number of actual and potential competitors. No single company could even begin to dominate this huge and complex network of networks connecting thousands of ISPs through a protocol designed specifically to permit the routing of transmissions over an almost infinite variety of paths. Any attempt by any one ISP to try to raise prices to other ISPs or retail customers or to degrade the quality of service would only cause other participants to avoid that ISP, leaving it with fewer customers and reduced market share. Nor should the Commission accept the Commenters invitation to impose conditions relating to the Internet. That would constitute a form of regulation, contrary to the express Congressional policy of preserving the Internet unfettered by Federal or State regulation. 47U.S.C. 230(b)(2).  5.Other issues. The management of both companies is firmly committed to continuing their companies present commitment to residential service following the merger. MCIs large base of longdistance residential customers represents a significant marketing opportunity for the combined companys local exchange offerings and other services. Residential customers will also be important to fill the companys network capacity during offpeak hours. The economics of the merger reinforces the companies commitment to serve residential customers. There is no substance to the charge that the companies will not be committed to serving minority customers. In its retail longdistance business, MCI has a strong record of service to the minority community. By way of illustration, MCIs recentlyannounced joint venture with Telefonica de Espana confirms managements continuing commitment to serve the rapidly growing Hispanic market in this country. Hearings are not necessary to resolve the issues in this proceeding, which are of an economic and policy nature, rather than factual. The showing that has been made of predicted competitive benefits and mergerrelated efficiencies has been more than sufficient. There is no need for production of the confidential HartScottRodino documents. Finally, there is no basis for linking this proceeding to BOC interLATA entry, or to individual contractual grievances. Nor is there any basis for believing that the transaction will undermine universal service.     & Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 ă In the Matter of) ) Applications of WorldCom, Inc. and) MCI Communications Corporation for)CC Docket No. 97211 Transfer of Control of MCI Communications) Corporation to WorldCom, Inc.) To:The Commission !SECOND JOINT REPLY OF WORLDCOM, INC. AND MCI COMMUNICATIONS CORPORATION׃  WorldCom, Inc. ( WorldCom) and MCI Communications Corporation ( MCI, and, together with WorldCom, hereinafter, the Applicants), by their undersigned counsel, hereby submit this Second Joint Reply pursuant to the Commissions Order released February 27, 1998.ЍApplication of WorldCom, Inc. and MCI Communications Corporation for Transfer of Control of MCI Communications Corporation to WorldCom, Inc., Order, CC Docket No. 97211 (rel. Feb. 28, 1998). This Second Joint Reply not only discusses the application of the merger to the framework the Commission articulated in the Bell Atlantic/NYNEXCЍApplications of NYNEX Corporation, Transferor, and Bell Atlantic Corporation, Transferee, for Consent to Transfer Control of NYNEX Corporation and Its Subsidiaries, Memorandum Opinion and Order, FCC 97286, 9 Comm. Reg. (P&F) 187 (rel. Aug. 14, 1997) ( Bell Atlantic/NYNEX).C and BT/MCIЍThe Merger of MCI Communications Corporation and British Telecommunication plc, Memorandum Opinion and Order, GN Docket No. 96245, FCC 97302 (rel. Sep. 24, 1997) ( BT/MCI).Ġproceedings as requested in the February 27, 1998 Order, but also responds to the various comments filed March 13, 1998, regarding the Joint Applicants Joint Reply, filed January 26, 1998. I. INTRODUCTION The merger of WorldCom and MCI will serve the public interest because it will increase competition in key telecommunications markets, particularly the local exchange market, while posing no significant risk to competition in any market. Application of the Bell Atlantic/NYNEX factors for merger analysis confirms this conclusion. The Commission applies Bell Atlantic/NYNEX flexibly, in light of the nature of the firms and markets involved. In this case, both merger partners are nondominant firms, and the markets are rapidly changing. As applied to this case, the Bell Atlantic/NYNEX factors demonstrate that there are no adverse competitive impacts to offset the considerable public interest benefits of the merger. The local exchange market is now dominated almost totally by the incumbent local exchange carriers, who control more than 98 percent of local revenues and access lines. The incumbents receive revenues of over $100 billion a year. If monopoly margins in this market can be reduced by more forceful competition, the consumer benefit will be enormous. The merger will create a stronger competitor in the local market by combining two companies with complementary advantages. The combination of MCIs marketing expertise and expansive residential and large business base with WorldComs diverse business base and extensive local networks will make the merged company far better able to compete in more locations than either company standing alone. Moreover, the savings resulting from the merger will make the combined companys operations more efficient and better enable it to expand its networks and provide quality service at competitive prices. The merger will create no competitive problems in the local exchange. Creation of a new company better able than the two separate companies to challenge the dominant incumbent will strengthen, not diminish competition.The merged company poses no risk of domination of any market. The interexchange market is robustly competitive today. Rapid growth fueled by declining prices and costs have induced a flood of new facilitiesbased entry. The Bell Companies, once they have met the statutory marketopening criteria and are authorized by the Commission to provide longdistance service in their regions, will likely provide significant future competition. The merger will not permit MCI and WorldCom to dominate any part of this market. The international market is vigorously competitive, and will only grow more competitive as a result of the WTO Agreement on Basic Telecommunications Services. Future competitors include, among others the Bell Companies and incumbent foreign carriers seeking to originate traffic in the U.S. market. Transoceanic cable capacity is rapidly expanding, and ownership of that capacity is divided among many wellestablished competitors. The merged company will not be able to dominate any international routes. The Commission should review the Internet aspects of the merger consistent with the Congressional policy of preserving the Internet unfettered by Federal or State regulation. 47 U.S.C.  230(b)(2). The merger will not enable the combined company to dominate the Internet. The Internet is characterized by vigorous competition, easy entry, open architecture and as a result dramatic growth. No single company could even begin to dominate this huge and complex network of networks connecting thousands of ISPs through a protocol designed specifically to permit the routing of transmissions over an almost infinite variety of paths. The management of both companies firmly intends to continue their companies present commitment to residential service following the merger. MCIs large base of longdistance residential customers represents a significant marketing opportunity for the combined companys local exchange and other services. Residential customers will also be important to fill the companys network capacity during offpeak hours. The economics of the merger reinforces the companies commitment to serve residential customers. There is no substance to the charge that the companies will not be committed to serving minority customers. In its retail longdistance business, MCI has a strong record of service to the minority community. By way of illustration, MCIs recently announced joint venture with Telefonica de Espana confirms managements continuing commitment to serve the rapidly growing Hispanic market in this country. It is noteworthy that the principal critic of this merger is GTE, a disappointed bidder for MCI and incumbent local monopolist understandably disquieted by the prospect that the merger will create a strong facilitiesbased local competitor. Joining GTE are two incumbent BOCs who share the same concern, and who seek to use this proceeding along with virtually every other opportunity to reflexively advance their Section 271 agenda. It is in that context that these commenters requests for further information, further analysis, and a hearing should be viewed; these requests are not designed to obtain further information useful to the Commission, but only to delay and obstruct. The Application and its supporting documents, as supplemented by the additional information supplied in this Second Joint Reply, contain more than sufficient information to establish that the merger is in the public interest. The merger therefore should be promptly approved. II.THE MERGER OF MCI AND WORLDCOM WILL CREATE A STRONG COMPETITOR IN THE LOCAL EXCHANGE MARKET In the Joint Reply, we demonstrated the huge consumer benefits that will accrue if real competition is brought to the local exchange market. Investment, innovation, and competition ! with the attendant proconsumer effects on price and service quality ! are the key drivers of the merger of WorldCom and MCI. The merger, by creating a local competitor with a presence in 100 markets on the day of closing, will put MCI WorldCom in a stronger position than any previous competitor to mount a significant challenge to the incumbent local exchange monopolies, thereby attacking the enormous monopoly profits that are being collected from consumers. No commenter disputes these facts. The following discussion responds to the Commissions request for analysis similar to that provided in the Bell Atlantic/NYNEX case. We also respond to commenters arguments.  A.Relevant product and geographic markets.  The first step in a merger analysis is to define the relevant product and geographic market. The Commission has followed the approach taken in the LEC InRegion Interexchange Order,ЍRegulatory Treatment of LEC Provision of Interexchange Services Originating in the LECs Local Exchange Areas and Policy and Rules Concerning the Interstate, Interexchange Marketplace, Second Report and Order, CC Docket No. 96149, and Third Report and Order, CC Docket No. 9661, FCC 97142 (April 18, 1997),  43 ( LEC InRegion Interexchange Order). defining a product market as a service or group of services for which there are no close demand substitutes.sЍBell Atlantic/NYNEX, at  50 citing LEC InRegion Interexchange Order.s The Commission grouped the product markets for local exchange and exchange access   SSecond Joint Reply of WorldCom and MCI Errata PagesStogether, finding that each faces the same levels of competition. ЍNor did the Commission find that there was any reason to break the local exchange and exchange access markets into routespecific markets, given that each route faced the same level of competition. Bell Atlantic/NYNEX, at  51.  Bundling of local exchange and exchange access with long distance services was also identified as a future product market that must be considered.4ЍId., at  53.4 The Commission identified three customer groups as having similar patterns of demand: (1) residential customers and small businesses; (2) mediumsized businesses; and (3) large businesses/government users. For the purposes of defining a geographic market, the Commission found that it would include an area in which all customers in that area face the same competitive alternatives for a product.4ЍId., at  54.4 Following the Commissions analysis in these prior cases, the Commission should analyze the merger of WorldCom and MCI, two companies with competitive local exchange assets and business plans, under the local exchange and exchange access product market definition it has previously adopted. The product market should be defined by metropolitan area, reflecting the pattern of investment that new entrants into local markets make; for example, metropolitan area fiber rings, coupled with local switches, are the first step in establishing a local network for new entrants. The analysis should also reflect the limited, but growing, competition for business services, as well as the potential for competition for services provided to mass market (residential and small business) customers. In our view, there is no meaningful distinction to be made between large business customers and mediumsized ones, as the Commission made in Bell Atlantic/NYNEX. Both medium   and large business customers are served via facetoface sales and customer service representatives and contracttype tariffs, and both have requirements for both switched and dedicated access to the network. The Commission has itself noted that while the local exchange market could be broken down into hundreds of separate geographic submarkets, there is no practical reason to do so, because in every submarket one would encounter a single unavoidable fact overwhelming dominance by the incumbent local exchange monopoly. As stated in our Joint Reply, even in the market for business customers in the New York Metropolitan Area probably the most competitive local exchange market in the country the incumbent has retained some 94% of the business. Joint Reply at 89, 1314. Defining submarkets, as GTE urges, makes no practical sense when the only effect would be to vary the incumbents share, depending upon metropolitan area, from 94% in New York to nearly 100% of the market in every other metropolitan area. Nor does it make sense to analyze closely the 26 cities in which MCI and WorldCom have local exchange facilities to determine the alleged extent of the overlap. In the first place, there is no overlap in the sense that the term has been used in previous antitrust analysis. Unlike the situation where a merger of two steel companies might lead to the closing of a factory, the instant case does not present a case of redundant facilities. Rather, MCI WorldCom intends to use all available facilities as it attacks local monopoly markets. And the fact that both MCI and WorldCom may currently have local facilities in some markets is not significant. Even if the overlap were total, ЍAs pointed out previously, MCI and WorldCom networks in the same city frequently do not reach the same customers, do not serve the same buildings, do not traverse the same streets and are not configured in a similar manner. See Joint Reply at 1617. that would have no competitive significance in a market where the incumbent has an average of 99% of the business. In that situation, as we previously pointed out, the HHI increase resulting from a merger of two competitors sharing a portion of the remainder is insignificant. Joint Reply at 1314. And if the efficiencies resulting from elimination of the overlap result in a stronger local competitor that, for the first time, is able to attack the incumbents monopolythe consumer benefits are huge. Moreover, the metropolitan areas in which MCI and WorldCom have local facilities tend to be marked by the presence of multiple competitors. ЍSee 1997 Annual Report on Local Telecommunications Competition by New Paradigm Resources Group and Connecticut Research. Applicants have not been able to identify a single metropolitan area where, due to the merger, only a single local competitor will be left to attack the incumbent monopolists market share. Most of the entry is occurring in and around large metropolitan areas where the concentration of customers is high and multiple new entrants are generally evident. The ineluctable fact is that these markets are all subject to the neartotal domination of the incumbent local exchange carriers. However defined, this merger involves two companies with a tiny share of the market facing an incumbent with a share of at least 94%, and in most areas 99100%. Under the Merger Guidelines, such a merger raises no antitrust concerns.  B.  Actual and potential competitors  The next step in the Commissions analysis is to identify participants in the market. This includes both actual and potential competitors. ЍBell Atlantic/NYNEX, at  5960. We have not identified any entrants who are precluded entrants as a matter of law. The purpose of the analysis is to identify significant competitors, and includes an evaluation of whether the competitor (a) has the capabilities and incentives that would make it reasonably likely that entry will occur under the terms of the Act and (b) would exert downward pressure on prices, or exert a positive influence on innovation and service quality in the absence of regulatory mandates to do so.5 ЍId., at  61. 5 In deciding how many market participants must remain in a market for competitive concerns to diminish, the Commission has noted that it would depart from the 1984 Merger Guidelines, in recognition of the fact that local exchange and exchange access markets have been de facto and de jure monopolies under the regulatory regime that existed prior to the passage of the Telecommunications Act of 1996.; ЍId., at  6668.; In the Bell Atlantic/NYNEX case, the significant market participants in local markets were identified as the incumbent monopolist, AT&T, MCI, and Sprint. As the Commission stated in its Bell Atlantic/NYNEX  decision, the capabilities and incentives of the three largest interexchange carriers make it highly likely that they will be significant players in local markets.4ЍId., at  82.4 It is certainly true, as the Commission has found, that other interexchange carriers do not have as large a customer base, or the financial resources to address product markets, especially for mass market offerings. WorldCom, for example, is not a major participant in the residential long distance market. Similarly, cable television companies have generally backed away from early announcements to enter telephony, citing the cost of upgrading their cable networks to accommodate telephony. Nor has the Commission considered competitive access providers ! even large ones ! as significant participants.6ЍId., at  88. 6 For this reason, WorldComs acquisition of MFS and Brooks Fiber, while making it a large CAP, would not itself qualify WorldCom as a significant participant under the Commissions definition as set forth in Bell Atlantic/NYNEX. But there is no reason to believe that the few carriers identified in the New York case are the only significant participants who could emerge in local markets around the nation. In the Joint Reply, the Applicants demonstrated that, in the long distance market, after MCI served as an icebreaker against AT&Ts domination of the market, a parade of competitors followed. In that context, the Applicants demonstrated that there were several potential competitors that might become significant once the merged MCI WorldCom breaks the ice in the local exchange market. Joint Reply at 1718. Most significant of these would be AT&T, which has recently announced its intention to acquire TCG, and Sprint. Many other competitors would follow ! including other interexchange carriers and CAPs. While not significant participants as the Commission defined the term in the Bell Atlantic/NYNEX case, these players have the potential to grow and/or merge into participants of considerable size and clout. GTE criticizes the Applicants for having named too many companies as significant competitors in the local market. If one simply looks at the present situation without the merger, there are no significant actual competitors other than each incumbent local exchange carrier in its own service area, because no competitor has more than a minuscule market share. Nor are there any significant potential competitors without the merger, given the present condition of the local markets and the present barriers to entry. As the proponents pointed out in the Joint Reply, there are numerous companies that might enter the local markets once the Telecommunications Act of 1996 becomes fully implemented and those markets are truly open to competition.>ЍAs pointed out in the Joint Reply, actual competitors would have to include the many CLECs now in the market (the New York City area, for example, numbers at least 13 in addition to MCI and WorldCom), and potential competitors would have to include the adjacent ILECs. Joint Reply at 17.> But that has not yet happened, and until those conditions change, what is important now is not how many actual or potential competitors exist, but whether a competitor can be created to mount an effective challenge to the incumbent monopolies. C.The merger will enhance competition in local exchange and exchange access markets  The Commission has stated that its analysis will review the extent to which a merger will increase market power or enhance the ability to maintain market power.EЍBell Atlantic/NYNEX, at  95. E The Commission has also noted that in the ordinary course, its analysis will follow the 1992 Horizontal Merger Guidelines. The special case noted in the Bell Atlantic/NYNEX order, in which an incumbent monopolist merges with a new entrant, is not presented by the facts of the WorldCom and MCI combination. Under the Commissions market analysis, there is no concern raised by the combination of #PX#  #XN\  PXP#@-  -@WorldCom and MCI in the local exchange or exchange access market. As stated in our Application and Joint Reply, neither company individually serves more than a tiny fraction of local markets ! and this is true in every metropolitan area in which we provide service. The market power is held entirely by the incumbent. It is this merger, positioning MCI WorldCom as a stronger new entrant, that has the potential to turn the tide from an environment in which the incumbent has kept the new entrants competing on the fringe to one where true competition has the potential to evolve. 1. A new entrant without market power cannot engage in unilateral action to the detriment of consumers and competition. As we have previously argued, there is no potential that MCI WorldCom can engage in unilateral conduct to harm consumers and competition. Moreover, since the merger does not eliminate a significant participant in the local exchange or exchange access markets ! and indeed strengthens one of the nonincumbent participants, MCI ! there is no reason for the Commission to be concerned about the potential for any unilateral action on MCI WorldComs part that could harm competition. Nor is there any reason, for the purposes of this analysis, to distinguish between the three customer segments ! mass markets, mediumsized business, or large business product markets. The picture for each is the same ! a dominant player and several significant new entrants who to date have been unsuccessful in capturing even a modest level of market share. Several parties attempt to argue that MCI WorldCom will distinguish between the three customer segments as we continue our efforts to enter local markets. The arguments are typically that, for financial reasons, MCI WorldCom will focus on business customers to the exclusion of residential customers. Significantly, no commenter has advanced any reason why the merger will render residential business unprofitable when it was profitable before the merger. Indeed, the opposite is true. In a market where the ability to sell a total package of local, long distance, Internet and international services will be a key to success, it makes no sense to conclude that the merged company will abandon local service as one key element of that package, while expecting to expand its sale of the other elements. Moreover, residential customers are important because they fill network capacity during offpeak hours for business traffic. The merged company will have a bigger network to fill, thus increasing the importance of residential customers.ЍAs MCIs President has explained, You build capacity to handle the needs of your business customers during the work week in the daytime, and you have to start recruiting residential customers who use the network mostly at night and on weekends. Thats the only way you can get efficient use of your capacity. Jon Van, MCI Deal May Cut Consumer Phone Bills, Chicago Tribune, Nov. 11, 1997.  In arguing that the merged company will treat residential customers differently than MCI would have done absent the merger despite nothing in the economics of the merger to justify this difference the opponents are relying exclusively on the argument that the two companies have made different statements of intention. Our intentions are clear. Bert Roberts, the Chairman of the merged company, and Bernard Ebbers, the Chief Executive Office, have reaffirmed the commitment of both companies to residential customers.%ЍSee Letter to Chairman William Kennard, Federal Communications Commission, from Bernard J. Ebbers, President and CEO, WorldCom, Inc., and Bert C. Roberts, Jr., MCI Communications Corporation, dated January 26, 1998. The letter is attached as Attachment A.%  2. Bundled services provide no opportunity for MCI WorldCom to exercise market power. The Commission has also noted the likely evolution of a product market for bundled services. New entrants such as MCI and WorldCom can today bundle local and long distance services to customers when offering those services over their own facilities. The incumbent is currently barred from doing so, although this regulatory bar will gradually erode assuming incumbent local exchange carriers begin to comply with the requirements for inregion long distance entry under Sections 271 and 272 of the Act. However, for the same reasons that new entrants generally lack market power, it appears unlikely in the extreme that MCI WorldCom would possess market power over bundled services.  3. No opportunity for coordinated interaction is presented by the merger of WorldCom and MCI. In addition to evaluating the likelihood of unilateral action, the Commission also evaluates the likelihood that a merger will result in increased opportunity for coordinated interaction that would harm consumers. As stated in the Joint Reply, there is no danger of this result. First, since the number of significant participants does not change for local markets, no smaller group exists that makes such interaction possible. But more significantly, new entrants do not cooperate with the incumbent ! they cannot do so and succeed in the marketplace. They must compete aggressively against an incumbents offerings ! in price, in service, in quality, and with offerings that are more responsive to customers needs. It is no secret that until the Commission authorized interstate transport competition in the early 1990s, incumbent local exchange carriers lagged far behind competitive access providers in their provision of selfhealing fiber rings. GTE attempts to generate uncertainty about the benefits of this merger. It argues that while the combined entity may truly be a strengthened, more aggressive competitor, other outcomes are possible. GTE Comments at 8990. But there is no plausible reason to believe that the other outcomes GTE posits would occur, while it is more than just plausible to believe that a stronger, more aggressive competitor would cut into the incumbents monopoly margins and thereby bring enormous consumer benefits. Of course, predicting the future is not an exact science. But as between the probable scenario of a stronger, more aggressive competitor reducing the enormous monopoly margins presently paid by consumers, and the various implausible scenarios outlined by GTE, the Commissions choice is clear. The first alternate scenario GTE describes is that the merged company may simply benefit from less competitive pressure by virtue of the elimination of a most significant competitor from the marketplace. GTE Comments at 89. On its face, this argument is absurd. How can there be less competitive pressure in a marketplace where the competition has less than 1% of the marketplace? As previously stated, MCI, not WorldCom, is a significant player in the local marketplace under existing Commission precedent. The HHI increase from this merger is virtually nil.=ЍSee Joint Reply at 1314.= There is no danger that the merged company will start colluding with the incumbent monopoly, because a merged company with only 1% of the market needs to grow significantly, and can do that only by aggressive competition that cuts into the incumbents customer base. There can hardly be less competition than there is now in the local markets. The only direction that competition can take in these markets is up, and this merger offers a good opportunity for that to happen. GTEs second alternate scenario is that the merged company may simply focus on the lucrative large business submarket. GTE Comments at 8990. Of course, the public benefit of serving businesses is clear, by significantly reducing the monopoly margins that business customers must now pay to the incumbents, with reduced costs benefiting their consumers. But, as noted above, there is no reason to believe that the merger would make it less profitable for the merged company than for the separate companies to pursue residential and small business customers. Indeed, the contrary is true, since, as explained above, the merged company will need residential customers to fill its expanded network in offpeak hours, and a company offering longdistance, Internet and international services to residential customers must offer local services as well in order to satisfy the demand for fullservice packages. GTEs final alternate scenario is that the merged company may simply terminate planned investments. GTE Comments at 90. This apparently refers to the possibility that the merged company might be able to scale back investments MCI otherwise would have made to provide local service to areas covered by existing or planned WorldCom networks a cutback GTE labels as reduced investment and less robust competition. GTE Comments at 9798. But the parties are planning to expand local service and local networks; if the merged company can achieve the same amount of expansion in customer coverage with less investment, that is a real economic savings. And, as previously noted, when two competitors with less than 1% of the market merge, there is simply no anticompetitive effect. 4.The merged company will promote marketopening public policies As part of the Commissions merger analysis, the Commission also reviews the effect of the proposed merger on dynamic market performance, which includes, among other things, the effect the merger might have on the regulatory process of opening markets to competition. MCI and WorldCom have consistently argued in this proceeding that grant of our Application will have the effect of creating the strongest new entrant with the most at stake in the fight to open competitive markets. In fact, that is why we noted in our Joint Reply, that GTE and several Bell companies were opposing the merger ! in recognition of the challenge that MCI WorldCom presents to their ability to dominate not just the local competitive arena, but the public policy one as well. 5.` ` ` Barriers to entry or expansion While the Commission in Bell Atlantic/NYNEX evaluated the extent to which a merger of two incumbent monopolists would discourage potential entry and expansion, there are no similar concerns presented by the merger of MCI and WorldCom. In fact, the opposite is true ! the merger of these two carriers will produce a substantially beneficial effect on those carriers who are seeking to enter local markets because MCI WorldCom will have the ability to pave the way. In the Applicants view, the Commission should examine the effect of this merger on the ability to reduce barriers to entry and expansion into local markets. GTEs analysis, which otherwise sticks closely to the fourfactor competitive format of Bell Atlantic/NYNEX and BT/MCI, conspicuously leaves out the barriers to entry or expansion category in discussing local markets. The reason is obvious: these barriers are enormous, and GTE has been one of the leaders in attempting to maintain them.Barriers to entry include: (1) the necessity either to build a new local network or to surmount the multiple obstacles that the incumbents have placed to utilization of their own networks for resale or unbundled network elements despite the requirements of the 1996 Act and this Commissions procompetitive decisions; (2) the need for a recognized brand name; (3) building access; and (4) state and local regulation favoring incumbents. MCI WorldCom, with the most extensive facilities of any new entrant, MCIs brand, and the ability to undertake the investment necessary to enter local markets profitably, is best positioned to overcome these multiple barriers. 6. Potential Competition Doctrine and Measurement of Market Concentration  In the Bell Atlantic/NYNEX decision, the Commission noted that the potential competition doctrine should be applied to the facts of the case because there existed evidence of potential harm to competition.FЍBell Atlantic/NYNEX, at  139. F In the present case, applicants submit that there is no such evidence for local markets. Therefore, no analysis of the potential competition doctrine is required. The HHI indexes discussed in this record demonstrate that this merger is not likely to create or enhance market power or its exercise. On this subject, there can be no serious dispute. D.Other competitive effects  Applicants previously demonstrated the significant cost savings and efficiencies that will result from the merger.3ЍJoint Reply at 1112.3 Other cost savings are further explained in the Affidavit of Sunit Patel, WorldComs Treasurer, at Attachment B. These efficiencies will enhance the combined companys ability to raise capital, and will give it greater financial strength. To summarize, we noted that the merger will reduce our access costs because we can combine traffic on our networks, taking advantage of efficiencies in transport and collocation, among other items. MCI WorldComs costs of entering the local market will be reduced because we will not need to duplicate certain sales, marketing, and administrative functions, and we will have reduced network costs resulting from the more rapid transfer of traffic to our local networks. Duplicative capital expenditures for local network build out and information technology can be eliminated. Core sales, general, and administrative savings will be realized. These efficiencies will create an opportunity for MCI WorldCom to become more engaged in local market opportunities than it could be if the two companies stood alone. Savings realized can be used to attack incumbent monopolists more aggressively. E.Conclusion GTE, BellSouth, and Bell Atlantic are not seeking to preserve and enhance local competition; they are seeking to prevent real local competition from ever getting started. It is in that context that their comments must be assessed. If the incumbent local exchange carriers really believed that the merger would reduce competition in local markets, their duty to shareholders would require them either to not participate in this proceeding or to support the merger. The incumbents attacks speak volumes. The merger of MCI and WorldCom will serve to open local markets faster, and advances the Commissions public policy goal of promoting competition in all markets. III.  THE MERGER WILL NOT HARM, AND CAN ONLY ENHANCE, VIGOROUS COMPETITION IN THE INTEREXCHANGE MARKET  In the Joint Reply, MCI and WorldCom demonstrated that the merger would enhance vigorous competition in an already competitive market. Low entry barriers, sophisticated consumers, and other factors would foreclose any attempt after the merger to increase prices through tacit collusion. Moreover, the industry is becoming even more competitive as the number of significant facilitiesbased competitors grows. In the last twelve months, at least three carriers have started to construct, or announced plans to expand significantly, networks with nationwide coverage. These carriers will benefit from the decreasing unit cost of constructing new fiber networks to add significant competition to the market. In addition, the BOCs, among others, are significant potential entrants once they satisfy the statutory criteria for entry into interLATA long distance. They have widely recognized brand names, a huge customer base, extensive facilities, administrative and technical resources, and massive financial resources.ЍIn its first quarterly report since acquiring NYNEX, Bell Atlantic reported revenues of over $7 billion. Bell Atlantic Takes Charge of $1.5 Billion, Wall Street Journal, Oct. 23, 1997, at B2.  In the meantime, GTE attempts to convince the Commission that the long distance market is dominated indefinitely by AT&T, MCI, Sprint and WorldCom, with the first three colluding on price and only WorldCom offering real competition competition which, they say, will abruptly disappear after the merger. That picture does not correspond with reality or economically rational behavior. In the first place, GTE now concedes, as it must, that there is increasing competition from other carriers, including itself, and rates are declining for business customers. They argue only that some residential customers are still paying rates that are too high. Indeed, FCC Chairman William Kennard recently told an audience of consumer advocates, Long distance rates fell 5.3% between January 1996 and November 1997. Long distances prices are now the lowest they have ever been.ЍFCC Chairman William Kennard to the National Association of State Utility Consumer Advocates, February 9, 1998. Long distance carriers recently had an opportunity to review this history with the Commission at the invitation of the Chairman. In separate letters, AT&T, MCI and Sprint each reported that long distance rates were falling further and faster than access cost reduction evidence that competitive pressures, even in the residential market, are driving prices.ЍLetter from Jonathan B. Sallet, MCI, to FCC Chairman William Kennard, March 2, 1998 (citing long distance reductions in excess of access cost of $467 million); Mark C. Rosenblum, AT&T, to FCC Chairman William Kennard, March 5, 1998 (reductions in excess of access of almost $1 billion); and J. Richard Devlin, Sprint, to FCC Chairman William Kennard, March 4, 1998 (reductions in excess of access of $500 million). The analysis that each company used varied the time period over which the measurement occurred. Significantly, a large portion of the reductions occurred in residential. A prime example is MCIs 5 Cent Sunday offering, available to all residential customers regardless of calling volume. Customers are clearly taking advantage of 5 Cent Sundays MCIs network now carriers more minutes each Sunday than we normally do on Mothers Day, the busiest calling day of the year. With respect to large business purchasers, there is no doubt that carriers compete on price, quality, and innovation. Large business services are the most competitive of all, as evidenced by sophisticated customers who know how to adroitly play one provider off against another. Moreover, in neither the business nor residential segment of the market is it appropriate to confine analysis to the largest interexchange carriers. Smaller long distance carriers presently have seized 16% of the market, up from 12% in 1996.ЍThis statistic portrays the market share of companies other than AT&T, MCI, Sprint and WorldCom. Joint Reply at 30; Declaration of Robert E. Hall at  62, Attachment C to Joint Reply ( Hall Decl.) This growth rate is particularly impressive because these market shares grew in an expanding market. GTE opines that these competitors are not yet competitive. If that is true, how did they achieve such explosive growth? Market analysis that leaves these companies out ignores the real world.  In addition to the other interexchange competitors, an analysis limited to the largest carriers also ignores the several new nationwide interexchange networks that will be completed and become fully operational within the next two years. In the absence of any documentation, GTE proclaims that it will be years before these networks become competitive. That does not accord with those carriers own representations or historical experience. Of course, potential competitors also include the Bell Companies, under the Commissions ruling in Bell Atlantic/NYNEX.GЍSee Bell Atlantic/NYNEX, at  7.G  Finally, GTE predicts that WorldCom, after the merger, will stop offering favorable wholesale discounts to resellers in some misguided effort to protect the MCI retail customers. That argument does not accord with the history of this market, as well as current industry practice, in which AT&T and MCI (as well as WorldCom itself) have competed extensively for both retail and wholesale services. Nor does it accord with common sense or economically rational behavior, except perhaps for a de facto monopoly company like GTE that in fact refuses to offer favorable discounts on local network capacity or services to local resellers. WorldComs wholesale services have achieved explosive growth, and WorldCom fully intends to continue that growth. As stated in the Joint Reply, there is no basis to conclude that the merger adversely affects choices that resellers have, for a very simple reason the abundance of facilitiesbased competition means that facilitiesbased carriers either must offer services at wholesale rates or lose revenue to other facilitiesbased carriers.  In the following discussion, we present our detailed response to the points made by GTE and others under the four categories of analysis spelled out in the Commissions Bell Atlantic/NYNEX  and BT/MCI decisions. A.Relevant product and geographic markets  1. Wholesale and resale are not separate markets; and in any event, separate analysis does not change the result.  The product market must be defined as all interstate, domestic interexchange service, without further delineation. That is what the Commission did in the AT&T NonDominance Proceeding, where it adopted a product market definitions of all interstate, domestic, interexchange services . . . with no relevant submarkets.ZЍMotion of AT&T Corp. to be Reclassified as a NonDominant Carrier, 11 FCC Rcd 3271 (rel. Oct. 23, 1995),  22 (quoting Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations Therefore, CC Docket No. 79252, Fourth Report and Order, 95 FCC2d 554, 564 (1983)).Z As the Commission noted, it had already used the same market definition in classifying AT&Ts competitors as nondominant.'ЍId.' Just last year, the Commission concluded that it will treat [interexchange] services together, by analyzing aggregate data that encompasses all long distance services, rather than information particular to specific services. LEC InRegion Interexchange Order,  43.GЍ LEC InRegion Interexchange Order.G We show at more length below that treating the retail and wholesale longdistance services as separate markets would, in any event, have no competitive consequence in the analysis of this merger. Wholesale service is a highly competitive business with multiple suppliers. It is growing more competitive with the entry of significant new carriers that have positioned themselves as carriers carriers catering to IXC customers, and who do not have to establish brand name recognition to compete. The retail mass market is also competitive; and in any event, since WorldCom itself has no significant market share in that market, its merger with MCI will have no competitive consequence. 2.` ` ` While there are different customer classes that can usefully be identified for long distance, there are no separate customer product markets.  In BANYNEX, the Commission identified three customer groups within the local exchange market: 1) residential and small business, 2) mediumsized business, and 3) large business/government.DЍBell AtlanticNYNEX, at  53.D As Professor Hall points out, the longdistance market is one in which supplyside substitutability blurs any distinctions between types of customers: Because longdistance carriers who are currently active only in the business market are nonetheless capable of moving into the residential market, should higher prices in that market make the move attractive, the relevant market comprises both business and residential service. Hall Decl.  6. ЍProf. Hall also points out that because many business longdistance calls are made from home, the distinction between residential and business is blurred to begin with. Hall Decl.  6. However, it may be useful to evaluate the different segments of the long distance market separately to determine whether the merger raises any particular issues with respect to any segment. Applicants do take issue, however, with the Commissions threepart segmentation of the long distance market by customer groups. More reflective of todays long distance market is a twopart segmentation: (1) mass market products residential and small business; and (2) business products. There is no meaningful distinction between mediumsized business services and large business services for the purpose of selling long distance. Both are characterized by facetoface customer service, the ability to use dedicated lines for some or all of their needs, and the likelihood that their service is provided via tariffed contract, as opposed to obtaining a service as defined in a generic tariff offering. Regardless of whether one analyzes these segments separately, the results remain the same competition for business customers is strong and would not be diminished due to the merger. GTE argues that the large business/government group should be analyzed as a separate segment of the interexchange market because WorldCom is stronger in this segment than in the residential and small and mediumsized business segments. GTE Comments at 1314. In its analysis, the Commission will examine whether there is credible evidence suggesting that there is or could be a lack of competitive performance with respect to large business or governmental customers.Z!ЍLEC InRegion Interexchange Order, supra at  40. Z We submit that no such evidence exists. These customers have considerable sophistication and experience in purchasing long distance service and dealing with long distance providers. As Professor Hall points out, a business has the incentive to shop carefully and to extract the best possible deal from alternative sellers. Hall Decl.  88. As a result, as long as there are at least two carriers offering longdistance service, business buyers have a chance at pushing the price all the way down from the monopoly level to the level of cost. Id.)"ЍGTEs own account of its participation in the wholesale market shows that it shopped carefully, procured competing bids, and obtained the best possible deal for itself. See Declaration of Debra Covey (attached to GTEs Petition to Deny)  3 and 4.)  In fact, as Professor Hall points out, [t]oday, dozens of longdistance carriers offer bargains to businesses. Id.  89. There is no credible evidence of lack of competitive performance in the large business/government customer group. It is noteworthy that, other than GTE, no business customers or association of business users have opposed this merger. And given GTEs other parochial reasons for opposing the merger, one may question whether a fear of losing its present wholesale contract with WorldCom is its real motivation.I#ЍGTEs existing wholesale contract with WorldCom gives it multiyear protection. Covey Decl.  3. In addition, as discussed at pp. 3639, infra, GTE has obtained significant capacity on the Qwest network, which will shortly have nationwide coverage and become fully operational.I GTE argues that the mass market must be different from the business market and less competitive because customers do not take advantage of discounts and are receptive only to recognized brands. But the merger will have virtually no impact on this market because WorldCom, although providing wholesale services to carriers who do offer mass market products, has an insignificant market share of this retail segment. Accordingly, even if the mass market segment is analyzed separately and viewed as noncompetitive, the merger would have no discernible impact because WorldCom has an insignificant market share.  3.` ` ` The long distance market is a national one. The relevant geographic market must be defined as a single national market for long distance calling. That is the approach the Commission followed in the AT&T NonDominance Proceeding. $ЍMotion of AT&T Corp. to be Reclassified as a NonDominant Carrier, 11 FCC Rcd 3271 (rel. Oct. 23, 1995),  22. As the Commission noted, it also followed the approach of defining a single national market in its proceedings classifying AT&Ts competitors as nondominant. Id., citing Policy and Rules Concerning Rates for Competitive Common Carrier Services and Facilities Authorizations Therefore, CC Docket No. 79252, Fourth Report and Order, 95 FCC2d 554, 57375 (1983).  That was also the approach followed in the recent MotorolaAMSC decision, which states that when a group of pointtopoint markets exhibit sufficiently similar competitive characteristics (i.e. market structure), we may aggregate such markets, rather than examine each individual pointto point market separately.%ЍApplication of Motorola, Inc., Transferor, and American Mobile Satellite Corporation, Transferee, CWD No. 983, Memorandum Opinion and Order (rel. March 16, 1998),  29. There is no basis for a different approach here. The Commission has stated that where the competitive conditions for a particular service in any pointtopoint market are sufficiently representative of the competitive conditions for that service in all other domestic pointtopoint markets, then we will examine aggregate data, rather than data particular to each domestic pointtopoint market.P&Ѝ LEC InRegion Interexchange Order  66.P Given the nationwide provisioning, marketing, pricing, sales and advertising of long distance services, as well as legal requirements that longdistance rates remain geographically averaged, there is no reason to follow a different approach here. Neither GTE nor any other party references any particular market in which separate analysis might make a difference. Presumably, GTE, as a competitor in the long distance market, would be aware of such evidence since it would be looking to exploit those opportunities. GTE argues that market share information broken down by state or individual routes is critical because resellers and smaller facilitiesbased carriers rely heavily on [WorldCom and MCI] to provide nationwide coverage, and other sources of supply may not be available on many routes. GTE Comments at 15. But that argument wrongly assumes that interexchange carriers can exploit local shortages, or localized absence of competition, to charge supracompetitive rates in some areas, while lowering rates in other areas where competition is present or there is no capacity shortage. This type of localized market situation does not and indeed, cannot exist in the case of interexchange services. Section 254(g) of the Act and this Commissions rules require interexchange carriers to provide interstate service to its customers in each State at rates no higher than the rates charged to its subscribers in any other State. 47 C.F.R.  64.1801(b).'ЍThe Commission has exercised forbearance from enforcing section 254(g) as to temporary promotions, contract tariffs, Tariff 12 offerings, optional calling plans and private line services. However, temporary promotions are limited to 90 days; and contract tariffs, Tariff 12 offerings, and optional calling plans must be available to all similarly situated customers, regardless of their geographic location. Policy and Rules Concerning the Interstate, Interexchange Marketplace, Implementation of Section 254(g) of the Communications Act of 1934, as Amended, 11 FCC Rcd 9564 (rel. Aug. 7, 1996),  27, 29. And with respect to intrastate interexchange rates, once competition reaches any urban area within the State, the rate averaging requirement of Section 254(g) would prevent any interexchange carrier from charging customers in rural areas more than customers in urban areas where rates are competitive.0(ЍId.  46.0 Neither GTE nor any other party has produced a shred of evidence that interexchange carriers have exploited local shortages or lack of competition to charge higher rates in discrete geographic areas. Indeed, as Drs. Carlton and Sider point out, the industry practice exhibits uniformity in intrastate and wholesale rates, as well as interstate rates. Second Declaration of Dennis W. Carlton and Hal S. Sider,  24, 26. ( Second Carlton/Sider Decl.) The declaration is attached as Attachment C. Moreover, some 75% of the U.S. population lives in LATAs served by six or more of the ten competitive networks that are presently in operation or will be within the twoyear period of the Merger Guidelines, and 60% in LATAs served by eight or more of these carriers. Second Carlton/Sider Decl.  38. (The 10 networks are: AT&T, Sprint, MCI, WorldCom, Cable & Wireless, Qwest, IXC, Williams, LCI and Frontier. Id.) Only 6 percent of the U.S. population live in areas in which the transaction would reduce the number of networks from four to three; 5 percent of the population live in areas in which the number of networks would fall from five to four, and 4 percent in areas in which a reduction from 6 to 5 would result. Second Carlton/Sider Decl.  39. Moreover, several of these networks are shared by competitors, and competition among independent owners of capacity provided by the same network could lead to more competition than competition between two geographically separated networks. Second Carlton/Sider Decl.  45. This competition could be more intense than if the two firms each had nonoverlapping networks. Id. Thus, even in areas where only a few networks are available, failure to make an appropriate adjustment for multiple owners of network capacity will result in estimates of market shares and concentration that are biased upward. Second Carlton/Sider Decl.  43. In short, there is no need for analysis of separate geographic markets, other than to delay this proceeding.  B.Actual, potential and precluded competitors  1. Significant actual competitors are not limited to the largest carriers. Č GTE defines the significant actual competitors of MCI and WorldCom in the interexchange market to include only AT&T and Sprint. However, as pointed out in the Joint Reply, the other carriers category accounted for 12.1% of presubscribed lines as of the final quarter of 1996, and mushroomed to 16% by the third quarter of 1997. Joint Reply at 3031; Hall Decl.  62. This category comprises over 600 competitors, at least 20 of whom have revenues over $100 million, and several of whom have revenues exceeding $1 billion, including LCI, Excel, Frontier, Cable & Wireless and GTE. Joint Reply at 30. As a group, this is the fastest growing segment of the industry, with annual growth rates exceeding 40 percent. Id. These carriers have proven quite adept at attracting and retaining interexchange customers. GTE argues that the other category must be disregarded, because the other carriers allegedly do not have sufficient geographic coverage to provide effective competition, and because they face a multitude of other barriers to entry that will take considerable time to overcome. Yet, most of these carriers, including LCI, Excel, Cable & Wireless and Frontier, are certified in virtually all states and have nationwide coverage. We have already pointed out that GTEs argument on geographic coverage ignores the geographic rate averaging requirement of the 1996 Act. Given the nationwide footprint of many of the other carriers, virtually all competing interexchange carriers will have to respond with competitive rates charged nationwide, since interexchange carriers cannot confine rate reductions to those areas where competitors are in operation, maintaining higher rates elsewhere. Nationwide pricing is, in fact, industry practice, and GTE fails to show otherwise. Second Carlton/Sider Decl.  24. Moreover, GTEs argument overlooks the ability of networks to interconnect with each other, transcending the limitations of any particular network. As GTE well knows, every longdistance call utilizes more than just one network, if only for purposes of origination and termination. Total pointtopoint coverage by a single network is not the norm in this market. As a totality, the competing longdistance networks have already achieved significant nationwide coverage, and that coverage is rapidly expanding. We discuss in more detail below the relatively modest barriers to entry that the new entrants are facing. See pp. 3741, infra. It suffices here to say that if carriers in the other category in fact face a multitude of other barriers to entry that will take considerable time to overcome (GTE Comments at 1617), then how is it that this segment grew from a 12% market share in the final quarter of 1996 to 16% in the third quarter of 1997? GTEs long distance operations are a case in point. Since enactment of the Telecommunications Act in February, 1996, GTE has gained a market share of some 12% in its incumbent service territory.)ЍJohn J. Keller, GTE Net Falls 10% Due to Cost of Expansion, Wall Street Journal, Jan. 28, 1998, at B15. Finally, GTE argues that the other category should be disregarded because many of them are only resellers, purchasing capacity from the largest carriers. GTE Comments at 1718. In fact, many of the other carriers, such as Excel, Frontier, Cable & Wireless, and LCI, have become facilitiesbased carriers and are moving quickly to deploy nationwide networks, and scores of other resellers are securing regional and national network facilities as their traffic base increases. The recent announcement of a merger of LCI and Qwest illustrates the rapid evolution of resellers to major facilitiesbased carriers. Moreover, as the Commission has recognized, even pure resellers perform a significant competitive function, which becomes more significant as they acquire facilities and progress down the path to predominantly facilitiesbased service. Moreover, as new networks come on line within the next two years (see pp. 389, infra), the resellers will find additional sources of network capacity, and the migration of resellers to facilitiesbased carriers will likely accelerate. In 1995, the other category of interexchange carriers (which then included WorldCom) accounted for 17.3 percent of interstate interexchange revenues.8*ЍKeller, supra, n.14.8 At that time, in reclassifying AT&T as nondominant despite its then 51% market share, the Commission found unpersuasive the arguments that interexchange carriers other than AT&T, MCI and Sprint are too small to exert competitive pressure.+ЍMotion of AT&T Corp. to be Reclassified as a NonDominant Carrier, 11 FCC Rcd 3271 (rel. Oct. 23, 1995),  62. In this proceeding, the other category (without WorldCom) now accounts for 16% of the market. Hall Decl.  62. And given the accelerating rate of facilities ownership by other carriers, it seems likely that a larger portion of the other carrier competition is facilitiesbased than was the case in 1995, and will certainly be more so within the next two years as the Qwest, IXC, Williams and Level 3 networks become fully operational and the interexchange market continues to segment and differentiate. See pp. 389, infra. Moreover, the combined MCI WorldCom revenue share (as of the third quarter of 1997) will be 24 percent, not the 51 percent AT&T had in 1995. Hall Decl.  62. In this context, GTEs argument that the other carriers will not exert competitive price pressure is even weaker than the same argument which the Commission found unpersuasive in 1995 in the AT&T NonDominance Proceeding. GTEs own market performance refutes its claim that only the four largest IXCs are significant. GTE itself is one of the other competitors, and it must be regarded as significant in view of its spectacular growth (1.7 million customers and 12% of the long distance market in its service areas after two years of operation8,ЍKeller, supra, n.41.8 ) and its many competitive advantages: a large base of existing customers located in areas where only GTE can offer a package of local and long distance service (because of GTEs success in keeping out significant local competition despite the 1996 Act and the Commissions procompetitive decisions); wide brand name recognition; and significant technical, administrative, marketing and financial resources. In addition to GTE, other companies in the other category have experienced phenomenal growth rates.-ЍAs described in the Joint Reply, the operating revenue of VarTec Telecom grew from virtually zero in 1993 to $470 million in 1996, while LCIs operating revenues grew from $317 million in 1993 to over $1.1 billion in 1996. Joint Reply at 39. Moreover, within this group there are several companies with over $1 billion annual revenues. In these circumstances, it would be highly artificial to designate only a limited number of these companies as significant. If that were to be done, however, that designation would have to be given at least to the companies with over $1 billion in annual revenue a category that included, as of 1996, LCI, Excel, and Frontier, as well as GTE. Joint Reply at 30. In addition, the socalled other carriers are competitively significant as a group. With 16% of the market and a 40% growth rate, they exercise significant pricing restraint and discipline on the market. The combined effect of the hundred or so smaller carriers, each nibbling at the shares of the larger carriers, is to enforce a high level of competition in the market in general. Hall Decl. 69.  2.` ` ` There are several significant potential competitors. Qwest is a significant potential interexchange competitor because its network, which is scheduled for completion in the second quarter of 1999, will serve more than 125 cities representing approximately 80% of the data and voice traffic originating in the United States.b.ЍDow Jones News/Retrieval Business and Finance Report, March 9, 1998.b In addition, once its recentlyannounced merger with LCI is consummated, Qwest will have over two million business and residential customers.'/ЍId.' The largest facilitiesbased carriers will face significant price competition for most of their business from this single source.  GTE argues that the new networks that will be built and operational within the next two years, plus the competitors in the other category, should be disregarded because only the largest facilitiesbased carriers have POPs in a sufficient number of LATAs to achieve coverage of a significant percentage of the U.S. population. Without a POP in the LATA, GTE argues, a competitor must pay additional transport charges, making it unable to undercut oligopolistic pricing by the larger carriers. GTE Comments at 2326. We have previously pointed out that this argument ignores the geographic averaging requirement of Section 254(g) of the 1996 Act, which will prevent long distance carriers from charging competitive interstate rates in areas where competitors operate while charging higher rates in noncompetitive areas, as well as the industry practice of uniformity for intrastate as well as interstate rates. Second Carlton/Sider Decl.  2426.0ЍGTE also ignores the fact that startup IXCs may employ Feature Group A for interexchange traffic in areas where they do not have a POP. This is exactly how MCI broke into the IXC market in the early 1980's. GTEs argument also ignores the fact that 75% of the population live in areas that will be served by six or more networks, and that even in the remainder of the country competing providers sharing a single network will compete headtohead, bringing significant consumer benefits. Second Carlton/Sider Decl.  38, 45. Competing providers of significant longdistance capacity that will be ready within the next two years include Qwest Communications, IXC, Williams Co. and Level 3. Communications. See Joint Reply at 3536, Second Carlton/Sider Decl.  1416.1ЍEntry that is likely to occur within two years is viewed as counteracting a mergers effect on competition. Bell AtlanticNYNEX, at  130. Williams, which previously announced an investment of $2.7 billion for construction of a 32,000 routemile national fiber optic network, recently announced plans to accelerate the deployment of its network. Second Carlton/Sider Decl.  114. Drs. Carlton and Sider point out that [a]s a group, Qwest, IXC, Williams and Level 3 alone are planning to deploy 72,000 fiber route miles of high capacity fiber and electronics, nearly double AT&Ts current route mileage (and probably significantly more than double AT&Ts fiber miles, due to the large number of fiber strands per cable being deployed by new networks). Second Carlton/Sider Decl.  16. This is capacity that will be operational well within the twoyear period prescribed by the Merger Guidelines. It will not have to await any ramp up of procedures and back office facilities. If any network lacks the necessary facilities to terminate the traffic, it can deal with resellers who do or make other arrangements; indeed, every longdistance network uses other carriers to some extent to terminate its traffic. Also included among competitors must be Frontier and GTE (to whom Qwest has sold significant portions of its network), as well as LCI, Vyvx, Inc., DTI, Consolidated Communications Telecom Services, and GST to whom IXC has sold capacity. Joint Reply at 36. In addition, Alliant Communications has recently expanded its fiber optic network and formed a consortium of regional networks. Declaration of Dennis W. Carlton and Hal S. Sider, Attachment B to Joint Reply, at  43 ( First Carlton/Sider Decl.) GTE also totally ignores the Regional Bell Companies, which are significant precluded competitors. They are clearly planning a major effort in the longdistance market once they obtain Section 271 authority; they could hardly do otherwise in light of the success achieved by GTE and SNET. The Commission has stated that in defining the relevant markets, it will consider not just the markets as they exist today, but as we expect they will exist after a Bell Company receives authorization to provide inregion interLATA services pursuant to Section 271 of the Communications Act.F2ЍBell Atlantic/NYNEX, at  7. F That ruling should be followed here, and the Bells counted as potential entrants, since it is entirely within their power to satisfy the terms of Section 271.  C.Barriers to entry or expansion. 1. Barriers to entry or expansion are not sufficient to deter significant new competition within the next two years.   The barriers to entry or expansion for interexchange services are not significant, for several reasons. First, to spread the initial capital costs of building a national network, new competitors may follow a strategy of initial entry through resale, followed by increasing investment in switching and transmission capacity based on marketing success; this has been the strategy followed by a number of successful entrants in recent years, including WorldCom, LCI, VarTech Telecom, and MCI. Joint Reply at 39. Second, new entrants seeking to own transmission capacity may lease or purchase shares of existing networks or networks under construction, thus spreading the capital cost. This strategy has also been followed by a number of new entrants, such as Frontier. Joint Reply at 3537. Qwests experience is illustrative. It recently estimated that its construction of a national 16,000 route mile SONET fourring fiber optic telecommunications network will cost $2.4 billion, including necessary electronics and five switches.E3ЍQwest SEC Form S4, Dec. 22, 1997, p. 9.E Qwest has already obtained approximately $1.1 billion in dark fiber contracts from Frontier, GTE, WorldCom and others. Third, rapid improvements in technology enable new and existing competitors to increase exponentially the amount of traffic that a single strand of fiber can carry, allowing rapid expansion of network capacity without additional network construction. Joint Reply at 37. Moreover, while the costs of building a new network are substantial, several companies have recently undertaken this task, demonstrating that the capital is available. Joint Reply at 3437. 2.` ` ` GTE has greatly exaggerated the barriers to entry and expansion. GTE argues that there are several barriers to entry which will prevent the new networks being built by Qwest, IXC, Level 3 and Williams from providing significant competition within the next two years, even though they will be operational within that time frame. GTE Comments at 2132. This argument is inconsistent with the recent history of this market, in which several small competitors have quickly become major players in much less than the fiveyear time frame that GTE describes as being necessary. GTE lumps together barriers to entry to the retail as well as the wholesale market (although elsewhere it fervently insists that the markets are separate). Thus, GTE argues that an entrant into the retail market must develop a strong brand name in the face of incessant advertising by the incumbents. GTE Comments at 22.4ЍGTEs emphasis on the necessity for mass advertising is contradicted by the experience of dialaround carriers like Telco and Vartec, who have achieved considerable market success with virtually no brand recognition. But networks selling capacity to resellers do not face this barrier. Indeed, they can sell capacity to GTE (as the Qwest network has already done) or possibly to the RBOCs (once they satisfy the requisite statutory criteria to gain Section 271 approval), who can then reach the retail market on the basis of their own brand name.  In terms of when a new network can become an effective competitor once it is built and in operation (as the Qwest, Level 3, IXC and Williams networks will be shortly), GTE presents a grossly exaggerated picture of the difficulties involved. GTE overlooks the cost advantages that newer technologies give to recentlyconstructed fiber networks.5ЍQwest states that its advanced fiber and transmission electronics are expected to provide the Company with lower installation, operating and maintenance costs than older fiber systems generally in commercial use today. Qwest Communications International, Inc., SEC Form 10Q for quarter ended September 30, 1997, at 19. Its network, which it commenced constructing in 1996, is already being utilized to provide dedicated line and switched access service. Id. at 15, 1921. In addition, GTE overlooks the ability of a new network (such as Qwests) to get to market by selling capacity to resellers who already have switches, OSS and other support systems. For example, when Qwest sells capacity to GTE, it is selling to an established organization which already has the support systems needed. Portions of the Qwest network are already operational, some two years after Qwest started construction.I6ЍQwest SEC Form 10Q, Sept. 30, 1997, at 19.I GTEs description of a fiveyear timeframe for getting to market is simply not borne out by the facts. GTE further argues that a new network cannot become an effective competitor until it achieves virtually ubiquitous geographic coverage. Also, GTE argues, it must acquire its own POPs in all or virtually all LATAs, or face the competitive disadvantage of incurring additional transport charges which will make its rates uncompetitive. GTE Comments at 2326. However, as WorldComs own experience demonstrates, a competitive network can impose competitive discipline nationwide simply by being competitive in significant metropolitan areas. That is because there is significant facilitiesbased competition nationwide. GTE and other IXCs are buying capacity at costbased rates to go where their networks do not go. Further, the nationwide geographic averaging requirement of section 254(g) precludes interexchange carriers from selectively lowering their rates only in those areas where they encounter significant competition. Indeed, GTE concedes that WorldCom itself does not have POPs in some 90 of the nearly 200 LATAs, and yet is a significant competitor. GTE Comments at 24. It is simply not the case that ubiquitous geographical and POPs coverage is necessary before a carrier becomes a significant competitor. Moreover, as pointed out by Drs. Carlton and Sider, the Qwest network will have POPs covering 78% of the nations population, while the Williams and IXC networks will have POP coverage of 72% and 61% of the population respectively. Second Carlton/Sider Decl.  21. There is no principle of economics or common sense to support GTEs argument that WorldComs 82% population coverage is significant and qualifies it for membership in the socalled Big Four, while competing networks with coverage ranging from 61% to 78% are competitively insignificant. As Drs. Carlton and Sider point out, the new networks will soon have a presence at least as significant as WorldComs as recently as two years ago. Second Carlton/Sider Decl.  34.7Ѝ WorldCom had only about 110 POPs as recently as 1996. In contrast, by next year, IXC is expected to have deployed 106 POPs, and Qwest is expected to have deployed 125. Second Carlton/Sider Decl.  34. GTE argues that for several years, new entrants will be unable to achieve economies of scale that apply to the Big Four. GTE Comments at 26. But the Qwest network is already in operation. And GTE itself, in its May, 1997 announcement of its purchase of a portion of that network, stated that the network would be fully operational next year and will enable GTE to reach virtually the entire U.S. population. GTEs operational personnel apparently do not have the apprehensions that its lawyers describe.c8ЍOn May 6, 1997, GTE announced a series of transactions to position GTE to have the fastest, most reliable and most secure national network available, enabling endtoend managed network solutions that we believe will be unmatched in the industry. GTE explained that this network, which it is purchasing from Qwest Communications, would be fully operational next year and that [a]t that point, we will be in a position to reach virtually the entire U.S. population. GTE Announces Initiatives to Become a Leading National Provider of Telecommunications Services Will Acquire BBN in Transaction Valued at $616 Million Purchases FiberOptic Network From Qwest Creates a New National Sales Service and Marketing Company available at (visited March 19, 1998). c Finally, GTE argues that there is a shortage of qualified network engineers and telecommunications software developers, and that new entrants will face high and increasing labor costs. GTE Comments at 30. The argument makes no sense. To the extent that new entrants bid up the compensation of new technical employees (and attract employees from the incumbents in the process), that raises the cost of technical help for all market participants, including the incumbents. When all participants face the same labor market there is no competitive advantage or disadvantage stemming this factor. ÌD.Potential competitive effects and efficiencies 1. The efficiencies resulting from the merger will be significant.  The Joint Reply discusses why the merger offers significant efficiencies in the interexchange market. Joint Reply at 2627.9ЍThe Harris Long Distance Affidavit (at  71) cites Prof. Halls statement that there is an absence of increasing returns in the longdistance market as being in conflict with MCI WorldComs estimates of cost advantages resulting from the merger. But Prof. Halls discussion is in terms of whether technology has important returns to scale [which would allow] one firm [to] dominate. Hall Decl.  73. Prof. Halls point is only that returns to scale are not large enough to lead to a natural monopoly. Prof. Halls discussion does not mean that some economies or efficiencies would not be realized by two firms, particularly where the two firms are somewhat specialized or differentiate in their service mix and facilities. This showing is buttressed in the attached Affidavit of Sunit Patel, WorldComs Treasurer, which describes certain of these efficiencies and cost savings in greater detail. 2. There is no basis for the argument that the merged company will stop offering significant wholesale discounts.  GTEs principal argument, echoed by Bell Atlantic, is that, after the merger, WorldCom will withdraw from the wholesale market, or stop offering attractive wholesale prices, in order to prevent resellers from undercutting retail sales to MCIs customer base. The argument fails as a matter of common business sense. After the merger MCI WorldCom will have only 18% of presubscribed lines, most of which (15%) will come from MCI. Reduced to its basics, GTE is asserting that MCI WorldCom would be willing to stop competing seriously for the wholesale provision of service to over 80% of U.S. customers, an arena in which it has achieved enormous growth in the past, simply to protect a retail customer base of 18%. It is difficult to conceive of a rational businessperson making such a decision.  Moreover, MCI WorldCom cannot discriminate against a reseller depending on who the resellers customers may be.:ЍThe Commission has a longstanding prohibition against unreasonable restrictions on resale of interexchange services. See In the Matter of Regulatory Policies Concerning Resale and Shared Use of Common Carrier Domestic Public Switched Network Services, 83 F.C.C.2d 167 (1980), affd sub nom., National Association of Regulatory Utility Commissioners v. FCC, 746 F.2d 1492 (D.C. Cir. 1984); see also In the Matter of Regulatory Policies Concerning Resale and Shared Use of Common Carrier Services and Facilities, 60 F.C.C.2d 261 (1976), motion for reconsideration granted in part and denied in part, 62 F.C.C.2d 588 (1977), affd, AT&T v. FCC, 572 F.2d 17 (2d Cir. 1978). Given AT&Ts stilldominant share of retail sales postmerger, it is much more likely that a resellers customers will be taken from AT&T or some other competitor than from MCI WorldCom. Indeed, as Drs. Carlton and Sider point out, the historical data suggests that resellers gains have disproportionately come at the expense of AT&T, thus indicating that the probability that a reseller wins a customer from MCI is likely to be well below the 15 percent level implied by MCIs share of presubscribed lines. Second Carlton/Sider Decl.  58. GTE is arguing that MCI WorldCom would deliberately forego otherwise profitable wholesale opportunities, knowing that at most only a small percentage of its wholesale sales might result in loss of a retail customer a customer that might be lost anyway to a reseller who obtains capacity from a competitor if MCI WorldCom will not provide it. GTEs argument is simply not plausible. GTEs argument ignores the history of the longdistance market in another respect. In fact, AT&T (as well as MCI) has a history of substantial participation in the wholesale market.H;ЍSecond Carlton/Sider Decl.  6668.H If GTE were right, LDDS would not have bought WilTel, and Qwest would not be buying LCI. In fact, retail and wholesale operations do coexist in several telecommunications carriers. It is only GTEs warped bias that says they cannot. If interexchange carriers with retail customers were to refuse to sell to resellers (assuming they could do so legally), the resellers could follow the familiar path of constructing their own facilities, or they can obtain capacity on favorable terms from wholesaleoriented competitors like Qwest, Williams, Level 3 and IXC. GTE itself is a good example of an interexchange carrier that began by reselling intercity services and is now rapidly becoming a substantial facilitiesbased provider. Facilitiesbased interexchange carriers face a simple choice: (1) get no revenue from a competitor because the competitor obtains capacity from other facilitiesbased interexchange carriers or constructs its own; or (2) get some revenue by selling available capacity to the competitor on nondiscriminatory terms. It is not surprising that many facilitiesbased interexchange carriers, including MCI and AT&T as well as WorldCom, choose the second option which incidentally also complies with their FCCmandated resale obligations. Significantly, GTE cannot point to any evidence that MCI or WorldCom have decreased their involvement in the wholesale market. And of course, if MCI and WorldCom each individually has an incentive to compete for wholesale as well as retail customers, so too will the merged company.  3. The longdistance market is currently competitive and will remain so after the merger.  a. Residential and small business market .  GTE proclaims that the retail mass market is not effectively competitive. GTE Comments at 38. GTE concedes that WorldCom does not have an established brand name and does not presently participate in the retail mass market. WorldComs lack of brand recognition in the mass market led to the Commissions finding in Bell AtlanticNYNEX that WorldCom was not among the most significant potential entrants to provide local service in New York City.D<ЍBell Atlantic/NYNEX, at  84.D The facts show that the residential market is fiercely competitive. As previously noted, pricing in this sector is governed by competitive pressures, with prices falling further and faster than access charge reductions.=ЍThe Harris Long Distance Affidavit claims that longdistance revenues per minute have been declining because of a decrease in HHI. Harris Long Distance Aff.  100. However, Harriss chart purporting to prove this proposition (Harris Long Distance Aff. Exh. 27) could just as easily be interpreted to show that revenues per minute have declined as technology has driven costs down. Indeed, Harris admits that [s]upply costs have tended to decrease , primarily through improvements in technology (reducing switching and transmission costs) and through mandated reductions in access charges. Harris Long Distance Aff.  100.  This segment of the market is also subject to pervasive overtheair and print advertising as well as a massive marketing effort by industry participants. In the AT&T NonDominance Proceeding, the Commission found that residential customers are highly demandelastic and will switch to or from AT&T in order to obtain price reductions and desired features.>ЍMotion of AT&T Corp. to be Reclassified as a NonDominant Carrier, Order FCC 95427, 11 FCC Rcd 3271 (rel. Oct. 23, 1995) at  63. The Commission noted the high churn rate among residential consumers approximately 30 million changes are expected in 1995.'?ЍId.' That high churn rate has persisted.f@ЍMCI estimates that in 1996, customers changed carriers 50 million times.f As Dr. Marius Schwartz, Professor of Economics at Georgetown University and the Department of Justices expert in the BellSouth South Carolina Section 271 case, observed in discussing the interexchange retail market, If there is no competition, why do so many customers switch back and forth between carriers each   @- . -@SSecond Joint Reply of WorldCom and MCI Errata PagesSyear?64. 64.1 Affidavit of Marius Schwartz on behalf of the U.S. Department of Justice, Exhibit 1 to Evaluation of the United States Department of Justice, Application of BellSouth Corporation, BellSouth Telecommunications, Inc. and BellSouth Long Distance, Inc., for Provision of InRegion, InterLATA Services in South Carolina, FCC Docket CC 97208, at  94.đ BellSouth postulates that the merger is likely to reduce competition for retail customers, because the merged company might spin off MCIs residential customer base.64.#XN\  PXP# 64.2 Why a spinoff of residential customers should be of concern to a potential competitor such as BellSouth is not clear. BellSouth Comments at 1011. MCI WorldCom has no plans to do this, and it would make no economic sense. As explained in the Joint Reply, one of the principal reasons for the merger is that the combined company will have an enhanced ability to offer consumers a total package of services: local, long distance, wireless, international and Internet. Many residential customers prefer buying all their telecommunications services from a single company and receiving a single bill. MCIs base of millions of residential customers present the merged company with an opportunity to offer these customers a total package, including local and long distance services, as fast as regulatory and economic conditions permit.#XN\  PXP#64.#XN\  PXP# 64.3 The commitment of both companies to the residential market following the merger was affirmed by a letter to Chairman Kennard on January 26, 1998. See Attachment A. In addition, residential customers offer the opportunity of balancing network use. As Tim Price, MCIs President and CEOdesignate of MCI WorldComs U.S. telecommunications business, has explained, you build capacity to handle the needs of your business customers during the work week in the daytime, and you have to start recruiting residential customers who use the network mostly at night and on weekends. Thats the only way you can get efficient use of your capacity.#XN\  PXP#64.#XN\  P XP#X0ÍX0Í#XN\  P XP# 64. J. Van, MCI Deal May Cut Consumer Phone Bills $37 Billion, Chicago Tribune, Nov. 11, 1997. The commitment of MCI WorldCom to serving residential customers was recently confirmed by the announcement on March 3, 1998 of a joint venture between MCI and Telefonica de Espana, SA, to be managed by MCI, to provide customized products, promotions, marketing and customer service programs targeting the US Hispanic consumer and small business markets. The Hispanic market in the US is the fastest growing demographic segment, estimated at over 29 million people and representing approximately 8 percent of the total US long distance market.#XN\  P XP#64.#XN\  P XP#X0ÍX0Í#XN\  P XP# 64. Stephanie N. Mehta, WorldCom Inc. and MCI Set Telefonica Pacts, Wall Street Journal March 10, 1998 at B8. Moreover, if MCI WorldCom were to reverse course from its express intentions, and engage in a course of action detrimental to its business interests by spinning off its residential customers, that transaction could only increase the number of competitors in the market and decrease the HHI for interexchange services. BellSouth maintains that the transaction would be anticompetitive only by assuming that MCI WorldCom would simply stop providing service to residential customers, who would then, BellSouth curiously argues, end up at the other residential long distance providers in proportion to current market shares. BellSouth Petition at 1011. That assumption makes no sense. If MCI WorldCom were to spin off residential customers as a separate business (which would be the only rational way to carry out BellSouths suggestion), the transaction would increase the number of competitors. Competition would decrease only if the spunoff company were then purchased by AT&T an unlikely scenario in any event and a transaction the Commission would have to approve. See Hall Decl.  100, 101.  b.` ` ` Stock market reaction to merger. Finally, GTE seeks to attack the merger based on the oscillations and vagaries of the stock market. But the facts are not consistent with GTEs claim that the stock markets are expecting the merger to be anticompetitive. As Drs. Carlton and Sider demonstrate, AT&Ts stock price fell in the two days following announcement of the proposed merger (which is inconsistent with GTEs claim that the industry expected the merger to protect the existing industry leaders). Second Carlton/Sider Decl.  74. Subsequently, AT&Ts price rose relative to the market, but that followed its announcement of a new CEO and, subsequently, reports of a costcutting program. Id. A recent analysis by Salomon Smith Barney Research (WorldComs investment bankers) recommends purchase of MCI WorldCom stock because the merged company will have a diverse set of strategic assets enabling it to provide a broad range of reliable and highquality service, to avoid access and termination charges, and to achieve SG&A savings which the analyst believes WorldCom may have understated.#XN\  PXP#64.#XN\  PXP#X0ÍX0Í#XN\  PXP# 64. Jack B. Grubman, Salomon Smith Barney, WorldComReinitiating Coverage with 1M & 12 Mo. Price Target of $60. Salomon Smith Barney is basing its buy recommendation on what it calls very hard and identifiable synergies not the monopoly profits that GTE wrongly suggests. % In sum, analysis of the Bell Atlantic/NYNEX and BT/MCI factors confirms the points made in the Joint Reply. The longdistance market is competitive nationwide for both business customers and mass market residential customers. The largest carriers face competition from a rapidly growing segment of other competitors. And several additional nationwide fiber networks, with competitively significant market coverage, will shortly be complete and operational. The market is rapidly becoming much more competitive than it was in 1995 when AT&Ts market share was held by the Commission to be nondominant. In these circumstances, the allegations of an anticompetitive effect in the longdistance market are not a basis for foregoing the substantial benefits that this merger will bring, both in increased efficiency in the longdistance market itself, as well as in creating for the first time a strong competitor ready to pose a serious challenge to GTEs and the Bell Companies present neartotal dominance of local exchange markets.  - @--@#P#  #XN\  PXP# @IV.MERGER WILL HAVE PROCOMPETITIVE EFFECTS AND WILL NOT REDUCE COMPETITION IN ANY INTERNATIONAL END USER OR INPUT MARKET. In the Joint Reply, the Applicants demonstrated that the merger would have procompetitive benefits and would not reduce competition in the relevant U.S. international markets. GTE was the only party in the initial round of comments, filed January 5, 1998, to assert that the merger would have anticompetitive effects in any international telecommunications product market. In its further comments, GTE again was the only party to question MCI/WorldCom's showing with regard to international product markets. Rather than responding to the Applicants evidence, however, GTE simply regurgitates its calculation of HHI indices. This simplistic reliance on HHI indices to attack the proposed merger underscores the weakness of GTE's position. Even GTE concedes that HHI indices are merely guidelines. Further, these indices have never been used by the Commission to form the basis for its competitive analysis of telecommunications mergers. GTE cannot point to any evidence that the merger would have an adverse impact on the competitive provision of international services. GTE refuses to recognize that the provision of such services, which is already highly competitive, will become only more competitive as significant existing and new entrants including foreign carriers benefiting from the Commission's new rules implementing the WTO Agreement accelerate their efforts in this dynamic and growing market. A.The Merger Will Have Significant Procompetitive Effects As the Applicants demonstrated in the Joint Reply, the merger will have significant procompetitive benefits. Through the merger, MCI and WorldCom will combine facilities to create endtoend global networks. With the entry into force of the WTO Agreement in February 1998, carriers worldwide now will seek to satisfy their customers' requirements and reduce their costs by providing endtoend services. A number of foreign carriers already are authorized to provide global facilitiesbased services from the United States, and more are expected. In order to compete effectively in this global market, which includes traffic originating overseas as well as in the United States, MCI and WorldCom must optimize the use of their network facilities. Combining the assets and expertise of the two companies will produce significant cost saving synergies that ultimately will reduce the international rates that U.S. consumers pay, a primary goal of the Commission's Benchmarks Order.AЍInternational Settlement Rates, IB Docket No. 96261, Report and Order, FCC 97280, . 172 (rel. Aug. 18, 1997). For example, WorldCom has constructed significant network facilities in Europe, including metropolitan area networks in London, Paris, Frankfurt, Stockholm, Amsterdam and Brussels, as well as switching facilities in various other European cities. MCI terminates a significant amount of its international traffic in Europe. At present, virtually all of that traffic is terminated at abovecost settlement rates pursuant to traditional correspondent arrangements. As MCI begins to terminate its European traffic via WorldCom's facilities, its termination costs will decrease significantly. Similarly, WorldCom plans to realize significant savings by terminating its traffic over the facilities of MCI's affiliates in Mexico and New Zealand, as regulatory conditions permit. At present, WorldCom sends almost twice as much traffic to Mexico as to any other foreign country. The quality of service and cost savings benefits of providing service on an endtoend basis will also be important in Asia, as WorldCom constructs facilities there, and in Latin America, as MCI's partners build facilities there.The savings to be generated and efficiencies to be gained by directly terminating traffic overseas on the merged carrier's (as opposed to the incumbent carrier's) facilities are similar to the savings and efficiencies to be gained domestically by terminating traffic on the merged carrier's (as opposed to the incumbent local exchange carrier's) facilities. By avoiding settlement costs for overseas termination and access charges for domestic termination, the merged carrier will be able to reduce its costs and lower its rates for international traffic. As a result, the merged carrier will be a more effective competitor.BЍSee Hall Decl.  97; see also discussion of public interest benefits, Section VII, infra.  B. ` ` ` Relevant Product and Geographic Markets 1.The Relevant Product Market is U.S. International Services. In the Joint Reply, the Applicants demonstrated that, for purposes of analyzing this merger, International Message Telephone Service (IMTS) and nonIMTS (primarily international private line services) should not be considered separate end user product markets. GTE is simply wrong in arguing that this approach is inconsistent with Commission precedent. MCI and WorldCom are merely recommending that the Commission define the product market as it did last year in BT/MCI: U.S. outbound international services.<CЍBT/MCI at . 5455. < MCI and WorldCom submit that the Commission's 13 yearold International Competitive Carrier decision,DЍSee International Competitive Carriers Policies, Report and Order, 102 F.C.C.2d 812, 82124 (1985), recon. denied, 60 Rad. Reg. (P&F 2d) 1435 (1986), modified 7 FCC Rcd 577 (1992). finding IMTS and nonIMTS services to constitute separate products, has been superseded by technological, marketplace, and regulatory developments that largely blur the functionality of switched voice and private line offerings. GTE's contentions that IMTS and private line services "are not substitutable, have distinct characteristics, and are designed to meet different customer needs" are simply no longer valid. GTE Comments at 46. As the Applicants previously noted and the Commission is well aware, private lines routinely are used to provide switched voice (and fax) services by means of international simple resale ("ISR"), "switched hubbing," and "leaky PBXs." Moreover, large customers routinely use international virtual private networks, by which traffic is routed via the public switched network, in place of international private lines. In the next six to twelve months, this convergence will accelerate as the Commission approves the provision of ISR to many new, high volume destinations. Further, GTE is not correct that the convergence of IMTS and international private lines is only relevant as a product input, but not as an end user output. Although the ultimate end user may seek IMTS services, if the underlying or resale carrier is providing switched voice service via private lines, the end user is, in fact, purchasing (perhaps unknowingly) a fully substitutable international private line service. The same is true when a customer connects a private line through a PBX to the public switched network (i.e., a "leaky PBX"). Moreover, with the advent of "switched hubbing," an international private line circuit between the United States and a foreign country has the capability of providing the same "anytoany" service to third countries that GTE mistakenly attributes exclusively to traditional IMTS services. Even if IMTS and international private line service offerings to end users were to be considered separate markets, the Applicants have previously demonstrated, and demonstrate here again, that the merger would not create market power or present any anticompetitive concerns with respect to the provision of either service offering.YEЍGTE attempts to make an issue of the fact that, for nine routes, MCI and WorldCom would have 100 percent of the international private line revenues. GTE fails to mention, however, that it is not unusual for all of the international private line revenues on low traffic routes to go to a single carrier. Currently, on at least 38 such routes, a single carrier receives 100 percent of the private line revenue. See Federal Communications Commission, 1996 Section 43.61 International Telecommunications Data Report at Table F (Feb. 1998). The combined international private line service revenues on the routes GTE cites represent a tiny fraction 0.40 percent ($2.7 million) of the total U.S. international private line revenues for 1996 ($660.7 million). See id. at Tables B21 & B36. The average number of 64 kbps circuits provided on each of these low volume, low revenue routes is less than seven. Clearly, these routes are de minimis. Further, in no case would the merged carrier be the only carrier serving the route or the only choice for potential customers. On the nine routes where MCI and WorldCom had 100 percent of the 1996 international private line revenues, such revenue was less than three percent of the IMTS revenue on such routes. See id. at Tables A1, B21 & B36. Y Based on 1996 data, the merged entity would have a 27 percent share of IMTS revenue, a 44 percent share of international private line revenue, and a 28 percent share of combined IMTS and international private line revenue.FЍId. As a total percentage of all international revenues, private line services account for only 4.4 percent. See id. at Figure 7. These market shares are far less than the market shares AT&T possessed when the Commission declared it nondominant for the provision of IMTS.GЍSee In the Matter of Motion of AT&T Corp. to be Declared NonDominant for International Service, Order, 11 FCC Rcd 17963, 17975, at  33 (rel. May 14, 1996) ("AT&T International NonDominance Order").  2. There is No Reason to Analyze Each Country Route Separately In This Proceeding. In its comments, GTE objects to the Applicants assertion that the Commission should analyze the competitive effects of the merger on a worldwide, rather than routebyroute, basis. Contrary to GTE's protestations, this approach is fully consistent with Commission precedent and makes sense in this case. In the AT&T International NonDominance Order, the Commission took a similar approach. In that proceeding, the Commission found that, with the exception of routes where AT&T was the sole facilitiesbased provider, AT&T's market position did not vary substantially from one geographic market to the next. Thus, in examining whether AT&T was dominant in the U.S. international services market, the Commission used AT&T's market position on a worldwide basis as a surrogate for a routeby route analysis of AT&T's market position for each of more than two hundred international locations.oHЍSee AT&T International Nondominance Order, 11 FCC Rcd at 17976 ( 35). o In the BA/NYNEX Order, the Commission stated that it would treat as a single relevant geographic market, "an area in which all customers in that area will likely face the same competitive alternatives for a [relevant] product."IЍMemorandum Opinion and Order, FCC 97286, 9 Comm. Reg. ( P&F) 187, at  54 (rel. Aug. 14, 1997) ( Bell Atlantic/NYNEX Order). Although the Commission generally has considered each international route between the United States and a foreign country to be a separate geographic market, for purposes of this merger, which involves two U.S. international carriers, all U.S. international routes are relevant. The merged carrier's competitive position will not vary substantially by geographic market. As MCI/WorldCom noted in its initial Joint Reply, the merged carrier will not have corporation affiliation with or ownership of any dominant foreign carrier,JЍWorldCom and MCI, however, have recently announced a multifaceted joint venture with Telefonica de Espana. See Telefonica Partners with WorldCom and MCI, PR Newswire, Mar. 9, 1998. nor will it be the exclusive U.S. facilitiesbased provider on any international route. Moreover, international telecommunication customers increasingly enjoy similar competitive choices on different routes. Thus, it is unnecessary for the Commission to examine separately each of several hundred geographic markets. In addition, a routebyroute analysis is wholly inconsistent with the rapid changes in traffic routing which have occurred in the past few years, and which will accelerate substantially in the next few years as a result of marketplace, regulatory, and technological changes. Many carriers now route substantial amounts of international traffic via one or more intermediary countries. Such thirdcountry routing makes routebyroute market shares far less meaningful. The reality is that the geographic market for the provision of international telecommunications service is global and, furthermore, that such services originate outside the United States, typically by incumbent national carriers, as well as inside the United States. U.S. carriers compete with each other and with foreign carriers for all such traffic. C.` ` ` Actual, Potential, and Precluded Competitors GTE claims that MCI/WorldCom have overstated the list of most significant competitors in the U.S. international market. GTEs concerns are groundless. MCI/WorldCom's statements are fully supported by the Commission's findings in BT/MCI and by recent regulatory and market developments. In BT/MCI, the Commission identified actual and precluded competitors in each relevant international end user and input market.6KЍSee BT/MCI at 65.6 The Commission's findings should be similar, if not the same, in this proceeding. In addition, in recent months, a number of foreign carriers with significant capabilities and incentives have become actual competitors in the U.S. international market and more are expected. In examining the market for mass market customers making U.S.U.K. outbound international calls, the Commission in BT/MCI found that AT&T, MCI, Sprint, and GTE are actual competitors and among the most significant market participants.ALЍSee BT/MCI at  6978.A The BOCs were found to be precluded competitors, but potentially among the most significant market participants for inregion international services.?MЍSee id. at  7677.? These findings were based on these carriers' extensive facilities, operational infrastructure, brand name recognition and reputation, and existing customer base. These findings apply equally in the broader worldwide U.S. international service market at issue in this proceeding. With respect to the provision of U.S.U.K. outbound international calls to large and mediumsized businesses, the Commission found that AT&T, MCI, Sprint, and GTE (among actual competitors), and the BOCs (among precluded competitors) are the most significant participants.?NЍSee id. at  6978.? The Commission found that BT, WorldCom, Cable & Wireless (C&W), ACC, Frontier, Esprit, other interexchange carriers and various CAPs are among a large number of competitors that have, or potentially have, significant capabilities and incentives.?OЍSee id. at  6979.? As the Commission recognized in the case of BT on the U.S.U.K. route, the fullfledged entry of foreign carriers, made possible by the Commission's rules implementing the WTO Agreement,PЍSee generally Rules and Policies on Foreign Participation in the U.S. Telecommunications Market, Report and Order on Reconsideration, IB Docket No. 97142, FCC 97398 (rel. Nov. 26, 1997) ( Foreign Carrier Participation Order). will make this market segment even more competitive. These foreign carriers already own the requisite international facilities, and have substantial expertise and financial resources.QЍSee BT/MCI Order at . 73 ("BT has developed relevant network operating capabilities as a consequence of providing service on the U.K.U.S. outbound route. With respect to the large international business market, BT also has some brand name recognition and reputation, #XN\  PXP# as well as a small number of existing customer relationships, in the United States.").  At least two of these foreign carriers, Teleglobe and C&W, had already developed substantial customer bases prior to receiving authorization to provide U.S. international facilitiesbased services to their affiliated markets. In addition, Qwest/LCI are developing the networks and customer bases to become significant participants.RЍQwest Communications International, Inc. and LCI International Inc. have agreed to a merger that will create the fourth largest long distance carrier and a formidable competitor in the U.S. international services market. Stephanie Mehta, "Qwest is Acquiring LCI for $4.43 Billion, Creating No. 4 LongDistance Provider," Wall Street Journal, March 13, 1998.  With respect to the international transport market, AT&T, MCI, Sprint, WorldCom, BT, C&W, Teleglobe, KPN (PTT Telecom Netherlands), Swisscom, KDD, and Telstra are among the large number of actual competitors. All of these carriers are not just authorized as international carriers, but are actually competing in the market. Other foreign carriers, including Deutsche Telekom ("DT") and France Telecom ("FT"), are likely to seek to enter the U.S. market themselves or through Global One, their joint venture with Sprint. Each of these actual and potential competitors owns at least one whole STM1 of transoceanic capacity. Pursuant to the Commission's new foreign carrier participation rules, other foreign carriers not already authorized to provide international facilitiesbased services to all points, including their affiliated markets, likely will soon be so authorized. In addition, with the availability of new high capacity submarine cable systems, other new carriers are likely to become actual participants. D.` ` ` There are Low Barriers, If Any, to Entry and Expansion in the Relevant Markets. As MCI/WorldCom indicated in its initial Joint Reply, there are no material barriers to entering and competing in the international services market. Not surprisingly, GTE does not even attempt to refute MCI/WorldCom's showing about the ease of entry. There are hundreds of competitors, including GTE and many foreign carriers, in the market. New entrants need not incur significant sunkcost investments, and regulatory barriers to entry by foreignaffiliated carriers have largely been eliminated. The Commission's new rules on foreign carrier participation now make it much easier for foreign carriers from WTO member countries to enter the U.S. market.XSЍSee generally, Foreign Carrier Participation Order.X Likewise, barriers to owning international transport facilities between the United States and foreign markets have all but disappeared. Regulatory and commercial barriers to obtaining capacity on an ownership basis in existing submarine cables, or to constructing and operating new cables, are low.TЍIn addition, carriers can engage in commercial deals to gain capacity. For example, Teleglobe recently agreed to swap some of its transatlantic capacity with Qwest for capacity on Qwest's U.S. domestic network. See News Release, "Qwest Extends Network To The United Kingdom Exchange of Bandwidth Assets Allows Delivery of Data and Voice Communications Services in Europe," January 12, 1998 (available at < http://www.qwest.com/press/11298.html>).  In most of Europe, as well as in Japan, Australia, and New Zealand, submarine cable systems may be 100 percent foreignowned.UЍMost other WTO member countries have made commitments to allow partial or full foreign ownership of cable systems. Moreover, the unit cost of new construction has decreased dramatically. As the Commission recognized in BT/MCI, "the recent reduction in regulatory barriers to entry, combined with a decrease in the cost of constructing new transoceanic cables, should lead to more rapid construction of cable capacity. . . .":VЍBT/MCI, at  140.: E.` ` ` The merger will not have anticompetitive effects in any of the relevant markets. As demonstrated in the Applicants Joint Reply, the merger will not have anticompetitive effects in any of the relevant markets. As an initial matter, MCI/WorldCom do not believe the markets need to be analyzed in terms of different customer groups because there is no credible evidence that there is or could be a lack of competitive performance with respect to any particular group of customers.RWЍLEC Inregion Interexchange Order, at  40.R Even if the merger is analyzed in terms of different customer groups, it is clear that the merger will not adversely affect any group of customers. GTE makes the unsubstantiated claim that the proposed merger will "affect small businesses and residential customers by diminishing competition in the provision of IMTS services, which could lead to higher prices."2XЍGTE Comments at 50.2 Contrary to GTE's claim, the elimination of WorldCom as a separate competitor in the provision of U.S. international services to mass market (i.e., residential and small business) customers will not have any adverse effects on competition. WorldCom lacks the brand name recognition and customer base that the most significant actual and precluded participants, including AT&T, MCI, Sprint, GTE, and the BOCs, possess. Thus, WorldCom's merger with MCI will have little competitive impact in the provision of international services to mass market customers. Nor will WorldCom's withdrawal as a separate competitor in the provision of U.S. international services to large and mediumsized business customers have any adverse effects on competition. As MCI/WorldCom explained above, there are a number of other carriers, including actual competitors AT&T, MCI, Sprint, and GTE, and precluded competitors such as the BOCs, that are at least as significant participants as WorldCom is in this market segment. These carriers all have extensive facilities, brand name recognition and reputation, and established customer bases. In addition, carriers such as Qwest/LCI, Teleglobe, C&W, and BT also have the capabilities and incentives including expanding facilities and growing customer bases to be significant participants. Likewise, previously precluded foreign carriers also have the capabilities and incentives to become significant competitors, particularly in serving their affiliated markets. GTE also has claimed, but offered no credible evidence, that the proposed merger will have adverse effects on large businesses and resellers through increased concentration in the provision of private line services. MCI/WorldCom have already demonstrated that the private line services shall not be considered separately from IMTS services, but that, in any cases, the merger will not have an adverse effect on the provision of international private lines.?YЍSee pp. 5153, supra.? Moreover, large businesses and resellers are highly sophisticated buyers that will seek the best deal from alternative providers. In addition, since the terms of each deal are private, there is no opportunity for "price signalling" among carriers.DZЍBell Atlantic/NYNEX, at  53.D Finally, the elimination of WorldCom as a separate competitor in the market for U.S. international transport will not have any adverse effects on competition. AT&T, MCI, BT, Sprint, C&W, and Teleglobe are at least as significant participants as WorldCom is in this market. In addition, GTE and Qwest/LCI also have the capabilities and incentives to be significant participants. Likewise, previously precluded foreign carriers such as DT, FT, and KDD own whole circuit facilities that would enable them to become significant competitors in this market segment. Moreover, given the ease of entry, new carriers and noncarriers can construct and operate cable systems. GTE is flatly wrong in arguing that new undersea cables planned in the near future will be owned substantially by existing carriers, which might discriminate against new carriers that would use the capacity to compete with them. GTE fails to recognize the growing diversity of international transport ownership. MCI/WorldCom already addressed this issue extensively in their initial Joint Reply. In the transatlantic region, MCI/WorldCom would own only 16.6 percent of the total cable capacity, and only 22.6 percent of the "western end" of transatlantic capacity. In addition, the Atlantic Crossing cable system ("AC1") is expected to begin service in May 1998. This system, which will add 128 STM1s of capacity, will more than double the transatlantic capacity available at the end of 1997.9[ЍEach STM1 equals 63 E1s.9 In addition, GTE completely misrepresents MCI/WorldCom's questioning of the use of TAT12/13 as a proxy for all transatlantic cable capacity. MCI/WorldCom objected to GTE's use of TAT12/13 as a proxy for all transatlantic capacity in this proceeding because TAT12/13 is no longer representative of transatlantic capacity. It was appropriate for the Commission to use TAT12/13 as a proxy for all existing transatlantic capacity at the time of BT/MCI decision in September 1997.8\ЍBT/MCI,  at 97.8 However, the Commission acknowledged in that decision that new capacity would be available in the future. Indeed, conditions have changed over the last six months; new cable facilities are now a reality. Gemini is now operational, and AC1 is expected to be operational by May 1998. These systems increase by many times the available capacity to all carriers, including new or emerging carriers. GTE would have the Commission ignore these important new developments. Moreover, even if ownership in TAT12/13 is examined alone, there is no reason to believe that MCI/WorldCom's ownership of 27.9 percent of U.S.end capacity would create or facilitate the exercise of market power.]ЍAT&T owned 43.2 percent of the U.S. end of total international submarine capacity when it was declared nondominant for the provision of IMTS. See AT&T International NonDominance Order, 11 FCC Rcd at 17982 ( 53 n.98).  Fully 72.1 percent of the U.S.end of TAT12/13 is owned by other carriers. These include AT&T, Sprint, BT, C&W, DT, KDD, KPN, Tele2, and Telia, each of which owns at least one whole STM1. All of these carriers are authorized to provide facilitiesbased U.S. international services. In the Pacific region, TPC5 is the most recently deployed common carrier cable. The merged entity would own approximately 14 percent of the capacity on this system. A number of other U.S. and foreign carriers, including AT&T, Sprint, and KDD, own significant capacity in this cable. In addition, a number of new cable systems are planned. For example, fourteen U.S. and foreign carriers have applied to the Commission for a cable landing license for a highcapacity cable system linking the United States, Japan, China, and Taiwan. NTT and several other carriers also are planning a cable system that will link the United States and Japan. WorldCom recently received a cable landing license for the Southern Cross cable system, which will link the United States, Australia, and New Zealand. Each of these facilities is planned to be operational within the next two years.  F.Conclusion  In summary, MCI and WorldCom have clearly demonstrated in this proceeding that the proposed merger will have significant procompetitive benefits and will not reduce competition in any relevant international product market. GTE has not presented any credible evidence to undermine this showing. V.  THE MERGER WILL NOT REDUCE COMPETITION IN THE PROVISION OF INTERNET SERVICES  Out of more than four thousand domestic Internet service providers ( ISPs), only three have opposed the merger. Two large backbone competitors of WorldCom and MCI, GTE and Sprint, and one smaller provider, Simply Internet, contend that the proposed merger would give MCI WorldCom the power to overcharge and otherwise mistreat ISPs seeking connectivity to ISP and nonISP customers served by MCI WorldCom. Notably, none of the other potential victims of this alleged dominance apparently shares this concern. GTE and Sprint, of course, are major Internet providers with the least to fear from any hypothetical dominant firm, and GTE is also a disappointed bidder for MCI.^ЍAccording to GTEs figures, a merger of GTE and MCI would have combined the largest and fifth largest ISPs (MCI and itself) to form an ISP more than 50 percent larger than the next largest ISP, and the merger would have produced an increase in the HHI of over 200 points, more than sufficient to raise an issue under the Merger Guidelines. See Harris Internet Aff. 52, 58. GTE nevertheless viewed that merger with considerable enthusiasm. Two BOCs, Bell Atlantic and BellSouth, also recycled arguments made in previous rounds, primarily to advance their agenda under 271 and 706. A straightforward application of the standards articulated by the Commission in the Bell AtlanticNYNEX Order demonstrates that these competitors arguments are meritless. The Internet is characterized by vigorous competition, easy entry, and open architecture all of which combine to produce dramatic growth. As a result, any attempt by any one ISP to try to raise prices to other ISPs or retail customers above the competitive level or to degrade the quality of service to any of them would only cause other participants in the Internet to avoid that ISP. Such an attempt would backfire, leaving the ISP with fewer customers and a significantly reduced market share. That explains why the head of GTEs Internet group responded as follows when asked, after WorldCom announced its bid for MCI but before GTE made its bid, whether a WorldComMCI combination would put so much power in a single company that it could restrain competition: I am not worried. There are still many other backbone providers and the combination of any two does not pose any real problem._ЍInterview of John Curran, Chief Technical Officer of GTE Internetworking, on Oct. 6, 1997 (available at< http://www.essential.org/listproc>). Opponents of the merger generally claim to honor the express statutory policy to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation. 47 U.S.C.  230(b)(2) (emphasis added). See, e.g., Sprint Comments at iii, 5. But restricting economic arrangements between MCI and WorldCom, including imposing Internetrelated conditions on MCI WorldCom that do not apply to its competitors, would fetter unregulated market forces that have driven the Internets extraordinary growth. The statutory policy expressed in  230(b)(2) does not permit any presumption against mergers of Internet providers. Under the Bell AtlanticNYNEX standard, carriers that provide regulated telecommunications services may not merge unless they show that the merger would promote the public interest. But for the Internet, the presumption should be that the government should not block or condition a merger unless the record supports a finding that the merger harms the public interest. The burden should be on opponents of the merger to show affirmatively that it would harm competition. Indeed, the Commission should not intervene without compelling evidence of imminent failure in the market that includes Internet service, and the record could not conceivably support such a finding. See Joint Reply at 68. A. ` ` ` The relevant product and geographic markets As explained in the preceding sections, the first step in the competitive analysis is to determine the relevant product and geographic markets.  1.  Product markets The Commission has not defined relevant product markets for Internet services in any prior proceeding. A wide variety of services are offered over the Internet. From the demandside perspective, many capabilities provided by the Internet are provided by other services as well. Some services that can be provided over the Internet, such as intranets, electronic mail and Internet telephony,`ЍInternet telephony services permit realtime voice conversations over the Internet. These services convert voice into data packets, which are then sent over the Internet, and converted back into voice at the receiving end. fall into familiar categories with obvious nonInternetbased substitutes. Any attempt by a hypothetical monopolist to raise the price of these services would only cause potential customers to purchase substitutable services. Other services, such as Internet chat rooms, Website visitation, and Internet video and radio, face competition from nonInternet alternatives that may not be as close substitutes.aЍInternet chat room service allows multiple Internet users to engage in a realtime conversation by sending and receiving typed messages as they are typed at a computer. Internet video and radio may blur the distinction between telecommunications and broadcast. A continuous, live, generally available music broadcast over the Internet may become indistinguishable from a traditional radio broadcast. Current technological limitations means that continuous video streams over the Internet are relatively low quality, and easily distinguishable from traditional radio and television images. However, [a]s compressing technology develops and enduser access speeds increase, Internet video applications will provide service that increasing resembles the quality of television broadcast stations. Kevin Werbach, Digital Tornado: The Internet and Telecommunications Policy, OPP Working Paper 29, March 1997, at 42 ( Digital Tornado). Such services may provide some of the capabilities that these Internet services offer, but not the global reach on a scale offered by the Internet.The Commission has defined a relevant product market to encompass a group of similar services where each service is a good substitute for another, but where, for the group as a whole, there are no other close substitutes in demand.bЍLEC InRegion Interexchange Order, 12 FCC Rcd. at 16751, 15777, 15782, 5, 31, and 40. Purchasers of Internet access generally obtain access to all services provided over the Internet for a flat monthly cost (whether for dialup or dedicated service). As a result, an ISP generally cannot raise the price of access to Internet services for which less close substitutes exist without simultaneously raising the price of access to Internet services for which close substitutes do exist. The parties are not aware of any empirical analysis that determines whether any Internet services, individually or collectively, are sufficiently different from nonInternet services that the latter do not effectively constrain the pricing of the former. Some opponents of the merger argue that the relevant market consists of Internet backbone services. E.g., Sprint Comments, at 8. However, as WorldCom and MCI previously demonstrated, there is no generally accepted definition of Internet backbone, and the difference between an ISP backbone provider and other ISPs is at best one of degree. Joint Reply at 69 and n.111. Sprint unintentionally confirms this point when it tries to draw a distinction between two tiers of Internet backbone providerswithout explaining where the line is drawn, for example, in terms of the extent to which the core backbone provider owns or leases transmission capacity or the number of NAPs to which a core backbone provider must interconnect. Id., at 78. Sprint acknowledges that ISPs vary widely in size, scope, customer base, web sites, connected [to] their networks, [and] the services they can offer other ISPs. Id. at 7. Internet access services sold to ISPs are no different from Internet access services sold to retail consumers, so the former are part of the same market as the latter. ISPs use the same facilities to provide the same dialup and dedicated Internet access to other ISPs that they provide to retail customers. ISP customers buy the same access services, provided over identical facilities, as retail customers. The Bell AtlanticNYNEX test is whether, in event of a price rise, customers would be able to switch to a substitute service offered at a lower price.EcЍBell AtlanticNYNEX Order 50.E Any attempt to raise the price of access service to wholesale customers would simply cause wholesale customers to buy the (equivalent) services offered to retail customers. Moreover, ISPs may not even be able to identify whether a customer is a wholesale or a retail customer. In any event, treating Internet access services sold to ISP and to nonISP customers as separate markets would not affect the competitive analysis because any ISP that provides access to one type of customer can provide access to the other. For the same reasons, there is no input market for Internet access separate from any enduser market for Internet access. In defining relevant markets, the Commission may distinguish between enduser or final product markets, where the product or service is sold to enduser customers, and input markets, where the product or service is sold to firms which use it as an input to supply other products or services. See supra pages 4963. In the BTMCI Order, the Commission highlighted two reasons why consideration of input markets is particularly important when evaluating the impact of a merger where one or both of the parties provides both a service and a necessary input for that service. First, if the merged entity obtains or increases market power over an input, it could raise the price of that input to unaffiliated providers of the service, which could ultimately injure endusers to the extent that suppliers of the final product pass the higher input price on to endusers in the form of a higher final product price.CdЍSee BTMCI ,at  37, 58.C Second, if the merged entity obtains or retains market power over an essential input while simultaneously competing downstream in the enduser market, the merged entity conceivably could injure competition by discriminating against unaffiliated producers of the enduser service.7eЍSee id. at  58.7 As explained above, ISPs buy the same access services bought by retail customers of Internet services, and any ISP can become a provider of Internet access to other ISPs. Furthermore, interconnection obtained through peering arrangements does not constitute a market separate from interconnection obtained through other access arrangements. Peering is a technical arrangement by which two ISPs exchange traffic and compensate each other by terminating each others traffic without any money changing hands a kind of barter arrangement. Joint Reply at 82. Although peering does not include a transit function, a peering arrangement gives an ISP the same access to customers of its peers that it would obtain as their customer, id., An ISP that was a customer of another ISP may become a peer of that ISP, and a peer may choose to become a customer instead. Moreover, ISPs may have peering and customer relationships with multiple ISPs. As a result, peering and customer relationships among ISPs have a substantial degree of substitutability. In defining relevant markets, the Commission considers whether service to different types of customers belong in different markets for example, residential and small business, mediumsized business, and large business and government.hfЍBell AtlanticNYNEX,  53 (discussing the local exchange market).h For Internet services, there is no basis to treat different types of retail customers as separate markets. A breakdown of services by customer type is appropriate only where there is credible evidence suggesting that there is or could be lack of competitive performance with respect to some segments of the broader market.OgЍLEC InRegion Interexchange Order,  40.O  No such evidence exists with respect to different categories of retail customers of Internet access services. Indeed, all types of customers buy the same dialup and dedicated services. Moreover, many residential as well as business customers are extremely sophisticated users of Internet services, and considerable information exists about the relative quality and cost of Internet services.4hЍThe merger will not affect competition to provide Internet services to residential customers in this respect because WorldCom has only limited brand name recognition. Moreover, only a small percentage of residential customers buy Internet access directly from WorldCom and MCI.4 All segments contain substantial numbers of customers that shop around for the best available deal from alternative sellers. Moreover, as discussed below, supplyside substitutability blurs any distinctions between types of customers and eliminates any possibility that an ISP could exercise monopoly power with respect to some but not all segments. ISPs that currently market only to retail customers can easily market to ISPs, which buy the same service purchased by retail customers. Similarly, business customers buy both dialup and dedicated access services, and an ISP that offers these services to business customers can also offer them to residential customers. Finally, the provision of interconnection through Network Access Points ( NAPs) does not constitute a separate market. NAP providers provide a mechanism for multiple ISPs to exchange traffic with each other. Especially for ISPs that exchange small volumes of traffic, interconnection through a NAP may be costeffective. However, ISPs also can and do establish direct connections to exchange traffic, and the percentage of traffic exchanged through NAPs has declined as ISPs have increasingly exchanged traffic through direct connections. As the volume of Internet traffic continues to grow rapidly, more and more ISPs are likely to exchange a sufficient volume of traffic to justify direct connections as a substitute for connection through NAPs.  2. The relevant geographic market The relevant market for Internet services is national in geographic scope. Where the competitive conditions for a particular service in any pointtopoint market are sufficiently representative of the competitive conditions for that service in all other domestic pointtopoint markets, then we will examine aggregate data, rather than data particular to each domestic pointtopoint market.QiЍLEC InRegion Interexchange Order at 66.Q A national approach should be used unless there is credible evidence that there is or could be a lack of competitive performance in any pointtopoint market.'jЍId.' Here, no credible evidence justifies breaking any Internet market into geographic submarkets, nor would such an approach make any practical difference in analysis of this merger. The Internet is simultaneously local, national, and global, and is almost infinitely plastic in terms of the services it can support.LkЍWerbach, Digital Tornado at 26.L Internet services are provisioned, marketed, priced, sold, and advertised on this basis. No geographic barriers to entry or expansion prevent an ISP that serves customers in one geographic area from serving customers in other areas. It is presumably for these reasons that GTE assumes that the geographic market for backbone services is national[.] GTE Comments at 71.  B. ` ` ` Market participants The second step in the Commissions competitive analysis is to identify current and potential participants in the relevant market, especially those that are likely to have a significant competitive effect.7lЍBTMCI, at 36.7 Virtually every domestic and foreign communications company in the world is participating, or is preparing to participate, in the unprecedented explosion of Internetbased services. See Joint Reply at 74. New ISPs are created on a regular basis to take advantage of the opportunities offered by the emergence of new Internet applications and capabilities. More specifically, numerous ISPs operate backbone networks, and the number is growing as Internet traffic increases. Current and future providers of Internet services include companies offering only these services, interexchange carriers, cable companies, satellite companies, the BOCs, and utilities. As the Commission knows, the BOCs are currently precluded competitors with respect to the provision of Internet backbone services on an interLATA basis within their regions, and they are seeking inregion interLATA authority both under 271 and under 706 of the 1996 Act.  C. ` ` ` The effect of the merger on competition In the Bell AtlanticNYNEX Order, the Commission concluded that the most significant issue in a merger case is the extent to which the merger is likely to affect future market structure, conduct and performance.DmЍBell Atlantic/NYNEX, at  98.D Here, the merger will not and could not retard the relentless competitive forces driving exponential growth and continued innovation in Internet services. It may be useful to summarize at the outset the principles that are not disputed by the petitioners: oUniversal connectivity is an absolute requirement for all ISPs, large as well as small. If an ISP cannot offer its customers connectivity to all of the thousands of networks that make up the Internet, it is not an ISP. Even in GTEs view of the world, MCI WorldCom will be sending as much traffic to other ISPs as those ISPs will be sending to MCI WorldCom. Thus, no critic of the merger claims that MCI WorldCom would refuse to interconnect with any ISP which would completely strip MCI WorldCom of the global connectivity its customers demand. oMerger or no merger, ISPs will continue to use compatible systems based on a common communications protocol, TCP/IP ( Transmission Control Protocol/Internet Protocol), to achieve universal connectivity. Firms like AT&T, America Online, and CompuServe that previously used closed systems have migrated to the Internet. No critic of the merger claims that MCI WorldCom would move to a closed system. oCompetition among ISPs is currently vigorous. Simply Internet agrees that [t]he level of competition among [ISPs] ... is intense. Simply Internet Comments, at ii. No critic contends that the current price of Internet access, whether offered to ISPs or end users, is not competitive. See Joint Reply at 74.oPeering makes sense only when ISPs exchange roughly comparable amounts of traffic and have added approximately the same amount of incremental capacity to their networks as a result of the peering arrangement. As GTE states, [t]hese arrangements may be viewed as paymentsinkind. Harris Internet Aff. at 7 18; Sprint Comments, at 7 (peering is essential a billandkeep system). If one peer does not provide equivalent value, the payment is unequal and inefficient freeriding occurs. Sprint Comments, at 8 ( Because [ISPs that have invested in backbones] offer services to [ISPs that have not invested in backbones] that are costly to provide, the [latter] must pay for interconnection to the [formers] networks.). In particular, no critic of the merger claims that any of the requirements in WorldComs or MCIs current peering policy is unreasonable or inconsistent with the basic nature of a peering relationship or significantly different from the peering policies of GTE and Sprint. At the request of Commission staff, WorldCom and MCI are attaching the peering policies that are presently in place; of course, these peering policies have evolved as the Internet has evolved, and they will continue to change as the market continues to change and as other ISPs continue to change their peering policies. oThe cost of constructing a backbone network does not create a significant barrier to entry. See Harris Internet Aff. at 23 62. According to Sprint, Internet backbone facilities are basic, garden variety transmission facilities indistinguishable from those used to carry traffic on the PSTN, Sprint Comments, at ii, and transmission capacity is available on a competitive basis from a wide and growing variety of interexchange carriers, including Sprint and GTE. Moreover, many ISPs have purchased routers and other equipment from manufacturers, and no manufacturer is affiliated with WorldCom or MCI. See Joint Reply at 6970, 7173. Even if constructing a national backbone network may end up costing hundreds of millions of dollars (Sprint Comments, at 17), that is an investment that several ISPs (including Sprint and GTE) have made, and new entrants like Level 3 are continuing to make, to compete in a market that had about $5 billion in revenues in 1997 and is growing exponentially. See Joint Reply at 76 & nn. 12324. A barrier to entry is properly defined as a cost that new entrants incur that prior entrants did not incur, Second Carlton/Sider Decl., at 10, and new providers of backbone services need not spend more than current providers, and may indeed spend less because the cost of switching equipment and transmission capacity is declining. Joint Reply at 3436, 7273. oThe merger would not increase concentration among owners or operators of NAPs since MCI does not own or operate any NAPs. No critic of the merger contends that WorldCom has discriminated against unaffiliated ISPs in its administration of the MAEs. The premise of GTEs and other opponents opposition to the merger as it relates to the Internet is that MCI WorldCom will control roughly 50 percent of Internet traffic because half of the traffic originates and terminates to retail and ISP customers of MCI WorldCom that can be reached only over MCI WorldComs backbone network. The conclusion that these petitioners would derive from this premise is that MCI WorldCom would have market power that it would exercise in two principal ways: (1) MCI WorldCom would overcharge for interconnection to its network, by forcing ISPs to become paying customers when they ought to be allowed to peer with MCI WorldCom, and by charging inflated prices to wholesale, and presumably, retail customers; and (2) MCI WorldCom would serially degrade the quality of interconnection provided to ISPs so that their customers would switch to MCI WorldCom to escape the consequences of these predatory tactics. Neither the premise, nor the conclusions, are valid.nЍThe Commission considers whether a proposed merger would increase the likelihood of coordinated action in any relevant market. Department of Justice and Federal Commission 1992 Horizontal Merger Guidelines, 57 Fed. Reg. 45552, 4555950 2.0, 2.1 (Sept. 10, 1992) ( Merger Guidelines). No petitioner has suggested that the merger of WorldCom will have any such effect in any Internetrelated market, and it would not. Analysis of the prospects for coordinated behavior would typically consider the availability of excess capacity, market growth, and barriers to entry. Application of Motorola, Inc., Transferor, and American Mobile Satellite Corporation, Transferee, For Consent to Transfer Control of Ardis Company, Memorandum Opinion and Order, 64, CWD No. 983, DA 98514 (rel. March 16, 1998, Wireless Telecommunications Bureau). Here, entry is easy, new entrants are rapidly increasing capacity, and the market is rapidly expanding. Furthermore, Internet services are unregulated and sold on terms and conditions that need not be publicly filed or disclosed to sophisticated customers that can and do play potential suppliers off against each other. First, MCI WorldComs market share would be approximately 20 percent, not 50 percent or anywhere close to 50 percent. Nothing in the latest round of comments rebuts WorldCom and MCIs showing that revenues provide the best, and best available, measure of market share and market significance, and based on revenues, the merged companys market share would be approximately 20 percent.oЍThe Merger Guidelines describe general principles for selection of the best indicator of firms future competitive significance,  Merger Guidelines, 57 Fed. Reg. at 41552 1.41, but their application to the Internet is unclear. For example, the Guidelines provide: Dollar sales ... generally will be used if firms are distinguished primarily by differentiation of their products. Unit sales generally will be used if firms are distinguished primarily on the basis of their relative advantages in serving different buyers or groups of buyers. Physical capacity or reserves generally will be used if it is these measures that most effectively distinguish firms. Id.    Joint Reply at 7677. GTE acknowledges that revenues are a typical approach to measurement of market share, but it contends that revenue is not appropriate here because ISPs that provide retail services also provide backbone services. Harris Internet Aff. at 15 43. However, this criticism rests on the fallacious premise that Internet access and connectivity provided to retail customers is in a different market than exactly the same service and functionality provided to ISPs. The revenue collected from both retail and ISP customers for Internet access (whether dedicated or dialup) covers the cost of the underlying Internet backbone used to provide service to all types of customers. GTE also claims that revenues understate the amount of backbone service provided because some ISPs get discounts based on term and volume. Harris Internet Aff., at 15, 43. But ISPs offer discounts (to retail as well as ISP customers on the same basis), and must offer discounts to remain competitive, so this factor in general affects the share of all ISPs equally. That is why revenue is a standard measure of market share even though it is true in virtually all markets that some customers qualify for discounts. Although revenue does not directly reflect traffic exchanged among peers that are compensated in kind rather than in cash, the large percentage of all Internet traffic for which the several dozen ISPs that engage in peering likely account means that adjusting for this factor would not significantly affect relative market shares or the overall HHI, and revenues received that backbone providers receive from ISP and nonISP customers cover the investment associated with the traffic exchanged through peering arrangements. GTEs final criticism of a revenuebased measurement is that WorldCom and MCI calculated their share of the market for Internet access services based on revenues that included other services. Harris Internet Aff., at 1516 4546. WorldCom and MCI did not include revenues from services other than Internet access services in the numerator, which include their own revenues. The Frost & Sullivan study on which we relied to estimate the total size of the Internet market (Joint Reply, at 76 n.124) excludes revenues from advertising and hostbased services, and although it may include some revenues associated with services other than Internet access, it is doubtful, based on WorldComs and MCIs experience and knowledge of the business, that these revenues constitute a major portion of the reported revenues or that subtraction of them would significantly affect total market share. No alternative measure of market share is superior to a revenuebased approach. Another approach would be to measure market shares based on the volume of traffic that ISPs carry. Harris Internet Aff., at 16 47. But this data is simply not available because the thousands of firms in this unregulated market do not publicly disclose traffic data at all, much less on a timely and methodologically consistent basis. Id. In any event, statistically valid techniques to measure traffic and traffic flows do not currently exist. The Cooperative Association for Internet Data Analysis ( CAIDA), an organization of Internet participants trying to develop traffic measurement and analysis tools, told the Commission that [t]he lack of reliable traffic information is ubiquitous in the Internet sector... [W]ith few exceptions, measurement or characterization of traffic within or between networks is minimal today; and the relevance of data that government agencies are currently collecting about Internet traffic flows is limited.pЍComments by CAIDA Concerning the FCCs Review of the Acquisition of MCI Communications Corporation by WorldCom, Inc., March 13, 1998 ). In addition, a packet may flow over multiple networks on its way from the sender to the receiver, so measurements based on total traffic would involve significant doublecounting, triplecounting, or more. It is doubtless true that if all traffic carried by all ISPs were added up, the total would exceed 100 percent because most traffic is carried by at least two ISPs and would continue to be postmerger. Capacity is not a better measure than revenues because (1) capacity can be rapidly expanded in a market where customers can easily change ISPs (Joint Reply, at 7273), and (2) complete, reliable, and consistent information about current capacity is not available. Harris Internet Aff., at 17 48. Connections also constitute a flawed measure. Joint Reply at 75. The approach used by GTE based on connections and bandwidth illustrates why this is true. In one of its calculations, GTE uses a data set (collected through a survey whose methodology is unknown) concerning connections among less than half of all domestic ISPs the 1,700 smallest ISPs out of more than 4,000. Harris Internet Aff., at 1718 & nn. 2122. However, as we previously explained, an ISP that has connections to 100 ISPs each of which has 10 customers would not have greater competitive significance than an ISP with connections to 10 ISPs each of which has 1,000 customers of the same size as the customers of the 100 ISPs connected to the first ISP. WorldCom/MCI Reply Comments, at 75. Moreover, the smallest ISPs are least likely to connect to more than one backbone provider, and the total number of backbone providers to which they connect is likely to be smaller. So even if GTE accurately corrects for these ISPs for the size and doublecounting effects described in the Joint Reply (at 72), the effect may be different when larger ISPs more likely to have more connections are considered. Moreover, GTEs choice to add multiple connections to both the numerator and the denominator incorrectly suggests greater control of access to customers than actually exists. If, for example, an ISP connects to both MCI WorldCom and another ISP and could therefore exchange traffic with the ISP directly as well as through MCI WorldCom, MCI WorldCom would have no control of access to the second ISP and its customers, and both ISPs could easily avoid any attempt by MCI WorldCom to take advantage of either ISP. Indeed, because any ISP can easily establish a connection with another ISP to which it is not currently connected directly (through either a customer or peering relationship), no ISP, including MCI WorldCom, can control access to any other ISP or its customers. In sum, there is no demonstrably precise, complete and reliable market data for Internet services. As GTEs expert candidly states, measuring market shares of Internet backbone service providers is a difficult issue because the industry is so new, is growing so fast, and is so dependent on proprietary data and technologies that finding verifiable public data is almost impossible. Harris Internet Aff., at 14 41; see Sprint Comments, at iii, 8 and 9. However, for the reasons discussed above, WorldCom and MCI submit that revenues provide the best available measure of competitive significance of an ISP. The opponents of the merger in effect contend that the unavailability to anyone of perfect information about market size and shares means that the Commission cannot rule out the possibility of anticompetitive effects and must therefore disapprove or condition the merger with respect to Internet access services. At a minimum, opponents of the merger have failed to prove that the measures on which they rely to estimate an MCI WorldCom market share of up to 50% are superior, and in the context of an Internet merger, the burden should be on the opponents to show that the merger would have anticompetitive effects. See supra page 64. Uncertainty about Internet market shares is significant for competitive as well as legal reasons. MCI WorldCom would not embark on a hypothetical predatory strategy even if it knew it had 50 percent of the relevant market, and this strategy would be even more irrational if there were a substantial likelihood, and indeed a probability, that the merged company has less than a third and indeed only a fifth of the alleged market. Especially in these circumstances, no company would take the risk that overcharging ISPs for access, and degrading the quality of interconnection with them, would only trigger a massive loss of business. This whole line of argument says a lot more about the mindset of a de facto monopolist than it does about any successful entrepreneurial competitors like MCI and WorldCom. Because MCI WorldComs market share would be approximately 20 percent, the merger poses no competitive threat. None of the opponents contends that the network externalities effect on which they rely would exist if the share of the merged company were only 20 percent or any share substantially less than half of the market. Second, the specter of overcharging for access arises if, and only if, MCI WorldCom would peer with no one. If MCI WorldCom continues to peer with the ISPs with which MCI and WorldCom currently peer, or even with a fraction of these ISPs, other ISPs could easily avoid MCI WorldComs attempt to charge inflated prices for interconnection. If the merged company tried to force an ISP into a paid customer relationship when a peering relationship was appropriate, or to pay more than it should as a customer, the ISP could still give its customers the ability to exchange traffic with MCI WorldComs customers without becoming a customer of MCI WorldCom. The ISP could achieve the same interconnectivity with MCI WorldComs customers by interconnecting via dedicated access with an ISP that peered with MCI WorldCom. MCI WorldComs peers would take advantage of any opportunity to win both ISP and retail customers away from MCI WorldCom by offering them a lower, competitive price for the same connectivity they would get as MCI WorldComs customers. Thus, any attempt by MCI WorldCom to overcharge ISP customers would simply benefit ISPs with which MCI WorldCom did peer with no benefit to MCI WorldCom. MCI WorldCom would not have any incentive to terminate all peering agreements because the same factors that make peering efficient today would continue to exist postmerger. Where interconnection via peering involves an equivalency of obligation, it makes sense for ISPs to establish a relationship where no money changes hands, which simplifies the relationship and avoids the significant costs for the development of measurement and billing systems and for computer capacity to run those systems on an ongoing basis. See Joint Reply, at 8283; Second Carlton/Sider Decl.  76. Eliminating peering would therefore impose costs on MCI WorldCom, and not only on its rivals. As WorldCom and MCI previously explained without dispute from any petitioner, two ISPs need not have the same revenues or the same number of customers for each to want a peering relationship. Joint Reply, at 84. Peering offers an efficient means for both parties to interconnect. The same incentives that MCI and WorldCom each currently has to peer will continue to exist postmerger. MCI WorldCom will need to interconnect with other ISPs, just as other ISPs need to interconnect with MCI WorldCom. That is why the merger parties have no present intention to cease peering with ISPs where peering is mutually beneficial. Third, any attempt to overcharge ISP customers would only encourage them to use one of a variety of alternative means to achieve interconnection and minimize use of MCI WorldComs network. A significant percentage of the alleged combined market share of WorldCom and MCI comes from ISP customers. If MCI WorldCom lost its ISP customers, its total market share would shrink, causing it to lose its alleged market power even under the petitioners theory. MCI WorldCom would therefore have a substantial incentive not to give ISP customers a reason to want to switch, thereby avoiding the revenue and market share loss that would defeat the whole purpose of the tactics alleged by the petitioners. Any attempt to exploit ISP customers that have customer relationships would give these customers a powerful reason to minimize the traffic exchanged via MCI WorldCom and to bypass MCI WorldComs network to the maximum extent possible. They could do this, for example, by peering with each other. If the price of using MCI WorldComs backbone network became unreasonably high, ISPs could construct their own. While that investment would not be necessary as long as MCI WorldCom charged a costbased price for use of its backbone, the costbenefit analysis would change if MCI WorldCom raised its price. Since construction of an Internet backbone is relatively easy and the market can support multiple efficient competitors, some ISPs would decide to pursue this strategy. The result would be that traffic that previously flowed over MCI WorldComs network would no longer do so, and any alleged leverage that the former volume of traffic created would dissipate. As an alternative to constructing its own backbone network and peering with other ISPs, an ISP victimized by MCI WorldCom could respond by becoming a dedicated access customer of one or more other ISPs instead of MCI WorldCom. That would permit it to bypass completely the MCI WorldCom network for traffic exchanged with ISPs other than MCI WorldCom. The only response of petitioners like Bell Atlantic is that switching backbone providers can be costly for some ISPs. As WorldCom and MCI demonstrated previously, however, IP address changes are not a meaningful obstacle. The simplest and most direct proof of this proposition is not contested by any of the petitioners: ISP customers as well as retail customers change backbone providers on a regular basis. Both WorldCom and MCI experience churn among ISP and nonISP customers for Internet access service. MCI's and WorldComs customers change ISPs now when they decide they have a reason to change, and they will continue to do so after the merger. See Joint Reply, at 79. This churn exists because changing ISPs (or backbone providers) is generally straightforward and relatively inexpensive: many ISP customers use software that permits the dynamic assignment of addresses and makes the change essentially invisible to the customer; and larger ISPs (that can reasonably be assumed to account for a substantial majority of Internet traffic) qualify under IANA guidelines for portable IP addresses, and can transfer their IP addresses to new ISPs if they choose to do so. At most, numbering issues affect a small portion of the market, but they can and do change backbone providers, and with only moderately more effort than other categories of ISP customers. See Joint Reply, at 7980. For the predatory strategy posited by Bell Atlantic to fail, it is not necessary that each and every ISP be able to change backbone providers without significant cost. This strategy becomes unprofitable, even on the petitioners own terms, if a substantial percentage of ISPs are not in any significant way locked into MCI WorldCom for backbone services. Because it is easy for such a large percentage of ISPs to change, the loss of all profits from the ISPs that do change would substantially exceed any incremental increase in profits from the ISPs that stayed even though they were paying supracompetitive prices. The effect of these responses in a competitive marketplace where construction of Internet backbones, and establishment of alternative routes, are relatively easy would be a steady, irreversible attrition in MCI WorldComs traffic and market share. Any attempt by MCI WorldCom to exploit customers allegedly locked in would only backfire because potential new customers would choose competitors instead to avoid the problem. It is worth emphasizing that the penalty is especially severe because the Internet market is doubling at least every twelve months even if customers keep existing traffic on MCI WorldComs backbone and shift only the increased traffic to competitors, it would take MCI WorldCom less than a year to see its market share cut in half. The strategy invented by opponents of the merger would therefore cause MCI WorldCom to prevent itself from sharing in a substantial part of the spectacular growth that has attracted so many firms to provide Internet services. The ability of customers to change ISPs means that MCI WorldCom would not try to take advantage of them and trigger the resulting market backlash. It is therefore ludicrous to contend that MCI WorldCom would pursue such a counterproductive and selfdefeating strategy. Fourth, the cost and risk of the strategy that opponents contend MCI WorldCom would pursue are magnified by the very effect on which these opponents rely. As they emphasize, the more people use the Internet, the more valuable it is to each user. The growth of the Internet as a whole thus makes the Internet service provided by MCI WorldCom more valuable to MCI WorldComs customers. Under the inexorable law of supply and demand (and no one contends any market for Internet services is priceinelastic), increasing the cost of access reduces the number of users. As a result, even if one assumes that MCI WorldCom had market power and could charge a price above competitive levels, setting the price of access too high would have a double negative effect. First, it would reduce total profits because lost profits from lost sales would exceed increased profit on the sales that MCI WorldCom was able to make. Second, and above and beyond this effect in nonnetworked services, this strategy would reduce the value of Internet connectivity by reducing the number of Internet users. Such a strategy would therefore be contrary to MCI WorldComs interests because it would discourage potential customers from using the network: todays potential customers are more likely to join the network, the more attractive terms they expect will be offered in the future to attract more members at that time.qЍKatz & Shapiro, Systems Competition and Network Effects, at 105, Journal of Economic Perspectives (1994). In such a dynamic and developing portion of the market, MCI WorldCom would have no practical way of calibrating the price increase to ensure that it was profitable rather than unprofitable to gauge a price increase that was high enough to justify the backlash by customers that would look for ways to reduce their use of MCI WorldCom, but not so high that it reduced the overall value of Internet connectivity and thus the price that MCI WorldCom could charge. Because even a small price increase would be so likely to be counterproductive, the only rational course would be to continue to charge competitive prices. Fifth, another reason why any scheme to raise Internet prices would be selfdefeating and selfcorrecting is that it would give rival ISPs an opportunity to capture retail and not just wholesale share at MCI WorldComs expense. The alleged scheme would therefore cost MCI WorldCom not only lost profits from lost retail customers, but also any alleged market power over other ISPs that derives from its retail market share. If MCI WorldCom had market power with respect to Internet access, it would presumably attempt to exercise that market power over retail as well as ISP customers. But competing ISPs can compete for every single customer of MCI WorldCom, and no customer is safe from competitors. Unlike the ILECs, MCI WorldCom does not control any bottleneck to any customer. Sixth, attempting to take advantage of Internet customers would harm MCI WorldComs reputation as a fullservice provider and therefore cause loss of sales of nonInternet services to customers that concluded that they could not trust MCI WorldCom. Internet services are only one portion of MCI WorldComs total portfolio of services. A reputation for tampering with the Internet would affect MCI WorldComs ability to sell nonInternet as well as Internet services, thereby increasing the unprofitability of any attempt to raise the price of Internet access. [A] firm that offers a broad product line, or is otherwise seen as taking a longrun perspective, may refrain from exploiting its installed base for fear of losing future sales in either the systems market itself or the other markets in which the firm is active.0rЍId., at 104.0 Seventh, in addition to the contention that MCI WorldCom would overcharge interconnected ISPs for access, GTE concocts a truly bizarre and unreal scenario in which MCI WorldCom would degrade the quality of interconnection with its rivals. Harris Internet Aff., at 26 70. In this serial killer scheme, MCI WorldCom would pick off competing backbones in a serial sequence by degrading their service one at a time in an attempt to gain market share by inducing their customers to switch to the MCI/WorldCom backbone. Id. As GTE admits, [t]here is no question that if MCI/WorldCom degraded interconnection service to other backbones it would harm its own ISP and end user customers as well as the customers of other backbones. Id., at 27 72. Even GTE recognizes that it would make no sense simultaneously to degrade interconnection to all interconnected ISPs because that would degrade the quality of MCIs own service as much as it degraded the quality of service provided by competing backbones. But GTE contends that [t]his effect could be minimized ... by targeting backbones one at a time where the degraded service would have a small effect on MCI/WorldComs service, but a devastating effect on the service of the smaller backbone. Id. Wholly unexplained is how MCI WorldCom would orchestrate this scheme, with the exquisite timing it would require: how long, for example, would MCI WorldCom degrade interconnections with GTE before it moved on to another one of the thirtyplus backbone providers? It would have to degrade service long enough for GTEs (and therefore MCI WorldComs) customers to notice, but not long enough that GTEs customers would switch to backbone providers other than MCI WorldCom whose interconnections MCI WorldCom was not then sabotaging. Given the number of backbone providers and the ease of entry, by the time MCI WorldCom knocked off competing providers one by one, new ones would have sprung up to take their place. And the only ISP whose customers would consistently experience degraded service would be MCI WorldCom creating a huge marketing opportunity for its competitors. The notion that the Internet community would sit passively by while its members were picked off one by one is outlandish. Such a ploy would only trigger a stampede away from any ISP foolish enough to attempt it. Finally, some of the commenters contend that WorldComs operation of several NAPs requires that the merger be blocked or conditioned. See, e.g., GTE Comments, at 7980. Of course, since MCI does not own or operate any NAP, the merger will not affect concentration in the ownership of NAPs. If MCI WorldCom tried to provide inferior service or charge higher prices to unaffiliated ISPs that connected to NAPs that it operated, the only likely result would be that those ISPs would chose to peer at other NAPs (and many already peer at multiple NAPs), or to create new NAPs, or to connect directly without going through any NAP.sЍSprint laments that although [the merger parties] claim that the cost of establishing a NAP is low, they offer no cost data to document such claim. Sprint Comments, at 7 n.4. Sprint, of course, operates a NAP, and if the parties claim were unfounded, Sprint has ample access to the cost data needed to rebut it. The proliferation of NAPs is proof enough that no significant barriers prevent creation of additional NAPs. See Joint Reply at 8687. The pace of proliferation would only increase if MCI WorldCom gave ISPs an incentive to bypass its network by interconnecting directly with each other. See WorldCom/MCI Reply Comments, at 87. In summary, competition in Internet services would not permit MCI WorldCom to achieve or exercise market power. Three factors combine to make the doomsday scenarios posited by the opponents of the merger wholly irrational and counterproductive: (1) the ability of the multiple ISPs with existing backbones to expand them, and of other ISPs to contruct such networks with substantial capacity; (2) standard protocols for interconnection that ensure that all participants in the Internet can achieve global connectivity; and (3) the ability of relatively large and sophisticated customers to switch quickly away from any ISP that attempts to take advantage of them through inflated prices or inferior service. MCI and WorldCom have been pioneers in the Internet. Before other companies recognized the Internets potential, MCI and WorldCom made substantial investments that helped the Internet to achieve its current stature and acceptance. As has been true with long distance services, and as will be true for local services, the growth of the Internet and the success of individual ISPs encourage, not discourage, additional entry. MCI WorldCom would not be able to stem the tide of new entry even if it wanted to. And the Internet is a phenomenon in which growth through competition benefits all participants, because increased usage makes the Internet even more valuable to all. In such a market, and against such a background, the last strategy that MCI WorldCom would pursue is one that would jeopardize all of the investment and the goodwill that WorldCom and MCI have so painstakingly built up. A reputation in the Internet community as a maverick 3'  8 that refused to exchange traffic on reasonable and efficient terms would quickly kill MCI WorldComs chances to continue to participate in the growth of the Internet. The success in Internet services that WorldCom and MCI have achieved to date has come by giving their customers what they demand: reliable connectivity at fair prices. That is the strategy that MCI WorldCom will continue to pursue. In its further comments, Telstra claims that MCI/WorldCom's initial Joint Reply "provides no additional factual information regarding the terms on which offshore ISPs will have access to the post merger company's Internet backbone and switching facilities."3tЍTelstra Comments at 63 In its Joint Reply, MCI/WorldCom fully responded to Telstra's comments. MCI/WorldCom stated that, in response to marketplace demand, MCI, WorldCom, and other U.S. ISP backbone providers offer foreign ISPs interconnection with their networks at the same price, and on the same terms and conditions that they offer to domestic ISPs.0uЍJoint Reply at 90.0 Telstra also claims that "WorldCom and MCI have yet to show that requiring Telstra and other offshore ISPs to pay the full cost of Internet access is a reasonable and nondiscriminatory practice under the Communications Act when that traffic is carried in both directions."4vЍTelstra Comments at 6.4 As the Applicants indicated in the Joint Reply, Telstra continues to seek a regulatory solution for a commercial issue for which commercial solutions are already available.1wЍJoint Reply at 91. 1 In any event, the issues raised by Telstra are completely unrelated to the merger of MCI and WorldCom, and thus are not appropriately addressed in this proceeding. Telstra apparently is dissatisfied with the practices of all U.S. ISPs. Thus, if Telstra's concerns regarding the commercial practices of U.S. ISPs are addressed at all by any regulatory agency and the Applicants believe they should not be they must be considered in a rulemaking proceeding of general applicability. Accordingly, the Commission should dismiss Telstra's arguments because they are outside the scope of this proceeding. #XN\  PXP# VI.OTHER ISSUES  A.Hearings are not necessary to resolve the issues in this proceeding. Several commenters have asked the Commission to conduct hearings regarding this Application. Greenlining Petition to Deny at 7, Rainbow/PUSH Comments at 14, GTE Comments at 101, Simply Internet Comments at 17. As with the Petitions to Deny and Comments in this case, however, none of these commenters have identified any substantial and material question of fact, which is the statutory prerequisite for a hearing. 47 U.S.C. 309(d)(2). See Joint Reply at 956. The disputes in this case involve just the sort of legal and economic conclusions concerning market structure, competitive effect, and the public interest that manifestly do not require a live hearing. . . . . [A]n evidentiary hearing would less promote reasoned decisionmaking in this case than it would delay and impede the Commissions decision. SBC Communications, Inc. v. FCC, 56 F.3d 1484, 1497 (D.C. Cir. 1995) (affirming the Commissions approval of the AT&T McCaw Cellular merger), quoting United States v. F.C.C., 652 F.2d 72, 8990 (D.C. Cir. 1980) (en banc). A hearing would be particularly inappropriate here since both merging parties are nondominant firms with no market power in any geographic or product market.#XN\  PXP# ÌB.` ` ` There is no legal or policy basis for linking the merger to BOC InterLATA entry. BellSouth once again reflexively asserts that the Commission should utilize the merger as an opportunity to take down the artificial barrier to BOC entry to long distance markets posed by Section 271 of the Act. BellSouth Comments at 1617. As in the first round of comments in this proceeding, BellSouth is responding like Pavlovs dog to the external stimulus of an additional comment cycle. As stated before, the BOCs will be allowed to enter the inregion interLATA market only when they comply with the competitive checklist and the other requirements of Section 271. #XN\  PXP#BOC entry into the interLATA market should not occur until the local exchange markets become competitive. This merger will enhance the prospect for a competitive local exchange market, and when that is achieved, the BOCs will be able to obtain interLATA entry. To hold up this merger through a linkage to BOC interLATA entry will ultimately delay both the arrival of competitive local exchange markets and the interLATA entry that the BOCs seek.#XN\  PXP# There continues to be no statutory or policy basis for linking BellSouths compliance with Section 271 to this merger or any other extrinsic event.  C.` ` ` Individual grievances against the Applicants are more appropriate in other fora. Other parties have taken the opportunity to use this proceeding as a forum for airing their individual grievances and for raising unsatisfied commercial arrangements with MCI and WorldCom. TMB Communications, Inc. ( TMB) and the Independent Payphone Service Providers for Consumer Choice ( IPSPCC) have brought matters to the Commission in the guise of contributing to its public interest review of the Application that are subjects of pending disputeresolution proceedings and are better resolved elsewhere.&xЍSee #XN\  PXP#MFS Communications, Co. Inc., 11 FCC Rcd. 21164, 21169,  16 (Intl Bur. 1996) (finding that #XN\  PXP#unrelated commercial disputes are not relevant in a merger proceeding).& IPSPCC alleges that MCI is currently under contract to Bell Atlantic to serve as the exclusive provider of long distance services to Bell Atlantic payphones, and that MCI is colluding with Bell Atlantic in an illegal and anticompetitive scheme to keep payphone providers from choosing other long distance carriers. MCI vigorously denies IPSPCCs allegations, and is contesting them in a pending lawsuit that IPSPCC has brought against Bell Atlantic. In that proceeding, the federal district court has denied a preliminary injunction sought by IPSPCC on the basis that plaintiffs have not demonstrated a substantial likelihood of success on the merits. See IPSPCC Comments Attachment 4 (Independent Payphone Service Providers for Consumer Choice v. Bell Atlantic Corp., D.D.C. Civ. 980127(TFH), Order, March 4, 1998). Given the fact that the court was evidently unimpressed with IPSPCCs legal arguments, it is somewhat curious that it tries to shoehorn that argument in this merger proceeding where Bell Atlantic is not a party to the merger. In any event, these matters are not relevant to the merger. IPSPCC has not shown how the merger would increase the incentives or the ability of MCI to engage in the conduct it alleges, or the ability of this Commission and the courts to enforce Section 276 of the Act and the implementing regulations. In addition, because this dispute is already pending in another forum, the Commission should not duplicate the efforts there by making this matter an issue here. TMB simply repeats the allegations it made in its Petition to Deny that MCI has engaged in anticompetitive conduct to the detriment of TMB. TMB Comments 34. TMB takes exception with the Applicants characterization of this matter as a private contractual dispute. Id. at 6, quoting Joint Reply at 96. Yet, TMB does not deny that this is a private contractual dispute, and it does not show that its alleged harms are representative of problems that others have with MCI, or that any such problems would be aggravated were the Commission to consent to the merger. TMB alleges that MCI has impaired the ability of small businesses to compete, yet completely ignores the fact that WorldCom is clearly recognized, even among opponents to this merger, as the primary carrier and platform for small long distance carriers seeking entry to the market.yЍSee GTE Comments at 32, quoting Schmalensee/Taylor Aff. at 16 ( While the Big Three invested in setting up these [retail] operations and in developing their brand names through billions of dollars in marketing expenses, WorldCom chose to focus on the wholesale market on which smaller resellers depend for inputs to serve residence and lowvolume business customers. WorldComs growth has gone hand in hand with these entrants[.]) (Emphasis added). As stated in the Joint Reply, #XN\  PXP#the Commission generally does not consider these individual grievances in merger proceedings, and encourages parties to resolve their contractual disputes in appropriate fora. See, e.g., MFS Communications, Co. Inc., 11 FCC Rcd. 21164, 21169,  16 (Intel Bur. 1996).#XN\  PXP# D.` ` ` The Commission should not require submission of confidential documents submitted under the HartScottRodino Act Several parties have asked the Commission to order WorldCom and MCI to make the voluminous documents that the Applicants have filed with the Department of Justice ( DOJ) pursuant to the HartScottRodino Antitrust Improvement Act of 1976 ( HSR Act) available for public inspection. 15 U.S.C. 18a(h). Telstra has even asked the Commission to reconsider its Order establishing this comment cycle in order to allow for public comment once the ISR documents are made available to the participants. Telstra Comments at 12. These requests are inappropriate and unnecessary. The Protestants clear objective is to delay the Commissions deliberations and to obtain improper access to confidential business plans of the Applicants. The HSR Act establishes a strong policy to protect sensitive confidential documents. 15 U.S.C.  18a(h); see Mattox v. Federal Trade Commission, 752 F.2d 116, 124 (1985) (denying disclosure to a state attorney general). Absent a compelling need for these documents, which Protestants fail to make, the Commission should not require their disclosure and thereby subject the Applicants to a significant risk of disclosure of sensitive information to its competitors. The Commission itself has found no reason to examine the extensive HSR documents for its own purposes in considering this transfer of control application between two nondominant carriers.~zЍSee Telstra Comments at 3, n.3, citing Letter to R. Edward Price, Poteen & Natalia, from Gregory A. Weiss, Deputy Chief Enforcement Division, Common Carrier Bureau, FCC, February 13, 1998, p. 1 (in response to Telstra FOIA request, advising Telstra that the FCC had not received any protected, confidential, or HartScottRodino materials).~ In the instant situation involving the merger of two nondominant carriers, inspection of these documents is not necessary to enable the Commission to reach an informed decision. Significantly, the Protestants have been unable to articulate any sound specific rationale for the release of this massive volume of confidential materials. Nor are the Applicants aware of any instance where the Commission has examined such documents in connection with a merger of nondominant carriers.w{ЍIn fact, Applicants are aware of only two transfer of control proceedings before the Commission where confidential ISR documents were made available to participants. Both proceedings, Bell Atlantic/NYNEX and McCaw/AT&T, involved dominant carriers and concerns of anticompetitive aggregation of market power simply not present here. w 3'  ((  E.Allegations of redlining or discriminatory conduct are without merit. In its Petition to Deny filed in January, Rainbow/PUSH criticized the Application because the Applicants had failed to promise not to discriminate based on geography and not to avoid or delay marketing of services to lowincome and minority customers. Rainbow/PUSH Petition to Deny at 22. The Greenlining Institute now echoes that prospective concern in its recent filing. Greenlining Petition to Deny at 2.]|ЍThe Applicants note the procedural deficiencies of The Greenlining Institutes filing of March 13, 1998. While styled as a Petition to Deny, the filing period for submission of Petitions to Deny expired on January 5, 1998. See World Com, Inc. and MCI Communications Corporation seeks FCC consent for proposed merger, Public Notice, DA 972494 (rel. Nov 25, 1997). Accordingly, Applicants regard The Greenlining Institutes filing as comments regarding the Applicants Joint Reply as was requested in the Order establishing this additional comment cycle.] In response to Rainbow/PUSH, the Applicants stated in their Joint Reply that, in the operation of their long distance and nascent local businesses, both MCI and WorldCom have demonstrated a strong commitment to serve consumers of all socioeconomic levels. Joint Reply at 9192. The Applicants also provided examples of this commitment. Id. Moreover, as stated before, there is no economic, operating, or business incentive for the combined company not to pursue these customers. It is economic reality that urban businesses will enjoy choices for local service before most residential customers of any socioeconomic level will, and that urban and suburban households will enjoy choices sooner than most rural consumers or businesses will. But Rainbow/PUSH attempts to make a different point. Rainbow/PUSH reiterates its opposition to the Application in its Further Comments by attempting to draw various unfounded conclusions from the placement of WorldCom and MCI fiber routes in the Atlanta metropolitan area. Further Comments at 68. Rainbow/PUSH alleges that because these existing fiber routes skirt the fringes of the AfricanAmerican community and because these networks are virtually nonexistent in the areas where AfricanAmerican businesses are concentrated,}ЍRainbow/PUSH provides no demographic evidence whatsoever as to the placement of AfricanAmerican businesses. In fact, many AfricanAmerican businesses are in the central city, the area presently served by WorldCom and MCI. this suggests that WorldCom and MCI have sought to exclude customer bases based on racial or economic criteria. Further Comments at 7. WorldCom and MCI draw quite the opposite conclusion from this historical placement of its network. The fact that MCI and WorldCom network and switching facilities to date tend to be in and around city centers is instructive. In effect, this means that those lowincome and minority communities located in and around these city centers are well positioned to receive the benefits of local competition from MCI WorldCom. MCI and WorldCom are eager to expand their combined networks and provide service to residences and businesses of all socioeconomic levels. This expansion, however, is limited by the circumstances created by the incumbent carriers that have delayed the development of local competition through insufficient resale discounts, stonewalling in the provision of unbundled network elements, and deficiencies in OSS provisioning. Importantly, the WorldCom network was originally built as a competitive access provider (as opposed to a CLEC) network to serve IXC POPs, multitenant office buildings, and similar trafficintensive locations. The network can access all tenants in connected buildings, including minorityowned businesses and those that have minority officers and directors. In fact, at the time this network was built, in 1992, local switching competition was not lawful in Georgia, and the network was not designed or constructed to serve any residential or small business customer who did not have sufficient traffic volume to qualify for private line service. Accordingly, the network was designed to serve only business customers with special access and private line needs and was not designed to provide local switching to any group of business or residential customers. The commitment by the Applicants in marketing to minority communities has been substantial in the case of long distance services and will likely be expanded in the local service areas, particularly if unbundled network elements are more reasonably priced.+~ЍBy way of illustration, on March 9, 1998, MCI announced a new joint venture with Telefonica de Espana to be managed by MCI to provide customized telecommunication products, marketing and customer service programs targeting the U.S. Hispanic consumer and small business markets. The Hispanic market in the U.S. is the fastest growing demographic segment, estimated at over 29 million people, and represents approximately 8 percent of the total U.S. long distance market. Telefonica Partners with WorldCom and MCI, PR Newswire, Mar. 9, 1998, at 2. As is the case with any minority group, the Hispanic community is clearly a market that MCI and WorldCom as a combined company will continue to find attractive and will devote time and effort and marketing dollars to serve.+ In addition to the programs described in the Joint Reply namely, #XN\  PXP#MCIs recent innovation Five Cent Sundays, and MCI Family Assist, a service available to lowincome consumers across the country MCI offers some of the lowest intrastate toll rates in the country. For example, #XN\  PXP#in California, MCI One Savings is a service that offers all Californias residential customers $0.10 per minute for intrastate interLATA calls and only $0.04 per minute for intraLATA toll calls.Ѝ#XN\  PXP#This service has a $5.00 minimum usage charge per month.#XN\  PXP#Ѥ #XN\  P XP# Rainbow/PUSHs unsubstantiated concerns do not give rise to allegations of past impropriety. See Joint Reply at 92. Moreover, as stated in the Joint Reply, there is no precedent in a common carrier merger, let alone one involving two nondominant carriers, for the Commission to adopt a prospective remedy to guard against a theoretical future concern about potential discrimination. The claims of Rainbow/PUSH and Greenlining simply have no basis in fact.cЍGreenlining also criticizes, without substantiation, the extent of the Applicants charitable contributions. Greenlining Petition to Deny at 6. Greenlinings allegations are completely unfounded. The Applicants have a long tradition of involvement and participation in a wide variety of local and national charities.c F.` ` ` The Applicants opposition to RBOC provision of inregion interLATA service is wholly supportable. Greenlining also complains that MCI openly and unabashedly fights to keep potential competitors out of the longdistance business. Greenlining Petition to Deny at 3. Greenlining refers, of course, to MCIs opposition to BOC provision of inregion interLATA services, which is limited by statute until the BOCs open the local exchange markets to competition. The appropriateness of MCIs advocacy cannot seriously be questioned, especially since the Commission has agreed in the four applications on which it has ruled that the BOCs have not satisfied the statutory requirements. G.` ` ` The Board of Directors of MCI WorldCom Reflects the Diversity of the Population. Greenlining repeats the issue raised by Rainbow/PUSH in its Petition to Deny, Greenlining Petition to Deny at 45, that the public interest can be served only if minorities and women are placed in control positions of the merged company. On March 11, 1998, the shareholders of WorldCom and MCI voted in favor of the merger in an overwhelming demonstration of approval. On the same day, the composition of the Board of Directors of the combined entity was announced. WorldCom and MCI are pleased that Clifford J. Alexander, Jr., of Alexander & Associates, Inc., and Dean Judith Areen, of the Georgetown University Law Center, have agreed to serve on the MCI WorldCom Board of Directors. H.The proposed transaction will enhance universal service. Greenlining also asserts that the merger would bring few benefits to residential consumers and would bring no benefits to the residents of lowincome communities of color that are a major focus of universal service Greenlining. Petition to Deny at 4. Greenlining is simply wrong. As stated in the Joint Reply, the proposed transaction will not only further universal service through the pressure of strong competition, see Joint Reply at 2326, but the presence of the combined company in the local exchange markets will provide a competitive spur to the incumbent LECs. The result of this new competitive presence will be all of the benefits of competitive markets: reduced prices, improved service, and new products. These competitive benefits will be shared equally by all consumers, including the communities Greenlining represents. Moreover, as prices fall and competitive providers proliferate (including additional telecommunications carriers eligible to receive universal service funding), telecommunications services will become more widely affordable and more universally available. As stated in the Joint Reply, as the secondlargest provider of interstate telecommunications services in the country, MCI WorldCom expects to be a major contributor to state and federal universal service funds. Id. at 25.  I.CWAs concerns about job loss are misplaced. In the previous round of comments, the Communications Workers of America, in addition to concerns raised by other commenters, argued that the merger would result in a loss of jobs. That concern has no basis. CWAs calculations are wrong, and it totally ignores the employment growth that must occur if the merger is successful and the combined company increases its sales and market share. Nor is there a valid concern for the premium WorldCom is paying for MCI. As pointed out in our Joint Reply (at pp. 2627 n.33), the premium reflects both the opportunity for significant savings and the recognition that the merged company will be a more formidable competitor in efforts to break the local exchange monopolies. #P!X#  #XN\  P"XP# VII.THE APPLICANTS HAVE DEMONSTRATED THAT THE PROPOSED TRANSACTION WILL HAVE SIGNIFICANT PUBLIC BENEFITS In the Order establishing this additional comment cycle, the Commission encouraged parties to discuss, among other things, the potential competitive effects and efficiencies resulting from the merger and other possible effects that may be relevant to the Commissions public interest assessment within the framework established by the Bell Atlantic/NYNEX Order. Order at  2. The synergies, efficiencies, and competitive effects that will result from this merger are substantial, and they serve to further the public interest in several significant respects. See attached Affidavit of Sunit Patel, Treasurer of WorldCom, discussing various cost savings generated by the merger and the manner in which those savings were determined. A.` ` ` The Commissions standard is not the rigorous demonstration suggested by the commenters. As discussed above, Bell Atlantic/NYNEX and Motorola require that Applicants the demonstrate that the proposed transaction is in the public interest by demonstrating that the transaction will enhance and promote competition. As discussed supra in grater detail, the Commission then weighs the potential benefits from the transaction against the putative harms, if any. Benefits flowing from the merger may include operational efficiencies and savings. As the Commission stated in Bell Atlantic/NYNEX: ` ` ` [P]rocompetitive benefits include any efficiencies arising from the transaction if such efficiencies are achievable only as a result of the merger, are sufficiently likely and verifiable, and are not the result of anticompetitive reductions in output or increases in price.BЍBell Atlantic/NYNEX,  157.B As Bell Atlantic/NYNEXĠmakes clear, although efficiencies are certainly one type of benefits, it is not the only type of benefit. In particular, generating increased competition in a highly concentrated market is another type of benefit that is particularly relevant here since the merger promises to create, for the first time, a company with the ability to mount a successful competitive challenge to the incumbent local telephone monopolies and bring enormous benefits to consumers who are presently paying monopoly margins in a $108 billion market. BellSouth obfuscates this fairly straightforward balancing test by claiming that the Commission may only weigh the benefits of the merger within one particular market against the alleged harms resulting from the merger to that particular market. BellSouth Comments at 4. BellSouths argument is clearly contrary to Commission precedent and common sense. In Bell Atlantic/NYNEX, the Commission considered the totality of the costs and benefits in several related product and geographic markets. Bell Atlantic/NYNEX Order at  158. Under the Commissions analysis, local exchange customers in New York City were harmed by the merger, but Bell Atlantic and NYNEX customers in different geographic markets within the Bell Atlantic/NYNEX region were found by the Commission to have benefitted more. As a result, the merger was, on balance, determined by the Commission to be in the public interest. Id. at  178. The Commenters also seek to impose a standard of proof on the Applicants that is not found in the Bell Atlantic/NYNEX Order. Although that Order states that the efficiencies must be  sufficiently likely and verifiable rather than vague or speculative, or which cannot be verified by reasonable means, id. 158, this does not mean that the efficiencies must be individually quantifiable and audited. It would be implausible for Applicants to be held to this unrealistic standard: the efficiencies that will result from the merger are based on reasonable projections. See Patel Affidavit at 1. The Commenters, however, would have the Applicants prove unconditionally certain outcomes that have yet to happen. It is worth noting that, within the past week, the Commission staff has considered the efficiencies of a proposed merger of nondominant carriers, as is the case in the instant situation. In Motorola, the Chief of the Wireless Telecommunications Bureau determined that the applicants narrative description of four mergerspecific efficiencies was sufficient to satisfy their burden. No audited quantitative analysis was required. Under the MotorolaĠprecedent for nondominant carriers equally applicable here, Applicants here have certainly provided adequate information to confirm that the expected efficiencies are sufficiently likely to occur and are reasonably verifiable. B.The applicants have demonstrated specific public benefits It is clear that Applicants have satisfied their burden under Bell Atlantic/NYNEX and Motorola. In the Application and the Joint Reply, the Applicants identified numerous benefits that will result from the merger. The test is whether the benefits are sufficiently likely to occur and reasonably verifiable. Obviously, future synergies are based on reasonable predictions, and are necessarily subject to some uncertainty. WorldCom has traveled this road before, and it has established a record of fulfilling, if not exceeding, its estimated synergies related to its acquisitions.(ЍSee Credit Suisse First Boston Corporation, WorldCom, IncCompany Report, November 18, 1997, p. 3. See also Patel Affidavit, For example, WorldCom substantially exceeded its projected cost savings estimates after acquiring MFS . . . p. 2, n.1.( It is particularly significant that, in estimating these projected savings, Worldcom relied on its substantial experience in acquiring other telecommunications carriers. Patel Affidavit at 2. As has been the case with the series of other acquisitions by WorldCom in recent years, telecommunications customers, shareholders, and the general public will realize substantial benefits from a merger between MCI and WorldCom. The combination of advanced fiberbased local city networks, high capacity transoceanic cables, and stateoftheart global long distance and data networks will position the combined company to become a preeminent provider of advanced onestopshopping telecommunications services. Local exchange: In the local exchange market, the combined company will achieve significant cost savings and efficiencies, and possess greater financial strength and enhanced ability to raise capital. These efficiencies include (1) reduced domestic network costs, (2) reduced costs in MCIs local activities, (3) capital expenditure savings, and (4) savings in core sales, general and administrative cost savings. See Joint Reply at 1112; Attachment G at 4143. As a result of these savings, significant facilitiesbased competition has a real prospect of success. See Application Volume I at 3234. Because many of these savings will reduce the cost and enhance the efficiency of providing local service, they will accelerate local market entry and make it more economically feasible for the combined company to offer local service to a broader base of business and residential customers in markets across the nation. In addition, these cost savings should make the combined company able to build and operate additional local network facilities faster and more expansively than the two companies could do separately. In addition, the combination of MCIs marketing experience and diverse customer base with the extensive WorldCom and Brooks Fiber local exchange networks presents a singular opportunity for the combined company to immediately capture local market share from the incumbents and offer meaningful customer choice for local services and innovative packaged offerings. The Applicants witnesses have characterized the benefits to the local exchange market as potentially enormous. First Carlton/Sider Decl.  7. Once MCI WorldCom leads the way into local markets as an icebreaker, the path toward local exchange competition will be cleared so that other CLECs may follow. See id.  16. As the history of competition in the long distance market demonstrates, the success of one entrant will inevitably lead to entry by others. Successful entry into the local market by MCI WorldCom will lower entry barriers for other competitors, which will serve to benefit all customers. Interexchange: Substantial synergies are expected to be realized by combining the long distance and local operations of MCI and WorldCom to achieve better utilization of the combined network and other operational savings. See, e.g., Application Volume I at 2832. These savings are further explained in the attached affidavit of Sunit Patel, WorldComs Treasurer. The expanded and accelerated local reach of the merged company will benefit its long distance customers by producing significant access charge savings that will result in lower long distance prices, and by enabling MCI WorldCom to provide integrated packages of innovative services including local, long distance, data, wireless, and international telecommunications services. Moreover, integration of the long distance operations will permit MCI WorldCom to achieve savings in designing and operating its long distance network and in procuring and installling the requisite equipment and facilities. Lower costs, including lower costs of capital,ЍThe Commission has repeatedly recognized the public interest benefits of improved access to capital that can fuel investment in stateoftheart infrastructure that leads to economic growth and job formation in the U.S. economy and facilitates competition among U.S. carriers both at home and abroad.Sprint Corporation, Declaratory Ruling and Order, DA 961560, File No. ISP96003 at  12 (Chief Intel Bur. Sept. 18, 1996) (permitting increased foreign ownership of Sprint).#XN\  P#XP# mean lower prices and increased ability to make the investments needed for further innovation and continued growth. Moreover, because MCIs and WorldComs retail businesses are largely complementary, with MCI strong in direct residential and large business sales and WorldCom strong in small and midsized business sales, the merger of these two companies will blend and reinforce their respective strengths. Application Volume I at 2627. See First Carlton/Sider Decl.  1214; Hall Decl.  9599. International:The combination of WorldCom and MCI will also enhance the ability of these U.S.based carriers to penetrate formerly closed overseas markets and take advantage of opportunities abroad that the U.S. government so strongly advocated in achieving the WTO Agreement. See Application Volume I at 3537. A driving force behind the merger of MCI and WorldCom is the desire to create the first truly global endtoend competitive carrier. ЍThe Commission has recognized that [a]n important purpose of the WTO Basic Telecom[munications] Agreement is to enable carriers to provide international service on an endtoend basis. BT/MCI, at  4 (citation omitted).  As a fully integrated company, MCI WorldCom will offer a comprehensive range of local, long distance, wireless, and international communications services. The merged company plans to move as aggressively as regulatory conditions permit to offer competitive choices to consumers on a global scale. By combining the expertise and resources of the two companies, MCI WorldCom will be a strong and efficient competitor to incumbent carriers worldwide. WorldCom and MCI have complementary international competitive strategies, which the combined company will expand upon. WorldCom has constructed and operates metropolitan fiber optic networks in London, Frankfurt, Paris, Stockholm, Amsterdam, and Brussels, as well as resale operations in other major foreign markets. WorldCom is now connecting those city networks through the construction of its high capacity, panEuropean network, Ulysses. The WTO Agreement presents even further competitive opportunities for MCI WorldCom, particularly in Asia, where WorldCom's operations are already rapidly expanding. Likewise, MCI currently is an active participant in competitive strategies abroad, including second operators in Mexico and New Zealand. Together, MCI WorldCom will become a potent competitor to incumbent carriers worldwide and help fulfill the promise of the WTO Agreement. U.S. consumers will be among the primary beneficiaries of this new competition. Internet: The combination of WorldCom and MCI will also bring significant benefits to consumers of Internet services. ISPs and their customers must generally rely on the monopoly ILECs not only to connect the customer to the ISP, but also to connect the hubs within local calling areas. This merger holds the promise to create competition for these facilities over which Internet traffic must flow. Joint Reply at n.112; Application Volume I at 33. Moreover, the deployment of 3' broadband local network services in the local exchange market will improve the least technologically advanced and most vulnerable element in the Internet communications system. All of these benefits are credible, specific, and based upon clearly verifiable information for the Commission to conclude that the proposed transaction further the public interest. In regard to these efficiencies, Applicants note the following remarks from a March 16, 1998 research report prepared by Jack B. Grubman of Salomon Smith Barney (WorldComs investment banker):  `  [W]e believe that the synergies that will be realized and the integration of the companies are much more straight forward than the size of this merger would suggest. The bottom line is that MCI and WorldCom have very complementary customer bases, sales forces, and even network assets #XN\  P$XP# (MCIs network has a broader reach in the traditional long distance sense in that it connects deeper into Bell networks, has more points of presence and has operating agreements to more countries whereas WorldComs network assets are much better represented in newly opened markets such as US local and international). Of the $2.5 billion in likely synergies in 1999 going up to $5.6 billion in year 2002, 60% of the 1999 synergies and 80% of the 2002 synergies are in network areas that we would describe as optimizing each others networks to take advantage of each others known and existing traffic flows and anticipated growth of specific services. In other words, there is very little guess work associated with the vast majority of synergies here. It is simply regrooming one anothers network to optimally carry the combined traffic loads of the two companies.#XN\  P%XP#ЍJack B. Grubman, Salomon Smith Barney, WorldComReinitiating Coverage with 1M & 12 Mo. Price Target of $60, Part II of IV, Page 4 of 6 (emphasis added).  `  With respect to international services, Grubman goes on to note that it is clear that the synergies are not only well identified but actually will be rather straight forward to execute since we are really talking about the basic elements of network engineering namely, regrooming networks to handle traffic loads which is when one thinks about it, the business that WorldCom and MCI are in every day.6ЍId., Page 2 of 6. 6 And, with respect to the Applicants estimates of core sales, general, and advertising expenses, Grubman concludes that the Applicants may have underestimated the total savings generated by the merger: Given that the SG&A savings in total only account for about 7% to 8% of total expense savings, we believe that this is a figure that will likely be surpassed given WorldComs past track record.'ЍId.' As for the combination of WorldComs and MCIs sales forces, the combined sales force fits like a glove in covering the complete gamut of business customers from the low end to the very major level accounts.6ЍId., Page 3 of 6. 6  C.Conclusion This merger represents a pivotal moment in the history of telecommunications. The hopes for competition that went into the drafting of the Telecommunications Act of 1996 have the potential to become reality when the combined forces of MCI and WorldCom are focused on the incumbent local exchange monopolies. The benefits of this proposed transaction are enormous, while there are no adverse effects on competition. The Applicants have clearly demonstrated specific, credible, verifiable benefits that are sufficiently likely to be achieved. #XN\  P&XP# VIII.CONCLUSION WorldCom and MCI respectfully request that the Commission grant the applications, as amended. Respectfully submitted, MCI COMMUNICATIONS WORLDCOM, INC. CORPORATION    Michael H. SalsburyAndrew D. Lipman Mary L. BrownJean L. Kiddoo Larry A. BlosserMichael W. Fleming MCI COMMUNICATIONSSWIDLER & BERLIN, CHARTERED CORPORATION3000 K Street, N.W., Suite 300 1801 Pennsylvania Avenue, N.W.Washington, D.C. 20007 Washington, D.C. 200063606(202) 4247500 (202) 8721600 Anthony C. EpsteinCatherine R. Sloan John B. MorrisRobert S. Koppel Ian H. GershengornWORLDCOM, INC. JENNER & BLOCK1120 Connecticut Avenue, N.W. 601 Thirteenth St., N.W.Washington, D.C. 20036 Washington, D.C. 20005(202) 4241550 (202) 6396000 Dated:March 20, 1998 #ATTACHMENTS A.` ` ` LETTER TO CHAIRMAN KENNARD FROM BERNARD EBBERS AND BERT ROBERTS B.PATEL AFFIDAVIT C.SECOND CARLTON/SIDER DECLARATION D.WORLDCOM PEERING POLICY E.MCI PEERING POLICY #XN\  P'XP# #XN\  P(XP# #DocTrlrdddd 1 dddd 1  #<<232233.3ć