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NEWSReport No. CC 97-34 COMMON CARRIER ACTION June 26, 1997


(CC Docket No. 97-121)

In an Order released today, the Commission denied the application of SBC Communications Inc. for authorization to provide long distance services originating in the State of Oklahoma. The Commission concluded that SBC has not met the requirements of the Communications Act for a Bell Operating Company (BOC) to enter the long distance market in a state within its local service region.

On April 11, 1997, SBC Communications Inc. and its subsidiaries,Southwestern Bell Telephone Company and Southwestern Bell Communications Services, Inc., d/b/a Southwestern Bell Long Distance, ("SBC") filed for authorization under section 271 of the Communications Act to provide long distance services originating in Oklahoma. Under section 271, the Commission had until July 10, 1997, to issue a determination on SBC's application.

Section 271 of the Communications Act allows the BOCs to provide long distance services originating in the states where they currently provide local exchange and exchange access services once they satisfy certain statutory requirements. As a preliminary matter, the BOC applicant must demonstrate either that: A) one or more unaffiliated competing providers of local telephone service to residential and business subscribers is connected to the BOC's network, and that such local telephone service is being "offered by such competing providers either exclusively over their own telephone exchange service facilities or predominantly over their own telephone exchange service facilities in combination with the resale of the telecommunications services of another carrier," thereby enabling the BOC to satisfy section 271(c)(1)(A)(commonly referred to as "Track A"), or B) if no potential competing provider has requested to connect to the BOC's network, the BOC has a statement of generally available terms and conditions in place demonstrating it is ready to allow potential competing providers to connect to its facilities, thereby satisfying section 271(c)(1)(B) (commonly referred to as "Track B"). In addition to these preliminary requirements, a BOC applicant must also demonstrate that: A) it satisfies the fourteen-point "competitive checklist" in section 271, which enables BOC competitors to connect with and gain access to elements of the local network; B) its long distance services will be provided in accordance with the structural separation and nondiscrimination requirements in section 272; and C) its entry into the long distance market is consistent with the public interest.

The Commission found that SBC has failed to satisfy certain threshold requirements. Specifically, SBC has failed to demonstrate that there is a competing provider of telephone exchange service to both residential and business subscribers in Oklahoma. The Commission concluded that the provision of local exchange service by Brooks Fiber Properties, Inc. on a test basis to the homes of four its employees does not qualify Brooks as a competing provider of telephone exchange service to residential subscribers. The Commission also emphasized that Brooks has represented that it currently is not accepting requests for residential service inOklahoma.

The Commission also concluded that SBC may not pursue in-region interLATA entry in Oklahoma under Track B at this time because it has received requests from potential competitors to connect to its network that, if implemented,will lead to the provision of competing local telephone service of the type described in Track A to residential and business customers. The Commission found that this interpretation of Track B is the most natural reading of the statute and the onlyinterpretation consistent with the statutory goal of facilitating competition in the local exchange market. Track B enables a BOC in certain limited circumstances to obtain long distance authority without showing that it faces competition in the provision of local telephone services to residential and business customers. The Commission rejected the argument by SBC and most other BOCs that Track B entry is available in a state unless the BOC has received a request for access and interconnection from an operational facilities-based competing provider of local telephone service to residential and business customers. Adoption of this interpretation, the Commission concluded, would create an incentive for a BOC to delay the provision of facilities in order to prevent any new entrants from becoming operational and thereby preserve the BOC's ability to enter under Track B.

The Commission also rejected the theory set forth by many potentialcompetitors that any request made by a prospective competitor, including a request to connect to the BOC network for the sole purpose of providing local telephone service to business customers, forecloses BOC entry under Track B. This interpretation, the Commission found, would permit potential competitors to submit an interconnection request that, on one hand, would preclude a BOC from proceeding under Track B but, on the other hand, if implemented, would not satisfy the requirements of Track A. The Commission concluded that this interpretation is inconsistent with the goals of the Communications Act, because it could prevent a BOC, through no fault of its own, from satisfying either Track A or Track B.

Finally, because the Commission found that SBC has failed to satisfy the requirements of section 271(c)(1), it did not address SBC's compliance with the competitive checklist, the requirements of section 272, or whether SBC's entry into the long distance market is consistent with the public interest.

Action by the Commission June 25, 1997, by Memorandum Opinion and Order (FCC 97-228). Chairman Hundt, Commissioners Quello, Ness, and Chong, with Chairman Hundt issuing a separate statement.


News media contact: Rochelle Cohen at (202) 418-0253.
Common Carrier Bureau contact: Craig Brown at (202) 418-1580.

RE: Application by SBC Communications Inc., Pursuant to Section 271 of the Communications Act of 1934, as Amended, to Provide In-Region, InterLATA Services in Oklahoma, CC Docket No. 97-121, June 25, 1997

In its application, SBC stresses that "Southwestern Bell can use its brand name, reputation for providing reliable, high-quality telephone service, and network expertise to inject competition into interLATA services in Oklahoma, particularly for the business of ordinary residential callers. . . . Southwestern Bell will be a committed, effective new entrant into the interLATA business in Oklahoma, and Oklahoma consumers will benefit from this new competition for all telecommunications services."1 Although the Department of Justice did not recommend approval of the SBC application, the Department did note: "InterLATA markets remain highly concentrated and imperfectly competitive . . . and it is reasonable to conclude that additional entry, particularly, by firms with the competitive assets of the [Bell Operating Companies], is likely to provide additional competitive benefits."2

I agree strongly that the entry into the long distance market by SBC or a carrier with similar assets would promote competition and benefit consumers. The Commission has previously noted concern about evidence with regard to lock-step increases in basic rates among the three major interexchange carriers that "suggests that there may be tacit price coordination among AT&T, MCI and Sprint."3

As SBC itself emphasizes, SBC's assets -- including its network, customer information, brand recognition, and financial strength -- would make it a formidable competitor in the market for long-distance or bundled local-long distance service. The experience of a relatively small incumbent local exchange carrier, Southern New England Telephone, suggests how effective individual Bell Companies will be as interexchange competitors when they choose to do what is necessary to meet the terms of Section 271 of the Communications Act.4

Both a Bell Company's failure to open its markets in accordance with the Communications Act, and its combination with its strongest potential competitor, would frustrate the pro-competitive purposes of the Telecommunications Act of 1996 and deny consumers that Act's potential benefits. There is a better way to achieve the consumer benefits of Bell Company entry into long distance, and that is to meet fully the standards Congress set in Section 271.

The power to enter the long distance market lies in the hands of the Bell Companies -- if they have the will, the law makes clear the way. In the present application, SBC has plainly failed to meet the standards set forth in Section 271. For that reason, the application must be denied.

1. SBC Brief in Support of its Application for Provision of In-Region InterLATA Services in Oklahoma, at iv (filed Apr. 11, 1997).

2. Department of Justice Evaluation at 3-4 (filed May 16, 1997).

3. Motion of AT&T Corp. to be Reclassified as a Non-Dominant Carrier, 11 FCC Rcd 3271, 3314 ¶ 82 (1995).

4. According to reports, Southern New England Telephone has gained a market share of 35% of the access lines in Connecticut. Merrill Lynch, Telecom Services -- RBOCs & GTE. Fourth Quarter Review: Defying the Bears Once Again, Reported Robust EPS Growth; Regulatory Cloud Beginning to Lift, at 8 (Feb. 19, 1997). See also, Southern New England Tel. Co., SNET First Quarter EPS $0.70 Before Extraordinary Charge, Press Release (Apr. 23, 1997).