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Statements: Kennard | Ness | Furchtgott-Roth & Powell | Tristani
FCC 98-242: Text | WordPerfect

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Federal Communications Commission
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This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC. 515 F 2d 385 (D.C. Circ 1974).

Report No. CC 98-31 COMMON CARRIER ACTION September 28, 1998

FCC Finds Unlawful Ameritech's and U S WEST's Business Agreements with Qwest; Companies May Not Provide Long Distance Service Before Opening Their Local Markets to Competition

The Commission today ruled that business agreements entered into by Ameritech Corp. and U S WEST Communications, Inc. violate the Communications Act by enabling the companies to provide long distance service to their local customers prior to demonstrating that their local telephone markets are open to competition. The Commission's decision resolves complaints to the FCC concerning the lawfulness of two separate business agreements between Ameritech and Qwest Communications Corp. and between U S WEST and Qwest. The agreements resulted in both Ameritech and U S WEST providing, under their own brand names, a package of services, that includes Qwest's long distance service, before gaining authorization to provide in-region long distance service. Today's decision requires Ameritech and U S WEST to cease offering Qwest's long distance service as part of the companies' CompleteAccess and Buyer's Advantage programs, respectively. This decision does not upset the specific long distance offering available to consumers through these programs; indeed, Qwest may still independently offer its long distance service to consumers at the same prices available through Ameritech and U S WEST. Rather, today's decision preserves the incentive for Ameritech and U S WEST to open their local markets to competition, and ensures that customers of those companies will eventually be able to choose between multiple telecommunications providers and service offerings.

In today's decision, the Commission found that Ameritech's and U S WEST's business agreements with Qwest violate section 271 of the Communications Act, as amended by the Telecommunications Act of 1996. Section 271, a critical, market-opening provision of the statute, maintains the pre-1996 Act prohibition against a Bell Operating Company (BOC), such as Ameritech or U S WEST, providing long distance service originating in a state within its local service region until the FCC approves an application demonstrating that the BOC's local telephone market is open to competition. Section 271 contemplates that to permit the BOCs immediate entry into the long distance market would allow the BOCs to leverage their bottleneck control in the local market into the long distance market, thus both threatening competition in the long distance market and entrenching the BOCs' monopoly in the local market. Moreover, Congress recognized that, unless the BOCs had some affirmative incentive to open their local markets to competition, it would be highly unlikely that competition would develop expeditiously in the local market. Congress, therefore, chose to forego whatever short term benefits might result from immediate BOC entry into long distance, and instead decided to use the promise of long distance entry as an incentive to prompt the BOCs to open their local markets to competition.

Consistent with this statutory framework, the Commission, in determining whether Ameritech and U S WEST are providing long distance service through these business agreements within the meaning of section 271, assessed whether the companies' involvement in the long distance market enables them to obtain competitive advantages, thereby reducing their incentive to cooperate in opening their local markets to competition. The Commission outlined factors relevant to making such a determination, including whether the company obtains material benefits uniquely associated with the ability to include a long distance component in a combined service offering; whether the company is effectively holding itself out as a provider of long distance service; and whether the company is performing activities and functions that are typically performed by those who furnish long distance service.

In reviewing these factors, the Commission found that: (1) the inclusion of Qwest's long distance service in the CompleteAcccess and Buyer's Advantage programs enables Ameritech and U S WEST to obtain competitive advantages, including the ability to provide one-stop shopping for local and long distance service; (2) Ameritech and U S WEST are holding themselves out to customers as providers of long distance service by marketing and selling, under a single brand name, Qwest's long distance service and their own local and intraLATA (short haul) long distance service and by performing customer service functions in connection with Qwest's long distance service; and (3) Ameritech and U S WEST are performing various functions and activities under their business agreements with Qwest that are typically performed by those who resell long distance service. The Commission concluded that Ameritech and U S WEST are indeed providing long distance service in violation of section 271.

In reaching these conclusions, the Commission relied on the fact that Ameritech and U S WEST each developed and designed a package of services that would include a long distance component; selected the carrier to transmit the long distance service; established, and exercised prospective control over, the price, terms, and conditions under which the long distance service would be offered; served as the initial and primary point of contact for the customer for service inquiries for the combined offering; relied on their brand name in marketing the combined offering; and expressly recommended Qwest's long distance service to consumers.

Because the CompleteAccess and Buyer's Advantage programs are unlawful with regard to section 271, the Commission found it unnecessary to reach the issue of whether these programs also violate section 251(g) of the Act. Under section 251(g), a BOC may not favor one long distance company over another and may not use its local monopoly power to influence the long distance market by, for example, recommending one long distance company over another. The Commission noted that the facts raise serious concerns as to whether Ameritech and U S WEST are in violation of that provision. In addition, the Commission stated its intent to initiate a rulemaking to clarify the requirements of section 251(g) in the post-1996 Act environment and said that it did not, therefore, wish to prejudge that future rulemaking by deciding the legality of these business agreements under section 251(g).

Ameritech and U S WEST entered into their business agreements with Qwest in May, 1998. Shortly after the companies launched the CompleteAccess and Buyer's Advantage programs, several parties jointly filed action against the companies in two federal district courts, alleging that the programs violate the Communications Act. Both courts referred the matter to the FCC for resolution.

Action by the Commission, September 28, 1998, by Memorandum Opinion and Order (FCC 98-242). Chairman Kennard, Commissioners Ness, Furchtgott-Roth, Powell, and Tristani, with Commissioners Ness and Tristani issuing separate statements and Commissioners Furchtgott-Roth and Powell issuing a joint separate statement.


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