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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** I.Before the Federal Communications Commission Washington, D.C. 20554 ) In re Applications of ) ) PacifiCorp Holdings, Inc. ) Transferor, ) ) and ) Report No. LB-97-49 ) Century Telephone Enterprises, Inc. ) Transferee, ) ) For Consent to Transfer Control of ) Pacific Telecom, Inc., ) a Subsidiary of PacifiCorp Holdings, Inc.) ) ) MEMORANDUM OPINION AND ORDER Adopted: October 10, 1997 Released: October 17, 1997 By the Chief, Wireless Telecommunications Bureau: TABLE OF CONTENTS Paragraph I. INTRODUCTION AND EXECUTIVE SUMMARY. . . . . . . . . . . . . . . . 1 II. BACKGROUND. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 A. Application . . . . . . . . . . . . . . . . . . . . . . . .4 1. Applicants . . . . . . . . . . . . . . . . . . . . .4 2. Applications . . . . . . . . . . . . . . . . . . . .8 B. Legal Standards . . . . . . . . . . . . . . . . . . . . . 10 III. PUBLIC INTEREST ANALYSIS. . . . . . . . . . . . . . . . . . . . . 12 A. Summary of Analytical Framework . . . . . . . . . . . . . 12 B. Relevant Product and Geographic Markets . . . . . . . . . 21 1. Principles . . . . . . . . . . . . . . . . . . . . 21 2. Analysis . . . . . . . . . . . . . . . . . . . . . 24 C. Market Participants, Concentration, and Entry . . . . . . 31 1. Principles . . . . . . . . . . . . . . . . . . . . 31 2. Competitive Effects in Local Exchange Markets. . . 32 3. Competitive Effects in Interconnected Mobile Phone Markets35 D. Pro-Competitive and Efficiency Benefits . . . . . . . . . 38 IV. CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 V. PROCEDURAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . 44 VI. ORDERING CLAUSES. . . . . . . . . . . . . . . . . . . . . . . . . 46 I. INTRODUCTION AND EXECUTIVE SUMMARY 1. We have before us applications filed by Century Telephone Enterprises, Inc. ( CTE ) and PacifiCorp Holdings, Inc. ( PHI ) pursuant to Sections 214(a) and 310(d) of the Communications Act of 1934, as amended ( the Communications Act ). The parties seek our consent to transfer ultimate control over all FCC authorizations held by PHI's wholly-owned subsidiary, Pacific Telecom, Inc. ("PTI") to CTE and its subsidiary, Century Cellunet, in connection with the proposed merger of CTE and PTI (collectively "the Applicants"). Under the terms of their merger agreement, PTI would become a wholly-owned subsidiary of CTE. The agreement also would make Pacific Telecom Cellular and Pacific Telecom Cellular of Alaska, Inc. wholly-owned subsidiaries of Century Cellunet, Inc. In their applications, both CTE and PHI also seek a declaration of common ownership under Section 212 of the Communications Act. In addition, the applicants request that all pending and after-filed applications be considered part of the transaction for which approval is being sought, and be exempt from any applicable cut-off rules. 2. Both companies currently provide wireline local exchange service and mobile communications services primarily in rural communities throughout portions of the United States. CTE operates in the southern, western, and midwestern regions of the country. Meanwhile, PTI operates in the Pacific Northwest, the midwest, and Alaska. Although PTI and CTE provide local exchange service in contiguous service areas in Wisconsin and Colorado, the companies generally do not operate in the other's geographic service territories. The Applicants' attributable interests in mobile communications businesses also do not overlap geographically. 3. Applying the Commission's public interest analysis, the Bureau finds no evidence that the proposed merger between Century and PTI will adversely affect competition in any relevant market. Balanced against this, we find that Applicants have not established the existence of substantial pro-competitive efficiency benefits to consumers. Applicants have, however, submitted evidence, which remains unchallenged, indicating that the merger may produce additional public interest benefits for some consumers, especially those in rural communities, through plant upgrades and investment in enhanced telecommunications services. This evidence is entitled to limited weight since Applicants have made no commitments to make those upgrades. When taken together with the limited efficiency benefits, however, this evidence is sufficient for Applicants to meet their burden of proof given the absence of any evidence that the proposed merger may inhibit or delay the development of competition. Accordingly, we find that the proposed transfer will serve the public interest, convenience, and necessity, and grant the requested authorizations and transfer-of-control applications. II. BACKGROUND A. Application 1. Applicants 4. PHI, through PTI, provides local exchange and mobile telecommunications services in rural communities across the country. PTI owns thirteen local exchange carriers ("LECs") that in total serve approximately 559,000 access lines in 344 exchanges located in Alaska, California, Colorado, Idaho, Iowa, Minnesota, Montana, Nevada, Oregon, Washington, Wisconsin, and Wyoming. All of PTI's LECs meet the Communications Act's definition of a "rural telephone company." PTI operates cellular systems in Alaska, Michigan, and Wisconsin, and holds investment interests in cellular systems operated by others located in Oregon, South Dakota, and Washington. PTI also operates seven Personal Communications Systems ("PCS") systems in Alaska, Colorado, Iowa, Michigan, Minnesota, Montana, and Wisconsin. In addition, PTI is an 80 percent owner in NPC, an international, trans-Pacific fiber optic cable. 5. CTE also provides local exchange telephone services and mobile telecommunications services. CTE's local exchange telephone subsidiaries operate approximately 526,000 access lines in 284 exchanges located in Arizona, Arkansas, Colorado, Idaho, Indiana, Iowa, Louisiana, Michigan, Mississippi, New Mexico, Ohio, Tennessee, Texas, and Wisconsin. CTE's LECs also meet the definition of a "rural telephone company." Further, CTE operates cellular systems in Arkansas, Louisiana, Michigan, Mississippi, Texas, and Wisconsin. Some of CTE's LECs also provide interexchange, operator, competitive access, and interactive services. Also, CTE recently acquired a small investment interest in a competitive local exchange carrier. 6. CTE and PTI have nine contiguous local exchange service territories. Seven of these contiguous territories are in Wisconsin, while two are in Colorado. With respect to their cellular and PCS interests, this merger involves no geographic overlap involving attributable interests. The proposed merger also would not result in any cross-block (A-block and B-block) cellular license holdings. CTE and PTI are minority partners in several of the same cellular licenses. While the level of Applicants' minority ownership interests in these licenses will increase after the proposed merger, this increase will not affect the control of these licenses. Furthermore, this merger would not violate the Commission's Commercial Mobile Radio Service ("CMRS") spectrum cap. 7. According to the Applicants, upon consummation of the proposed transaction, the combined entity would hold 0.6 percent of the nation's telephone exchange lines. After the merger, the combined entity's cellular operations would rank behind nine larger cellular companies and its PCS operations would rank 26th among broadband PCS providers. 2. Applications 8. On July 7 and July 11, 1997, CTE and PTI submitted joint applications for transfer of control, along with a series of Form 490, Form 703, and Form 704 applications, to assign ownership of PTI's specialized mobile radio ("SMR"), microwave, rural radio, cellular, PCS, international earth station, and private land mobile licenses to CTE. In their July 11 Application, the Applicants stated that pursuant to a June 11, 1997 Stock Purchase Agreement, CTE will purchase all of the issued and outstanding shares of PTI. Subsequent to the transaction, PTI and all of its continuing subsidiaries will continue to exist as wholly-owned indirect subsidiaries of CTE and the names of the licensees that hold the various FCC authorizations at issue will not change. 9. These applications were placed on Public Notice on August 22, 1997. In a letter to the parties dated August 25, 1997, the Wireless Telecommunications Bureau ("Bureau") requested further information regarding the identification of significant potential competitors in certain of Applicants' local exchange markets, the efficiencies and economies that the Applicants expect to arise from the proposed merger, and the impact of the merger on creating additional overlaps involving local exchange and wireless-based operations. The parties jointly responded to this request for further information on September 9, 1997. On October 8, 1997, the Applicants filed a second supplement to the Application to correct discrepancies in earlier filings. Further information was submitted by the parties on October 9, 1997. No comments on or oppositions to the transaction were filed. B. Legal Standards 10. Title II and Title III of the Communications Act require the Commission to determine whether the transfer of control of certificates, licenses and authorizations serves the public interest, convenience, and necessity. Our examination of a proposed transfer of control under the public interest standard of Title II and Title III requires consideration of the effects of the transfer on competition. Under the Communications Act, applicants bear the burden of demonstrating that the transaction is in the public interest. In addition, Sections 7 and 11 of the Clayton Act empower the Commission to disapprove acquisition of common carriers engaged in wire or radio communications or radio transmissions of energy where in any line of commerce in any section of the country the effects of such an acquisition may be substantially to lessen competition, or to tend to create a monopoly. 11. The courts have construed these statutory provisions to mean that the Commission has discharged its responsibility to consider the effect of a proposed merger on competition when the Commission seriously considers the antitrust consequences of a proposal and weighs those consequences with other public interest factors. We have discretion whether to exercise our Clayton Act authority. We choose not to exercise it in this case because we find our jurisdiction under the Communications Act to be sufficient to address all of the competitive effects of the proposed transfer. III. PUBLIC INTEREST ANALYSIS A. Summary of Analytical Framework 12. In our public interest analysis, we begin by evaluating the current state of competition in the relevant markets, and the likely competitive effects of the proposed merger. In performing this evaluation, we focus on how the merger will affect competitive conditions in the relevant markets, compared with the competitive conditions that would likely exist in these markets if Century and PTI did not merge. We then consider any beneficial efficiencies that are likely to result from the merger. We also take into account other public interest benefits that are likely as a result of the merger. Considering all these factors together, we then assess whether the proposed merger is in the public interest. Following the Commission's clear precedent, it is the applicants that bear the burden of demonstrating that the proposed transaction will enhance competition and thus is in the public interest. 13. In conducting our public interest analysis of competitive conditions in markets affected by this proposed merger, we follow the approach taken by the Commission in its recent BA-NYNEX Order and BT-MCI Order. In those orders the Commission followed the approach it used in the LEC In-Region Interexchange Order, where it found the Department of Justice and Federal Trade Commission 1992 Horizontal Merger Guidelines to be a useful analytical tool to evaluate the likely competitive effects of mergers. In the BA-NYNEX Order, the Commission fully articulated its general approach to merger analysis in a case concerning the competitive effects of a merger between adjacent incumbent LECs while the pro-competitive, market-opening process developed in the Telecommunications Act of 1996 ("1996 Act") is taking effect. This approach is based heavily on the Guidelines and the Commission's independent expertise developed over several decades considering the special factors affecting competition in telecommunications markets. As a result, the Commission's framework is designed to ensure that its assessment of the competitive impacts of a merger is based on generally accepted economic principles relating to market analysis. 14. Our application of the Commission's public interest analysis in this order will consist of four steps. First, we define the relevant product and geographic markets. We note that, in defining relevant markets, we may identify both "final product markets" or "end-user markets," where the product or service is sold to end-user 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. 15. Second, we identify significant current and potential participants in each relevant market, especially those that are likely to have a significant competitive effect on those markets. As explained in the BA-NYNEX Order, in order to evaluate proposed mergers properly in the context of an evolving marketplace and to take account of the uncertainties surrounding the pace and extent of the development of competition, it was necessary to examine the likely competitive effects of the merger "both during implementation of the 1996 Act and as that implementation alters market structure." More specifically, the Commission examined relevant markets as they exist today and as they are expected to develop over the next few years as the 1996 Act becomes more fully implemented and substantially affects the development of competition in local markets. As a result, the most significant market participants include both "actual competitors" and "precluded competitors." From the universe of actual and precluded competitors, we then identify those most significant market participants "that have, or are likely to speedily gain, the greatest capabilities and incentives to compete most effectively and soonest in the relevant market." 16. Third, we evaluate the horizontal effects that the merger may have on competition in the relevant markets. In the case of the proposed merger between CTE and PTI, the transaction is primarily between firms that produce similar services (a "horizontal" relationship) as opposed to a transaction between a firm that is a significant producer of a product or service that is used by the other firm in its operations (a "vertical" relationship). As a result, we confine our analysis in this order to the potential horizontal effects of the proposed merger. 17. Where a relevant market is concentrated and a merger results in a firm that controls a significant portion of this market, a merger in the absence of regulation may increase the ability of the merged firm to profitably exercise unilateral market power (or may slow any decline in this ability) by raising its price above competitive levels. Alternatively, where the relevant market is concentrated, a merger may also increase the ability of a relatively small number of significant market participants, including the merged firm, to exercise market power through coordinated action, either by increasing price or restricting output. Where the relevant market is a final product market, consumers could be directly injured through increased prices or reduced quality. Where the relevant product is an input market, end-user customers may be indirectly injured to the extent that final goods producers can, and do, pass on the higher input prices to end-user customers in the form of higher end-user prices. We note that, for either unilateral or coordinated horizontal effects to occur, the merged firm, or a group of firms, must possess market power in the relevant product market. 18. Consistent with the Commission's analysis in BA-NYNEX and BT-MCI, we account for rapid regulatory and market changes by evaluating potential horizontal effects not only during the current period, when the 1996 Act is just beginning to take effect, but also during the period after the pro-competitive, de-regulatory policies in the Act have taken hold. In examining the relevant markets as if the 1996 Act was more fully implemented, we are not making a judgment that such implementation will occur swiftly. To the contrary, we are fully aware of the significant uncertainty as to how quickly these regulatory reforms can be implemented and how quickly domestic and international barriers to entry will be lowered or eliminated. Examining market structure as if these regulatory reforms were implemented, however, illuminates the extent to which the merger is likely to change future market structure, and possibly increase market power or slow its decline. Moreover, although changes in the timing of the implementation of these regulatory reforms may affect the timing when anti-competitive or pro- competitive effects become manifest, they should not affect the basic nature of those effects. 19. Fourth, we consider whether the proposed transaction will result in merger- specific efficiencies such as cost reductions, productivity enhancements, or improved incentives for innovation, and whether the merger will support the general policies of market-opening and barrier-lowering that underlie the 1996 Act. Our assessment takes into account any pro- competitive commitments made by the parties. In addition to our analysis of merger-specific efficiencies, which is consistent with the approach taken in the 1997 revisions to the Guidelines, we also consider whether the merger is likely to produce other public interest benefits. 20. We must weigh any competing harmful and beneficial effects to determine whether, on balance, the merger is likely to enhance competition in the relevant markets. We note, however, that, in light of the uncertainty concerning regulatory and market developments, we will scrutinize any merger that appears likely to remove a firm that might prove a significant competitor in markets that are just opening to competition. 21. Finally, we recognize that, in evaluating proposed mergers in telecommunications markets that are subject to such change and uncertainty, we will necessarily be making predictions about future market conditions and the likely success of individual competitors. In making our predictions, however, we are not bound by the rules of evidence that may apply in judicial contexts. As the Supreme Court stated in FCC v. RCA Communications, Inc.: To restrict the Commission's actions to cases in which tangible evidence appropriate for judicial determination is available would disregard a major reason for the creation of administrative agencies, better equipped as they are for weighing intangibles by specialization, by insight gained through experience, and by more flexible procedure. In the nature of things, the possible benefits of competition do not lend themselves to detailed forecast . . . . B. Relevant Product and Geographic Markets 1. Principles 22. Relevant Product Markets. Consistent with the Guidelines and the LEC In- Region Interexchange Order, we define a product market as a service or group of services for which there are no close demand substitutes. As the Commission explained in the LEC In- Region Interexchange Order, in order to determine the relevant product market, we must consider whether, in the absence of regulation, if "all carriers raised the price of a particular service or group of services, customers would be able to switch to a substitute service offered at a lower price." This analysis must be done individually with respect to each merger since the extent to which the transaction may affect competition necessarily varies depending on the particular facts. In addition, we recognize that relevant product markets may change over time. For example, as competition increases and more telecommunications carriers enter each others' markets, we expect that carriers will begin to bundle packages of telecommunications services. This expectation is foreshadowed in the CMRS market, where robust competition among cellular and PCS providers, in particular, has already given rise to a number of distinct bundled offerings in each geographic area. As more carriers offer bundles of services, consumer expectations and perceptions of relevant products may change. To the extent that large numbers of consumers come to expect and demand bundled product offerings, and carriers accordingly supply such offerings, the bundled product offerings may well become a separate relevant product market even if, today, such offerings are nascent or nonexistent in most markets. Finally, within a particular relevant product market, it may be appropriate to identify and separately aggregate consumers with similar demand patterns. For purposes of this proceeding, we define two relevant product markets: (1) local exchange services, and (2) interconnected mobile phone services. 23. Relevant Geographic Markets. A geographic market aggregates those consumers with similar choices regarding a particular good or service in the same geographical area. In the LEC In-Region Interexchange Order, the Commission found that each point-to-point market constituted a separate geographic market. The Commission further concluded, however, that we could consider groups of point-to-point markets where customers faced the same competitive conditions. We will, therefore, treat as a single geographic market an area in which all customers in that area will likely face the same competitive alternatives for any particular relevant service. This approach allows assessment of the market power of a particular carrier or group of carriers based on unique market situations by recognizing that certain carriers may target particular types of customers, provide specialized services or control independent facilities in specific geographic areas. 2. Analysis 24. Wireline Local Exchange and Exchange Access Services. For the purpose of analyzing the proposed merger between CTE and PTI, we will treat local exchange and exchange access services ("local exchange services") including, e.g., high-volume business and mass market residential service, as a single relevant product market. We include exchange access service within our definition of local exchange service because all LECs now provide access to the interexchange network to their customers as part of their local service. We also regard local exchange and interexchange services to be distinct product markets. Local exchange and long distance communications services are perceived by consumers to be different products. These two services currently are distinguishable in their pricing and billing. Local calls are generally priced at a flat rate, while long distance calls are priced by the duration of the calls. Moreover, long distance calls are billed under the name of the interexchange service provider on their local phone bill. In addition, consumers have had the ability to choose their long distance service providers, but, until the 1996 Act was passed, there was a single monopoly in most markets for local service. Thus, we also base this product market determination on the regulatory distinctions that have historically been drawn between these services. 25. As mentioned above, the identification of relevant product markets is inherently merger specific. Accordingly, the Bureau's conclusion that local exchange services are a relevant market in this case does not conflict with the Commission's conclusion that residential/small business markets were separate relevant markets with respect to the BA-NYNEX Order. Instead, we believe it is appropriate here to consider all local exchange services as a single relevant product markets since both Applicants participate in the business and residential markets and offer similar ranges of services. In particular, there does not appear to be any basis for concluding that analysis of the potential effects of the merger will be any different if it were conducted separately for each of the individual components of local exchange services. 26. While each and every point-to-point local calling route constitutes a separate geographic market, each customer faces the same competitive alternatives for all routes within a local calling area. This allows us to aggregate these routes into a single relevant market. For purposes of analyzing local exchange services, the Applicants contend that the relevant geographic market should be either a state or LATA. We disagree. Consistent with the Commission's approach in the BA-NYNEX Order, we believe that the appropriate relevant geographic market generally should be a LATA only if all consumers within a LATA have access to the same set of service providers, product offerings, and prices. To the extent that these conditions are not met within a LATA, the appropriate geographic market would be the largest area within each LATA meeting these criteria. 27. Both CTE and PTI provide local exchange services exclusively as incumbent providers. Consequently, this merger does not involve any geographic overlap involving their respective local exchange services. Applicants indicate, however, that CTE and PTI operate contiguous local exchange businesses in nine territories. The existence of contiguous exchanges merits review because we believe that a neighboring competitor would be able to expand its market with more ease under such circumstances, especially if it has facilities nearby or a recognized brand name. In the absence of such factors, there is no evidence in the record indicating that an incumbent LEC would have significant incentives or capabilities for quickly entering non-contiguous, rural, low-density exchanges, such as those served by CTE and PTI, in these early days after passage of the 1996 Act. Therefore, we confine our analysis of the impact of this merger on competition to the contiguous territories of both companies. 28. Interconnected Mobile Phone Services. Our second relevant product market is interconnected mobile phone services, comprising all commercially available two-way mobile voice telephony services interconnected to the public switched telephone network ( PSTN ). These services include cellular, broadband PCS, and interconnected trunked SMR. Although a variety of communications services now exist to serve our mobile society, only mobile phone services provide users with interconnection to the public switched network and thereby allow them to communicate on a two-way, real-time, voice basis with the general public while on the move. 29. For the mobile communications services at issue in this proceeding, consumer demand is for transmission capability between two points, encompassing both origination and termination, that can be accomplished without a fixed loop and a stationary hand set. Following the approach to geographic market definition adopted in the LEC In-Region Interexchange Order, we define the relevant geographic markets for these services on a general level to be all possible routes that allow for complete end-to-end transmissions between two particular locations (i.e., point-to-point markets), but recognize that the points of origination and/or termination may not be fixed in location. However, the LEC In-Region Interexchange Order also noted that when a group of point-to-point markets exhibit sufficiently similar competitive characteristics (i.e., market structure), we may aggregate such markets, rather than examine each individual point-to- point market separately. The predominantly local nature of demand for mobile services -- and the terms under which the Commission has previously licensed cellular, PCS, and SMR operators -- supports aggregating these point-to-point markets on a relatively localized basis. 30. Both Applicants employ their cellular and PCS licenses primarily in the provision of mobile phone services. Based on our review of Applicants' cellular and PCS assets examined collectively, we determine that there are no relevant geographic markets for mobile phone services in which CTE and PTI have attributable interests in the provision of competing services. C. Market Participants, Concentration, and Entry 1. Principles 31. The next step in our competitive analysis is to identify those companies in each relevant market we have defined that are significant market participants. From the universe of actual and precluded competitors, we identify these participants based on an analysis of their capabilities and their incentives to compete effectively in each relevant market. Of particular interest are those market participants that may be at least as significant a competitive force as either of the merging parties. In determining the most significant market participants from the universe of actual and precluded competitors, we identify the market participants that have, or are likely to gain quickly, the greatest capabilities and incentives to compete most effectively and soonest in the relevant market. In addition, we seek to identify which competitors, other than the merging parties, are likely to be as significant a competitor as the lesser of the merging parties. 2. Competitive Effects in Local Exchange Markets 32. Significant Market Participants. Applicants state that the Bell Operating Companies (BOCs), GTE, and the three major interexchange carriers are significant precluded competitors in Applicants' markets. Applicants do not provide any information, however, regarding these companies' incentives or capabilities, or lack thereof, to enter Applicants' territories. They further assert that neither PTI nor CTE should be regarded as a market participant, much less among the most significant of such participants, in any of the territories served by the other firm because neither firm ever had any plans to enter the other's local exchange markets. Also, Applicants contend that the contiguous CTE and PTI exchanges constitute markets that are "de minimis at best" and the number of access lines in all nine contiguous territories is approximately 72,783. Finally, the Applicants contend that competition is not possible in these contiguous geographic markets. They maintain that there are no incentives for competitors to enter such areas because these contiguous exchanges are in high-cost, rural areas with low subscriber densities and have a primarily residential customer base. In addition, they state that they are dependent upon universal service support to provide services to these areas because of their high-cost characteristics. 33. Our assessment of significant market participants focuses on the incentives and capabilities of other firms with respect to providing service in the relevant markets. Prior to implementation of the 1996 Act, most firms that might have the incentives and capabilities to participate in these markets were precluded -- in fact, in many respects it was often illegal for them to do so. Accordingly, we must consider whether CTE and PTI might have the incentives and capabilities to enter each other's markets but for the proposed merger. Although there are nine areas where the two firms serve contiguous areas, this merger is much closer to the situation addressed by the Commission in the SBC-PacTel Order than to that it addressed in the BA-NYNEX Order. As in SBC-PacTel, the vast majority of areas served by the merging parties are not contiguous and no major metropolitan area is in such a contiguous area. In fact, the uncontroverted evidence before us indicates that only 6.7 percent of the approximately 1,085,000 access lines served by the two companies are in contiguous areas. In comparison, Bell Atlantic and NYNEX each served substantial portions of the New York metropolitan area, which is the nation's largest metropolitan area. The companies have submitted that neither carrier had plans to enter contiguous exchanges served by the other carrier. Even if CTE or PTI were to enter the other's market in these contiguous areas, it is unlikely that either company could win more than a relatively small number of lines served by the other company. Finally, we note that the proposed merger would nearly roughly double the Applicants' size and customer base, which could increase their incentives and capabilities for competing with larger LECs serving adjacent exchanges. 34. Competitive Effects. Because CTE and PTI are not significant market participants in each other's territories, and are unlikely to develop the incentives or capabilities to become significant market participants in those territories, the proposed merger is unlikely to reduce or delay the development of competition. In sum, the merger simply does not appear likely to materially alter either current or future market structure. In spite of this conclusion, however, we strongly disagree with Applicants contention that competition is unlikely to develop in the relevant markets. When it passed the 1996 Act, Congress clearly envisioned that all Americans would receive the benefit of competition among telecommunications providers. It is true that the competition envisioned by Congress may take longer to develop in many rural areas than in most of the rest of the country -- the Commission has recognized this before. We note, however, that the Commission's recent proceeding on Universal Service encourages competitors to enter high-cost, rural markets by making universal service support available to competitors, rather than just the incumbent LECs. We believe that this will further Congress's intent and increase the pace and extent of competitive entry in high-cost, rural markets. 3. Competitive Effects in Interconnected Mobile Phone Markets 35. Significant Market Participants. We find that the market for interconnected mobile voice communications includes services provided by cellular, broadband PCS, and interconnected, trunked SMR carriers. Throughout the United States, competition from cellular companies in any given geographic market for mobile phone services is limited to two licensees. These cellular systems, however, have been operational for over a decade and have extensive coverage areas. PCS services, by contrast, have been inaugurated only within the last year or so. Most A- or B-block PCS systems are expected to become operational sometime in 1997, although coverage may be limited to larger urban centers for the near future. Mobile phone services to urban areas are also available from digital SMR providers (e.g., Nextel and Geotek), and to more rural areas from trunked SMR carriers. Hence, in predominantly rural areas, the current market for mobile phone services typically includes only cellular and interconnected SMR providers. Although PCS companies have been licensed to provide competing services in rural areas, very few are expected to begin offering services in the immediate future. Similarly, providers of digital SMR technologies do not expect to offer interconnected mobile phone services to rural areas within the near future. 36. Competitive Effects. Applicants contend that the proposed merger will not significantly reduce the availability of competitive opportunities for other CMRS providers in Applicants' markets because the CMRS spectrum cap prevents the Applicants from acquiring more than 45 MHz of broadband PCS spectrum. Based on this assertion and our own records, it appears that applicants do not presently compete with each other to provide mobile phone services in any of the geographic markets affected by this merger. In fact, the only market in which both Applicants are participants is one where they are both minority owners of the same license. In that situation, the proposed merger would not cause Applicants to exceed the CMRS spectrum cap. Likewise, the merger is not eliminating a competitor in a relevant market. Nor is the merger likely to affect the incentives or capabilities of any firms, whether the merging parties or other potential competitors, with respect to the relevant mobile voice communications markets. In particular, the amount of spectrum available to firms that are considering entering those markets remains unchanged and, to the extent that a firm was precluded from competing in the markets before the proposed merger due to the amount of spectrum available for use, that firm will continue to be precluded to the same extent, and no more, after the merger. Therefore, we conclude that the proposed merger is unlikely to reduce competition, or inhibit the development of competition, in the relevant markets for interconnected mobile phone services. 37. In addition, we note that competition will continue to develop in mobile communications markets. The federal regulatory environment facing potential mobile communications carriers has considerably enhanced prospects for entry into the mobile communications market for potential competitors. Spectrum auctions have accelerated the pace of licensing, and new policies are affording license holders the ability to use spectrum more flexibly. In addition, the Commission is currently in the midst of implementing policies that should greatly improve opportunities for entry into rural markets. D. Pro-Competitive and Efficiency Benefits 38. Having concluded that there are no potential harms to the public interest arising from this merger, we are now obligated to assess the potential for public interest benefits, in particular, the extent to which this merger will likely generate efficiencies. In the BA-NYNEX Order, the Commission defined these efficiency benefits as "the pro-competitive benefits of a merger that improve market performance," thereby benefiting consumers through, for example, "lower prices, improved quality, enhanced service or new products." In addition, the Commission explained that only merger-specific efficiencies, i.e., those that would not occur but for the merger or are unlikely to be achieved through less competitively-harmful means than the merger, are relevant to the public interest analysis. Finally, the Commission in the BA- NYNEX Order ruled that applicants bear the burden of proof, and cannot "carry their burden if their efficiency claims are vague or speculative, and cannot be verified by reasonable means." 39. Efficiencies. The Applicants state that the proposed merger will permit a number of operational efficiencies. The efficiencies the Applicants anticipate include the consolidation of the companies' accounting and billing platforms, reductions in the cost of advertising, and greater bargaining leverage when purchasing equipment. Applicants state that these cost savings will enable CTE to implement upgrades at a more rapid pace. Applicants further state that these economies and efficiencies in the provision of mobile communications services will enable CTE to become a more effective competitor to larger CMRS providers. 40. The evidence submitted by Applicants is largely insufficient to establish that the proposed transaction is likely to produce any merger-specific efficiencies that will benefit consumers. In fact, some of the Applicants' assertions are "vague or speculative, and cannot be verified by reasonable means," making them insufficient under the Commission's public interest analysis. Asserted efficiencies, such as the claimed reduction in advertising costs, could be as much the result of reduced competition as increased efficiency, and Applicants have not demonstrated that merger-specific efficiencies are the reason for the asserted savings. Accordingly, Applicants have mostly failed to prove their efficiency claims. Nonetheless, some of the asserted efficiency benefits appear to involve potential marginal cost reductions, and the Applicants' assertions are uncontroverted on this point. As a result, we do find that the merger may produce limited efficiency benefits. These benefits are entitled to only slim weight but, in light of the absence of potential adverse effects on competition, that weight does contribute in some measure to the Applicants' burden of proving that the merger is in the public interest. 41. Other Public Interest Benefits. The Applicants state that customers in PTI's service areas will see quality improvement and enhanced services at a more rapid pace as a result of the merger. CTE reports that it anticipates spending $25 million on capital expenditures in excess of levels currently planned by PTI over the next three to five years. For example, CTE plans to replace open wire in local loops currently in use within PTI's territory with next-generation digital loops. CTE also plans to upgrade PTI's telephone switching capabilities to enable it to provide voice mail, internet access, telemedia and distance learning services. In addition, the Applicants report that this merger would allow the implementation of digital service in PTI's cellular markets in Wisconsin and Michigan. 42. The Commission is very supportive of measures that will bring improved and advanced telecommunications services to all customers, particularly those in rural areas that might not otherwise receive such services for many years. In this case, however, Applicants have only indicated that they anticipate investing in the additional capital expenditures and offering advanced services -- we note they could choose not to do so. Nonetheless, we believe that Applicants will make the additional investments and provide improved and advanced telecommunications services to customers in the relevant markets and elsewhere, as represented. IV. CONCLUSIONS 43. We find that the proposed merger is unlikely to result in any adverse competitive effects because the two firms do not appear to be, and appear unlikely to become, significant market participants in each other's service territories. Based on the record before us, there is no indication that the firms have the incentives or capabilities to extend their operations into the adjacent service territories. Balanced against this absence of evidence of potential competitive harm, Applicants have presented evidence that the merger may produce some merger-specific efficiencies. In addition, Applicants have persuaded us that the merger is likely to produce significant increases in capital expenditures that will bring improved and technologically advanced services to customers sooner than might otherwise be the case, particularly in some of the rural areas served by the merging firms. We find that the Applicants have met their burden of proving that the proposed merger is in the public interest. V. PROCEDURAL MATTERS 44. Applicants requested that pursuant to Section 212 of the Communications Act, the Bureau find and declare that, upon consummation of the transaction, (1) CTE will own more than 50 percent of the voting stock of PTI and (2) CTE, PTI, and their respective subsidiaries will be deemed to be "commonly owned carriers" as that term is defined in Section 62.2 of the Commission's Rules. Applicants state that the merger contemplates that, as a result of the combination of companies, CTE will hold all of the stock of PTI, and that this satisfies the requirement of Section 62.12 that the applicants be commonly owned as a result of the transaction. Because this request is reasonable and unopposed, we grant the request and make the requested finding and declaration. 45. The Applicants also requested a blanket exemption from any applicable cut-off rules which would otherwise apply to subsidiaries and affiliates filing amendments to pending Part 21, 22, 24, or 25 applications or other applications to reflect the consummation of the proposed transfer of control. We grant this request. VI. ORDERING CLAUSES 46. Accordingly, having reviewed the applications and the record in this matter, IT IS ORDERED, pursuant to Section 4(i) and (j), 212, 214(a), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j), 212, 214(a), 309, 310(d), that the applications filed by PHI and CTE in the above-referenced proceedings ARE HEREBY GRANTED. 47. IT IS FURTHER ORDERED that the above grant shall include authority for CTE to acquire control of: a) any authorization issued to the subsidiaries and affiliates of PTI during the Commission's consideration of the transfer of control applications and the period required for consummation of the transaction following approval; b) construction permits held by licensees involved in this transfer that mature into licenses after closing and that may have been omitted from the transfer of control applications; and c) applications that will have been filed by such licensees and that are pending at the time of consummation of the proposed transfer of control. 48. IT IS FURTHER ORDERED that the Report and Order SHALL BE EFFECTIVE upon release in accordance with 47 C.F.R.  1.103. FEDERAL COMMUNICATIONS COMMISSION Daniel B. Phythyon Chief, Wireless Telecommunications Bureau