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                           Before the
                Federal Communications Commission
                     Washington, D.C. 20554


In the Matter of                 )
                                )
Accounting Safeguards            )
Under the Telecommunications     )    CC Docket No. 96-150
Act of 1996:                     )
                                )
Section 272(d) Biennial Audit 
Procedures

                  MEMORANDUM OPINION AND ORDER

   Adopted:  August 27, 2002            Released:  September 5, 
2002


By the Commission:


                I.   INTRODUCTION AND BACKGROUND

     1.   In this Order, we deny SBC Communications Inc.'s  (SBC) 
request for confidential  treatment of  information contained  in 
its  audit  report   submitted  under  section   272(d)  of   the 
Communications  Act  of   1934,  as  amended   (the  Act).1    In 
particular, we reject SBC's arguments that information  contained 
in  its   audit  report   is   protected  by   the   Commission's 
confidentiality rules.

     2.   Section    272    establishes    certain    structural, 
transactional, and nondiscrimination  safeguards that govern  the 
relationship between  a  Bell  Operating Company  (BOC)  and  its 
affiliate after the BOC receives authorization for providing  in-
region interLATA telecommunications services pursuant to  section 
271 of the Act.2  Section 272(d) requires a BOC, after  receiving 
section 271 authorization, to obtain a joint Federal/State  audit 
conducted by an independent auditor to determine whether the  BOC 
complies with  section  272  and  the  Commission's  implementing 
rules.3     

     3.   In a series of  orders, the Commission implemented  the 
separate affiliate safeguards  mandated by  the statute.4   These 
regulations are intended to deter  conduct that would furnish  an 
unfair competitive  advantage to  a BOC's  newly established  in-
region interLATA  operations over  other carriers,  such as  cost 
misallocation or discrimination in favor of the BOC's section 272 
affiliate.5  In the Accounting  Safeguards Order, the  Commission 
established requirements  governing the  conduct of  the  section 
272(d) biennial audit, the oversight of the independent  auditor, 
and the filing  of the  audit report.6   The audit  staff of  the 
Common Carrier Bureau (now  the Wireline Competition Bureau)  and 
participating  state  commissions   subsequently  developed   the 
general audit  program in  conjunction with  the BOCs  and  other 
interested parties.  The general audit program has been  publicly 
available since 1997.7

     4.   On December 17, 2001,  SBC submitted its first  section 
272(d) biennial audit report.  Consistent with relevant  auditing 
standards, the ``final audit  report'' provides facts  concerning 
the compliance of several SBC affiliates that provided  in-region 
interLATA telecommunications in Texas  pursuant to SBC's  section 
271  authorization.8   The  final  audit  report  also   contains 
information     regarding      SBC's     in-region      interLATA 
telecommunications operations in Kansas, Oklahoma, and the former 
Ameritech   region.    With   its   submission,   SBC   requested 
confidential treatment for information on thirty-nine of  ninety-
three pages in the final audit report.9  Thus, SBC submitted  two 
versions of  its  section  272(d)  final  audit  report:   (1)  a 
publicly available report with  redactions (SBC Redacted  Section 
272 Audit Report); and (2) a version submitted under seal.  

     5.   On January 10, 2002, the Commission issued the  Section 
272(d) Audit  Order denying  Verizon's request  for  confidential 
treatment of  its  section  272(d)  audit  information  based  on 
section 272(d)(2)'s requirement that ``the audit results be  made 
public.''10  The Commission also found disclosure consistent with 
the audit provisions of section 220 of the Act, the Trade Secrets 
Act, and Exemption 4 of the Freedom of Information Act.11  

     6.   On February 12, 2002, AT&T Corporation (AT&T) requested 
access to SBC's  redacted audit information,  citing the  Section 
272(d) Audit Order.12 On March 19, 2002, SBC filed a response  to 
AT&T's request.13   On  April  9,  2002,  the  Commission  denied 
Verizon's petition for stay  and petition for reconsideration  of 
the  Section  272(d)  Audit  Order.14   On  July  30,  2002,  the 
Competitive   Telecommunications   Association   (CompTel)   also 
requested access to SBC's redacted audit information.15

                         II.  DISCUSSION

     7.   Pursuant to section 0.459 of the Commission's rules, we 
deny  SBC's  request  for  confidentiality  of  the   information 
contained   in   its   final   section   272(d)   audit   report.  
Specifically, we find that release  of the audit information  (1) 
will not impair the flow of audit information in the future;  (2) 
will not cause  SBC substantial  competitive harm;  and (3)  will 
serve the public interest.16  

     II.A.     Section 272(d) Audit Order

     8.   We concluded in the Section 272(d) Audit Order that the 
plain language and purpose of section 272 require disclosure of a 
BOC's  section  272  audit   report.17   We  relied  on   section 
272(d)(2), which requires the independent auditor to ``submit the 
results  of  the  audit  to  the  Commission  and  to  the  State 
commission of each  State in which  the company audited  provides 
service, which  shall  make  such results  available  for  public 
inspection.''18  We further noted that  the purpose of the  audit 
report is to  assist the Commission,  the state commissions,  and 
the public in evaluating a BOC's compliance with the section  272 
separate affiliate  requirements.19  We  also rejected  Verizon's 
claim  that  the  Commission's  confidentiality  rules  protected 
Verizon's   section   272    audit   results   from    release.20  
Specifically, we found  that Verizon's  audit results  were at  a 
summary, not  detailed, level,21  were otherwise  required to  be 
disclosed, and  were  dated.  22   We  therefore  concluded  that 
release of  Verizon's audit  information  was compelled  by  both 
section 272(d)(2) of the Act and consistent with the Commission's 
confidentiality rules.  

     9.   SBC argues  here that  our  conclusion in  the  Section 
272(d) Audit Order to release Verizon's audit results should  not 
apply to its section 272(d) audit because, inter alia, its  audit 
program contemplates a right to request confidential treatment of 
certain audit information.  According  to SBC, because the  audit 
program  stated  a  process  for  SBC  to  request   confidential 
treatment pursuant to  section 0.459 of  the Commission's  rules, 
the Commission cannot under section 272(d)(2) release information 
SBC claims  is confidential.   SBC confuses  the  confidentiality 
request procedure  contemplated  in  the audit  program  with  an 
entitlement to confidential  treatment.  As  explained in  detail 
below, SBC has  requested confidential  treatment of  information 
contained in the audit report.  SBC based its request on  section 
0.459 of the Commission's rules, and as explained below, we  deny 
SBC's request and order release on those grounds.

     II.B.     The Commission's Confidentiality Rules

     10.  The  Commission's   confidentiality   rules   regarding 
requests for information  are contained in  section 0.459.23   We 
base  confidentiality  determinations  under  section  0.459   on 
Exemption 4 of  the FOIA,  which permits us  to withhold  ``trade 
secrets and commercial or  financial information obtained from  a 
person and privileged or confidential.''24  Exemption 4  protects 
trade secrets and  commercial or  financial information  obtained 
from a person that are  privileged or confidential.25  The  tests 
for confidentiality are contained in two seminal cases,  National 
Parks and Critical  Mass.26  If  the submitter  was obligated  to 
furnish the  information at  issue, National  Parks provides  the 
analytical  framework  to   determine  if   the  information   is 
confidential.27  If the  agency determines  that the  information 
was  submitted  voluntarily,  Critical  Mass  governs.28    Under 
Critical Mass, information is confidential if the information  is 
not ``customarily'' disclosed to  the public by the  submitter.29  
Under National  Parks,  information  is  confidential  (and  thus 
exempt from disclosure) if (1)  release of the information  would 
impair the agency's ability to get the information in the  future 
or (2)  release  of the  information  would cause  the  submitter 
substantial competitive harm.30  In addition, the Commission  has 
traditionally declined  to release  audit information  unless  it 
determines that release would serve the public interest.31  

     11.  The Commission's  rules  place  on  the  submitter  the 
responsibility to explain the degree to which the information  is 
commercially sensitive (or contains trade secrets) and the manner 
in which the subject data could be used by competitors to inflict 
substantial  competitive   harm.32   Among   other  things,   the 
submitter must explain how disclosure could result in substantial 
competitive  harm;33  identify  any  measures  taken  to  prevent 
unauthorized disclosure;34 and  identify whether the  information 
is available  to  the  public  and the  extent  of  any  previous 
disclosure  of   the  information   to  third   parties.35    The 
Commission's rules prohibit consideration of ``casual  requests'' 
for  confidential  treatment  that  do  not  comply  with   these 
requirements.36     

          II.B.1.   SBC's Confidentiality Request

     12.  On  December  17,  2001,  SBC  requested   confidential 
treatment for information on 39 pages of its section 272(d) audit 
report.37  On March  19, 2002, SBC  supplemented its request  for 
confidential treatment.38  In its requests, SBC generally  argues 
that, pursuant to  the impairment  prong of  National Parks,  the 
redacted portions of the section  272(d) audit report are  exempt 
from disclosure.39  In particular, SBC argues that disclosure  of 
the information at issue would impair the Commission's ability to 
obtain information through the  audit process.  SBC states  that, 
if disclosure is required here, it ``certainly will not willingly 
agree to  any  procedures in  future  audits that  would  include 
confidential proprietary information in the audit report.''40 SBC 
further argues that  the redacted information  should be  treated 
confidentially  because  it  is  competitively  sensitive,41  and 
because release of  certain information would  pose a  ``security 
risk.''42  Finally, SBC contends that the redacted information is 
not relevant for evaluating SBC's compliance with section 272 and 
the Commission's implementing rules.43  For the reasons explained 
below, we deny SBC's request for confidential treatment  pursuant 
to section 0.459 of the Commission's rules.   

     II.C.     Findings

     13.  As an initial matter, we find that SBC's section 272(d) 
audit report  is  a  required  submission  for  purposes  of  our 
analysis here.  Section  272(d) requires  each BOC  to obtain  an 
audit of its  compliance with the  accounting and  non-accounting 
safeguards  contained  in  section   272  and  the   Commission's 
implementing  rules.44    Under   section   272(d)(2)   and   the 
Commission's rules, the BOC must submit the final section  272(d) 
audit report to the Commission and the state commissions for  the 
BOC's region according to a specific schedule.  We therefore find 
that the  National Parks  two-prong test  must be  applied  here, 
i.e., we  must  determine  whether  disclosure  of  the  redacted 
information would impair  our ability to  get the information  in 
the future or would cause SBC substantial competitive harm.45

     14.  We  reject  SBC's  argument  that  disclosure  of   the 
information in the section 272(d)  audit report would impair  the 
Commission's ability to obtain  comparable information in  future 
audits.  Despite SBC's suggestion, we believe that all BOCs  will 
comply  with  this   statutory  audit   requirement  until   this 
requirement  sunsets.46   Indeed,  section  272(d)(3)   expressly 
grants the Commission, the state commissions, and the independent 
auditor access to ``the financial  accounts and records'' of  the 
BOC and its affiliates for the purposes of the audit.47   Because 
the section 272(d) audit is ``a  joint Federal/State audit . .  . 
conducted by an  independent auditor,''  the joint  Federal/State 
audit team and the independent auditor determine what information 
is necessary to evaluate the BOC's compliance.  Failing to comply 
with the  section  272(d)  audit  requirement  by,  for  example, 
refusing to furnish  information, would be  an extremely  serious 
matter that would subject SBC to a range of potential enforcement 
actions.       

     15.  As explained below, we also conclude that disclosure of 
the information at issue is  not likely to cause SBC  substantial 
competitive harm.  As with the Verizon case, the information  SBC 
seeks to  protect  is  aggregated,  both  geographically  and  by 
transaction, already publicly  available elsewhere, and  dated.48  
Specifically, SBC's  information  does  not  provide  competitors 
insight into SBC's or SBC's affiliates' strategies in  individual 
markets.  The  Commission's confidentiality  decisions for  audit 
information have often turned on whether the information is at  a 
summary level or is detailed because summary information is  much 
less likely  to cause  competitive harm.49   Further, the  report 
does   not   disclose   individual   transactions   or   customer 
information.50    Finally,  we note  that  our decision  here  is 
reinforced by  the  fact  that the  information  is  arguably  of 
limited use because it is greater than 12 months old,  mitigating 
the likelihood of substantial competitive harm.51  

     16.  SBC asks for confidential treatment of three categories 
of information:  (i) financial  and accounting information;  (ii) 
performance data depicting SBC's  quality of service for  certain 
telecommunications   services;   and   (iii)   other   commercial 
information.  We address SBC's request for confidential treatment 
of each category below.

                    II.C.1.a)i.    Financial/Accounting 
                         Information

     17.  SBC requests  confidential  treatment  for  nearly  all 
financial and  accounting information  contained in  the  section 
272(d) audit  report.   In  particular,  SBC  seeks  confidential 
treatment for the dollar  value of the  fixed asset listings  for 
its section 272 affiliates (both  in total and for switching  and 
transmission facilities of SBC's  section 272 affiliates);52  the 
accounts payable  from  the section  272  affiliates to  the  SBC 
BOCs;53 the dollar value of an asset transfer from an SBC BOC  to 
a section 272 affiliate;54 the dollar value of services  provided 
from the SBC BOCs  to their section 272  affiliates but not  made 
available  to  third  parties;55  the  dollar  value  of  certain 
services provided by the section 272 affiliate to an SBC BOC  for 
certain months;56 the dollar value of services provided by an SBC 
BOC to  a  section  272  affiliate,  but  not  disclosed  to  the 
independent auditor for testing purposes;57 the dollar value  and 
sample size of invoiced  exchange access services and  facilities 
for January 2001;58  the dollar  value of invoices  from the  SBC 
BOCs for  which SBC's  section 272  affiliate could  not  provide 
documentation;59 revenue fluctuations for certain services during 
a four-month period;60 the dollar value of discrepancies  between 
the   amount   the   BOCs   recorded   for   providing    certain 
telecommunications services to their  section 272 affiliates  and 
the amount paid by the affiliates;61 the dollar value of disputed 
charges between the SBC BOCs and their section 272  affiliates;62 
the dollar  value of  certain tariffed  services provided  to  an 
unaffiliated telecommunications  carrier;63 a  comparison of  the 
billing and collection rates between SBC's section 272  affiliate 
and  unaffiliated  carriers;64  the   dollar  value  of   certain 
affiliate  transactions  noted  in  the  comments  of  the  joint 
Federal/State audit team.65

     18.  We note that in its initial confidentiality request SBC 
did not attempt to support its claim of confidentiality for  each 
redacted item.   Instead, SBC  argued generally  that  disclosure 
would impair  the Commission's  ability to  conduct audits,  that 
disclosure would  reveal SBC's  marketing plans  and  operational 
details for offering long distance service, and that  competitors 
could  ``see  the  underlying  costs''  incurred  by  SBC's  long 
distance affiliates.66  In addition, SBC argued that  competitors 
could ``discover  specific  details that  indirectly  impact  how 
timely the  affiliates  provide  services to  customers  and  the 
quality  of  service  offered.''67    On  March  19,  2002,   SBC 
supplemented  its   confidentiality   request   with   additional 
arguments.  SBC states  that  the Commission  staff informed  SBC 
that information  arising  out of  the  section 272(d)  that  SBC 
claimed as confidential or proprietary  would be struck from  the 
final audit report.68  SBC further argues that the information at 
issue is  specific, commercially  sensitive information  that  is 
exempt from disclosure under the FOIA.69  Finally, SBC provides a 
matrix that presents,  on an item-by-item  basis, SBC's  argument 
that the  redacted information  is not  relevant to  the  section 
272(d) audit objective and  SBC's explanation for how  disclosure 
would cause ``actual or potential competitive harm.''70

     19.  We disagree with SBC that the financial and  accounting 
information in  the audit  report is  highly specific  data  that 
could cause substantial competitive harm to SBC. 71  None of  the 
information represents individual accounting entries; rather,  it 
is accounting information accumulated over the course of the one-
year audit period  and represents  many individual  transactions.  
Aggregated  information    uncovered   during  audits,   as   the 
Commission has  held  previously,  mitigates  the  likelihood  of 
causing substantial competitive  harm.72  Aggregated  information 
of this nature does  not allow competitors  to gain insight  into 
marketing plans, etc.  The section 272(d) audit report does  not, 
however,  contain  any  ``secret,  commercially  valuable   plan, 
formula,  process,  or  device  that  is  used  for  the  making, 
preparing, compounding, processing of trade commodities and  that 
can be  said  to be  the  end  product of  either  innovation  or 
substantial effort.''73  Nor  does the  report contain  technical 
documentation detailing how  SBC employees  should operate  SBC's 
computer systems, marketing  surveys, plans for  new products  or 
services,   memoranda   describing   technical   assessments   or 
evaluations of  different  vendor  systems,  customer  lists,  or 
detailed instructions or the  source code needed for  programming 
SBC's computer  systems.   We  further  find  that  SBC  has  not 
adequately explained how disclosure would  be likely to cause  it 
substantial competitive harm.74   In brief,  nothing about  SBC's 
section 272(d) audit report would  allow a competitor to  provide 
interLATA telecommunications service  more efficiently or  obtain 
SBC's customers.75   We address  each category  of financial  and 
accounting information below.

     20.  Fixed Asset Listing.  SBC seeks confidential  treatment 
for the total  dollar value of  assets owned by  its section  272 
affiliates.76  SBC argues that the asset listing is  confidential 
because SBC's competitors are not required to disclose comparable 
information.  We  disagree.   We  note that  the  information  is 
aggregated.  The  report only  contains the  total value  of  the 
assets; the  report  contains no  details  such as  the  cost  of 
individual assets.    We therefore  find that  disclosure of  the 
fixed asset  listing  is  not likely  to  cause  SBC  substantial 
competitive harm.

     21.  Accounts Payable of Section 272 Affiliates.  SBC argues 
that  disclosing  the  accounts  payable  from  its  section  272 
affiliates to  its  BOCs  ``could show  the  extent  of  services 
purchased'' by the  affiliates and indicate  the ``sales  volumes 
and markets  being  targeted.''77   We  disagree.   The  accounts 
payable information neither indicates sales volumes nor  suggests 
which markets SBC is targeting to sell its long distance service.  
The balances are aggregated by section 272 affiliate and BOC  and 
could not provide insight into specific services the section  272 
affiliates provide.   Further, these  amounts represent  accounts 
payable at a  single point in  time; they do  not disclose  total 
sales volumes  for  specific  services.   Even  if  the  accounts 
payable information  did show  sales  volumes or  indicate  SBC's 
target  markets,  it  is  not   clear  from  SBC's  initial   and 
supplemental requests  how  disclosure  could  cause  substantial 
competitive harm.  In addition, the information is aggregated  at 
the state level, and does  not detail activity on an  account-by-
account or  service-by-service  level.  We  therefore  find  that 
disclosure  of  the  accounts   payable  of  SBC's  section   272 
affiliates is  not likely  to cause  SBC substantial  competitive 
harm.

     22.  Total Billings For Services Not Made Available to Third 
Parties.  SBC argues that disclosing  the total dollar value  for 
services  not  made  available  to  third  parties  would   cause 
competitive harm by revealing the section 272 affiliate's ``level 
of marketing  expenses'' and  allow  competitors to  ``check  the 
rates and make assumptions regarding sales volumes in relation to 
marketing costs.''78   We disagree  for two  reasons.  First,  as 
noted above,  the information  is highly  aggregated (beyond  the 
state level), so  that it  only shows  the total  billings for  a 
nine-month period  by  affiliate.   The  audit  report  does  not 
contain, for  example,  marketing expenses  related  to  specific 
product offerings.  Second, SBC has not made clear how disclosure 
would  cause  it  substantial  competitive  harm,  i.e.,  how   a 
competitor ``mak[ing]  assumptions  regarding  sales  volumes  in 
relation to marketing costs'' would cause substantial competitive 
harm.  We therefore  find that disclosure  of the total  billings 
for services not made available to third parties is not likely to 
cause SBC substantial competitive harm.

     23.  Services Provided Between  SBC's Section 272  Affiliate 
and the SBC BOCs.  SBC argues that disclosing the dollar value of 
telecommunications services billed by  the section 272  affiliate 
to the BOC,  and the amount  paid by the  BOC for such  services, 
would allow  competitors  to  ``determine the  exact  extent  and 
nature of competitive services provide by the 272 affiliates.''79  
Similarly, SBC argues that disclosing  the dollar value of  local 
telecommunications  services   purchased  by   its  section   272 
affiliate from  the  SBC  BOCs  would  reveal  the  ``extent  and 
location of 272 affiliate  operations.''  SBC also contends  that 
the total amounts  charged by  the SBC BOCs  for exchange  access 
services  provided  to  the  section  272  affiliates   ``reveals 
potentially competitive  marketing information,''  disclosure  of 
which could result  in ``unnecessary and  unjustified concern  on 
the part of non-affiliated entities.''80  We note, however,  that 
SBC itself already advertises the availability and details of the 
competitive services provided by its long distance  affiliates.81  
In addition,  SBC discloses  similar (although  more  aggregated) 
information  pursuant  to  the  Commission's  Part  32  affiliate 
transactions rules  and  Part 43  reporting  requirements.82   We 
disagree  that   disclosure   would   likely   pose   substantial 
competitive harm.   The information  in the  audit report  merely 
informs the reader of potential discrepancies between the  amount 
billed by SBC's section 272 affiliate and the amount paid by  the 
BOC.  This information is needed  to evaluate whether the BOC  is 
adhering  to  the  Commission's  rules  intended  to  ensure  the 
relationship takes place at arm's length, but does not appear  to 
provide  any  competitive   advantage  to  SBC's   competitors.83  
Finally, we conclude that  neither SBC's initial  confidentiality 
request nor subsequent filing adequately explains how  disclosure 
could cause substantial competitive harm.  We therefore find that 
disclosure of the dollar value of services provided between SBC's 
section 272 affiliate and the SBC BOCs is not likely to cause SBC 
substantial competitive harm.

     24.  Revenues for Incidental InterLATA Services.  SBC argues 
that disclosing  the  revenue amounts  for  incidental  interLATA 
services would reveal  ``detailed revenue  information about  the 
specific lines of BOC  competitive businesses.''84  We  disagree.  
The revenue information for certain services is highly aggregated 
into three categories, i.e.,  amounts for Southwestern Bell,  all 
the former Ameritech  states, and Pacific  Bell.  Further,  these 
aggregated revenues provide  no transaction detail,  such as  the 
amount SBC  charges specific  customers for  these services,  the 
associated volumes of use, or the marketing costs associated with 
these services.  Further, SBC has not explained why disclosure of 
this information is  likely to cause  it substantial  competitive 
harm.  We  therefore find  that disclosure  of the  revenues  for 
incidental  interLATA  services  is  not  likely  to  cause   SBC 
substantial competitive harm.

                    II.C.1.a)ii.   Performance Data

     25.  SBC requests confidential treatment for the performance 
data gathered to demonstrate  its compliance with section  272(e) 
for two reasons.  First, SBC  argues that disclosure could  allow 
its competitors to  ``discover specific  details that  indirectly 
impact how timely  the affiliates provide  services to  customers 
and the quality of service  offered.''85 Second, SBC argues  that 
the information  is irrelevant,  containing only  ``[m]eaningless 
variances . . . that could have unnecessary negative consequences 
for SBC and may result in unnecessary and unjustified concern  on 
the part  of non-affiliated  entities as  well as  other  parties 
(e.g., regulators).''  

     26.  We reject SBC's request for confidential treatment  for 
two reasons.  First,  the performance  data at  issue is  summary 
information  aggregated   between   the  categories   ``BOC   and 
Affiliates'' and  ``Non-Affiliates.''   The performance  data  is 
also aggregated  at  the  state level.   As  with  the  financial 
information in  the audit  report, these  data do  not  represent 
individual transactions,  but  are  a  roll-up  of  a  number  of 
transactions.  Thus, a competitor could not use this  performance 
data to identify a specific SBC customer in a specific market  to 
provide a targeted service offering.  Nor could an SBC competitor 
use these data  to provide  interLATA telecommunications  service 
more efficiently; the performance data does not (by itself or  in 
conjunction  with  any   other  information)  provide   competing 
carriers with  more efficient  methods for  serving customers  or 
with  the  information  needed  to  develop  an  innovative   new 
telecommunications service  offering.   Thus, disclosure  of  the 
performance data does  not pose substantial  competitive harm  to 
SBC.  We  also  note  that  SBC, along  with  the  other  largest 
incumbent  local  exchange  carriers,  regularly  submit  similar 
performance  data   publicly  to   the  Commission   in   various 
contexts.86

     27.  Second, SBC's request does not provide adequate grounds 
for granting confidential  treatment of  these performance  data.  
Embarrassing  facts,  ``unnecessary  negative  consequences   for 
SBC,'' or ``unnecessary and unjustified concern'' on the part  of 
regulators do not  constitute grounds  for exempting  information 
from disclosure.87  

     28.  We are  concerned  with  SBC's  contention  that  these 
performance data are irrelevant for assessing its compliance with 
section 272(e).   Indeed, in  the  SWBT Texas   271  Order,  SBC 
submitted affidavits  that  contained  the  reporting  format  it 
planned to use to demonstrate compliance with the section  272(e) 
nondiscrimination safeguards.88  In  fact, the Commission  relied 
on SBC's representations to make an affirmative finding that  SBC 
demonstrated compliance with section  272 during the section  271 
application  process.89   Because  the  Commission  has   already 
concluded that the data contained in the SBC Section 272(d) Audit 
Report are useful for evaluating compliance with section  272(e), 
we  reject  SBC's  arguments  based  on  the  relevancy  of  this 
information for the purposes of this audit.  In sum, we find that 
disclosure of SBC's performance data  is not likely to cause  SBC 
substantial competitive harm.

                    II.C.1.a)iii.  Other Commercial Information

     29.  Leases.   SBC  seeks  confidential  treatment  for  the 
number of,  and total  dollar value  of, leases  entered into  by 
SBC's section 272 affiliates that  are greater than $500,000  per 
year.90  SBC argues that this information is confidential because 
its competitors are not required  to reveal the same  information 
and because the  information would give  its competitors  insight 
into its  strategies  to  lease  versus  own  office  space.   We 
disagree.  The lease information is highly aggregated; the  audit 
report does not disclose what  is being leased, the location,  or 
the terms  of  the  transactions.   The  audit  report  does  not 
disclose any leases under the  $500,000 threshold, or reveal  the 
affiliates' lease versus  buy decisions  for individual  markets.  
Thus, we  find  that  disclosure  is  not  likely  to  cause  SBC 
substantial competitive harm.

     30.  Business  Locations.    We  likewise   find  that   the 
information about  the business  locations of  SBC's section  272 
affiliates is  summary-level and  that disclosure  does not  pose 
substantial competitive harm nor a security risk to SBC.91   This 
information includes  only the  number of  section 272  affiliate 
employees by geographical location and general department.   This 
is summary information because it  does not, for example,  reveal 
how  many  employees  SBC  has  devoted  to  marketing   specific 
services,  their  individual  qualifications,  or  SBC's   hiring 
criteria.  Nor  does  the information  reveal  specific  employee 
information such as  names or  positions.  As a  result, we  find 
that a competitor could not use this information to build its own 
marketing plan to  steal customers from  SBC.  We therefore  find 
that disclosure of  SBC's section 272  business locations is  not 
likely to  cause  SBC substantial  competitive  harm nor  pose  a 
security risk.

     31.  Bonus  Calculation.    SBC   argues  that   the   bonus 
calculation  formula   is   confidential   because   ``businesses 
generally do not reveal how  they pay bonuses.''92  We  disagree.  
First, we note that  SBC has not shown  with particularity how  a 
competitor could use  the bonus calculation  information to  harm 
SBC.  Second, the calculation does not appear to reveal the bonus 
calculation for  any individual  employee  or to  provide  enough 
specificity  for  competitors  to  ascertain  SBC's  compensation 
methods.  As  a result,  the information  does not  reveal  SBC's 
calculation for  specific employees.   We further  find that  the 
information is relevant for  determining whether the  performance 
of managers  of  SBC's section  272  affiliates is  tied  to  the 
performance of the SBC BOCs,  i.e., whether there is  operational 
independence between  the  companies.   We  therefore  find  that 
disclosure of the bonus  calculation is not  likely to cause  SBC 
substantial competitive harm.

     32.  Vendor and Other  Party Names.   For the  two types  of 
information at  issue here,  i.e.,  the name  of an  SBC  carrier 
customer and  the names  of vendors  from whom  SBC buys  certain 
services, SBC argues that it  would be inappropriate to  disclose 
customer names,93 and  it has a  contractual obligation ``to  not 
reveal vendor names and other vendor information.''94  We  agree.  
Unlike  the  other  categories  of  redacted  information,   this 
contains  the  names  of   specific  unaffiliated  parties.    We 
recognize the substantial competitive  harm that could result  if 
the names of SBC business partners were disclosed  involuntarily.  
In addition,  we do  not see  how company  names, as  opposed  to 
underlying facts that might suggest possible discrimination,  are 
relevant  to   SBC's  compliance   with  section   272  and   the 
Commission's  rules.   Because  of   our  conclusion  that   this 
information is not relevant to the subject of the audit, we  need 
not  reach  whether,  despite  any  competitive  harm,  it   must 
nevertheless be made publicly available under the Section  272(d) 
Audit Order.   As a result, we grant SBC's request for  redaction 
of SBC customer and vendor names.

                    II.C.1.a)iv.   Public Interest

     33.  In addition to  the two  prongs of  the National  Parks 
test, the Commission has  historically applied a public  interest 
test to  determine  whether  audit  information  should  be  made 
public.95  We find that  the public interest  would be served  by 
release here.   Public  disclosure  of  the  audit  results  will 
promote meaningful  comment  on  the audit  results  pursuant  to 
section 272(d)(2) and  thereby help the  Commission to  determine 
whether SBC has  complied with section  272 and the  Commission's 
implementing rules.   We note  that Verizon's  section 272  audit 
report drew  comments  from  two  of  the  largest  long-distance 
competitors, AT&T and WorldCom.96  Many of these comments focused 
on information similar to  that SBC seeks  to shield here,  e.g., 
section 272(e)(1)  performance  data.   We  also  note  that  the 
Commission has indicated  in its  past 0.459  decisions that  the 
public interest test is met  when the information at issue  could 
form the basis of an  enforcement action.97  SBC's audit  results 
here, as carrier audit results elsewhere, could form the basis of 
enforcement actions.   Finally, we  find that  the audit  results 
here may be  relevant to parties  commenting on the  Commission's 
Separate Affiliate Sunset NPRM.98

     34.  SBC argues that the redacted audit report contains  all 
information necessary for parties to judge SBC's compliance  with 
section 272.  Stated  differently, SBC argues  that the  redacted 
information would  add nothing  to parties'  evaluation of  SBC's 
section 272 compliance.  We  disagree.99  We find it  significant 
that the  information  SBC  redacted from  its  audit  report  is 
substantially the same  as that Verizon  redacted from its  audit 
report.100  After disclosure of all Verizon's audit  information, 
parties filed  comments,  e.g., on  Verizon's  section  272(e)(1) 
performance data.101  The redacted information bears directly  on 
SBC's  compliance  with,  inter   alia,  the  section   272(b)(1) 
requirement to  operate independently,102  the section  272(b)(3) 
requirement to use separate  employees,103 the section  272(b)(4) 
requirement  addressing  credit   arrangements,104  the   section 
272(b)(5) and  (c)(2)  accounting  requirements,105  the  section 
272(c)(1) nondiscrimination safeguards,106 and the section 272(e) 
nondiscrimination safeguards.107  

     35.  Finally, we reject SBC's request to limit access to the 
audit information with a Protective agreement.  As the Commission 
has stated previously, protective  agreements should not be  used 
for otherwise unprotected  information.108  And, as  we noted  in 
the Verizon Section 272  Audit Reconsideration Order,  protective 
agreements necessarily limit access to information.109  

     36.  For the foregoing  reasons, we decline  to grant  SBC's 
request for confidential treatment  of the information  contained 
in the final section 272(d) audit report.   

                   III.      ORDERING CLAUSES

     37.  Accordingly, IT IS ORDERED, pursuant to sections  4(i), 
220, and 272(d) of the Act,  47 U.S.C.  4(i), 220, and  272(d), 
that SBC's  request for  confidential  treatment of  the  section 
272(d) audit report, as noted and described herein, IS DENIED for 
the reasons indicated in this Order.

     38.  IT IS FURTHER ORDERED, pursuant to sections 4(i),  220, 
and 272(d) of the Act, 47  U.S.C.  4(i), 220, and 272(d),  that 
SBC's independent auditor  file the unredacted  version of  SBC's 
final  section  272(d)  audit  report  in  this  docket,  without 
restrictions as  to  disclosure,  within  ten  days,  subject  to 
paragraph 39 below.

     39.  IT IS  FURTHER ORDERED,  pursuant  to 0.459(g)  of  the 
Commission's rules,  47  C.F.R.   0.459(g),  that SBC  has  five 
working days from  telephone notice  of this decision  to seek  a 
judicial stay of this  decision.  If SBC  seeks a judicial  stay, 
the information  in the  section 272(d)  audit report  for  which 
confidentiality is  requested  will be  treated  as  confidential 
until the court acts on such a stay request.

                              FEDERAL COMMUNICATIONS COMMISSION


                              Marlene H. Dortch
                              Secretary
_________________________

1  See 47 U.S.C.  272(d).
2  The Commission considers a  BOC's compliance with section  272 
during  the  section   271  application   process.   See,   e.g., 
Application of  Bell Atlantic  New York  for Authorization  under 
Section 271  of  the  Communications Act  to  Provide  In?Region, 
InterLATA Service in the State of New York, CC Docket No. 99?295, 
Memorandum Opinion and Order, 15  FCC Rcd 3953,  401-21  (1999) 
(subsequent history omitted).
3 See 47 U.S.C.  272(d); 47 C.F.R.  53.209.
4  See Accounting Safeguards Under the Telecommunications Act  of 
1996, CC Docket No.  96-150, Report and Order,  11 FCC Rcd  17359 
(1996)   (Accounting   Safeguards   Order),   Second   Order   on 
Reconsideration, 15 FCC  Rcd 1161 (2000);  Implementation of  the 
Non-Accounting  Safeguards  of  Sections  271  and  272  of   the 
Communications Act of  1934, as  Amended, CC  Docket No.  96-149, 
First Report and Order and Further Notice of Proposed Rulemaking, 
11 FCC Rcd 21905 (1996) (Non-Accounting Safeguards Order),  First 
Order on Reconsideration, 12 FCC Rcd 2297 (1997), Second Order on 
Reconsideration, 12  FCC Rcd  8653 (1997),  aff'd sub  nom.  Bell 
Atlantic Telephone Companies  v. FCC,  131 F.3d  1044 (D.C.  Cir. 
1997), Third Order on Reconsideration,  14 FCC Rcd 16299  (1999); 
see also 47 C.F.R.  32.27, 53.1-53.213, 64.901-64.904.
5  See  Accounting  Safeguards  Order  at   13;  see  also  Non-
Accounting Safeguards Order at  15-16.
6  See 47 C.F.R.   53.209-213; see Accounting Safeguards  Order 
at  197-205.
7   See   Proposed   Model   for   Preliminary   Biennial   Audit 
Requirements, Public Notice,  12 FCC Rcd  13132 (1997)  (Proposed 
Model Biennial Audit Requirements).
8 By  ``final audit  report,'' we  mean the  report submitted  on 
December 17, 2001.
9 See  Letter from  Anu  Seam, Senior  Counsel, SBC,  to  Magalie 
Salas, Secretary,  Federal  Communications Commission  (Dec.  17, 
2001) (SBC December 17,  2001 Confidentiality Request) Thus,  SBC 
redacted information  on 42  percent of  the pages  in the  final 
audit report (excluding the title  and table of contents  pages).  
By comparison, Verizon  redacted information  on twenty-eight  of 
eighty-seven pages  in  its  section  272  audit  report,  or  32 
percent.  See Accounting Safeguards Under the  Telecommunications 
Act of 1996:   Section 272 Biennial  Audit Procedures, CC  Docket 
No. 96-150, Memorandum Opinion and Order, 17 FCC Rcd 1374,  1375, 
at  4 (2002) (Section 272(d) Audit Order). 
10 See Section 272(d) Audit Order, 17 FCC Rcd at 1375-76,  5-6.
11 Id. at  13.
12  Letter from Joan Marsh, Director, Federal Government Affairs, 
AT&T Corporation  to  Magalie  Roman  Salas,  Secretary,  Federal 
Communications Commission (Feb. 12, 2002) (AT&T February 12, 2002 
Letter).
13  Letter  from Michelle  Thomas, Executive  Director -  Federal 
Regulatory, SBC, to William  F. Caton, Acting Secretary,  Federal 
Communications Commission  (Mar. 19,  2002) (SBC  March 19,  2002 
Supplemental Confidentiality Request).
14  See Accounting Safeguards Under the Telecommunications Act of 
1996:  Section 272 Biennial Audit  Procedures, CC Docket No.  96-
150, Order on Reconsideration, 2002  WL 534612, FCC 02-111  (rel. 
Apr. 11, 2002) (Section 272(d) Audit Order on Reconsideration).
15 Letter from  H. Russell  Frisby, Jr.,  President, CompTel,  to 
Michael K.  Powell, Chairman,  Federal Communications  Commission 
(July 30, 2002).
16 As explained below,  we do not  require disclosure of  certain 
irrelevant  information  relating  to   the  names  of   specific 
customers and vendors.  See  32, infra.
17  See Section 272(d) Audit Order, 17 FCC Rcd at 1375-77,   5-
8.
18  47 U.S.C.  272(d) (2).  
19  See Section 272(d) Audit Order,  17 FCC Rcd at 1376-77,   7; 
Accounting Safeguards Order at  197 (concluding that the purpose 
of the section 272(d) audit is to determine whether the BOCs  and 
their separate  affiliates are  complying  with the  section  272 
requirements); Non-Accounting Safeguards Order at  323  (stating 
that the  ``broad audit  requirement is  intended to  verify  BOC 
compliance    with    the    accounting    and     non-accounting 
requirements'').
20 See Section 272(d) Audit Order, 17 FCC Rcd at 1380-83,   13-
20. 
21 See id. at 1381-82,  16.
22 See id. at 1381-82,  16-19.
23 47 C.F.R.  0.459.
24  5 U.S.C.  552(b)(4); Section 272(d) Audit Order, 17 FCC  Rcd 
at 1380,  13.
25  See,  e.g., Gulf  &  Western Indus.  v. United  States.   For 
purposes of this order, we assume the commercial or financial and 
``from a person'' requirements are met.  Our analysis will  focus 
on the ``confidential or proprietary'' prong.  
26 See National Parks and Conservation Ass'n v. Morton, 498  F.2d 
765, 770 (D.C. Cir. 1974) (National Parks); Critical Mass  Energy 
Project v. NRC, 975 F.2d 871 (D.C. Cir. 1992) (en banc) (Critical 
Mass).
27 See Critical Mass, 975 F.2d at 880.
28 See Critical Mass, 975 F.2d at 879.
29 Critical Mass, 975 F.2d at 879.
30 National Parks, 498 F.2d at 770.
31 See Examination of Current Policy Concerning the Treatment  of 
Confidential Information Submitted to the Commission, Report  and 
Order, 13 FCC Rcd  24816 at   53 (1998) (Confidential  Treatment 
Policy), Order on Reconsideration, 14 FCC Rcd 20128 (1999).
32  See 47 C.F.R.  0.459(b)(3), (b)(5).
33  See 47 C.F.R.  0.459(b)(5).
34  See 47 C.F.R.  0.459(b)(6).
35  See 47 C.F.R.  0.459(b)(7).
36  Id. at  0.459(c). 
37  See SBC December 17, 2001 Confidentiality Request.
38  See SBC March 19, 2002 Supplemental Confidentiality Request.
39 See SBC December 17, 2001 Confidentiality Request at 3.
40  See SBC March  19, 2002 Supplemental Confidentiality  Request 
at 8.  SBC  also states  that it  will not  ``willingly agree  to 
include additional  information  not  specifically  necessary  to 
assess compliance with the relevant requirements.''  Id.
41 See SBC December 17, 2001 Confidentiality Request at 3-4.
42  See SBC March  19, 2002 Supplemental Confidentiality  Request 
at A-6. 
43 Id. at 1.
44 47 U.S.C.  272(d); see 47 C.F.R.  53.209-.213.
45 See n. 30 supra.
46 The  Commission is  currently  considering whether  to  sunset 
section 272's  structural  separation and  related  requirements.  
See Section 272(f)(1)  Sunset of the  BOC Separate Affiliate  and 
Related Requirements, WC  Docket No. 02-112,  Notice of  Proposed 
Rulemaking, FCC 02-148  (rel. May 24,  2002) (Separate  Affiliate 
Sunset NPRM).
47  47 U.S.C.  272(d)(3).
48  See Section 272(d) Audit Order, 17 FCC Rcd at 1381-82,  16-
19.
49 See  National  Exchange  Carrier Association,  Inc.,  et  al., 
Requests  for   Confidential  Treatment   of  Certain   Financial 
Information, Memorandum Opinion and Order, 5 FCC Rcd 7184  (1990) 
(NECA Order); BellSouth Corp., BellSouth Telecommunications, Inc. 
Request  for   Confidential   Treatment  of   Certain   Financial 
Information and Release of Audit Findings, AAD 93-127, Memorandum 
Opinion  and  Order,  8  FCC  Rcd  8129  (1993);  Bell  Telephone 
Operating  Companies,  Requests  for  Confidential  Treatment  of 
Certain Commercial  and  Financial  Information  and  Release  of 
Summary of  Audit Findings,  10  FCC Rcd  11541 (1995).   In  the 
recent Qwest  case, the  Court of  Appeals for  the D.C.  Circuit 
affirmed the Commission's authority  to release audit data  under 
section 220 of the Act.  Qwest Communications International, Inc. 
v. FCC, 229 F.3d 1172 (2000).  The court did find, however, found 
that the Commission did  not sufficiently explain  its  rationale 
for disclosing ``raw audit data.''   See id. at 1173.  Raw  audit 
data meant individual assets and their costs, as recorded in  the 
carriers' books.  See id. at 1175.  
50 There is an exception where the independent auditor identified 
customer and vendor  names.  See SBC  Redacted Section 272  Audit 
Report at 39, Attachment A-2.  We will not require disclosure  of 
these items  as they  have no  bearing on  SBC's compliance  with 
section 272.  
51  See,  e.g., Africa  Fund v.  Mosbacher, No.  92-289, 1993  WL 
183736, at *8  (S.D.N.Y May  23, 1993)  (rejecting argument  that 
exemption is permanent because ``[w]hat today may be deemed . . . 
a `trade secret' quite conceivably  may be of little  consequence 
tomorrow'');  Lee v. FDIC, 923  F.Supp. 451, 455 (S.D.N.Y.  1996) 
(potential harm  caused  two-year-old  information  ``would  seem 
likely to have mitigated with the passage of time'').
52 SBC Section 272(d) Audit Report at 2, 3.
53  Id. at 10.
54 Id. at 16, 23.
55 Id. at 20.
56  Id. at 21.
57  Id. at 26.
58  Id. at 32.
59  Id. at 33.
60  Id. at 34-36.
61  Id. at 37.
62  Id. at 37.
63  Id. at 39.
64  Id. at Attach. A-5a, A-5b, A-5c.
65  Id. at Attach B-1, 1-2.
66  See generally SBC December 17, 2001 Confidentiality Request.
67  Id.
68  SBC Supplemental Confidentiality Request at 3-4, n.12.
69  Id. at 7-9.
70  Id. at Attachment.
71  We  stress  that nothing  about  this decision  releases  the 
independent auditor's  workpapers, which  contain more  detailed, 
disaggregated information than the audit report.
72  See Confidential Treatment Policy at  55.  
73 Public Citizen Health  Research Group v.  FDA, 704 F.2d  1280, 
1288 (D.C. Cir. 1983).
74  See 47 C.F.R.  0.459(b)(5).
75 As discussed below, we do find that some customer  information 
could be disclosed through the audit report, and do not therefore 
require disclosure of that information.  
76 See  SBC Redacted  Audit  Report at  2-3.   We note  that  the 
independent auditor included the  information in the report  only 
because SBC  could  not prove  that  the assets  were  not  owned 
jointly with the SBC BOCs.
77  Id. at  Attachment, 2  (addressing SBC  Section 272(d)  Audit 
Report at 10).
78  Id. 
79 Id. at Attachment, 3.
80  SBC also argues that  competitors ``can use tariff rates  and 
determine the 272 affiliate's minutes of use and other sales  and 
volume information,  thus gaining  useful information  about  the 
extent of the  272 affiliate's  operations.''  It is  not at  all 
clear from  SBC's request,  however, precisely  how a  competitor 
could use this information to obtain a competitive advantage  by, 
for example, providing interLATA telecommunications service  more 
efficiently.
81                  See,                  e.g., 
http://www.swbell.com/Products_Services/Business/Catalog/1,1965,-
17-0-6-1-17,00.html (visited July 18, 2002); Niagra Mohawk  Power 
Corp. v. United  States Dep't of  Energy, 169 F.3d  16, 19  (D.C. 
Cir. 1998) (Exemption  4 cannot  be used  to protect  information 
already in the public domain); Anderson v. HHS, 907 F.2d 936, 952 
(10th Cir. 1990) (``[N]o  meritorious claim of  confidentiality'' 
can be made if information is in the public domain).
82    See     47    C.F.R.          32.27,    Part     43; 
http://www.fcc.gov/wcb/armis/instructions/.   SBC's   asset   and 
services affiliate  transactions  appear in  Automated  Reporting 
Management  Information  System  (ARMIS)  Report  43-02  (Uniform 
Systems of  Accounts  Report),  Tables B-4  (Analysis  of  Assets 
Purchased From  or  Sold  to Affiliates)  and  I-2  (Analysis  of 
Services Purchased From or Sold to Affiliates).  
83   In   particular,   the  Commission's   Part   32   affiliate 
transactions rules establish a  specific hierarchy for  recording 
the costs  of transactions  between  a BOC  and its  section  272 
affiliate.    See   47    C.F.R.       32.27.    For    tariffed 
telecommunications services (such as those  listed in Table 6  of 
the SBC Section 272 Audit Report),  the BOC must record the  cost 
of these transactions at the tariffed rates.
84 Id. at Attachment, 4.
85  SBC December 17, 2001 Confidentiality Request at 4.
86  See,   e.g.,    http://www.fcc.gov/wcb/armis/.    These   are 
performance data  that SBC  submits into  the Commission's  ARMIS 
system.  See 47 C.F.R.  43.21.
87  See CNA Fin. Corp. v. Donovan, 830 F.2d 1132, 1154 (D.C. Cir. 
1987).
88  SWBT Texas  271 Order at  412, n.1198.
89  Pursuant to  section 271(d)(3)(B), the  Commission shall  not 
approve a BOC's  section 271 application  unless it finds,  among 
other things, that  the authorization  ``will  be carried out  in 
accordance with the requirements of  section 272.''  47 U.S.C.   
271(d)(3)(B).
90 See SBC Redacted Audit Report at 5, 10.
91 See SBC March 19, 2002 Supplemental Confidentiality Request at 
6, Attachment, 6.
92 See SBC March 19, 2002 Supplemental Confidentiality Request at 
Attachment, 1.
93 Id. at Attachment, 5.
94 Id. at Attachment, 6
95 See Confidential Treatment Policy at  53.
96 See Comments  of AT&T  and WorldCom  in CC  Docket No.  96-150 
(filed April 8, 2002).
97 See NECA Order at  7.
98 See n.46 supra.
99 We  disagree except  for the  limited category  of vendor  and 
other company names described above.  See  32 supra.
100  For  example,  the  section 272(e)(1)  performance  data  is 
similar in SBC's and  Verizon's audit reports.  Verizon's  report 
contains the  performance  data for  Verizon  (including  Verizon 
affiliates)  and  non-affiliates,  for  regular  and   high-speed 
services.  See Verizon  section 272 audit  report at Appendix  A, 
Tables 14(a), 14(b),  and 14(c).  SBC's  report divides the  data 
between SBC (including  SBC affiliates)  and non-affiliates,  for 
DS-0, DS-1,  and DS-3  services.  See  SBC Redacted  Section  272 
Audit Report at Attachment A-7.
101 See n.96 supra.
102 See id. at 1-2.
103 See id. at 5-9.
104 See id. at 9.
105 See id. at 10-22.
106 See id. at 23-28.
107 See id. at 29-30, Attachment A-7; Section 272(d) Audit  Order 
17 FCC Rcd at 1377-78,  8.  
108 See Confidential Treatment Policy at  22.
109  See Section 272(d) Audit Order on Reconsideration at  3.