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X` hp x (#%'0*,.8135@8: (h  p k`G 1  1 y!h'TTLddXh'y  1 ! 1 A,&L9&dd,& W X` hp x (#%'0*,.8135@8:#$A\VTRONICS  K:  $#,: qP; ,P#Professional Court Reporting $& Transcription $Phoenix, ArizonaX` hp x (#%'0*,.8135@8:#$A\VTRONICS  K:  $#,: qP; ,P#Professional Court Reporting $& Transcription $Phoenix, ArizonaX` hp x (#%'0*,.8135@8:#$A\VTRONICS  K:  $#,: qP; ,P#Professional Court Reporting $& Transcription $Phoenix, ArizonaX` hp x (#%'0*,.8135@8:#$A\VTRONICS  K:  $#,: qP; ,P#Professional Court Reporting $& Transcription $Phoenix, ArizonaX` hp x (#%'0*,.8135@8:26uC;,;/3Xu&_ x$&7XX38wC;,'[hXw P7XP?xxx,Vx `B7X2ҳJi"Sh ^;C]ddCCCdCCCCddddddddddCCȲY~~wCN~sk~CCCddCYdYdYCdd88d8ddddJN8ddddYYdYddddddCCCCYddddddddd8YYYYYY~Y~Y~Y~YC8C8C8C8ddddddddddYdddddsdddddddd~d~d~d~ddddddddd8ddddoddd~d~d~8~8vddddddkNkdkd~d~d~dddddddYCdddCC/NdddCYQQddddddFddddFCdhhd44ddzzdddwooChF"Ȑdhd岲dCCȐzȲCddodȐȅdCdYdsȐ`ȐȐȮzȐUwŐdȐYYCCCCŐz~ozoY~NYYYC8YooYdYzsdzdd~YYzozzz~CdzYzzzzCCdddddddzCzdYC  ӆbs "  \,  \,\\ #_ p^7#IFEDERAL COMMUNICATIONS %COMMISSION #  P7G P#   y %\> dddyb   \\ y %\dddy  k  # _ p^7D #HERITAGE REPORTING CORPORATION  W ! #Xu&_ x$&7/3XX#Official Reporters#Xw P7[hXP# 1220 L Street, NW, Suite 600 "Washington, D.C. #r(202) 6284888In re: ` `  hh# ) ` `   ) FCC MERGER EN BANC ) ` `   ) Date:` ` October 22, 1998 Pages:` ` 1 through 106 Place:` ` Washington, D.C. 0*ZZ     X` hp x (#%'0*,.8135@8:0*H&H&@@ԫlocal. ` `  So that would I'm going to ask both of my questions at the same time for expeditious purposes. So so, one, just sort of a general commentary about how you perceive the question of having market power over essential facilities that would exist now in a combined basis in two regions covering a substantial part of a market rather than the focus on nationallocal strategy. ` `  Secondly, Mr. Notebaert, particularly for you, I couldn't agree more at the trend globally. And I can also sympathize with the desire to want to compete effectively with that. And I would I think I would go so far as to say that that really is a relatively significant company in terms of size and resources, etcetera. ` `  But it doesn't translate or is not intuitively obvious to me why the company that you would want to join up with in that venture would be another domestic local exchange company instead of, for example, a significant company that already had overseas operations or maybe you're going to tell me that each of you do in your own regards, which you do. But or potentially even a long haul carrier or long distance carrier as opposed to a domestic purchase. ` `  So help me with the story that the the importance of globality leads to a combination of two at%?0*H&H&@@ least primarily domestic local exchange operations. ` `  MR. NOTEBAERT: Do you want me to do the first one ` `  COMMISSIONER POWELL: Sure. ` `  MR. NOTEBAERT: on the market power over the physical infrastructure? The Telecom Act and what has occurred, our markets have been opened up and there is a great deal of scrutiny to ensure fair treatment towards anyone who would like to use an unbundled loop or who would like to buy our product. ` `  We have complied with your pricing methodology, our state commissions have. And, in fact, I think if you go back and look under the prior administration with this Commission, Ohio was used as one of the examples to help you create that. ` `  So, in fact, we have complied with that. And that takes away any market power we would have that's looked at by the state. And it is definitely looked at by you. ` `  And I would also tell you, some mornings when I am standing in my office and I look up and I see AT&T's logo or WorldCom's logo or I pick up the paper and look at 20 ads in the Chicago Tribune maybe or the Detroit Free Press, I think there is a lot going on and a lot of very strong participants in the competitive communications business that we are in.%@0*H&H&@@Ԍ` `  To your second question, as I traveled Europe and the world and I talked to other corporations, what I found was that our customers, a hundred plus Fortune 500 companies that operated out of the upper midwest, operated in far more than just the upper midwest. And they want a global reach. ` `  I also found that when I went to other international companies, not American companies, they felt the need to have a larger domestic footprint for us to be able to form alliances and ventures. That brought me to a situation where if you want to participate in the global marketplace, communications marketplace, you needed a partner to increase your footprint. ` `  In discussions with SBC, we found a common script. We found a common approach in the sense of customers. That was important to us. We cannot join, nor could we ever nor did we consider in a serious way, joining with a company that is in the long distance business. That would have been a very interesting hearing if I would have been sitting here with you ` `  COMMISSIONER POWELL: That's the next one. ` `  (Laughter.) ` `  MR. NOTEBAERT: That would have been very interesting. So that is kind of off the table. It's no different than we cannot invest in an ISP facilities carrier, UUNet or anyone like that. We are precluded by you%A0*H&H&@@ from doing that. ` `  So the need for the broader footprint, to follow our customers, to deal with those customers such as Chrysler or General Motors or Ford or the banking industry or manufacturers like Motorola, we had to do this for our customers. Our customers took us down this path. ` `  COMMISSIONER FURCHTGOTTROTH: Can I just follow up on that real quick? The procompetitive components that you assert with respect to the global strategy as I hear it seems to be primarily accrues to the benefit of the business segment of the market. Are you simultaneously making an argument that that global connectivity has significant procompetitive benefits with respect to residential customers? ` `  MR. NOTEBAERT: Absolutely. If you look at pricing methodology that we use in this country, social pricing, where we sell to residence consumer customers at or below cost, or very close to that level, you find that the moneys to do that come from other segments of the businesses, business access charges, etcetera. ` `  If we lose those major accounts, those large businesses that we're talking about, then in fact the source of funds that we create for the social pricing, it underpins the social pricing that we have in this country and it will be jeopardized. And its viability will really be in question.%B0*H&H&@@Ԍ` `  We are today dealing with access charges. You are; we are. We have been cutting them every year. We also have to deal with the fact that we have to find a way to make sure that service to consumers is affordable ` `  COMMISSIONER FURCHTGOTTROTH: Thank you. ` `  MR. NOTEBAERT: and stays affordable. ` `  CHAIRMAN KENNARD: That's interesting. Thank you. Commissioner Tristani. ` `  COMMISSIONER TRISTANI: Yes. I have a couple of questions. One is a followup on Commissioner Ness' question on benchmarks. And as I understood you said, you don't use them any longer ` `  MR. NOTEBAERT: No. ` `  COMMISSIONER TRISTANI: because you use well, you use other ` `  MR. NOTEBAERT: We don't use them as much as we did in the '80s. ` `  COMMISSIONER TRISTANI: But but what do we as regulators do if we lose the benchmarks because they've been very, very useful? ` `  MR. NOTEBAERT: I would urge you to consider enforcement and a shift in the direction that you go. If you look at the 271 filings and what the number of benchmarks that have been created by the regulatory bodies and the Justice Department in that case, you know, it is a%C0*H&H&@@ huge number. None of us managing a business would consider that number of benchmarks for any purpose. ` `  COMMISSIONER TRISTANI: No, but I'm talking about having less players to compare. ` `  MR. NOTEBAERT: You still have the same number of customers that you have to deal with. You still have multiple players. In fact, today we have more people participating in the communications industry than we had five years ago. There are far more companies. ` `  I think fewer benchmarks that are more specific and targeted should still be used. But not to not to the extent I mean, it's gone it's not even micro. It's really detailed. ` `  COMMISSIONER TRISTANI: We may be talking about two different things. ` `  MR. NOTEBAERT: Yes, I'm sorry. ` `  COMMISSIONER TRISTANI: But let me let me follow up on something else which Mr. Whitacre brought up. He said we shouldn't be concerned about a new AT&T, AT&T West, AT&T East. It's a very different picture we're seeing here. ` `  I would like to ask both of you, would it be okay to end up in a year or two with one big local exchange company? ` `  MR. WHITACRE: Well, I said we shouldn't put AT&T%D0*H&H&@@ back together. That was a bigger description. Would it be okay? I don't know because it's not even a possibility. It's not going to happen. There are too many companies. There are too many niche players. There are too many regions. I think there is over 1,300 local exchange companies now. ` `  COMMISSIONER TRISTANI: But if we ` `  MR. WHITACRE: It's not going to happen. ` `  COMMISSIONER TRISTANI: approve the two mergers and some of the players aren't here that are before us, who is to say that in a year or so, you come back, say, to even compete better globally, to even do a better job to promote competition because everything hasn't worked the way we wanted; we need to get together. ` `  MR. WHITACRE: Well, I suspect I'm no lawyer, but I would suspect there would be antitrust concerns crop up, there would be other concerns. And what you what you propose or suggest in my opinion is just not going to happen. You reach a certain scale and that's really what you need to do what you want to do, and that's it. ` `  MR. NOTEBAERT: You have two national players now in WorldCom and in AT&T and Sprint, so you have three. The fact that you're going to have two or three more or four more, what I said in my opening remarks, six to eight, I think it is a good thing for the country. We should get rid%E0*H&H&@@ of the expression, "regional". We should think about this as no safe haven. Every company should be able to compete. It should be inclusive. We have a lot to do. ` `  I think when you get to that level of having that number of large national and international players, what you will see is not a further consolidation domestically, but something that more along the lines of an outreach on an international basis, the formation of alliances that way. And you've already seen AT&T start that with BT and Sprint, implement that with FranceTelecom and DeutscheTelecom. So I think you will see a shift. ` `  COMMISSIONER TRISTANI: Thank you. ` `  CHAIRMAN KENNARD: Thank you very much. I wish we had more time. But unfortunately, we will have to move on. But thank you very much for being here. We really appreciate your participation. ` `  The next panelists are the principals from Bell Atlantic and GTE who have been waiting patiently in the back of the room through the other panels. I am reminded of my days in law school. When I wasn't quite prepared, I used to backbench it, which I would sit in the back of the room and hope I didn't get asked questions. So I'm glad that you're now in the front row and prepared to tell us about your merger. ` `  MR. LEE: Thank you, Mr. Chairman. And I I%F0*H&H&@@ thank you and the other Commissioners for inviting us and giving us a chance to talk about our merger and how it is going to help this nation move forward in continuing the number one global telecommunications country in the world. ` `  Let me say, I submitted some prepared remarks. But in the spirit of time, in essence what I would like to do is just stipulate those for the record and just say a few things off the cuff ` `  CHAIRMAN KENNARD: Certainly. ` `  MR. LEE: kind of summarize them and then get to the fun part of the day. And Ivan I think will do the same. The fun part of the day is some questions. ` `  First, we're here today to ask for your enthusiastic support for this merger because we are going to convince you that it is procompetitive and it is proconsumer. The Telecom Act was intended clearly to breakdown geographic barriers and product line restrictions in the spirit of promotion broadbased competition. ` `  We ask you to think of our merger in the spirit of this open market, this new national market that is being created and that is being talked about so far. The characteristics of that market are pretty straight forward. ` `  One is it's going to be national; that you need a national footprint to be competition. Two, you need international reach. Three, you need a full range of%G0*H&H&@@ products. The product restrictions do not please customers and are inappropriate for the longer term. ` `  And fourth, you have to have a data capability. You have to be the internet is exploding. The internet is exciting. All telecommunications companies in the future need internet capabilities in order to serve their customers. ` `  Our company has invested a lot in IP networks and IP technologies. That started originally dominated by three interexchange carriers. This merger is critical to helping us, our new company, be a major player for expanding and growing the internet. ` `  Second, we have a unique footprint that my associate, Allen, will point up here. And, in fact, it gives us unique opportunities to be a player in this new national market that we're talking about. ` `  You can see, in essence, GTE is a chain of islands within what we call a see of RBOCs. As a result, going out of our franchise is an opportunity. But it's slow and it is expensive. ` `  Unlike the interexchange carriers that one of whom was here today, we do not have a national brand. We are not known outside our own franchise territory. Plus, we don't have an existing customer base. We have to start from scratch. We have not the interexchange carriers have%H0*H&H&@@ customers across this country ubiquitously today. We do not. ` `  So what we have in our merger with Bell Atlantic is an opportunity to follow the customers. They are, as you know, regionally in the northeast. They have major divisions and major operations. They are customers where they have relationships now across the country. And it gives us an opportunity to build our franchise opportunity, many of which are close to our current franchises, but not in our franchises; and then to build after that success into the residential and consumer market. ` `  We also have a national backbone. Allen, if you could just put the other chart up for a minute. The red dots on that chart, by the way, are the Bell Atlantic customers who are close to our franchises and would be targets for us in an outoffranchise strategy. ` `  Lastly, we have our our national network that we're building. Obviously, it is it is principally IPoriented. It's going to be very expensive to put new products and services on there with our dispersed customer base. It will be much, much more efficient and will do much more for the Internet by having the merger behind us. ` `  And lastly, of course, we're also in the long distance business and we have total confidence in Ivan and the Bell Atlantic team winning your approval of 271%I0*H&H&@@ applications. And by becoming the fourth major facilitiesbased carrier as a result of this merger, this network will be a significant contribution to the to the nation's telecommunications system. ` `  In summary, what what I'm trying to say, this I'm trying to describe the world of future, not the world of the past. Clearly, the new company will be able to enter this new market faster and more effectively than either company could have done before. So we think this merger is clearly in the public interest. And we look forward to your support and we look forward to answering your questions today. ` `  CHAIRMAN KENNARD: Thank you, Mr. Lee. Mr. Seidenberg. ` `  MR. SEIDENBERG: Good afternoon. Just a quick introduction. We do have a lawyer at the table. ` `  (Laughter.) ` `  Okay? Jim Young is our general counsel and Geoff Gould of course you all know. I think in the interest of getting to your questions, if you would agree, I can stipulate that all of these mergers are good for America and you would agree with that. ` `  (Laughter.) ` `  And what I'll try to do here is I'll pass over my written comments and try to address just I think a couple of%J0*H&H&@@ the points. Chuck and actually all of the panelists made some points I would have made in my own words. But let me just see if I can put emphasis. There are three points I would like to make. ` `  It has been said the telecom industry is changing. We all understand that from a different perspective. What I would add to your debate here is the following: The technology and the silos that you have traditionally regulated are breaking down. ` `  Wireless is national. Pricing for wireless is national. You have substitutability between current long distance switched and wireless services. Internet and data are boundaryless. Customers want bundling and packaging. They want sole sourcing for service and things of that nature. ` `  So as we look at our business, we are not looking at the incumbent industry, but rather looking at industries that are converging across the board, which leads, Commissioner Tristani, to our view of the issue of benchmarks, is you need new ones. The old ones don't work anymore because you can't compare the future industry by looking in the rearview mirror of companies that used to be incumbents that are no longer incumbents. ` `  Under this definition, AT&T is an upstart. And we don't see them that way. So I think our view is you do need%K0*H&H&@@ benchmarks, but we need to create the kind of benchmarks around the new five or six global players. ` `  The second point I would make is that the Bell/GTE merger is clearly procompetitive. As we said in our public interest filing, if you look at the local, long distance, internet and wireless areas today, the Bell/GTE mergers produces significant new competition in every one of those markets in various degrees. It actually accelerates the competitive model. ` `  In fact, the charts that Chuck has described to you show that we don't have to hire 8,000 people. We have an inplace structure between the two companies to get out there and compete in all of these markets the day the merger is closed. ` `  To the question, the jurisdiction on this point, just, again, not being an attorney and you can question Jim on this I'll just explain the experience we had with the Bell/NYNEX merger. At the time, it was perceived to be one of the most radically proposed transactions in the history of the industry. And the primary issue was the issue of competitive potential competition between Bell Atlantic and NYNEX which far oversees any of these potential competition issues that exist in the SBC or even in the GTE/Bell merger. ` `  There is nothing the FCC looked at that the%L0*H&H&@@ Department of Justice didn't look at for 12 months in its infinite detail before that. Not that my view is whether the Commission feels it should look at it or not, the point being is there was nothing that came up afterwards that was any different than we had addressed in the DOJ issue. ` `  You do have a question of license transfers. We understand that. I would hope that we would be careful from a businessman's perspective, that in looking at the public interest question, we don't so broaden it that we miss the forest and we get stuck behind any of the trees because what we're looking at here is industries in which you do not regulate: the internet, software companies. ` `  So many industries are impacted by the kind of transactions we're talking about, I think we have to be careful to go beyond the license transfer issues and not in effect create standards that really aren't in tune with the future structure of the industry in general. ` `  The third point I would like to make that hasn't been made earlier today is that mergers in a restructuring set of industries are actually good for the public. You should welcome them for a different perspective. The Bell/NYNEX merger, the experience there is that everything that we said would happen, happened. And I will just go over a couple of points. ` `  We've increased our capital spending by over 600%M0*H&H&@@ million dollars as a result of the merger. We have increased spending in customer care. We have improved service across the board. We have introduced new products we would never have been introduced to on our own. We've added 4,000 jobs in the company in the areas of service and capital investment. ` `  We have also funded the opening of the network in the 271 process. We never would have been able to do the things we are doing in New York State in operating support systems and our attempts to open the network. Without the Bell/NYNEX merger, it never would have happened. ` `  And all of this is possible because of the efficiencies and the synergies that were gleaned from the putting together of two companies that can today tackle the globe in the manner in which Ed Whitacre and Dick Notebaert have mentioned. ` `  We have the same view of creating a company here between GTE and us that would in effect be one of the five or six global players that would participate in these markets as we go forward. Thank you for your listening to us. ` `  CHAIRMAN KENNARD: Thank you. Mr. Lee, you talked about the importance of being able to follow your customers around and that that's one of the principal benefits you see from this proposal. I would like to explore that with you%N0*H&H&@@ for just a moment. ` `  I see from your chart here that you've got facilities located in Los Angeles and San Diego, Phoenix, a number of cities. And I can understand your desire to be able to offer your business customers onestop shopping. We have seen a fair amount of competition for business consumers in this country. I believe that the principal challenge before us is to bring more competition to residential consumers. ` `  And I'm curious what this proposal would do for America's residential consumers. What do you tell the residential consumer in Los Angeles, where my family lives, that this merger or how do you respond to the following question that they might propose to you: This merger is in effect eliminating a potential competitor from my market. We have GTE. We would like to have Bell Atlantic someday. But with Bell Atlantic and GTE merging, we won't have Bell Atlantic as a competitor against GTE in that marketplace. How do you respond to that question? ` `  MR. LEE: That's a great question. And I obviously feel passionately about the response and it goes a number of ways. First, and that is with our footprint and our history, we have launched a grow strategy for our company which in fact involves BBN and the internet and data and GNI or our global network infrastructure which is but%O0*H&H&@@ it also involves a CLEC. ` `  And we are in places where we can within a hundred miles of our current franchise, we are beginning to develop hotter franchise strategies which is focused on small business and highend consumers or residential. But I think what I would ask the Commission to understand, that is in a very expensive process. We have spent hundreds of millions of dollars developing systems and platforms to compete for this. ` `  Now, the distinction I would like to make is that our company has not stopped. Now, you're I wish you would have asked one of the people on the panel earlier, the first panel, why he stopped. Our company hasn't stopped. We're going forward. Maybe he has a different agenda for stopping. But we're going forward. ` `  Now, how will this merger help us? This merger will help us because it is an expensive proposition. You need particularly outoffranchise, the more you have brand recognition or you have business customers to build the network, to build the capability, to build the scale, the more fundamental and solid the business is going to be over the long term. ` `  So not only again, the key view that I have on our merger is that it makes the new company faster and more effective by a long shot than either would have been%P0*H&H&@@ individually. Ivan can tell you about Bell Atlantic. But from my standpoint, faster and more effective is the key to this merger and the key to bringing real competition to the consumer in a residential market. ` `  CHAIRMAN KENNARD: Mr. Seidenberg, did you want to add something? ` `  MR. SEIDENBERG: Well, no. The only thing I would say is you do get Bell Atlantic in LA through GTE. I mean, the assumption would be that you would get us both. Well, we're too far behind; it's too expensive; we don't have any assets in California to let us do that. ` `  I think with a wireless network, with an IP network on a data architecture, what you can do over time is we can then ramp up the scale and compete with the people who are already there like the WorldComs and the AT&Ts and the Sprints and other people. ` `  So I don't think you would see a Bell Atlantic having the capacity to tackle the whole country all by itself. We can't do it. We're too far behind and, oh, by the way, without long distance relief, it's not going to happen anyway. So until we get to the full bundle, you're not going to see us venture very far from our footprint simply because customers won't take us seriously. ` `  CHAIRMAN KENNARD: Well, should we draw from this discussion today the following conclusion: That the%Q0*H&H&@@ economics of telecommunications in the world today is that an RBOC will not venture outside of its region to compete out of region unless it does through does so through merger or acquisition? Is that a fair statement? Is that what we should draw from what we've heard today? ` `  MR. SEIDENBERG: No, I don't think that's an accurate statement since I'm the only RBOC left here I guess. The here's what I would say, that an RBOC ` `  CHAIRMAN KENNARD: You may be the only RBOC left one day. ` `  MR. SEIDENBERG: Yes, well, to be honest about it, that's a little bit of the lens I want to change because don't think of RBOCs, think of cable companies and wireless companies and long distance companies. We're all the same. In a couple of years, we'll all be in the same place. ` `  But what I would say is this: The venture out of the region, it's a combination of mergers. It's a combination of acquisitions. We just signed a capacity agreement with a CLEC called InterMedia that said basically said when we get into long distance, they will provide us the facilities and the access to terminate in Atlanta, in Tampa and in all those other places. ` `  So, no, there is no way you should think that we won't go out unless we do it through merger and acquisition. We'll do it through a variety of things. But we do need the%R0*H&H&@@ basic scale to tackle the global requirements. And we think we're getting closer. ` `  I wouldn't suggest we're all the way there, but I think at this point and the other the only last point on this, if I might, we see this as a little different merger in that Bell Atlantic was not interested in another RBOCtoRBOC merger. ` `  We were interested in a merger that would give us vertical capability in terms of product because within customers, we're looking for bundled services from us in time. GTE has done marvelous work in the area in the data area. They've got a great wireless footprint. ` `  And they've done some terrific things with bundling in their CLEC strategy. So we feel we have a little different proposition. We weren't looking for a like business. We were looking for one that would add vertical capabilities to let us compete out of territory. ` `  MR. LEE: Mr. Chairman, again, we're not an RBOC as you well know. But we do have some of the same characteristics. And what I want to come back to is, again, our footprint and our map because we have gone out of franchise. ` `  And we have the ability to bundle now because we are different than than an RBOC. So we're bundling long distance, local exchange, international, wireless, paging. %S0*H&H&@@ And we are developing a business that datacentric; it's centered around BBM. So we are doing business in Chicago. We are doing business in Houston. We are doing business in Dallas. ` `  Now, what we need because of the cost and the expense and the scale and the building the brand name and following customers, we need the economics that come as a result of a combination with Bell Atlantic to help us be successful against these other people who are going to be doing the same thing. ` `  AT&T, we heard it today, they're going to be doing the same thing. We know MCI WorldCom is going to be doing the same thing. We know SBC and Ameritech are going to be doing the same thing. There are four players. ` `  And that doesn't limit what happens to Bell South or what happens to Sprint. And there are going to be lots and lots of competition because of changes in technology and because of the evolution and growth of this industry well into the twentyfirst century for as far as I can see. ` `  CHAIRMAN KENNARD: Thank you. Commissioner Ness. ` `  COMMISSIONER NESS: Following up on the Chairman's question, you said you needed basically to bulk up in order to be able to provide nationwide services or to compete outside of your own territory. How far do you have to go? ` `  MR. LEE: Commissioner, let me just correct you.%T0*H&H&@@Ԍ` `  COMMISSIONER NESS: Okay. ` `  MR. LEE: One simple way is to talk about bulking up. But the specific thing I said is the new company, the combination of these two, will do it much faster and much more effectively than either of us could do it individually. And that's what America is about. That's what our country is about. That's what the marketplace is about. ` `  COMMISSIONER NESS: How large how large will you have to be in order to be able to do that. Is the current proposal sufficient in order to be able to advance in markets throughout the country or is it likely that, once again, you are going to have to do another acquisition in order to be able to get that kind of market recognition in areas where you're not presently competing? ` `  MR. LEE: Well, I can't deal with hypothetical questions. But I'll tell you who and where that will get answered. And it's very clear. The marketplace will answer that. Our customers and the stock market. And if our customers demand and other companies get some big cost advantage against us because they double and quadruple, then we will have to take action. ` `  COMMISSIONER NESS: So in other words ` `  MR. LEE: So it will be a market dynamic constrained by the Department of Justice and the antitrust laws of this country which, you know, I have no doubts%U0*H&H&@@ about. I mean, we know they're effective as as the other Commissioner said. We know the Department of Justice and the laws of this country are very good in limiting the elimination of competition in marketplaces. ` `  MR. SEIDENBERG: Can I offer a little different perspective on that? ` `  COMMISSIONER NESS: Yes. ` `  MR. SEIDENBERG: I just want to clarify the word, "bulkup". We feel we need to, to use your term, bulkup to be horizontally to expand horizontally. We also feel we need to bulk up to provide technological leadership. To get ADSL out there and all the high speed new networks out, we needed some additional scale. So it isn't just to to go nationwide. ` `  I feel that with this transaction, we will create an irreversible tract that will answer the question you just raised differently once we get into these markets. See, I think GTE has an enormous integrated data network already that we don't need to buy a long distance company to that doesn't mean it won't happen, but it just says you don't need it. We have a wireless footprint that gives us enormous reach, so I think. ` `  So I think the opportunity here kind of is the road not traveled. If we're not careful, you'll find companies navigating through the regulatory rules as opposed%V0*H&H&@@ to chasing the market. ` `  If we get into 271 like we feel we can in the first quarter, we can pursue a national wireless footprint. We can pursue a national data footprint. That question gets much differently in three or four years. ` `  The long distance companies could have made the investments that Dick Notebaert did, an alternative network, 15 years ago. They didn't have to lose whatever they say they lost on local resale. Now they make a 48 billion dollar acquisition. ` `  The answer to me is let us build it organically and then we'll see how far that goes. But we think we're pretty big at this point in terms of covering the American footprint. Internationally, I think we have a long way to go to say that we've covered the right territories. ` `  COMMISSIONER NESS: You mentioned, Mr. Seidenberg, that we need to look at new benchmarks. I was intrigued by that. What would those new benchmarks be in your view? ` `  MR. SEIDENBERG: Bell/GTE. It will be the only company that has it all and will compete across the whole country right on day one, no promises. You don't have to wait for the cable companies to upgrade and you won't have to wait for SBC and AT to acquire the 8,000 people. ` `  But I think the answer to the question is, without being flip, is that that if we're looking at the%W0*H&H&@@ companies of the future, I think you should be trying to think through the kind of benchmarks that exist. And just be careful how much the old benchmarks work. ` `  You know, the if you look at the IBMs of the world, the EDSs of the world, what you'll find is there are companies moving into these spaces that are doing what we're doing in large regard. And I think we have to be careful about it. ` `  I Dick Notebaert said you look at benchmarks for individual processes in your company like billing or inventory control. We've all been doing that. The Justice Department, when they looked at the Bell/NYNEX merger, looked at a future model and recognized that Bell and NYNEX were never going to compete with each other in a large way. And they got out of the way at that point. As a as a businessman, that's the way I read it. ` `  So I don't have a specific answer for you. And I think this is the truth we all need to find. But new benchmarks are the answer. The old ones are anachronism to the past. ` `  MR. LEE: Another perspective maybe and definitely a little bit down the road from the days that Ivan was describing, is that if the vision of these new national markets evolves with your support and your help, the need for benchmarking data is going to be tremendously%X0*H&H&@@ reduced because benchmarking is going to be done by the customers. ` `  There is going to be so much competition across all these markets and against all these products and all these services that the customers are going to do the benchmarking. I mean, people don't ask people internally do benchmarking in General Motors. But I don't know of a regulatory agency that is looking over ` `  COMMISSIONER NESS: It sounds wonderful. ` `  MR. LEE: So it's internal benchmarking. ` `  COMMISSIONER NESS: But we still are faced around this country with very few options for consumers, for residential consumers who wish to have alternatives for local telecommunications services or even a panoply of services. ` `  And we still are faced with the enormous cost that has been discussed at length today of being able to enter into a new market where you don't have brand recognition, where you don't already have a footprint, where, as some have said today, the cost perhaps is even the revenues perhaps are even below cost of providing the local service. ` `  How will this help with companies combining to ensure that the residential consumers of this country have alternatives for local service? ` `  MR. SEIDENBERG: Well, A) the premise let me %Y0*H&H&@@ there are two halves to this. First, I would like to just address the premise of the question that consumers don't have choices. I think we can get into a long discussion. We probably have had this before. But customers today have all sorts of choices in calling plans, all sorts of choices in wireless, all sorts of choices in data. ` `  There is one access line into the home in a lot of places. But the uses of those access lines have changed so extraordinarily, pervasively over the last three or four years that customers have more choice in what they do with that than they've ever had before. ` `  There is one statistic that we've been looking at in the last couple of months that has been very instructive here. Bell Atlantic today has 41 million access lines. That's our the way we used to measure access lines. What our datacentric people are telling us is that we have another 15 million DSO equivalents that have been introduced into our business through data services over the last three or four years. ` `  What is happening is customers you can have an access line. But they are getting multiple channels over that. And we're finding CLECs are able to offer services over those things and nobody is counting them. ?So I think there is a different paradigm coming. ` `  Now, to your point, how do you stimulate the%Z0*H&H&@@ obvious optic of having other choices? Well, these mergers, if they go through, you will create five or six national companies all competing. Everybody on the panel said they are coming into New York. Fine, we've got competition; we'll get some more. ` `  We have competition everyplace. You won't get competition if you try to grow it regionally. If you want to get it, you will have to let it occur through the formation of national and global businesses. ` `  MR. LEE: The one the definite adder to everything Ivan says, which I agree with, and I've talked to each of the Commissioners about this point, is the whole issue of the universal service subsidy has got to have a dramatic impact. ` `  Madam Commissioner, you just said the revenues for residential service may be below. It's not may be. Revenues for residential services is dramatically below the cost. And overall, our companies are okay because we make up for it on universal service. ` `  But we need in a competitive place to have prices that have a true relationship to economic cost. And then people who have stopped building out in the residential market I think you'll see dramatically run to that because it will be a fair opportunity for them to make some money. ` `  So I come back with my ongoing dialogue with the%[0*H&H&@@ Commission and ask that we keep our focus on this universal service which the Telecom Act says very fluidly, "All subsidies are to be made explicit and evenly borne by all competitors in the industry." And I just applaud the efforts you're making to to complete that task in the near term. ` `  COMMISSIONER NESS: Thank you. ` `  CHAIRMAN KENNARD: Thank you, Commissioner. Commissioner FurchtgottRoth. ` `  COMMISSIONER FURCHTGOTTROTH: Thank you, Mr. Chairman. Mr. Lee, Mr. Seidenberg, we've heard a lot of discussion today about several mergers. And as you know, I'm very interested on views on what this Commission should be doing. Let's leave aside Bell Atlantic/GTE for a moment. I think you may have something of an interest in that particular merger. ` `  How would you recommend this Commission proceed in reviewing in the public interest some of the other mergers that may have been discussed here or just any hypothetical merger? What what should this Commission do? ` `  MR. SEIDENBERG: Well, I'll take a cut at it. What the heck. The here is what I would say, is that when I look at the other mergers, I frankly think if they passed muster at the Justice Department, assuming that they do all the things that they're supposed to do, you'll %\0*H&H&@@ you'll deal with a good portion of the issues that you need to deal with. If there are license transfers, you will deal with those. ` `  The only other point I would make is and it goes to the issue of if there are existing Commission policies that would be violated by any of these mergers. And I think you have an obligation to stand up and tell those companies what they need to do about that. ` `  An example of that might be the open broad band promise we heard today. If if maybe there is some work that needs to be done in that area. Or if there is something in the Bell/NYNEX merger that would be violated as a result of the Bell/GTE merger, then I think the Commission has an obligation to do that. ` `  But other than capturing the enforcement of existing policies, I struggle with how far we take the process only because I worry that none of us really knows how this industry will change. And you always worry that that however wellintentioned, the combination of federal and state regulation tends not to be able to keep up with the technology itself. I worry I can't keep up with it, let along having a process that's intended to do it. ` `  So in this general way, I think that's sort of the coming out point. Now, Counsel might have a lot of specific things here that you may want to talk about at another%]0*H&H&@@ point. But I'm sure we can let that go for another time. ` `  MR. LEE: I would just say, very quickly, number one is per your question earlier, Mr. Commissioner, I know of no example where the Department, based on my judgement where the Department of Justice hasn't done an appropriate job of reviewing the antitrust laws and concentration in various industry. 3So I know of none. Maybe somebody could prove me wrong. ` `  Two, I respect and understand the specific roles of the Commission in terms of transferring licenses, satisfying that its in the public interest. And and I think Ivan makes a great point in terms of other conflicts with other policies that should be sorted out by the Commission. And so I feel real, real black and white on the issues that I've just described. ` `  MR. SEIDENBERG: If I just could put an exclamation point because I have to live here again is this point: I think that debate and the forum is very positive. I think it's what you do that I think a lot about as we go forward. ` `  So I think the question of having the forum and the debate is good. I think you generate the kind of understanding that's necessary to go forward. But the law is the law and you'll decide what that is later on and then we'll see what happens. %^0*H&H&@@Ԍ` `  MR. LEE: Thank you, Mr. Chairman. ` `  CHAIRMAN KENNARD: Thank you. Commissioner Powell. ` `  COMMISSIONER POWELL: Well, time is getting late and I won't ask but one question. And, Ivan, let me first ask you because I'm intrigued by your statement about the difficulty of growing competition from a regional from a regional base or growing it and I would expand the question to growing it with the consideration of any kinds of artificial boundaries. ` `  That is, I wonder if you wouldn't say something about the pressures being generated by modern technology trends. In particular, sort of the coming of the truly borderless network model which really, less so than the other one ever did, does not respect in any meaningful way a number of boundaries over which legal concepts are drawn. ` `  I mean, I primarily think about latas and their inherent artificiality. I think about state boundaries which are constitutionally commanded, but of course they are not necessarily meaningful for efficient network operation. And then we've heard a lot about global and national stresses. ` `  And everything seems to be pressuring toward making concepts such as distances and boundary limitations be less important as organizing principles for policy%_0*H&H&@@ decisions. And I've heard a lot about discussion about the economics and the efficiencies, the operational efficiencies. I get 8,000 employees. I get, you know, more money. I get that. That's all very obvious. ` `  But could you expand just a little bit on what you believe the technological inevitabilities are that are pushed ` `  MR. SEIDENBERG: Well, I think what you'll see in that question is the very big difference in this merger. I will answer that question using wireless as an example. And I know Chuck will explain the whole data issue. ` `  If you look at wireless, years ago you got all these analog licenses. They were all regional. No problem. People put in the systems. They built them up and everything was fine. What happened is you found that technology started driving the prices down. We moved to digital. We expand capacity. People started to expand their footprints. ` `  And now what you're finding is we're offering when Bell/NYNEX merged, we were the first company that reduced its roaming charges to zero. We were the first company that gave first incoming minute free. Now you're finding we're going to ten cents a minute, no roaming, no long distance. You need scale. There are no boundaries to that.%`0*H&H&@@Ԍ` `  So state commissions can't regulate air over this. So you're finding that the wireless business, in its transition from analog to digital, has obliterated the technological boundaries and drove pricing down. It is forcing us to rethink our business and think of ourselves not in a geographic constraint because our customers are looking for the national services and the products to do that. The internet and data networks have done exactly to the core business what wireless has done. ` `  MR. LEE: Ivan is exactly right. And, Mr. Commissioner, let me describe two products. And we're int his business now through our acquired company, BBN. But the whole industry is going to IP technology and IP networks. And so we will see more of this in the years ahead. ` `  We go to customers and we want to build their IP networks; well, not only their access to the internet, but their own data packet, switching networks that that go back and forth. ` `  And we say, "Okay, we'll do it here and we'll talk to another RBOC or we'll talk to a long distance guy", and they say no. They endtoend productivity. The technology is so sophisticated, the equipment, the finetuning. And in fact, they want us to run the networks because it's so complicated, in addition to building it and to run it and keep operating.%a0*H&H&@@Ԍ` `  Another example is web hosting. And these are just examples. Interesting enough, one of the other panelists earlier talked about a portal company connected with the internet. Well, one of the most famous ones and I've probably restricted from using the name uses us to be their web host. And so we and it's a very big web site. ` `  And we we tried to build their network and make it access and use other web hosts around the world. And web hosting has gotten complicated with all the demands. And we have a system called hopscotching where the network is smart enough to figure out which web site, if you have multiple web sites which web site is available for the quickest response time. So we call it hopscotching. ` `  So we're selected by this customer because we have this technology. But he wants a global business. So he says, "Where is your hopscotch, web site, web hosting location in Europe, in Asia?". We are having now, this is an important customer so it's all right and it's a pending thing. ` `  This guy not only wants the network connectivity all under our control, us running the network, but he wants us to have web sites around the world managed by this hopscotch technology. So it's it's all distance is becoming irrelevant with fiber optic technology and all. %b0*H&H&@@ And it's all becoming one small world, one integrated network. ` `  And it's going to be a very vicious competitive battle between us and the other big companies and these top four or five companies that are going to survive this this dramatic restructuring of our industry. ` `  COMMISSIONER POWELL: I would just add more of a summation of a point that I think is going to become increasingly important that I've heard each of you allude to which is that understanding of the communication trend means the universe of entrants and competitors is probably much broader than if you just want to think of the world as voice telephony. ` `  We're talking about the introduction of core competencies from the likes of IBMs and CISCOs and enormous numbers of other people who at least for many of the total portfolio of services being offered by a classic phone company today, there will be many, many other participants with respect to them. ` `  And it is important that we remember that while local local residential phone service is incredibly important and I think one of the highest priorities of Congress and our own. But it is one in a whole range of communication suites that we're also trying to foster. And there may be unique challenges with respect to that last%c0*H&H&@@ one. But I also wouldn't want the last one to dominate everything we think about the others. So thank you for did you ` `  MR. SEIDENBERG: Okay. No, we'll go on. I know you're it's late. Thank you. ` `  CHAIRMAN KENNARD: Commissioner Tristani. ` `  COMMISSIONER TRISTANI: Mr. Chairman. Let's say I'm a little old fashioned. And let's say I come from New Mexico where the world is pretty different from here in the east. I haven't been there in a while, but I don't think they are about to offer me new cable service any time soon or as a if I were living in a residence, any kind of alternative. ` `  And I'm a consumer out there and I've heard about the new Act, local competition, and I haven't seen any. And all I see is megamergers. And I keep hearing they're good, they're good, they're good. And I asked the previous panelists and I think you were here what if we end up with one local company. And he said, "Can't happen." And I said, "What if it could happen? Would that be okay?". It's a hypothetical. ` `  MR. SEIDENBERG: Well, if I can address it this way. While New Mexico is different, we have communities in Vermont and Maine that are just like that. ` `  COMMISSIONER TRISTANI: I know.%d0*H&H&@@Ԍ` `  MR. SEIDENBERG: And we serve just the same the same thing. And here's what goes on. In the Bell/NYNEX merger, those customers got better service, lower rates, more feature and functions. And the better we did for those customers, the quicker AT&T got off it's whatever it is and they moved into those markets a lot faster. ` `  So I think what's happened is there are lucrative markets in every single state whether they be rural or suburban or the most urban markets. And I think that a strong, healthy, technologically and financially leadership company will incent the kind of people going into those markets. ` `  Now, you say, "Can there be one?". The the reason we ` `  COMMISSIONER TRISTANI: If if there were one. ` `  MR. SEIDENBERG: Well, the question that we all struggle with when we hear that is very obvious; that you categorize us as being one group and the long distance companies as another and the cable as another. I think even if there were one of each, that's three. And in the future, there isn't going to be one of anything or we're going to be merged. ` `  So in our view, is there can never be less than the three or four providers that you have now. And incenting them to get on with the investments they need to%e0*H&H&@@ make I think is the right structure in terms of what you are looking for. I don't ever worry that there will ever be one. It's never going to happen. It doesn't exist today and it won't exist in the future. ` `  MR. LEE: The antitrust laws in this country, in the Justice Department, just as Attorney General Reno and Joe Kline, I'm sure they would say there is no way there is going to be one. I mean, that's that just isn't going to happen. So it's another world. ` `  Secondly, in terms of we're a company that (inaudible). We are a CLEC. We are what our corporate growth strategy moving us out of our franchise. And I don't know where we are in your your home town in New Mexico. But it is very timeconsuming and expensive. ` `  You heard every panelist, every all three enterprises here, AT&T/TCI is going to be competing and presumably your cable company will compete. SBC and Ameritech. So there is competition that is developing. But this is not a quick and easy fix. It is going to take time. But it seems to me that we can feel good about the progress that has been made so far and the commitments that you're hearing out of the the future of these arrangements. ` `  MR. SEIDENBERG: Commissioner, if I just might, I just can't let go of this question here. You know, the the when Bell and NYNEX merged, which was a cataclysmic%f0*H&H&@@ event in the legal system here, everybody said, including the long distance companies, the world would come to an end. ` `  Well, we merged. We've done our job. What's happened? WorldCom has consolidated with MCI. They are restructuring. What you're finding is AT&T has acquired Teleport. AT&T has acquired now TCI. Bell Atlantic moved a lot quicker to get into 271. ` `  So I think that the restructuring of the industry is causing the benefits to flow exactly the way you would like to see them. And you're not going to get to a point where you have to worry about having one monopoly left. It can't happen. ` `  COMMISSIONER TRISTANI: Thank you. ` `  CHAIRMAN KENNARD: Thank you. I appreciate everyone's patience. We are now about an hour behind our allotted time. But it has been a very, very useful and worthwhile session. And I want to thank each of the witnesses for participating in this en banc hearing. ` `  This is the beginning of a process in my view. We're going to have another en banc hearing. And over the next several weeks, we are going to be hearing from lots and lots of people who have interesting things to say about these merger proposals. ` `  We've heard some very interesting views today about how technology in the marketplace is changing. And,%g0*H&H&@@ you know, as we hear more, we're going to be carefully analyzing the records the record that is being developed in this proceeding. ` `  But I want to emphasize one thing. We are not here to pick winners and losers. The only winner from this process has got to be the American consumer. That's who we represent up here. And we've got to make sure that we are acting in their best interests. ` `  We've heard a lot about the efficiencies of these proposals and how they are going to be good for shareholders. And I think that we at least speaking for myself, I fully understand that. We've also heard a lot of promises to consumers about how this will be good for consumers, residential consumers. ` `  And we have to have a good understand of the basis for those promises. And the only way we can do that is to develop a comprehensive record, talk to a lot of people in a very transparent fashion. And that's what we're going to do. ` `   I want to say a word about the respective jurisdictions of the FCC and the Department of Justice. We've heard a lot of nonlawyers speak to this issue today. And as a former general counsel and I still consider myself a lawyer I wanted to address that issue. ` `  We have in this country a Department of Justice%h0*H&H&@@ and a Federal Communications Commission with related and in some respect overlapping jurisdictions. That's what Congress intended. That's why Congress wrote a communications act that gave this agency responsibility for enforcing some aspects of the antitrust laws. ` `  Now, the Department of Justice, they have primary responsibility for enforcing the antitrust laws. When they consider a proposed merger like the ones we've heard about today, they have to determine whether they can make a case that that merger violates the antitrust laws. That is their charge. ` `  Our charge is different. Our charge is to determine is to determine whether a combination will serve the public interest. Unlike the Department of Justice which carries the burden of demonstrating whether there is a violation of those laws, in our case, the applicants have to come before us and make an affirmative demonstration. You all carry the burden of demonstrating whether these proposals serve the public interest. ` `  It is our obligation at this agency, as the expert agency in telecommunications policy, to survey the overall marketplace, determine industry trends and determine whether any of these combinations sink either individually or collectively to serve the public interest. ` `  That system has worked well in this country for%i0*H&H&@@ most of this century. I do not believe the that the way it has been applied, either historically or will be applied today will be duplicative. We will certainly try to do our job efficiently and to minimize the burdens on the applicants and the public. But we will do our job and we will follow the law. ` `  And in doing that, I don't believe that we will or should implement any dogmatic or openended conception of the public interest. Again, our burden and our job is not to pick winners or losers, not to handicap everybody or not to give everybody advantages. ` `  Our job is to analyze carefully the facts of each merger, recognizing that each is different; but that each of them are operating in a marketplace that has lots of dynamics and these companies are going to interact. And above all, to make sure that we keep our eye on the ball which is consumers, ensuring that they get the benefits that they were promised by the United States Congress; more competition, lower prices, more innovation. We are going to do that. ` `  We look forward to the next en banc which we will be having on December 14th where we will hear from lots of other people, consumers and competitors and anyone who has an interesting thing, a serious thing to say about these proposals. So, again, I thank you very much for your%j0*H&H&@@ participation. ` `  Commissioner Ness, did you have any closing remarks? ` `  COMMISSIONER NESS: No thank you, Mr. Chairman. Just to thank everyone for their participation today and your thoughtful comments. ` `  CHAIRMAN KENNARD: Commissioner FurchtgottRoth? Commissioner Powell? Commissioner Tristani? ` `  COMMISSIONER TRISTANI: Thank you all. ` `  CHAIRMAN KENNARD: Thank you very much. ` `  (Whereupon, at 2:30 p.m. on Thursday, October 22, 1998, the hearing was adjourned.) %k0*H&H&@@  ? (! k   ` X (V)JHeritage Reporting Corporation &(202) 6284888V "REPORTER'S CERTIFICATE ă  ?X  FCC DOCKET NO. : N/A  ?  CASE TITLE : FCC MERGER EN BANCpp2  ?x  HEARING DATE : October 22, 1998  ?  LOCATION :  October 22, 1998  I hereby certify that the proceedings and evidence are contained fully and accurately on the tapes and notes reported by me at the hearing in the above case before the Federal Communications Commission. Date: __________ __Carla Wright_______________ Official Reporter Heritage Reporting Corporation 1220 "L" Street, N.W. Washington, D.C. 20005  ? <! TRANSCRIBER'S CERTIFICATE ă  I hereby certify that the proceedings and evidence were fully and accurately transcribed from the tapes and notes provided by the above named reporter in the above case before the Federal Communications Commission. Date: __________ __Bonnie Niemann______________ Official Transcriber Heritage Reporting Corporation  ?  <!PROOFREADER'S CERTIFICATE ă  I hereby certify that the transcript of the proceedings and evidence in the above referenced case that was held before the Federal Communications Commission was proofread on the date specified below. Date: __________ __Lorenzo Jones_______________ Official Proofreader Heritage Reporting Corporation