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First, Applicants assert that  xALLTEL is assembling a 10,000 mile fiber optic network that will link with Aliant's 1,700 mile  xfiber optic network to lower transport costs and enable the merged company to provide improved  Xy4 x<and additional services to current and future customers.=yZ {O'ԍ Id. at 3, 13.= Second, Applicants maintain that the  xVmerger will provide their customers with a greatly expanded wireless footprint that will be more  XK4 xcosteffective and offer higher quality than their existing roaming agreements. 9K {O'ԍ Id. at 3.9 Third,  x[Applicants contend that, as a result of the merger, the merged company will benefit from  x/economies of scale in sales, advertising, and purchasing, and will be able to eliminate redundant  X4 xcosts in such areas as administration, customer service, and sales.=~ {O5'ԍ Id. at 4, 13.= Finally, Applicants claim that  x"the combination of resources and the cost savings made possible by the merger will allow the  x<combined company to offer a wider choice [of] and more innovative products and services to a  X4 xlarger number of customers."= {O'ԍ Id. at 13, 4.= CWA responds that Applicants have failed to provide the  X4Commission with "concrete evidence, studies, or reports that document the alleged efficiencies."B yO!'ԍ CWA Petition at 3.B  X|4 e  11.` ` We find that Applicants have demonstrated that the proposed merger is likely to  xyproduce at least some tangible public interest benefits. We assess Applicants' public interest  x_claims against the backdrop of current trends in the communications industries for which the  x Commission has statutory responsibility. We note that the proposed merger will provide  xIApplicants with an increased wireless calling area that will benefit consumers and may result in  xqimproved wireless competition in the relevant geographic markets. We agree that not" 2 ,))))g"  xpinsignificant cost savings may be obtained from the linking of ALLTEL's and Aliant's fiber optic  xnetworks and from the economies of scale achieved by the combination of the two companies'  xoperations, given their current limited size. We need not ascertain the exact magnitude of the  x_public interest benefits of the proposed merger because "where, as here, potential harms are  X4unlikely, Applicants' demonstration of potential benefits need not be as certain."r  {O'ԍ WorldComMCI Order at para. 194; SBCSNET Order at para. 45.r  X'  Xv'C.XOther Public Interest Issues (#  XH4 e  12.` ` CWA, in opposition to the merger, raises certain other public interest issues.  xASpecifically, CWA alleges that: (1) ALLTEL will extend to Aliant its alleged practice of  xcollecting from its wireline local exchange carrier (LEC) subsidiaries a disproportionately large  x8amount of dividends compared to its other subsidiaries, which allegedly results in inadequate  xinvestment in the local exchange networks and operations; and (2) ALLTEL will cut jobs and  xemployee benefits following the merger. We find that CWA has provided insufficient grounds for denial or conditioning the Commission's approval of the instant merger.  X' 1.` ` Allegations of Excessive Local Exchange Subsidiaries Dividends  Xb4 e  13.` ` CWA asserts that ALLTEL's LECs have paid more than their "fair share" of  xdividends to the holding company in order to subsidize ALLTEL's expansion into diversified  X44 xlines of business (including wireless, Internet access, and information services).>!4Z yO?'ԍ CWA Petition at 46.> CWA explains its analysis as follows:  "XThe 'fair share' dividend payment is determined by calculating the telephone subsidiary's  "Jshare of total shareholder equity (e.g., capital ownership in the firm) and applying this  "ratio to the total corporate dividend payment. Any dividend payment by a regulated  "Ntelephone subsidiary to the corporate parent over and above this 'fair share' amount is an  "'excess dividend.' The 'excess dividend' represents a crosssubsidy from the regulated  X|4telephone operation to support other lines of business.9"| {O'ԍ Id. at 6.9(#  xWhile recognizing that ALLTEL's regulated LECs had a higher profit margin than its other  X74 xsubsidiaries,9#7| {Od#'ԍ Id. at 5.9 CWA argues that these LECs' payment of more than their "fair share" of dividends  X 4results in inadequate investment in the local exchange networks and operations.;$  {O%'ԍ Id. at 78.; " $,))))@"Ԍ X4 e S 14.` ` We agree in principle with ALLTEL that our regulations control the measurement  X4 xand level of ALLTEL LECs' regulated earnings.% {Ob'ԍ ALLTEL's Opposition to Petition to Deny, DA 99303, at 4 (filed Mar. 23, 1999) (ALLTEL Opposition to Petition). As ALLTEL points out, CWA does not  xcontend that any unregulated costs from ALLTEL's other subsidiaries are misallocated to the  X4 xALLTEL LECs' regulated services.9&" {O'ԍ Id. at 5.9 Accordingly, we find that no crosssubsidy issue exists.  xIn response to ALLTEL's argument that the Commission's regulations do not control what the  X4 x@ALLTEL LECs may do with their profits, CWA concedes this point.[' yO 'ԍ CWA Reply Comments to ALLTEL's Opposition at ii. [ Therefore, we do not have  xto reach a decision on the extent to which we have jurisdiction over ALLTEL's earnings or  xprofits. We decline to countermand ALLTEL's internal corporate decisions regarding the use of  xpart of its LECs' profits to finance its diversification into additional lines of businesses to offer onestop shopping to its communications services customers.  X 4 e 15.` ` We note that there is insufficient evidence in the record to support a finding that  xALLTEL has made inadequate investment in its local exchange networks and operations. CWA  xargues that the 1998 Local Telephone Service Satisfaction Study conducted by J.D. Powers and  xAssociates ranks ALLTEL last among the twelve largest local telephone companies in customer  xAsatisfaction, and that a 1997 Pennsylvania Public Utility Commission (PUC) report ranks  xALLTEL highest in "justified customer complaints" among the five largest local exchange  Xy4 xcarriers in the state.( yD yOn'ԍ CWA Petition at 78 (citing J.D. Powers and Associates, "BellSouth Ranked Top Performer in 1998 J.D. Power and Associates Residential Local Telephone Service Satisfaction Survey" (Aug. 6, 1998); Pennsylvania Public Utility Commission Bureau of Consumer Services, "1997 Utility Consumer Activities and Evaluation: Electric, Gas, Telephone, and Water Utilities," Appendix CTable 4)). ALLTEL, however, points out that the same Pennsylvania PUC report  xVestablishes that ALLTELPA exceeds required service standards (with a compliance infraction  xIrate that was about half of that of GTE, a residential service termination rate that was less than  xchalf of the average for the five listed local carriers, and the quickest response time to residential  X4 xcustomer complaints).v)Z,  yO'ԍ ALLTEL Opposition to Petition at 8. ALLTEL also argues that ALLTELPA's 1998 Quality of Service Standards report to the Pennsylvania PUCE confirms its high quality of service, and that the New York State  {O 'Public Service Commission commended ALLTEL New York, Inc. for excellent service in 1997. Id. at 79.v ALLTEL also contends that its LECs "have an aboveaverage percentage  xdof digital central offices and fiber plant, which reflects their continuing commitment to  X4 xinvestment in their telecommunications infrastructure."u*N  {O#'ԍ Id. at 910 (citing 1998 USTA Statistics of Local Exchange Carriers).u On the basis of this record, we find that  xthere is insufficient evidence to support a finding that ALLTEL has diverted its LECs' funds to  xother subsidiaries to the extent that there has been inadequate investment to maintain the local exchange networks and operations. "*,))))9"Ԍ X'X 2.X` ` Allegations of Reduction in Employment and Compensation (#`  X4 e 16.` ` We are also unpersuaded by CWA's allegations that ALLTEL has a practice of  xcutting jobs and employee benefits following merger, and that the statement in the instant merger  x}applications that ALLTEL anticipates cost savings by eliminating "redundant costs in such areas  X4 xas administration, customer service, and sales" "translates as job cuts."+ {O'ԍ Reply Comments to ALLTEL's Opposition to Petition to Deny of Communications Workers of America, DA 99303, at 34 (filed Mar. 29, 1999). We find that CWA's  xpredictions are speculative and are not substantially supported by evidence regarding ALLTEL's  xplans following its merger with Aliant. The record provides no basis on which to attribute  xspecific postmerger cost savings to definite reductions in overall employment or compensation  X14 xlevels as CWA suggests., 1" yO 'ԍ It may be possible, for example, that ALLTEL will eliminate some redundant positions following merger, but also will create more jobs in other areas as it pursues plans to provide additional, innovative products and services to customers. Furthermore, the merged firm may be able to use attrition and retirement incentive packages as means to achieve downsizing where necessary. ALLTEL states that, contrary to CWA's depiction of ALLTEL as  x}continually slashing employment, "ALLTEL has actually added to its communications operations  X 4 xsince the beginning of 1995."N-  yO'ԍ ALLTEL Opposition to Petition at 11.N Moreover, as the Commission has observed in rejecting similar  xNarguments from CWA regarding recent mergers, "there are indications that the changing  xuenvironment in the telecommunications industry is not adversely affecting overall industry  X 4employment levels."Y.  {O 'ԍ MCIWorldCom Order at para. 213 & n. 620.Y  X4  III. PRICE CAP WAIVER ANALYSIS  Xy'\  Xb'A.Background   X44 e 17.` ` Section 61.41(c)(1) of the Commission's rules provides that any price cap  xtelephone company subject to a merger, acquisition, or similar transaction shall continue to be  X4 x<subject to price cap regulation notwithstanding such transaction.E/,  yO'ԍ 47 C.F.R.  61.41(c)(1).E In addition, when a nonprice  x<cap company acquires, merges with, or otherwise becomes affiliated with a price cap company  xor any part thereof, the acquiring company becomes subject to price cap regulation and must file  X4 xprice cap tariffs within a year.0"  {O.$'ԍ 47 C.F.R.  61.41(c)(2). See Policy and Rules Concerning Rates for Dominant Carriers, Second Report  {O$'and Order, 5 FCC Rcd 6786, 6821 (1990), Erratum, 5 FCC Rcd 7664 (Com. Car. Bur. 1990) (LEC Price Cap  {O%'Order), modified on recon., Order on Reconsideration, 6 FCC Rcd 2637 (1991) (LEC Price Cap Reconsideration  {O&'Order), aff'd sub nom. National Rural Telecom Ass'n v. FCC, 988 F.2d 174 (D.C. Cir. 1993), petitions for  {OV''further recon. dismissed, 6 FCC Rcd 7482 (1991), further modification on recon., Amendments of part 69 of the Commission's Rules Relating to the Creation of Access Charge Subelements for Open Network Architecture," (/,))))(" Policy and Rules Concerning Rates for Dominant Carriers, Report and Order and Order on Further Reconsideration and Supplemental Notice of Proposed Rulemaking, 6 FCC Rcd 4524 (1991) (ONA Part 69  {O 'Order), further recon., Memorandum Opinion and Order on Second Further Reconsideration, 7 FCC Rcd 5235 (1992). Also, LECs that become subject to price cap regulations are not"0,))))e"  X4 xpermitted to withdraw from such regulation.B1 yOc'ԍ 47 C.F.R.  61.41(d).B Under these rules, ALLTEL's merger with Aliant  xRobligates ALLTEL to become subject to price cap regulation and Aliant to remain subject to price cap regulation after the merger.  X4 e 18. ` ` In the LEC Price Cap Reconsideration Order, the Commission explained that the  xVrules under section 61.41(c) are intended to address two concerns it had regarding mergers and  xacquisitions involving price cap companies. The first concern was that, in the absence of the  xrule, a LEC might attempt to shift costs from its price cap affiliate to its nonprice cap affiliate,  xuallowing the nonprice cap affiliate to charge higher rates to recover its increased revenue  xrequirement, while increasing the earnings of the price cap affiliate. The second concern was  xRthat, absent the rules, a LEC may attempt to "game the system" by switching back and forth  xbetween rateofreturn regulation and price cap regulation. The Commission noted, as an  xexample, the incentive a price cap company may have to increase earnings by opting out of price  x<cap regulation, building a large rate base under rateofreturn regulation so as to raise rates and  xIthen, after returning to price cap, cutting costs back to an efficient level. It would not serve the  xcpublic interest, the Commission stated, to allow a carrier alternately to "fatten up" under rateof xureturn regulation and "slim down" under price cap regulation, because the rates would not  X{4 xRdecrease in the manner intended under price cap regulation.k2{B {On'ԍ See LEC Price Cap Reconsideration Order, 6 FCC Rcd at 2706.k The Commission nonetheless  xrecognized that narrow waivers of the "allornothing" rule might be justified if efficiencies  x created by the purchase and sale of a few exchanges were to outweigh the threat that the system  X64might be subject to gaming.336 {O'ԍ Id.3  X4 e  19.` ` According to ALLTEL, the merger is not being pursued "as a means to circumvent  xthe Commission's rules," and grant of its waiver petition would not undermine the purposes of  xsection 61.41(c) because the policy concerns that this section addresses are not raised by this  X4 xtransaction.J4f  yO!'ԍ ALLTEL Petition for Waiver at 5.J Specifically, ALLTEL states that it is not seeking to maintain separate affiliates  xunder different systems of regulation and ALLTEL is not seeking to "game" the price cap  X4 xsystem.35  {O<%'ԍ Id.3 ALLTEL states that price cap regulation is inappropriate for ALLTEL because  xALLTEL incumbent LECs lack the economies of scope and scale of the largest LECs for whom"~ 5,))))"  X4 x/the price cap system was designed.=6 {Oy'ԍ Id. at 57. = Therefore, ALLTEL states, it does not intend to convert  X4any of its operations to price cap regulation at this point in time.97Z {O'ԍ Id. at 5.9  X4 e 20. ` ` In addition, ALLTEL asserts that granting its petition would serve the public  xcinterest because ALLTEL and Aliant will realize additional economies of scale and scope in the  xprovision of telecommunications services. For example, ALLTEL states that the combined  xresources of the two companies would enhance their ability to offer expanded and innovative  X_4 xservices, and increased customer opportunities for "onestopshopping and customized services."98_ {O 'ԍ Id. at 8.9  xIn addition, ALLTEL asserts that the waiver would promote competition and economic,  X14 xlmarketing, and technical service efficiencies.391~ {O`'ԍ Id.3 ALLTEL also asserts that the waiver would  X 4encourage investment in new technologies.3:  {O'ԍ Id.3  X 4 e 21. ` ` According to ALLTEL, its waiver request is similar to other instances in which  xthe Commission has granted a waiver of section 61.41. ALLTEL points out, for example, that  x the Common Carrier Bureau granted ALLTEL's prior petition for waiver to remain under rateof xreturn regulation after ALLTEL acquired all of GTE's price cap exchange assets in Georgia, a  X4 xRtransaction involving in excess of 300,000 access lines.$; {O'ԍ #X\  P6G;/P#Id. at 7; See In the Matter of ALLTEL Service Corporation Petition for Waiver of Section 61.41 of the  {O'Commission's Rules, Order, 8 FCC Rcd 7054 (1993) (ALLTEL Order).$ The Common Carrier Bureau also  xyallowed the Georgia exchanges to become subject to rateofreturn regulation. According to  xALLTEL, that transaction was larger than the merger under consideration in this proceeding.  xALLTEL states that the Georgia access lines comprised twenty percent of the total lines served  xVby postacquisition ALLTEL, whereas the lines acquired from Aliant by ALLTEL in the instant  X4 xmerger comprise only thirteen percent of the total lines served by postmerger ALLTEL.<  yO'ԍ ALLTEL Petition for Waiver at 7; Reply to Opposition to ALLTEL's Petition for Waiver at 11.  xALLTEL further states that the Georgia properties had median residential and business line  X4densities two and four times greater, respectively, than the line densities=  yO.#'ԍ Line density is the number of lines per square mile. ALLTEL Petition for Waiver at 6. for Aliant.> yO$'ԍ ALLTEL Petition for Waiver at 7; Reply to Opposition to ALLTEL's Petition for Waiver at 11.d. " >,))))"Ԍ X4 e i22. ` ` As stated above, AT&T, MCI WorldCom, and CWA (collectively, Opposition)  xfiled oppositions to ALLTEL's Petition. ITTA and USTA filed comments in support of ALLTEL's Petition.  X' B. Discussion   Xv' 1.` ` Waiver of the Rules   XH4 e S 23. ` ` For the reasons discussed below, we find that ALLTEL demonstrates good cause  xfor us to waive sections 61.41(c)(1), (2), and (d) of our rules, and that it would be in the public interest to grant ALLTEL's waiver request.  X 4 e \24. ` ` Under section 1.3 of the Commission rules, "any provision of the Commission's  X 4 xrules may be waived by the Commission . . . or on petition if good cause therefor is shown."=?  yON'ԍ 47 C.F.R.  1.3.=  x@As interpreted by the courts, this requires that a petitioner demonstrate that "special circumstances  xwarrant a deviation from the general rule and that such a deviation will serve the public  X4interest."@X {O'ԍ  Northeast Cellular Telephone Co. v. FCC, 897 F.2d 1164 (D.C. Cir. 1990) (citing Wait Radio v. FCC, 418 F.2d 1153, 1158 (D.C. Cir. 1969), cert. denied, 409 U.S. 1027 (1972)).   Xb4 e 25. ` ` We find that ALLTEL demonstrates "special circumstances" that support a waiver  xof sections 61.41(c)(1), (2), and (d) of our rules. Price cap regulation for the entire operations  xof the merged companies would include the application of a single productivity factor. ALLTEL  xhbelieves that this would not be suitable for its entire operation at this time. We agree. As  xALLTEL points out, it serves dispersed geographic areas in 22 states and consequently, faces  xvaried market conditions. Therefore, the types of efficiencies that may be sustainable for the  xlRegional Bell Operating Companies and GTE in the long run may not be sustainable in many of the ALLTEL LEC study areas.  X4 e `26. ` ` In evaluating ALLTEL's prior waiver request, the Common Carrier Bureau stated  xthat "although the property being acquired and ALLTEL are substantially larger than those for  xwhich waivers of our rules previously have been granted, the size of ALLTEL resulting from the  XN4 xtransaction will be significantly smaller than the eight LECs for which price caps is mandatory."OAN yO!'ԍ ALLTEL Order, 8 FCC Rcd at 70547055.O  x}The lines acquired from Aliant by ALLTEL in the instant merger comprise only thirteen percent  xof the total lines served by postmerger ALLTEL. In addition, the ALLTEL Aliant merger  xunder consideration in this proceeding is smaller than the previous ALLTEL GTE acquisition  xhin terms of the number of access lines being acquired by ALLTEL and line density. We,  xtherefore, find that the instant proceeding is consistent with the rationale articulated in the  x<previous ALLTEL waiver proceeding and that ALLTEL demonstrates "special circumstances" to support its waiver request. "! BA,))))f "Ԍ X'ԙ 2.` ` Cost Shifting  X4 e 27. ` ` We find that the first concern identified by the Commission in adopting sections  xV61.41(c) and 61.41(d) costshifting between affiliates is not at issue here. ALLTEL is not  xseeking to maintain separate affiliates under different systems of regulation. Therefore, as ITTA  xpoints out, if all ALLTEL subsidiaries are subject to rateofreturn regulation, there is neither the  Xv4incentive nor the opportunity to shift costs between price cap and rateofreturn companies.=Bv yO'ԍ Reply of ITTA at 3.= ` `  XH' 3.` ` Gaming  X14 ` `   X 4 e B28. ` ` We find that the second concern underlying section 61.41 of our rules requires  xcloser analysis in this proceeding because Aliant, which once operated as a rateofreturn  x<company, subsequently elected price cap regulation, and ALLTEL now seeks to convert Aliant  xback to rateofreturn regulation. This is the type of situation that section 61.41 was promulgated  xto address. We believe, however, that the specific circumstances presented in this proceeding  xare sufficient to warrant granting ALLTEL's waiver request. ALLTEL states that it did not seek  xthe waiver for the purpose of circumventing the Commission's rules, and we agree with ITTA  xthat there is no evidence that Aliant promoted the transaction with ALLTEL to circumvent the  xCommission's rules in order to, for example, increase Aliant's rate base in anticipation of the sale,  x"or for Aliant to "game" the system by returning to rateofreturn regulation after having elected  X44price cap regulation.;C4X {O='ԍ Id. at 34.;  X4 e v29. ` ` AT&T argues that if the Commission grants the requested waiver, ALLTEL is  xlikely at some time to convert Aliant back to price caps the potential harm against which our  x@rules were designed to protect ratepayers. ALLTEL states that it has no current intentions to elect  x_price cap regulation. We reject as speculative the argument that we should deny the waiver  xrequest because ALLTEL may decide to elect price caps regulation in the future. Nevertheless,  xpwe believe that the commenters raise a valid concern with respect to the potential "gaming" that  xsections 61.41(c) and 61.41(d) seek to address. Therefore, to provide a safeguard, we require  xALLTEL to seek prior Commission approval if it seeks to elect price cap regulation for the  x"company formed by the merger. The Commission at that time can make a determination if the transaction raises concerns that the Commission sought to address in section 61.41 of our rules.  X 4 "30. CWA contends that ALLTEL is seeking to "game" the system by using profits  X4 xgenerated by its local telephone operations to crosssubsidize nonregulated businesses.BD yO$'ԍ CWA Reply Comments at 4.B  x"According to CWA, in 1997, ALLTEL diverted $42.8 million in "excess dividends" to its parent  xcorporation. CWA asserts that these "excess dividends" represent that portion of the contribution  xmade by ALLTEL's incumbent LECs to corporate profits in excess of the equity share that"! zD,))))f "  X4 xALLTEL's incumbent LECs have in ALLTEL.3E {Oy'ԍ Id.3 CWA estimates that Aliant would likely  X4 xcontribute $12.1 million in excess dividends to the corporation after the merger.9FZ yO'ԍ CWA Reply at 5.9 As we state  x}above in the merger analysis, no Commission rule controls excess dividend policy. Furthermore,  x=as ALLTEL points out, what CWA calls "gaming" is not a harm that the Commission promulgated section 61.41 to guard against.  Xv' 4. ` ` Standard of Review   XH4 e  31.` ` We reject MCI Worldcom's assertion that ALLTEL's waiver request should be held  xto a higher standard than the current standard used to evaluate petitions for waiver because of  xthe Commission's preference for price cap regulation. Although MCI WorldCom correctly points  xout that the Commission has expressed a preference for price cap regulation under certain  X 4 xcircumstances,[G  {O'ԍ See discussion at para. 3233, infra.[ MCI WorldCom fails to persuade us that a higher standard for waiver of our rules should apply to petitions to waive section 61.41 of the Commission's rules.   X 4 5. ` ` Policy    Xy4 e 932. ` ` We also are not persuaded by the Opposition's argument that ALLTEL has failed  xto demonstrate "special circumstances" that warrant a deviation from application of section 61.41  xcof our rules for the merged company to operate under rateofreturn regulation after completion  X44 xof the merger.^H4| yOa'ԍ AT&T Opposition at 2; MCI WorldCom at 36; CWA at 2.^ The Opposition argues that Aliant has successfully operated under price cap  x/regulation and that ALLTEL fails to demonstrate why Aliant or the merged company could not  xalso operate under price cap regulation in light of the economies of scale and scope which  xALLTEL contends will be realized from the merger. MCI WorldCom argues that Aliant has  xMexceeded the authorized rateofreturn for rateofreturn LECs every year since electing price cap  X4 xregulation in 1993.GI  yO~'ԍ MCI WorldCom Opposition at 4.G AT&T argues that Aliant has been more efficient than ALLTEL in reducing  X4 xits switched access unit costs.AJ yO!'ԍ AT&T Opposition at 23.A In addition, the Opposition contends that other LECs such as  xCincinnati Bell, Citizens Telephone, and Frontier Telephone of Rochester, which are smaller than  xthe premerger ALLTEL, voluntarily elected and successfully operate under price cap  Xe4 xuregulations.tKe,  yOB&'ԍ MCI WorldCom Opposition at 5; AT&T Opposition at 34; CWA Opposition at 6.t In addition, MCI WorldCom claims that Southern New England Telephone  x<Company (SNET) is approximately the same size as ALLTEL and SNET operates under price"N K,))))"  xRcap regulation and AT&T and CWA assert that post merger ALLTEL's revenues would be  X4approximately equal to SNET's revenues.^L yOb'ԍ MCI WorldCom Opposition at 56; CWA Opposition at 6.^   X4 e  33. ` ` In response to MCI WorldCom's argument that Aliant has exceeded the authorized  xrateofreturn for rateofreturn LECs every year since electing price cap regulation, we believe  xthat this is an inappropriate comparison because these are different regulatory paradigms.  xFurthermore, just because Aliant exceeded an authorized rateofreturn does not suggest that the merged company should choose price caps or is likely to exceed the authorized rateofreturn.   X14 e !34. ` ` In the LEC Price Cap Order, the Commission articulated a policy judgment that  xpincentivebased regulation is generally superior to rateofreturn regulation. As ALLTEL points  X 4 xout, however, the Commission has always been sensitive to special needs of the small LECs.%M  X {O'ԍ See, Amendment of the Commission's Rules to Establish Competitive Service Safeguards for Local Exchange Carrier Provision of Commercial Mobile Radio Services, Implementation of Section 601(d) of the  {O'Telecommunications Act of 1996, WT Docket No. 96162, First Order on Reconsideration, Petition for  {Oj'Forbearance of the Independent Telephone and Telecommunications Alliance, AAD File No. 9843, First  {O4'Memorandum Opinion and Order, FCC 99102 (rel. June 30, 1999); Petition for Forbearance of the Independent  {O'Telephone and Telecommunications Alliance, AAD File No. 9843, Second Memorandum Opinion and Order, FCC 99104 (rel. June 30, 1999); Petition for Forbearance of the Independent Telephone and  {O'Telecommunications Alliance, AAD File No. 9843, Third Memorandum Opinion and Order, FCC 99105 (rel. June 30, 1999); 1998 Biennial Regulatory Review Review of Accounting and Cost Allocation Requirements,  {O"'Report and Order in CC Docket Nol 9881, Order on Reconsideration in CC Docket No. 96150, Fourth  {O'Memorandum Opinion and Order in AAD File Nol 9843, FCC 99106 (rel. June 30, 1999); 1998 Biennial  {O'Regulatory Review Review of ARMIS Reporting Requirements, Report and Order in CC Docket No. 98117,  {O'Order on Reconsideration in CC Docket No. 96150, Fifth Memorandum Opinion and Order in AAD File No. 9843, FCC 99107 (rel. June 30, 1999); Petition for Forbearance of the Independent Telephone and  {O'Telecommunications Alliance, AAD File No. 9843, Sixth Memorandum Opinion and Order, FCC 99108 (rel. June 30, 1999).%  X 4 xIn the LEC Price Cap Order, the Commission recognized that small telephone companies should  xnot be forced into a regulatory paradigm that was designed largely on the basis of historical  x<performance by the largest LECs. The Commission therefore limited the mandatory application  xNof price cap regulation to the eight largest LECs the then seven regional Bell Operating  X4Companies and GTE.QN yO'ԍ LEC Price Cap Order, 5 FCC Rcd at 6787.Q   Xf4 e "35. ` ` In previous waiver requests, the Common Carrier Bureau has taken into account  xthe company's preference and in particular the preference of small carriers in evaluating requests  X84 xfor waiver of sections 61.41(c)(1), (2), and (d) of our rules.O8F {O/%'ԍ See, e.g., In the Matter of Chautauqua & Erie Telephone Corporation et al, Memorandum Opinion and  {O%'Order, 7 FCC Rcd 6081, 6082 (1992); In the Matter of US West Communications and Gila River  {O&'Telecommunications, Inc., Memorandum Opinion and Order, 7 FCC Rcd 2161, 2164 (1992); In the Mater of  {O''Island Telephone Company et al, Memorandum Opinion and Order, 7 FCC Rcd 6382, 6383 (1992); In the  {OW('Matter of Citizens Utilities Company, Order, 8 FCC Rcd 8749 (1993); In the Matter of Rochester Telephone"W(N,))))U("  {O'Corporation et al, Order, 8 FCC Rcd 5243, 5244 (1993);  In the Matter of ALLTEL Service Corporation Petition  {OZ'for Waiver of Section 61.41 of the Commission's Rules, Order, 8 FCC Rcd 7054 (1993). We recognize that ALLTEL is"8$O,))))"  xmidsized. However, ALLTEL's properties are scattered largely in small to midsized towns and  xcities in 22 states and ALLTEL is therefore, unlike any of the large BOCs, and more similar to  xsmaller carriers. While there may be instances where small or midsize LECs elect price cap  xpregulation, we believe that ALLTEL demonstrates "special circumstances" to support its waiver  X4request.XP$ {Oy'ԍ See discussion at para. 25, infra.X  X4 e  #36. ` ` We are also unpersuaded by the Opposition's argument that, because the proposed  xwaiver is for an entire company rather than only certain exchanges, this distinguishes ALLTEL's  X_4 xwaiver requests from previously granted waiver requests.oQ_ yO 'ԍ MCI WorldCom Opposition at 7; AT&T Opposition at 67; CWA Reply at 6.o As discussed above, we believe that  xALLTEL demonstrates that the waiver that it seeks in this proceeding is consistent with  xCommission precedent. In addition, we reject as speculative, the arguments that grant of the  xwaiver will result in increased rates for post merger Aliant customers or reduced operating efficiencies.  X 4` `  X ' 6.` ` Public Interest  X 4 e $37.` ` Upon careful review of the record in this proceeding and for the reasons discussed  xherein, we find that it is in the public interest to grant ALLTEL a waiver of sections 61.41(c) and  xR(d) to allow ALLTEL to remain subject to rateofreturn after the merger with Aliant and to  xpermit Aliant Communications Co. to convert from price cap to rateofreturn regulation. As  xnoted above, this waiver is subject to the condition that ALLTEL obtain prior Commission  xapproval to convert the company formed by the merger from rateofreturn regulation to price cap regulation.  X4 e F%38. ` ` AT&T requests that if ALLTEL's waiver is granted, Aliant should, at a minimum,  xcbe required to operate as a structurally separate price cap company. Further, to limit the risk of  xIcostshifting, AT&T contends that the Commission should require ALLTEL to treat Aliant as a  xnonregulated affiliate, (as it has required for BOCs' long distance affiliates pursuant to section  x272 of the Telecommunications Act of 1996), as a means of controlling the risk that ALLTEL  xcould shift costs from Aliant (which would be subject to price cap regulation) to ALLTEL (which  Xe4 xwould be subject to rate of return regulation).BReF yO\"'ԍ AT&T Opposition at 910.B We reject these proposals. We believe that any  xIbenefits that may be gained from AT&T's request are outweighed by the harms of creating the  xadditional layer of regulation that AT&T suggests. Structural separation does not cure the  xincentive to shift costs; it only makes cost shifting detectable. We do not wish to create new  x/administrative burdens for the Commission associated with monitoring affiliate transactions and  xtaking appropriate enforcement action, if necessary. We believe that requiring ALLTEL to seek"R,))))"  xCommission approval before electing price cap regulation in the future is sufficient to deter "gaming" by the company in the future.  X'! IV. ORDERING CLAUSES \  X4 e &39.` ` Accordingly, having reviewed the applications and the record in this matter, IT IS  xORDERED, pursuant to sections 4(i) and (j), 214(a), 214(c), 309, and 310(d) of the  xCommunications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j), 214(a), 214(c), 309,  x310(d), that the applications filed by ALLTEL Corporation and Aliant Communications Inc. in the abovecaptioned proceeding ARE GRANTED.  X 4 e '40.` ` IT IS FURTHER ORDERED, pursuant to sections 4(i) and (j), 214(a), 214(c), 309,  xand 310(d) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j), 214(a),  x214(c), 309, 310(d), that the above grant shall include authority for ALLTEL Corporation to acquire control of:  X4 e `Xa)X` ` any authorization issued to Aliant Communications Inc.'s subsidiaries and affiliates  e during the Commission's consideration of the transfer of control applications and the period required for consummation of the transaction following approval;(#`  X44 e 5Xb)X` ` construction permits held by licensees involved in this transfer that mature into  e 9licenses after closing and that may have been omitted from the transfer of control applications; and(#`  X4 e 9Xc)X` ` applications that will have been filed by such licensees and that are pending at the time of consummation of the proposed transfer of control.(#`  X4 e (41.` ` IT IS FURTHER ORDERED, pursuant to sections 4(i) and (j), 214(a), 214(c), 309,  xand 310(d) of the Communications Act of 1934, as amended, 47 U.S.C.  154(i), 154(j), 214(a),  Xe4 x214(c), 309, 310(d), that the "Petition to Deny of Communications Workers of America" IS DENIED.  X 4 e )42. ` ` IT IS FURTHER ORDERED, pursuant to sections 4(i) and 201 of the  x/Communications Act of 1934, as amended, 47 U.S.C.  154(i) and 201, and section 1.3 of the  x"Commission's rules, 47 C.F.R.  1.3, the petition for waiver of sections 61.41(c)(1), (2) and (d)  xfiled by ALLTEL Corporation IS GRANTED Subject to the Conditions Described In Paragraph 29.   X"4 e *43. ` ` IT IS FURTHER ORDERED, pursuant to section 1.3 of the Commission's rules,  x47 C.F.R.  1.3, that the "Motion For Leave to File Response" filed by ALLTEL Communications IS GRANTED.  X:&4 e +44. ` ` IT IS FURTHER ORDERED, that the oppositions to the waiver request filed by MCI WorldCom, AT&T Corporation and Communications Workers of America ARE DENIED. " (R,))))%" ` `  X4 e S,45.` ` IT IS FURTHER ORDERED that this Memorandum Opinion and Order SHALL BE EFFECTIVE upon release in accordance with 47 C.F.R.  1.103. XX` ` X XXhhCXqFEDERAL COMMUNICATIONS COMMISSION(# XX` ` X XXhhCXqMagalie Roman Salas(# XX` ` X XXhhCXqSecretary(#   `(#(#Ѓ " R,)))) "     @@  X'v SEPARATE STATEMENT OF  COMMISSIONER HAROLD FURCHTGOTTROTH R )pCONCURRING IN PART \  V4 Re:XApplication of ALLTEL Corporation Petition for Waiver of Section 64.41 of the Commission's Rules and Applications for transfer of Control; CCB/CPD 991.(#  X_4 I support today's decision approving the proposed transfer of control of certain licenses and authorizations from Aliant Communications Inc. to ALLTEL Corporation, and granting the waiver to allow ALLTEL to remain subject to rateofreturn regulation and to permit Aliant to convert back to rateofreturn after the license and authorization transfer. I concur in that result, but write separately to express my concern with the underlying reasoning. I continue to be uncomfortable with the Commission's proposed framework for analyzing  X 4mergers as I believe that it is (i) outside of our statutory mandate, (ii) applied in an ad hoc fashion and (iii) excessively timeconsuming and speculative in its analysis of potential competition.  Xd4On several occasions, I have objected to this agency's ad hoc process for reviewing  XO4license transfers.ZOU {O'ԍ See, e.g., Concurring Statement of Commissioner Harold W. FurchtgottRoth, In the Matter of Applications for Consent to the Transfer of Control of Licenses and Section 214 Authorizations from Tele-Communications,  {OZ'Inc., Transferor, AT&T Corp., Transferee, CS Docket No. 98-178 (released Feb. 18, 1999); Testimony of Commissioner Harold W. FurchtgottRoth before the U.S. House of Representatives, Committee on the Judiciary, Subcommittee on Commercial and Administrative Law, Oversight Hearing, May 25, 1999 (included as Attachment I).Z The Commission has pending before it numerous license transfers, of which only a select few are singled out by the Commission for stricter scrutiny. I have repeatedly objected to the fact that the Commission has not established a threshold test for determining which license transfer applications should receive strict scrutiny, and what kinds of process the Commission should utilize for such applications.  X4In addition, and contrary to its frequent assertions, the Commission does not possess statutory authority under the Communications Act to review, writ large, the mergers or acquisitions of communications companies. Nothing in the Communications Act grants the Commission authority to review mergers. Rather, that Act charges the Commission with a much narrower task: review of the proposed transfer of radio licenses from one party to another and review of the proposed transfer of interstate operational authorizations for  X?4common carriers. Nothing in the Communications Act speaks of jurisdiction to approve or disapprove the mergers that may occasion a transferor's desire to pass licenses on to a"*D,))"  X4transferee. yOy'ԍ 47 U.S.C. section 310(d) provides: "No . . . station license . . . shall be transferred . . . to any person except upon application to Commission and upon finding by the Commission that the public interest,  {O 'convenience, and necessity will be served thereby," i.e., by the license transfer. Section 214(a) states: "No carrier shall undertake the construction of a new line or of an extension of any line, or shall acquire or operate any lines, or extension thereof, or shall engage in transmission over or by means of such additional or extended lines, unless and until there shall first have been obtained from the Commission a certificate that the present or future public convenience and necessity require or will require the construction, or operation, or construction and operation, of such additional or extended line." Notably, section 214(a) contains no "public interest" language at all.  Under that Act, the Commission is, at most, required to determine whether the  X4transfer of licenses serves the public interest, convenience and necessity. b  yO 'ԍ The Commission does possess authority under the Clayton Act, which prohibits combinations in restraint  {O 'of trade, to review mergers per se. See 15 U.S.C. section 21 (granting FCC authority to enforce Clayton Act where applicable to common carriers engaged in wire or radio communication or radio transmission of energy). That power is rarely invoked by the Commission, however. If the Commission intends to exercise authority over mergers and acquisitions as such, it ought to do so pursuant to the Clayton Act, with its carefully prescribed procedures and standards of review, not the licensing provisions of the Communications Act.   To be sure, the transfer of radio licenses and common carrier authorizations is an  X4important part of any merger. But it is simply not the same thing. A merger is a much larger and more complicated set of events than the transfer of FCC permits. It includes, to name but a few things, the passage of legal title for many assets other than radio licenses, corporate restructuring, stock swaps or purchases, and the consolidation of corporate headquarters and personnel. There is a world of difference between the business transaction known as a "merger" and a simple "license transfer." By using the license transfer provisions of the Communications Act to assert jurisdiction over the entire merger of two companies that happen to be the transferee and transferor of licenses, the Commission greatly expands its organic authority. I object to the Commission's sweeping "merger" review and its competitive framework which is frequently too focused on mere speculative harms. ",))" aAttachment I",))"  X'#x6X@`7bX@# #Xj\  P6G;XP#Testimony of Federal Communications Commissioner Harold W. FurchtgottRoth  X' Before the U.S. House of Representatives Committee on the Judiciary, Subcommittee  X'on Commercial and Administrative Law Oversight Hearing, Tuesday, May 25, 1999  X' i Novel Procedures in FCC License Transfer Proceedings ă Thank you for the opportunity to appear before your distinguished Subcommittee on Commercial and Administrative Law. The topic for today's hearing is "Novel Procedures in FCC License Transfer Proceedings." At the outset, I would like to emphasize that debates about process are not trivial debates. To the contrary, regularity and fairness of process are central to a governmental system based on the rule of law. As the law recognizes in many different areas, the denial of a procedural right can result in the abridgment of a substantive right. Not the least of these areas is administrative law, the jurisdiction of this Subcommittee. The Administrative Procedure Act (APA) is grounded in the notions that fair processes result in better regulations, and that participatory processes result in regulations that people can accept, even if they disagree with them. Indeed, procedural fairness is so fundamental a principle in our  Xb4legal system that the Framers expressly guaranteed it in the Constitution. See U.S. Const. Amdmt. V ("No person shall . . . be deprived of life, liberty, or property, without due process of law. . . ."). It is no secret that I have been, and remain, deeply concerned about the novel procedures currently being employed by the FCC in license transfer proceedings. My concerns arise out of the legal problems with the processes and standards or more precisely, the lack thereof that the Commission uses to evaluate applications for the transfer of licenses. The aggregate effect of these problems, described in detail below, is to create an administrative scheme that undermines the principles of fundamental fairness and procedural due process, the hallmarks of the APA.  VP4The FCC Lacks "Merger" Review Authority Under the Communications Act As a threshold matter, I would like to correct a common misperception about the scope of the Commission's authority when reviewing license transactions involving merging  X4parties. Contrary to its frequent assertions, the Commission does not possess statutory authority under the Communications Act to review, writ large, the mergers or acquisitions of communications companies. Rather, that Act charges the Commission with a much narrower task: review of the proposed transfer of radio station licenses from one party to another and review of the proposed transfer of interstate operational authorizations for common carriers.  X#4Nothing in the Communications Act speaks of jurisdiction to approve or disapprove the"#,))!"  X4mergers that may occasion a transferor's desire to pass licenses on to a transferee. yOy'ԍ 47 U.S.C. section 310(d) provides: "No . . . station license . . . shall be transferred . . . to any person except upon application to Commission and upon finding by the Commission that the public interest,  {O 'convenience, and necessity will be served thereby," i.e., by the license transfer. Section 214(a) states: "No carrier shall undertake the construction of a new line or of an extension of any line, or shall acquire or operate any lines, or extension thereof, or shall engage in transmission over or by means of such additional or extended lines, unless and until there shall first have been obtained from the Commission a certificate that the present or future public convenience and necessity require or will require the construction, or operation, or construction and operation, of such additional or extended line." Notably, section 214(a) contains no "public interest" language at all.  Under that Act, the Commission is, at most, required to determine whether the transfer of licenses  X4serves the public interest, convenience and necessity.~b  yO 'ԍ The Commission does possess authority under the Clayton Act, which prohibits combinations in restraint  {O 'of trade, to review mergers per se. See 15 U.S.C. section 21 (granting FCC authority to enforce Clayton Act where applicable to common carriers engaged in wire or radio communication or radio transmission of energy). That power is rarely invoked by the Commission, however. If the Commission intends to exercise authority over mergers and acquisitions as such, it ought to do so pursuant to the Clayton Act, not the licensing provisions of the Communications Act. ~  To be sure, the transfer of radio licenses and common carrier authorizations is an  X4important part of any merger. But it is simply not the same thing. A merger is a much larger and more complicated set of events than the transfer of FCC permits. It includes, to name but a few things, the passage of legal title for many assets other than radio licenses, corporate restructuring, stock swaps or purchases, and the consolidation of corporate headquarters and personnel. Clearly, then, asking whether the particularized transaction of a license transfer would serve the public interest, convenience, and necessity entails a significantly more limited focus than contemplating the industry-wide effects of a merger between the transferee and transferor. For instance, in considering the transfer of licenses, one might ask whether there is any reason to think that the proposed transferee would not put the relevant spectrum to efficient use or comply with applicable Commission regulations; one would not, by contrast, consider how the combination of the two companies might affect other competitors in the industry. One might also consider the benefits of the transfer, but not of the merger generally. And one might consider the transferee's proposed use and disposition of the actual licenses, but one would not venture into an examination of services provided by the transferee that do not even involve the use of those licenses, as the Commission often does. By using the license transfer provisions of the Communications Act to assert jurisdiction over the entire merger of two companies that happen to be the transferee and transferor of licenses, the Commission greatly expands its organic authority. Certainly, in the context of a merger, license transfers occur as a result of the merger, but the Commission should not use this causative fact to bootstrap itself into jurisdiction over the merger. If",))" control of licenses were to be transferred "as a result of" a licensee's bankruptcy, would the Commission assert jurisdiction to review the legal propriety of the declaration of bankruptcy? That would be preposterous, as that is a job for a bankruptcy court. Review of the merger of two communications companies which, just like the bankruptcy in my hypothetical, is an underlying cause of the transfer in question, is a job for the Department of Justice. Expanding our review of license transfers to a review of the event that precipitates the transfers -- whether that event is a merger, a bankruptcy, or any other event that might lead a licensee to cede control of a license -- is off the statutory mark. Despite the Commission's effort to exercise power over "mergers" under sections 214 and 310 of the Communications Act, it must be remembered that, in the end, the Commission can only refuse to permit the transfer of the relevant licenses. While such action would no doubt threaten consummation of a proposed merger, the Commission cannot despite its  X 4threats to do so in licensing ordersZ  {ON'ԍ #C\  P6Q/P#See, e.g, In the Matter of Applications for Consent to the Transfer of Control of Licenses and Section 214 Authorizations from Tele-Communications, Inc., Transferor, AT&T Corp., Transferee, CS Docket No. 98-178 (released Feb. 18, 1999), at para. 112 (purporting to prohibit the applicants from "consummat[ing] the merger"). directly forbid the stockholders of one company from selling their shares to the other. Put simply, the scope of FCC review ought to accord with the scope of our remedies: that is, it ought to be limited to considering (i) whether the public would suffer harm if radio licenses are transferred from Party A to Party B, and (ii) whether the public convenience and necessity would be served by allowing Party A to convey authorizations to operate carrier lines to Party B. The fact that most orders involving mergers do not even identify the radio licenses or section 214 authorizations at issue or discuss the consequences of their conveyance, but instead move directly to a discussion of the merger, reflects how far the Commission has strayed from the provisions of the Act. The exercise of power not authorized in the Communications Act is not just an  X4independent wrong: it also creates a violation of the Administrative Procedure Act. As the members of this Subcommittee well know, the APA requires a reviewing court to "hold unlawful and set aside agency action" that is "in excess of statutory jurisdiction, authority, or limitations." 5 U.S.C. section 706(2)(C). This critical provision of the APA provides enforcement of the statutory limits on agency action and recourse for their transgression. Should the Commission ever purport to prohibit a "merger" as opposed to the simple transfer of licenses I believe that action would violate this linchpin of the APA. Moreover, if the Commission stuck closely to its statutory authority, the adverse affects of the procedural practices that you have asked me to testify about today, while still legally problematic, would be greatly mitigated as a practical matter.  V"4Potentially Arbitrary Review: Choice of Transfers for Full-Scale Review, Procedures to be  V#4Employed, and Substantive Standards To Be Applied"#,))!"ԌBeyond the threshold question of statutory authority to regulate mergers, I have grave concerns about the process employed in FCC merger reviews, the subject of today's hearings. The Commission annually approves tens of thousands of license transfers without any scrutiny or comment, while others receive minimal review, and a few are subjected to intense regulatory scrutiny. For example, mergers of companies like Mobil and Exxon involve the transfer of a substantial number of radio licenses, many of the same kind of licenses as those at issue in other highprofile proceedings, such as AT&T/TCI, and yet we take no Commission level action on those transfer applications. I do not advocate extensive review of all license transfer applications, but mean only to illustrate that we apply highly disparate  X14levels of review to applications that arise under identical statutory provisions. Unfortunately, there is no established Commission standard for distinguishing between the license transfers that trigger extensive analysis by the full Commission and those that do not. Nor do any of the Commission's orders in "merger" reviews elucidate the standard. Unfortunately, the orders tend to conclusorily assert that some mergers warrant heavy review  X 4and others do not.JZ  {O"'ԍ #C\  P6Q/P#See, e.g., Applications for Consent to the Transfer of Control, supra n. 3, at para. 16 (stating, without elaboration, that "the face of some merger applications may reveal that the merger could not frustrate or undermine our policies").J This is not a very helpful explanation. Regulated entities and even their often sophisticated counsel are left to wonder: Is the question whether the merging firms are large, successful corporations? (That is one of the obvious differences between the mergers that receive heavy attention from the Commission and those that do not.) Does the level of  XM4review depend on the type of services offered by the merging companies, i.e. a telephone/cable merger (such as AT&T/TCI) gets one sort of review, while a  X!4telephone/telephone merger (such as SBC/Ameritech) gets another? In short, merging parties have no clear notice as to the threshold showing for determining the scale of FCC license transfer review. If the answer is, as some have suggested, that the Commission reviews extensively only a subclass of license transfer applications -- those occasioned by mergers with the potential to affect the telecommunications industry -- that response is incomplete. Whatever the soundness of this theory for distinguishing among transfer applications, it is not written anywhere, whether in agency rules, regulations, policy statements, or even internal agency guidelines. While the Communications Act does allow the Commission to make reasonable  X;4classifications of applications, see 47 U.S.C. section 309(g), the Commission has in no way done so, much less in a way that puts the public on notice as to what those classifications are. Agency decisions regarding which license transfers to review, even as among license transfers  X4occasioned by mergers, are entirely ad hoc and thus run a high risk of being made arbitrarily. Nor does the Commission have any established procedures for the handling of applications for license transfers. Any particular application on any particular day could be: adopted at a Commission meeting; voted by the Commission on circulation; processed with or without a formal hearing; processed with or without socalled "public fora"; handled with or"#,))!" without additional private "talks" between the companies, interested parties, Commission staff, and individual, especially interested members of the Commission; granted with or without  X4conditions; finalized after 90 days or 90 weeks, etc. The list goes on almost indefinitely. Section 1.1 of the Practice and Procedure subpart of the Commission's rules, entitled "Proceedings before the Commission," does nothing to remedy the openended nature of Commission processes. It states that "[t]he Commission may on its own motion or petition of any interested party hold such proceedings as it may deem necessary from time to time" and "[p]rocedures to be followed by the Commission shall . . . be such as in the opinion of the Commission will best serve the purposes of such proceedings." 47 C.F.R. section 1.1. This rule, written by the Commission, establishes only that the Commission can do essentially whatever it wants. There is nothing constraining or useful about this section. Moreover, this rule the only general one about procedures on the Commission's books is routinely flouted. Section 1.1. allows "the Commission" to decide on appropriate procedures. Under the Communications Act, "the Commission" is defined as being "composed of five Commissioners appointed by the President, by and with the advice of the Senate, one of whom the President shall designate as chairman." 47 U.S.C. section 4(a). During my tenure, however, important procedural issues have not been decided upon by the full Commission, as section 1.1. requires; rather the Chairman seems to believe that he can set procedural rules on his own. This is contrary, however, to the little that section 1.1 actually does require namely, full Commission action.  X4 The extraordinary process to which SBC and Ameritech are now being subjected which includes "discussions" between the companies and Common Carrier Bureau staff unauthorized by the full Commission, with Chairmanset "ground rules" that are wholly unenforceable and thus subject to change at his personal whim is illustrative of what  X4happens when there are no limits on Commission discretion with respect to procedures.X yO'#C\  P6Q/P#э #XP\  P6QXP##C\  P6Q/P#I express, of course, no view on the merits of this application. My exclusive focus here is on the process that employed to evaluate it. Accordingly, nothing in my testimony should be taken as reflective of any opinion on the question whether SBC and Ameritech are in compliance with Commission rules.  Since there are no rules governing procedures (I do not think section 1.1 can fairly be said to be a rule of anything except unfettered discretion), the Commission (or even just the Chairman?) is free to change the procedural rules of the road from transaction to transaction, and even in the midst of a single transaction. Individual companies can be dragged through long and expensive proceedings, with fullfledged Commission action, while others have their applications promptly granted by the staff, with no rationale for the grossly disparate treatment except for perhaps the cynical one that the Commission is favoring certain industries or companies. And individual companies can be subjected to this unprecedented processes at the direction, apparently, of the Chairman himself, without consultation or agreement by the full Commission. This is simply not the right way to run a licensing agency or to deal with the licensees who pay the regulatory fees that fund this agency."#,))!"Ԍ Finally, if the Commission did establish a threshold test for determining which license transfer applications should receive strict scrutiny, and what kinds of process it should utilize, the Commission would still need to set out the substantive tests for the differing scrutiny levels. As a general matter, our decisional precedents provide little concrete guidance on the substantive standard for approval of Title II or Title III license transfers: the proposition that a merger is in the "public interest" if it is not anti-competitive (or if it is also pro-competitive) is too generalized to be of any real help. Moreover, there is clearly a different "public  XH4interest" test being applied, sub silentio, in different cases under the same statutory provisions, usually sections 310 and 214. The cases that undergo extensive inquiry exhaustively discuss all kinds of service areas and issues ancillary to the use of the actual radio licenses, and the decisions that are granted at the Bureau level are relatively perfunctory in their public interest analysis. We should, after identifying the threshold test for license transfers that warrant thorough inquiry, articulate clearer substantive criteria to guide the Commission's inquiry  X 4The long and short of it is this: regulated entities have little basis for knowing, ex  X4ante, how their applications will be treated, either procedurally or substantively. The license  X4transfer process at the Commission is lacking in any transparent, fixed and meaningful standards. A person even a welltrained lawyer who wished to prepare for this process could find scant guidance in public sources of law, such as the Code of Federal Regulations or the Commission's adjudicatory orders. Rather, one would have to be trained in the unwritten ways of this Commission to know what to expect, and those expectations unfortunately would have little relation to federal administrative law. While obviously troublesome on an intuitive level, such a license transfer process  X4suffers from at least four particular flaws under the APA. First, the wholly ad hoc nature of this process makes it all too easy for decisionmakers to discriminate among industries and even companies ! in other words, to engage in arbitrary and capricious review. Protecting against such decisionsmaking is, of course, a core function of the Administrative Procedure  Xm4Act. See 5 U.S.C. section 706(2)(A) (reviewing court must '"aside agency action . . . found to be arbitrary [and] capricious").  X*4Second, and relatedly, by failing to state clearly the principles that it uses to judge license transfers, the Commission decreases the viability of meaningful judicial review. The  X4net result is to undermine the statutory right of aggrieved parties to judicial review. See id. section 702 ("A person suffering legal wrong because of agency action, or adversely affected or aggrieved by agency action within the meaning of a relevant statute, is entitled to judicial review thereof."). That right of review is an interested party's primary defense against  X"4arbitrary agency decisions.  Xv$4Third, the nonascertainable nature of the license transfer process means that interested parties have no fair notice as to the regulatory constraints on their conduct. Notice of what  XJ&4the law requires i.e., which behavior is prohibited and which is permissible is a bedrock element of fairness in our legal system, derivative of the Due Process Clause. No person should be penalized for violating a rule that is either so vague as to give no clear indication"(,))%" of the prescribed conduct, or entirely unpublished and thus unavailable to the public, residing  X4only in the minds of regulators. The notice and comment procedures of the APA are designed to safeguard against lack of fair notice. They require notification, and an  X4opportunity to participate in the making, of the standards that govern interested parties. See  X4id. section 553(b)(c). Indeed, the whole rulemaking system of the APA is based on the  X4assumption that governing standards will be published and public before they go into effect, allowing regulated parties a certain amount of time to conform their conduct to the new  Xe4federal standards. See id. section 553(d) ("The required publication or service of a substantive rule shall be made not less than 30 days before its effective date. . . .").  X" 4Finally, as Senator McCain recently pointed out in a letter to Chairman Kennard to concerning the pending SBC/Ameritech applications, the unpredictability of the Commission's procedures cast a pall on the Commission's impartiality. Specifically, when the Commission subjects parties to a novel, extended, and unwieldy process to which it has not subjected similarly situated applicants, a reasonable person might think that the decisionmakers possessed a bias a bias manifesting itself in the especially high and numerous procedural hoops through which the decisionmakers were forcing the companies to jump. Unfortunately, the manipulation of procedural rules can be a cover for discrimination on the merits. The appearance of partiality created by the use of such highly unusual procedures contravenes the core principle of the APA (again based on the constitutional concerns of procedural due  X>4process) that decisionmakers be neutral. See 2 Davis & Pierce, Administrative Law Treatise at page 67 (3d ed. 1994) ("Due process requires a neutral, or unbiased, adjudicatory decisionmaker. Scholars and judges consistently characterize provision of a neutral decisionmaker as one of the three or four core requirements of a system of fair adjudicatory decisionmaking.").  To quote Senator McCain: XA proceeding of . . . importance and potential consequences must be attended, not only with every element of fairness, but with the very appearance of complete fairness. That is the only way its conduct will meet the basic requirement of due process.  XC4Amos Treat and Co., Inc. v. SEC, 306 F.2d 260 (D.C.Cir. 1962). The Commission's objectivity and impartiality are unavoidably opened to challenge by the adoption of procedures from which a disinterested observer may conclude that it has in some measure adjudged the facts as well as the law a case in advance of fully hearing it.  X4See, e.g., Gilligan , Will & Co. v. SEC, 267 F.2d 461 (D.C.Cir. 1959).(#  X!4Letter from Sen. John McCain to Chairman William E. Kennard, May 12, 1999. For the above reasons, it seems to me that the Commission's lack of guidelines regarding the process and substance of license transfer proceedings is in serious tension with the principles that undergird the APA.   V3'4Potential Constitutional Problems With A Boundless "Public Interest" Test "(,))%"Ԍ X4The statutory test to be applied to license transfers is, of course, the "public interest" standard. As noted above, the Commission has failed to place any outer limits whatsoever on this concept, freely reinterpreting the standard in each new case. Not only does the Commission's lack of clear guidelines with respect to standards governing license applications present issues of arbitrary decisionmaking and of fair notice, as discussed above, it may also create constitutional issues with respect to the nondelegation doctrine.  X_4This month, the United States Court of Appeals for the D.C. Circuit ruled in American  XJ4Trucking Ass'n v. EPA, 1999 WL300618 (May 14, 1999) that the EPA's failure to adopt "intelligible principles" for implementing its statutory mandate to regulate air pollution  X 4effected an unconstitutional delegation of legislative power. The Court explained that  X 4"[w]here . . . statutory language and an existing agency interpretation involve an  X 4unconstitutional delegation of power, but an interpretation without the constitutional weakness is or may be available, our response is not to strike down the statute but to give the agency  X 4an opportunity to extract a determinate standard on its town." Id. at *6. According to this  X 4case and its precedential forebears, see International Union, UAW v. OSHA, 938 F.2d 1310 (D.C. Cir. 1991), this agency has a constitutional duty to choose interpretations of statutory language that avoid, rather than create, nondelegation doctrine problems.  XS4I believe that the FCC has not satisfied its obligation under American Trucking to adopt "determinate, binding standards," 1999 WL 300618 at *6, in order to channel its discretion under the "public interest" provisions. Putting aside the question of the breadth of the statutory standard itself, the Commission has not articulated any clear principles about what that standard means in the context of merger review; how it applies to different entities; and what justifies a departure from standard practice, to name just a few of the major outposts on the license transfer trail. In short, there are no selfdefined limits at either end of the spectrum on the Commission's consideration of whether to grant or deny a license transfer when mergers are involved, or otherwise. To my mind, this is arguably the kind of  X4"freewheeling authority [that] might well violate the nondelegation doctrine." International  Xq4Union, UAW v. OSHA, 938 F.3d at 371. I have always thought that it was incumbent on the Commission to fashion some  X.4guidelines to place limits on its discretion as a matter of simple fairness. Under American  X4Trucking and International Union, it would appear that the Commission also has a constitutional duty to do so. This duty it has not even attempted to carry out.  X4  V 4"Conditional" Approval of License Transfer Applications Finally, I express some general apprehension about the "conditioning" of grants for license transfer applications and section 214 authorizations. I think it is entirely appropriate, under the Commission's organic statute, for the Commission to condition license transfer and line extension applications on compliance with existing FCC rules or statutory provisions. See 47 U.S.C. section 303(r) ("Commission shall . . . prescribe such . . . conditions, not  X5'4inconsistent with law, as may be necessary to carry out the provisions of this Act"); id."5',))%" section 214(c) (Commission "may attach to the issuance of [214] certificate such terms and conditions as in its judgment the public convenience and necessity may require"). All too often, however, this Commission places conditions on license transfers that have no basis in the text of the Communications Act. That is, the Commission requires companies to do certain things things that it could not for lack of statutory authority require  Xv4outright in a rulemaking as a quo for the quid of receiving a license. Again, this represents  Xa4a transgression of the Commission's statutory limits and thus a violation of the APA. See 5  XL4U.S.C. section 706(2)(C). It could also constitute an evasion of the notice and comment provisions of the APA, if the Commission (assuming it follows its own decisional precedent)  X 4uses its licensing orders to create standards that logically apply industrywide. See id. section 553. I am also concerned about situations in which this agency becomes an enforcer of the rules and regulations of other governmental agencies. We have no jurisdiction to enforce rules  X 4not promulgated under the Communications Act, see id. section 303(r) (referring to conditions needed to "carry out the provisions of this Act"), and we cannot and should not do the enforcement work of others. This is not to say that we should not take official notice, in the course of making licensing decisions, of findings by another agency that an applicant has violated a regulation in its bailiwick. We should certainly consider such findings in determining whether to grant or deny a license application. But we should not condition such a decision on compliance with another agency's regulation, thus putting ourselves in the position of potential enforcer of non-FCC rules should the transferee fail to conform to that regulation. For instance, if the Department of Justice enters into an antitrust agreement with a party, we have no business attempting to enforce the obligations created thereunder in our licensing orders. I am doubly concerned about conditional FCC approval when the rule at issue is not just that of another agency, but when that agency has made no formal, final, and material findings of a violation. That is, I do not think we should take official notice of alleged violations, including matters under investigation or in litigation, or of informal concerns that an agency is not yet ready or willing to pursue through their own established procedures. When we give formal weight to anything short of formal, final findings by other agencies, we  X4create a situation that is rife with incentives for inter-agency gaming of the system, e.g., registering an objection with an agency about a matter that the complaining agency is not prepared to pursue itself, and requires the Commission to do extensive reviews in areas where it simply has no experience or authority. In sum, at the intersection of two areas -- non-FCC rules and no final determination of a violation by a responsible entity -- our authority to impose conditions on a license or 214 authorization transfer is at its weakest. Where non-FCC rules are at issue but there is a final, record finding of a material infraction thereof, there is a middle ground: we should take notice of that fact in deciding upon the application but not condition approval upon compliance. Finally, where extant FCC rules are involved, our power to condition a proposed transfer upon compliance with those rules and to enforce compliance, if necessary, is at its"(,))%" apex. We should never, however, impose conditions that have no basis in the text of the Communications Act, thus using our license transfer authority to impose new substantive obligations that Congress never contemplated.  V4Conclusion For the reasons discussed above, I believe that the Commission's failure to establish, pursuant to notice and comment, public and intelligible principles to channel the exercise of authority delegated by Congress raises serious questions under the APA and the Constitution. In particular, the use of extraordinary processes in individual, highprofile cases threatens to undermine both the procedural and substantive rights of regulated entities. I further believe that the Commission's practice of attaching "conditions" to license transfers that lack a basis in the Communications Act or extant Commission rules, or that purport to enforce the judgments of other federal agencies, is also legally troublesome. As an "independent" agency, composed of unelected officials who have no direct accountability to the American public, I believe that we should proceed with heightened reserve when exercising discretionary functions. If we so proceeded, we could better stay within the bounds of our statutory authority, mitigate the potential for arbitrary decisionmaking, safeguard the rights of judicial review, provide regulated entities with fair notice of the procedural and substantive rules governing their applications, avoid the appearance of impartiality, and steer clear of the nondelegation doctrine. In short, we could better serve the rule of law.  X4#Xj\  P6G;XP#