I cannot approve of the consent decree that the Commission adopts today. The Commission's assertion of jurisdiction over this matter sets this agency on a course that is completely at odds with the framework that Congress intended for local exchange carriers to use to reach agreements regarding the terms on which competing carriers will use incumbents' networks. Moreover, the agency has predicated its investigation of this matter on a one-sided set of facts, where the complaining party did not bother to file any sort of formal complaint, either here or at a state commission. As far as I can tell, the Commission has browbeaten BellSouth into paying a $750,000 fine and agreeing to a number of conditions simply for proposing to include two terms that the agency thinks questionable in a non-disclosure agreement. I therefore dissent from this decision, and I regret that BellSouth found it necessary to negotiate this decree with the Enforcement Bureau.

Background. Nearly two years ago, Covad and BellSouth voluntarily negotiated a third amendment to their existing interconnection agreement, which applied to several states in BellSouth's territory. The effective date of that amendment was December 1, 1998, and the term was for two years.⁽¹⁾ In this contract, the parties agreed to temporary prices for certain network elements that BellSouth would provide. At Covad's request, the parties agreed that prices for BellSouth's network elements would be "'trued-up (up or down) based on final prices either determined by further agreement or by final order, including any appeals, in a proceeding involving BellSouth before the regulatory authority for the state in which the services are being performed or any other body having jurisdiction over this agreement, including the Federal Communications Commission."⁽²⁾

The December 1998 agreement did not cover the terms under which BellSouth would provide unbundled copper loops to Covad. In the spring of 1999, the parties embarked on negotiating an amendment to their agreement regarding this network element, and this consent decree is the result of a dispute that arose during those negotiations.

BellSouth proposed an amendment that, among many other things, set the rates at which it would provide its unbundled loops to Covad. Covad objected to these rates and asked BellSouth for cost studies to show that the rates conformed with the Commission's pricing rules.⁽³⁾ BellSouth contended that these data were confidential and asked Covad to sign a nondisclosure agreement before BellSouth disclosed the information to Covad.⁽⁴⁾

The draft nondisclosure agreement proposed by BellSouth provided that BellSouth's "Confidential Information" would not be "revealed or distributed" to anyone other than Covad's "Authorized Representatives." Paragraph 7 of the draft agreement provided that "[i]n the event [Covad] is required by law, regulation, or court order to disclose any of [BellSouth's] Confidential Information, [Covad] will promptly notify [BellSouth] in writing prior to making any such disclosure in order to facilitate [BellSouth] seeking a protective order or other appropriate remedy from the proper authority." In addition, Paragraph 5 provided that both parties were to treat the negotiations regarding Covad's purchase of unbundled network elements as confidential and specified that "the discussions and conversations within the context of Negotiations are inadmissible in any proceeding conducted before a state or federal regulatory, judicial or administrative agency."

In early September 1999, Covad asked BellSouth to delete Paragraph 5 of the non-disclosure agreement. It did not say anything about Paragraph 7. On September 14, 1999, BellSouth responded that it was unwilling entirely to delete Paragraph 5. BellSouth's representative told Covad that if it "would like to propose different language, I would be happy to present it to our legal folks for reconsideration."⁽⁵⁾

On September 30, 1999, Covad signed the amendment to the December 1998 interconnection agreement, but declared it did so "under protest." It asserted that it believed the "prices imposed by BellSouth are both unreasonable and contrary to federal pricing rules."⁽⁶⁾ BellSouth responded on October 1, 1999, in a letter stating that BellSouth thought the issue regarding the rates for the unbundled copper loop had been resolved through previous discussions. BellSouth pointed out that the rates would be subject to "true-up" based on final prices determined by further agreement or by a regulator's order. BellSouth also stated that it had offered to allow Covad to review the underlying cost studies, but that Covad had not yet signed a nondisclosure agreement.⁽⁷⁾

In a letter dated October 4, 1999, Covad again took issue with BellSouth's proposed nondisclosure agreement. Paragraph 5, wrote Covad's representative, "precludes Covad from disclosing any information regarding the entire negotiation to 'a state or federal regulatory, judicial or administrative agency.'" ⁽⁸⁾ Covad asserted that BellSouth had violated its duty to negotiate in good faith, both by initially refusing to disclose cost information and by subsequently conditioning disclosure of its cost information upon the execution of a nondisclosure agreement that covered the entire negotiation. Covad asked BellSouth to reconsider the terms under which it would provide cost information regarding the unbundled copper loop.

On October 13, 1999, BellSouth acknowledged that it had asked Covad to execute a nondisclosure agreement before reviewing the studies. But it disagreed with Covad's reading of the proposed agreement. "The non-disclosure agreement (NDA) proposed by BellSouth would not have precluded Covad from providing the information contained therein in the event that it were required to do so by an order of the FCC or state commission. Paragraph seven (7) of the proposed agreement simply required Covad to notify BellSouth so that BellSouth could seek a protective order or obtain an order that ensured that the confidential information was accorded proprietary treatment."⁽⁹⁾ In addition, BellSouth contended that, in Paragraph 5 of the agreement, it merely sought to keep confidential the discussions and conversations held during the negotiations, in the same way that the rules of evidence make settlement discussions inadmissible in litigation. "If Covad wishes to introduce cost studies into arbitration, it can certainly seek to do so, subject to appropriate objections and requests for proprietary treatment."⁽¹⁰⁾

According to an ex parte pleading that BellSouth has submitted, representatives of BellSouth and Covad met on October 14, 1999.⁽¹¹⁾ According to BellSouth, Covad's representatives indicated that they were unwilling to execute a nondisclosure agreement, and BellSouth proposed to permit Covad to review the cost studies for two hours on October 20, 1999. BellSouth's pleading states that Covad's representative agreed to this proposal.

Covad again expressed its unhappiness with the nondisclosure agreement proposed by BellSouth, stating in an October 16, 1999 email that it was "troubled by BellSouth's insistence upon keeping ALL negotiations regarding the [unbundled copper loop] Amendment confidential . . . when BellSouth only contends that the cost studies alone are confidential. . . . [W]e cannot agree to keep other aspects of these negotiations (i.e., our recent letters) confidential, when neither party contends these portions of the negotiations contain confidential information." Covad's representative went on to say that he had already disclosed portions of the negotiations to entities outside of Covad, and that it was therefore impossible for Covad to comply with Paragraph 5 of the proposed NDA. Covad proposed to substitute Rule 408 of the Federal Rules of Evidence for Paragraph 5.⁽¹²⁾ In an October 22, 1999 letter Covad insisted that it needed "unfettered access to all cost information" on which BellSouth's rates were based,⁽¹³⁾ and on November 4, 1999, Covad declared that BellSouth's proposal to disclose the cost information in a two-hour meeting at BellSouth's offices was "entirely unacceptable."⁽¹⁴⁾

On November 16, 1999, BellSouth responded to these complaints. Its letter states that Tom Allen of Covad had "previously agreed to come to BellSouth to examine the cost data" in question, but that "[a]pparently Covad has now changed its position."⁽¹⁵⁾ It went on to offer to provide the cost study to Covad to review pursuant to section 9 of the companies' existing interconnection agreement.⁽¹⁶⁾ BellSouth asked Covad to return the cost data to it within 30 days.

Covad rejected this offer on December 2, 1999. It argued that although this offer was better than what had been previously proposed, "it still prevents Covad from effectively using the information in negotiations with BellSouth." "To arbitrarily limit Covad's access to the cost information for thirty days when the negotiations will likely last beyond that period creates an improper disparity in bargaining power that favors BellSouth."⁽¹⁷⁾ Covad demanded that BellSouth deliver the cost information to it no later than December 8, 1999, asserting that any failure to do so would violate BellSouth's duty to negotiate in good faith. And on January 28, 2000, Covad sent a follow-up letter that it said served as "another formal request from Covad for unfettered access to the . . . cost studies."⁽¹⁸⁾ To date, Covad has declined to sign a non-disclosure agreement, and BellSouth has not provided Covad with the disputed cost information.

Sometime last spring, Covad apparently informally contacted the Enforcement Bureau and alleged that BellSouth had violated its duty of good faith negotiation in the course of these negotiations. Covad did not file any formal complaint with this Commission, nor did it ever formally raise this issue before a state commission. An investigation ensued, and this consent decree is the result.

The Commission Lacks Jurisdiction to Enter Into this Consent Decree. Section 251(c)(1) requires both incumbent and competing local exchange carriers to negotiate in good faith the terms of interconnection agreements. Section 252 sets out a detailed framework that carriers are to use to reach such agreements. Carriers may first attempt voluntarily to reach agreement, without regard to the standards set out in section 251(b) and (c). 47 U.S.C. § 252(a)(1). If a party is dissatisfied with any aspect of these voluntary negotiations, it may petition a state commission to resolve outstanding issues. Id. § 252(b)(2). Parties may ask a federal district court to determine whether a state commission's decision meets the requirements of sections 251 and 252.

The Commission here assumes, without discussion, that it has independent jurisdiction to enforce BellSouth's section 251 obligations. In other words, it thinks that it may review BellSouth's conduct in voluntary negotiations to determine whether there has been a violation of BellSouth's section 251 duties, including its duty to negotiate in good faith. I disagree. The statutory framework that Congress devised contemplates that parties will resolve whatever differences they may have through the section 252 process. Thus, if either Covad or BellSouth were displeased with the course that their voluntary negotiations had taken, the statute directs them to take the dispute to a state commission and from there to a federal district court.

The Commission here effectively bypasses this process. In my view, its assertion of jurisdiction is not supported by the statute, and the practical effect of its action will be to undermine the section 252 negotiation process. Significantly, the only court that has thus far considered the issue on the merits has determined the Commission's view of its authority independently to enforce section 251 is "contradicted by the language, structure, and design of the Act." See Iowa Utils. Bd. v. FCC, 120 F.3d 753, 804 (8^th Cir. 1997). Although the Supreme Court reversed this determination on ripeness grounds, see AT&T v. Iowa Utils. Bd., 119 S. Ct. 721, 733 (1999), I believe that the Eighth Circuit's understanding of the Commission's role in the section 251 and 252 process is the correct one, and I regret that no party has brought this issue before a court. If a party may sidestep the section 252 arbitration process simply by notifying the Commission that it believes another party has violated section 251, the process through which parties are intended to reach agreement will be gravely disrupted.

The Evidence on Which this Action Is Predicated Is Exceedingly Slim. Even if the Commission had jurisdiction over this matter, however, I could not join in this decision. The Commission here apparently has taken action based on BellSouth's proposal to include two paragraphs regarding confidentiality in a draft of a nondisclosure agreement.⁽¹⁹⁾ I would be very reluctant to conclude that this conduct, without more, constituted a failure to act in good faith under section 251.

In its Local Competition Order, the Commission considered section 251's good faith requirements. It ruled that whether a party has acted in good faith will typically require a case-by-case determination, in light of all the facts and circumstances underlying the negotiations.⁽²⁰⁾ The Commission specifically considered the matter of non-disclosure agreements. It noted that there are "pro-competitive reasons for parties to enter into a nondisclosure agreements," although it also concluded that agreements should not preclude a party from providing information requested by the Commission, a state commission, or in support of a request for arbitration under section 252(b)(2)(B).⁽²¹⁾ The Commission also observed that a party might voluntarily agree to limit its legal rights or remedies as part of a negotiated agreement.⁽²²⁾

The Commission here appears to have lost sight of the fact that section 252(a)(1) authorizes parties to negotiate binding agreements "without regard to the standards" set forth in section 251(b) and (c).⁽²³⁾ Surely this language means that parties should be free at least to propose virtually any language they choose regarding interconnection agreements, including the extent to which shared information will be kept confidential. BellSouth did no more than that here. It merely proposed boilerplate language regarding confidentiality of cost data, and its subsequent correspondence with Covad indicates that it was open to modifying the language of these paragraphs. To be sure, the Local Competition Order ruled that agreements should not prevent the disclosure of information to regulatory authorities, but I do not understand BellSouth's proposed language to run afoul of this requirement. To the extent there was any ambiguity on this point, BellSouth's October 13 letter made utterly clear that it did not intend either Paragraph 5 or Paragraph 7 to preclude Covad from introducing cost information in an arbitration proceeding.

In addition, the record indicates that Covad's conduct was not entirely irreproachable. It appears to have declined to negotiate regarding alternative language, despite BellSouth's request that it propose modifications. Indeed, Covad insisted several times on "unfettered access" to the cost information - a demand that is clearly inconsistent with the Local Competition Order's recognition that an incumbent carrier may have legitimate reasons for keeping cost information confidential.

Moreover, it is very troubling that the Commission here has not acted on a formal complaint, but instead undertook this investigation on its own motion. And it is telling that - even after November 16, 1999, when BellSouth agreed to make the information available to Covad on terms that even the Enforcement Bureau evidently thinks were acceptable - Covad continued to decline to review the data. Nor do I understand why, if Covad was so unhappy with the course that voluntary negotiations had taken, it failed to ask a state commission to resolve the matter. If Covad did not think itself sufficiently harmed by BellSouth's conduct to warrant filing a formal pleading, ask for state commission arbitration, or even to review the data at issue when it was made available, I cannot comprehend why the Enforcement Bureau thought it appropriate to initiate this proceeding.

The Commission had no jurisdiction to undertake this enforcement proceeding. And even assuming it had some authority to adopt this consent decree, the set of facts on which it chose to base this enforcement action is exceedingly troubling. If a company can be exposed to this level of liability simply by proposing terms to be included in an interconnection or confidentiality agreement, I see no reason why it should risk voluntarily negotiating at all. I therefore dissent from the Commission's adoption of this decree.