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September 28, 1998


Re: Memorandum Opinion and Order, In the Matter of AT&T Corporation, et al. v. Ameritech Corp. et al. (File Nos. E-98-41 et al.).

We write separately to express our firm support for the conclusions reached in this Order and to highlight some of the concerns we hope will shape the Commission's consideration of future business dealings like the teaming arrangements we deem unlawful today.

By adopting the Telecommunications Act of 1996, Congress sought to unleash the resources, expertise and creative energy of firms that have been legally or practically barred from certain markets, all in the pursuit of one important goal: bringing the benefits of competition to the American public. Thus, we should expect that firms will continue to vie with each other to bring newer and better product offerings to their own customers and, if they are successful, their competitors' customers. Indeed, it is this urge to compete and innovate that is essential to the proper functioning of a competitive market. And it is this urge to compete and innovate that has led the defendants to develop the teaming arrangements at issue, by which they could have brought the benefits of "one-stop shopping" in telecommunications to their customers and, thus, to themselves.

Yet the Act does not give the Commission a blank slate. In our struggle to implement the pro-competitive, deregulatory framework envisioned by Congress, fundamental decisions have been made for us. One of these decisions is that the Bell Operating Companies (BOCs) may not provide in-region, interLATA telecommunications service until they comply with the requirements of section 271.(1) Thus, we are duty-bound to ensure that the BOCs' urge to compete and innovate in the long distance market does not lead them to violate the strictures of section 271. Because we believe the instant teaming arrangements do, according to the detailed factual record they have spawned, violate these strictures, it is without hesitation that we join our colleagues in concluding that the arrangements are barred under section 271.

We also are pleased to support this Order for what it does not conclude. As our support of this Order suggests, we agree that serious questions remain regarding whether or not the instant teaming arrangements violate the BOC defendants' equal access and nondiscrimination obligations under section 251(g). We believe nonetheless that it is both responsible and prudent that we have expressly declined to make conclusions regarding section 251(g). First, it is not necessary to reach the section 251(g) question to resolve fully the dispute before us. As the Order makes clear, the section 271 issues are dispositive with respect to the legality of these teaming arrangements.

Second, we believe that by declining to reach the section 251(g) question in the context of this proceeding, we have successfully resisted the temptation to reaffirm unnecessarily a legal and regulatory regime that Congress required us to reconsider in light of the changing marketplace. Telecommunications policy is steeped in the history of the Modified Final Judgment (MFJ). We are all too familiar with the struggles to break up AT&T and to restrain the pieces of that former monopoly from engaging in anticompetitive behavior. While we may not, in the short-term, be able to walk completely away from that history, neither can we allow ourselves to be haunted by "the ghost of the MFJ." Instead, we must work to exorcise that specter. We must strive to leave behind the fears and rituals of the MFJ era and adopt new approaches and modes of thinking that are consistent with a competitive marketplace.(2)

By declining to reach the section 251(g) question in this Order, the Commission has avoided unnecessarily prejudging our consideration of the equal access and nondiscrimination obligations contemplated under section 251(g).(3) In light of the relatively tight time frame occasioned by the referral of these matters from the district courts, we believe it would have been difficult for us to think through carefully all the complex issues of interpretation that are associated with applying some of the pre-Act precedent to the facts presented to us in this proceeding. We also believe that we did not have time, in the context of this proceeding, to consider all of the issues concerning what equal access or nondiscrimination obligations should apply to BOCs once they have satisfied section 271. We describe some of these issues below. Our intention in describing these issues is not to criticize the other valid questions raised in the Order itself, but rather to share our views regarding the kinds of considerations we should factor into any future consideration of the requirements of section 251(g).

Differences in Factual Context. Because the 1996 Act mandates such a radical change in the framework for regulating telecommunications, we believe we should be circumspect about how we rely on and extrapolate from MFJ judicial precedent. As the Qwest teaming arrangements dramatically illustrate, the drive to compete and innovate fueled by the Act will feed regulators a constant diet of novel and, in many respects, pro-competitive business arrangements. As such, we will constantly find ourselves, as we do here, with facts that the MFJ court did not consider and perhaps could not have even imagined.

In light of the likely absence of MFJ precedent directly on point, we do not believe we would be constrained to give effect to every sentence of every equal access case if we believe the present facts and circumstances are distinguishable from those of the MFJ era; rather, we believe we should look to the broad context and purposes of the Act to determine which general principles should be imported from that precedent and which should not.

Similarly, we should remain cognizant that the overall factual context in which the pre-Act cases described in section 251(g) were decided is very different from the facts we see now. These differing facts should, in our view, suggest different expectations that we should have regarding the threat of anticompetitive conduct and the precautions we should take to prevent such conduct.(4) Many of the pre-Act cases focused on tearing apart one of the world's largest, most powerful and most integrated monopolies, i.e., separating "Ma Bell" from her babies. In contrast, the arrangements we see today and will see in the future may involve new entrants like Qwest that do not have strong historical ties to the incumbent. The precedent also originates in a world in which the BOCs were essentially walled off from several lines of business -- a world that eventually began to erode prior to the 1996 Act(5) and that was eroded in a more fundamental way by the Act itself.

Strength of the Precedent. Related to this unique, factual context of the equal access and nondiscrimination precedent is our concern that the psychology of breaking up deeply entrenched monopolies sometimes led, quite understandably, to sparse analysis and occasionally vague pronouncements by the courts whose duty was to enforce the MFJ. This sparseness and vagueness also may have resulted from the fact that the MFJ court conducted its analysis unconstrained by the intricate web of deregulatory and market-opening requirements woven into the 1996 Act.(6) Simply put, we believe there are reasonably sound arguments that some of the MFJ cases do not provide compelling support for importing propositions that one could glean from these cases to the post-Act context.(7) Thus, we hope we will consider the strength and weakness of the precedent itself in developing and applying equal access and nondiscrimination requirements pursuant to section 251(g).

Equal Access in a Post-271 World. In reviewing the legality of future business arrangements, we also hope we will be especially careful about how equal access and nondiscrimination requirements apply to companies that are legally authorized to provide long distance service themselves. For example, as the Order indicates, BOCs are currently subject to the requirements of both section 271 and section 251(g). Once a BOC satisfies the requirements of section 271, the question would remain whether a BOC's section 251(g) obligations would permit it to team or joint venture with other companies to enable BOC customers to obtain long distance service.

From the perspective of preventing anticompetitive conduct, it seems counter-intuitive that a BOC, having satisfied section 271, would be able to provide long distance itself through a section 272 separate subsidiary, but would not be able to team with Qwest to offer its customers such service. Presumably, we should be more concerned that a BOC will have the incentive and ability to favor unfairly its own section 272 long distance affiliate as opposed to a non-affiliated long distance company.(8) In addition, it would strike us as odd, given the deregulatory emphasis of the Act, that Congress could have intended to preclude BOCs from being involved in the long distance market in any way other than through a section 272 separate subsidiary.(9) Similarly, section 251(g) should not be used to impose any new or additional barriers on carriers entering new markets.

Relationship to Interconnection Obligations in General. In addition, as the Commission contemplates the requirements under section 251(g), we hope we will think through carefully how such obligations relate to the interconnection requirements we have already imposed under section 251 generally.(10) As the Order notes, equal access obligations originally were meant to respond to the government's contentions that, in interconnecting their local networks with the networks of the various long distance companies, the BOCs provided inferior interconnection to AT&T's competitors.(11) In the interest of avoiding duplicative requirements, the Commission should think carefully about whether the goals underlying section 251(g) are achieved through the requirements we have already imposed pursuant to the other provisions of section 251. We also should be circumspect about expanding obligations under section 251(g) and should be cautious about imposing equal access and nondiscrimination obligations on BOCs that are different from those imposed on other incumbent LECs.

Procompetitive Benefits. Finally, in developing and applying the requirements contemplated under section 251(g), we should not lose sight of the ultimate goal of equal access and nondiscrimination, which is to bring the benefits of competition to the public. While new business arrangements involving large incumbent LECs like the BOCs potentially raise anticompetitive concerns, these arrangements also promote competition by allowing smaller entrants in long distance or other markets to establish viability in those markets through creative business relationships with established firms. Such relationships, in turn, may benefit consumers in the form of lower prices and stronger incentives on all market participants to match or surpass the new technologies and services used by the entrants. We believe we also should recognize that entrants' incentive and ability to gain such footholds through arrangements with the incumbent may turn, in part, on the degree to which the entrant can differentiate itself in the marketplace.

Thus, in thinking through the extent to which equal access and nondiscrimination requirements should apply to carriers in the post-Act world, it is our sincere hope that we will be as sensitive to these concerns as we believe the Commission has been in this proceeding. Most of all, we must keep in mind that the equal access and nondiscrimination requirements need to be consistent with the transition from monopoly to a competitive paradigm and should not invalidate or further burden carriers' current activities. It is because of the Commission's wise decision to postpone resolution of these and other issues related to section 251(g) until we can examine them more thoroughly that we are happy to support the Order as strongly as we do here.

We commend the Commission staff for its diligent and speedy work on these complex and elusive issues. Moreover, we look forward to working together with everyone at the Commission as we revisit the issues of equal access and nondiscrimination and as we consider the many novel business arrangements that competition will no doubt bring us.

1. As the Order correctly indicates, section 271 has two underlying objectives. First, section 271 seeks to bring additional competition to the long distance market by offering BOCs the potential opportunity to participate in that market. Second, by conditioning BOC entry into the in-region interLATA market on whether the BOCs' local exchange markets are open to competition, section 271 also seeks to facilitate entry into those markets. See generally 47 U.S.C. 271.

2. Of course, one can debate the level and permanence of competition in telecommunications today. It is undeniable, however, that competition is and will continue to be more robust and extensive than it was at the time of AT&T's divestiture.

3. See 47 U.S.C. 251(g).

4. The idea of considering factual differences in assessing what precautions regulators should take against unlawfully discriminatory conduct was not unknown to the MFJ court. For example, in approving a consent decree for GTE that was less burdensome than the MFJ, Judge Green noted expressly that facts that are different from those implicated in the breakup of AT&T could justify different methods of preventing anticompetitive behavior than were used in the AT&T cases. See United States v. GTE Corp., 603 F. Supp. 730, 736 (D.D.C. 1984) ("For these reasons, the Court concludes that the GTE situation is sufficiently different from that which was before the Court when it was presented with a consent decree in AT&T that the public interest does not necessarily require here the remedy that was adopted there."); see also id. at 733-37.

5. See, e.g., United States v. Western Electric Co., 993 F.2d 1572 (1993) (affirming judgment removing information services line of business restriction from MFJ).

6. Thus, for example, one could argue that it would be easy for a court to make unconditional statements regarding BOC favoritism when all marketing of long distance was considered provision of long distance. As the Order recognizes, marketing and provision are not synonymous under the Act. Compare 47 U.S.C. 272(g)(2) with 47 U.S.C. 271(a) and 47 U.S.C. 271(b).

7. See, e.g., United States v. AT&T, No. 82-0192, slip op. at 3 (D.D.C. Apr. 11, 1985) (concluding without explanation that "by granting to National an endorsement of quality, Southwestern Bell has violated the non-discrimination provision of section II(B) of the decree"). One also could reasonably argue that the court deciding the BOC Calling Card case meant to limit its consideration of the appropriateness of the restrictions it enforced to the time and the facts before it. See United States v. Western Electric Co., Inc., 698 F. Supp. 348, 356 (D.D.C. 1988) ("Any Regional Company advertising at this juncture will have the direct foreseeable effect of promoting AT&T services over those of the other interexchange carriers.") (emphasis added).

8. Likewise, it would seem counter-intuitive if equal access obligations designed primarily for BOCs had the collateral effect of prohibiting GTE (which has similar obligations) from teaming with unaffiliated long distance companies; GTE does not have to satisfy section 271 and it has been able to provide long distance in some fashion since before the Act was passed. United States v. GTE Corp., 603 F. Supp. 730, 733 (D.C. Cir. 1984) (approving consent decree permitting GTE to acquire Sprint long distance company). Again, from the perspective of preventing unlawfully discriminatory conduct, we should presumably be more concerned that an incumbent LEC will have the incentive and ability to favor unfairly its own long distance affiliate as opposed to a non-affiliated long distance company.

9. We fully recognize, however, that other glosses on Congress' intent are not without support in the statute.

10. We note that some parties have recognized the potential overlap between interconnection and equal access obligations. See, e.g., Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, CC Docket No. 96-98, First Report and Order, 11 FCC Rcd 15499, 15677, 353 (1996) (DOJ and MCI arguing that "superseding regulations" referred to in section 251(g) were the regulations that Commission would issue to implement section 251), aff'd in part and vacated in part sub nom. Competitive Telecommunications Ass'n v. FCC, 117 F.3d 1068 (8th Cir. 1997) and Iowa Utilities Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997), writ of mandamus issued sub nom. Iowa Utilities Bd. v. FCC, No. 96-3321 (8th Cir. Jan. 22, 1998), petition for cert. granted, Nos. 97-826, 97-829, 97-830, 97-831, 97-1075, 97-1087, 97-1099, and 97-1141 (U.S. Jan. 26, 1998), Order on Reconsideration, 11 FCC Rcd 13042 (1996), Second Order on Reconsideration, 11 FCC Rcd 19738 (1996), Third Order on Reconsideration and Further Notice of Proposed Rulemaking, FCC 97-295 (rel. Aug. 18, 1997), further recons. pending.

11. United States v. Western Electric Co., 552 F. Supp. 131 (D.D.C. 1982), aff'd sub nom., Maryland v. United States, 460 U.S. 1001 (1983), vacated. Indeed, one could argue that the nondiscriminatory interconnection obligations imposed on all incumbent LECs by section 251(c)(2) were meant to encompass the duty to provide equal access and nondiscriminatory treatment to long distance companies. See 47 U.S.C. 251(c)(2) (requiring incumbent LECs to provide to "any telecommunications carrier" interconnection that is "equal in quality" to the interconnection LEC provides itself and that is "on rates, terms, and conditions that are . . . nondiscriminatory"). This could mean, for example, that the Commission merely needs to clarify that the interconnection obligations imposed in the Local Competition Order were sufficient to satisfy section 251(g).