Click here for Adobe Acrobat version
Click here for Microsoft Word version
********************************************************
NOTICE
********************************************************
This document was converted from Microsoft Word.
Content from the original version of the document such as
headers, footers, footnotes, endnotes, graphics, and page numbers
will not show up in this text version.
All text attributes such as bold, italic, underlining, etc. from the
original document will not show up in this text version.
Features of the original document layout such as
columns, tables, line and letter spacing, pagination, and margins
will not be preserved in the text version.
If you need the complete document, download the
Microsoft Word or Adobe Acrobat version.
*****************************************************************
Before the
Federal Communications Commission
Washington, D.C. 20554
In the Matter of )
)
Accounting Safeguards )
Under the Telecommunications ) CC Docket No. 96-150
Act of 1996: )
)
Section 272(d) Biennial Audit
Procedures
MEMORANDUM OPINION AND ORDER
Adopted: August 27, 2002 Released: September 5,
2002
By the Commission:
I. INTRODUCTION AND BACKGROUND
1. In this Order, we deny SBC Communications Inc.'s (SBC)
request for confidential treatment of information contained in
its audit report submitted under section 272(d) of the
Communications Act of 1934, as amended (the Act).1 In
particular, we reject SBC's arguments that information contained
in its audit report is protected by the Commission's
confidentiality rules.
2. Section 272 establishes certain structural,
transactional, and nondiscrimination safeguards that govern the
relationship between a Bell Operating Company (BOC) and its
affiliate after the BOC receives authorization for providing in-
region interLATA telecommunications services pursuant to section
271 of the Act.2 Section 272(d) requires a BOC, after receiving
section 271 authorization, to obtain a joint Federal/State audit
conducted by an independent auditor to determine whether the BOC
complies with section 272 and the Commission's implementing
rules.3
3. In a series of orders, the Commission implemented the
separate affiliate safeguards mandated by the statute.4 These
regulations are intended to deter conduct that would furnish an
unfair competitive advantage to a BOC's newly established in-
region interLATA operations over other carriers, such as cost
misallocation or discrimination in favor of the BOC's section 272
affiliate.5 In the Accounting Safeguards Order, the Commission
established requirements governing the conduct of the section
272(d) biennial audit, the oversight of the independent auditor,
and the filing of the audit report.6 The audit staff of the
Common Carrier Bureau (now the Wireline Competition Bureau) and
participating state commissions subsequently developed the
general audit program in conjunction with the BOCs and other
interested parties. The general audit program has been publicly
available since 1997.7
4. On December 17, 2001, SBC submitted its first section
272(d) biennial audit report. Consistent with relevant auditing
standards, the ``final audit report'' provides facts concerning
the compliance of several SBC affiliates that provided in-region
interLATA telecommunications in Texas pursuant to SBC's section
271 authorization.8 The final audit report also contains
information regarding SBC's in-region interLATA
telecommunications operations in Kansas, Oklahoma, and the former
Ameritech region. With its submission, SBC requested
confidential treatment for information on thirty-nine of ninety-
three pages in the final audit report.9 Thus, SBC submitted two
versions of its section 272(d) final audit report: (1) a
publicly available report with redactions (SBC Redacted Section
272 Audit Report); and (2) a version submitted under seal.
5. On January 10, 2002, the Commission issued the Section
272(d) Audit Order denying Verizon's request for confidential
treatment of its section 272(d) audit information based on
section 272(d)(2)'s requirement that ``the audit results be made
public.''10 The Commission also found disclosure consistent with
the audit provisions of section 220 of the Act, the Trade Secrets
Act, and Exemption 4 of the Freedom of Information Act.11
6. On February 12, 2002, AT&T Corporation (AT&T) requested
access to SBC's redacted audit information, citing the Section
272(d) Audit Order.12 On March 19, 2002, SBC filed a response to
AT&T's request.13 On April 9, 2002, the Commission denied
Verizon's petition for stay and petition for reconsideration of
the Section 272(d) Audit Order.14 On July 30, 2002, the
Competitive Telecommunications Association (CompTel) also
requested access to SBC's redacted audit information.15
II. DISCUSSION
7. Pursuant to section 0.459 of the Commission's rules, we
deny SBC's request for confidentiality of the information
contained in its final section 272(d) audit report.
Specifically, we find that release of the audit information (1)
will not impair the flow of audit information in the future; (2)
will not cause SBC substantial competitive harm; and (3) will
serve the public interest.16
II.A. Section 272(d) Audit Order
8. We concluded in the Section 272(d) Audit Order that the
plain language and purpose of section 272 require disclosure of a
BOC's section 272 audit report.17 We relied on section
272(d)(2), which requires the independent auditor to ``submit the
results of the audit to the Commission and to the State
commission of each State in which the company audited provides
service, which shall make such results available for public
inspection.''18 We further noted that the purpose of the audit
report is to assist the Commission, the state commissions, and
the public in evaluating a BOC's compliance with the section 272
separate affiliate requirements.19 We also rejected Verizon's
claim that the Commission's confidentiality rules protected
Verizon's section 272 audit results from release.20
Specifically, we found that Verizon's audit results were at a
summary, not detailed, level,21 were otherwise required to be
disclosed, and were dated. 22 We therefore concluded that
release of Verizon's audit information was compelled by both
section 272(d)(2) of the Act and consistent with the Commission's
confidentiality rules.
9. SBC argues here that our conclusion in the Section
272(d) Audit Order to release Verizon's audit results should not
apply to its section 272(d) audit because, inter alia, its audit
program contemplates a right to request confidential treatment of
certain audit information. According to SBC, because the audit
program stated a process for SBC to request confidential
treatment pursuant to section 0.459 of the Commission's rules,
the Commission cannot under section 272(d)(2) release information
SBC claims is confidential. SBC confuses the confidentiality
request procedure contemplated in the audit program with an
entitlement to confidential treatment. As explained in detail
below, SBC has requested confidential treatment of information
contained in the audit report. SBC based its request on section
0.459 of the Commission's rules, and as explained below, we deny
SBC's request and order release on those grounds.
II.B. The Commission's Confidentiality Rules
10. The Commission's confidentiality rules regarding
requests for information are contained in section 0.459.23 We
base confidentiality determinations under section 0.459 on
Exemption 4 of the FOIA, which permits us to withhold ``trade
secrets and commercial or financial information obtained from a
person and privileged or confidential.''24 Exemption 4 protects
trade secrets and commercial or financial information obtained
from a person that are privileged or confidential.25 The tests
for confidentiality are contained in two seminal cases, National
Parks and Critical Mass.26 If the submitter was obligated to
furnish the information at issue, National Parks provides the
analytical framework to determine if the information is
confidential.27 If the agency determines that the information
was submitted voluntarily, Critical Mass governs.28 Under
Critical Mass, information is confidential if the information is
not ``customarily'' disclosed to the public by the submitter.29
Under National Parks, information is confidential (and thus
exempt from disclosure) if (1) release of the information would
impair the agency's ability to get the information in the future
or (2) release of the information would cause the submitter
substantial competitive harm.30 In addition, the Commission has
traditionally declined to release audit information unless it
determines that release would serve the public interest.31
11. The Commission's rules place on the submitter the
responsibility to explain the degree to which the information is
commercially sensitive (or contains trade secrets) and the manner
in which the subject data could be used by competitors to inflict
substantial competitive harm.32 Among other things, the
submitter must explain how disclosure could result in substantial
competitive harm;33 identify any measures taken to prevent
unauthorized disclosure;34 and identify whether the information
is available to the public and the extent of any previous
disclosure of the information to third parties.35 The
Commission's rules prohibit consideration of ``casual requests''
for confidential treatment that do not comply with these
requirements.36
II.B.1. SBC's Confidentiality Request
12. On December 17, 2001, SBC requested confidential
treatment for information on 39 pages of its section 272(d) audit
report.37 On March 19, 2002, SBC supplemented its request for
confidential treatment.38 In its requests, SBC generally argues
that, pursuant to the impairment prong of National Parks, the
redacted portions of the section 272(d) audit report are exempt
from disclosure.39 In particular, SBC argues that disclosure of
the information at issue would impair the Commission's ability to
obtain information through the audit process. SBC states that,
if disclosure is required here, it ``certainly will not willingly
agree to any procedures in future audits that would include
confidential proprietary information in the audit report.''40 SBC
further argues that the redacted information should be treated
confidentially because it is competitively sensitive,41 and
because release of certain information would pose a ``security
risk.''42 Finally, SBC contends that the redacted information is
not relevant for evaluating SBC's compliance with section 272 and
the Commission's implementing rules.43 For the reasons explained
below, we deny SBC's request for confidential treatment pursuant
to section 0.459 of the Commission's rules.
II.C. Findings
13. As an initial matter, we find that SBC's section 272(d)
audit report is a required submission for purposes of our
analysis here. Section 272(d) requires each BOC to obtain an
audit of its compliance with the accounting and non-accounting
safeguards contained in section 272 and the Commission's
implementing rules.44 Under section 272(d)(2) and the
Commission's rules, the BOC must submit the final section 272(d)
audit report to the Commission and the state commissions for the
BOC's region according to a specific schedule. We therefore find
that the National Parks two-prong test must be applied here,
i.e., we must determine whether disclosure of the redacted
information would impair our ability to get the information in
the future or would cause SBC substantial competitive harm.45
14. We reject SBC's argument that disclosure of the
information in the section 272(d) audit report would impair the
Commission's ability to obtain comparable information in future
audits. Despite SBC's suggestion, we believe that all BOCs will
comply with this statutory audit requirement until this
requirement sunsets.46 Indeed, section 272(d)(3) expressly
grants the Commission, the state commissions, and the independent
auditor access to ``the financial accounts and records'' of the
BOC and its affiliates for the purposes of the audit.47 Because
the section 272(d) audit is ``a joint Federal/State audit . . .
conducted by an independent auditor,'' the joint Federal/State
audit team and the independent auditor determine what information
is necessary to evaluate the BOC's compliance. Failing to comply
with the section 272(d) audit requirement by, for example,
refusing to furnish information, would be an extremely serious
matter that would subject SBC to a range of potential enforcement
actions.
15. As explained below, we also conclude that disclosure of
the information at issue is not likely to cause SBC substantial
competitive harm. As with the Verizon case, the information SBC
seeks to protect is aggregated, both geographically and by
transaction, already publicly available elsewhere, and dated.48
Specifically, SBC's information does not provide competitors
insight into SBC's or SBC's affiliates' strategies in individual
markets. The Commission's confidentiality decisions for audit
information have often turned on whether the information is at a
summary level or is detailed because summary information is much
less likely to cause competitive harm.49 Further, the report
does not disclose individual transactions or customer
information.50 Finally, we note that our decision here is
reinforced by the fact that the information is arguably of
limited use because it is greater than 12 months old, mitigating
the likelihood of substantial competitive harm.51
16. SBC asks for confidential treatment of three categories
of information: (i) financial and accounting information; (ii)
performance data depicting SBC's quality of service for certain
telecommunications services; and (iii) other commercial
information. We address SBC's request for confidential treatment
of each category below.
II.C.1.a)i. Financial/Accounting
Information
17. SBC requests confidential treatment for nearly all
financial and accounting information contained in the section
272(d) audit report. In particular, SBC seeks confidential
treatment for the dollar value of the fixed asset listings for
its section 272 affiliates (both in total and for switching and
transmission facilities of SBC's section 272 affiliates);52 the
accounts payable from the section 272 affiliates to the SBC
BOCs;53 the dollar value of an asset transfer from an SBC BOC to
a section 272 affiliate;54 the dollar value of services provided
from the SBC BOCs to their section 272 affiliates but not made
available to third parties;55 the dollar value of certain
services provided by the section 272 affiliate to an SBC BOC for
certain months;56 the dollar value of services provided by an SBC
BOC to a section 272 affiliate, but not disclosed to the
independent auditor for testing purposes;57 the dollar value and
sample size of invoiced exchange access services and facilities
for January 2001;58 the dollar value of invoices from the SBC
BOCs for which SBC's section 272 affiliate could not provide
documentation;59 revenue fluctuations for certain services during
a four-month period;60 the dollar value of discrepancies between
the amount the BOCs recorded for providing certain
telecommunications services to their section 272 affiliates and
the amount paid by the affiliates;61 the dollar value of disputed
charges between the SBC BOCs and their section 272 affiliates;62
the dollar value of certain tariffed services provided to an
unaffiliated telecommunications carrier;63 a comparison of the
billing and collection rates between SBC's section 272 affiliate
and unaffiliated carriers;64 the dollar value of certain
affiliate transactions noted in the comments of the joint
Federal/State audit team.65
18. We note that in its initial confidentiality request SBC
did not attempt to support its claim of confidentiality for each
redacted item. Instead, SBC argued generally that disclosure
would impair the Commission's ability to conduct audits, that
disclosure would reveal SBC's marketing plans and operational
details for offering long distance service, and that competitors
could ``see the underlying costs'' incurred by SBC's long
distance affiliates.66 In addition, SBC argued that competitors
could ``discover specific details that indirectly impact how
timely the affiliates provide services to customers and the
quality of service offered.''67 On March 19, 2002, SBC
supplemented its confidentiality request with additional
arguments. SBC states that the Commission staff informed SBC
that information arising out of the section 272(d) that SBC
claimed as confidential or proprietary would be struck from the
final audit report.68 SBC further argues that the information at
issue is specific, commercially sensitive information that is
exempt from disclosure under the FOIA.69 Finally, SBC provides a
matrix that presents, on an item-by-item basis, SBC's argument
that the redacted information is not relevant to the section
272(d) audit objective and SBC's explanation for how disclosure
would cause ``actual or potential competitive harm.''70
19. We disagree with SBC that the financial and accounting
information in the audit report is highly specific data that
could cause substantial competitive harm to SBC. 71 None of the
information represents individual accounting entries; rather, it
is accounting information accumulated over the course of the one-
year audit period and represents many individual transactions.
Aggregated information uncovered during audits, as the
Commission has held previously, mitigates the likelihood of
causing substantial competitive harm.72 Aggregated information
of this nature does not allow competitors to gain insight into
marketing plans, etc. The section 272(d) audit report does not,
however, contain any ``secret, commercially valuable plan,
formula, process, or device that is used for the making,
preparing, compounding, processing of trade commodities and that
can be said to be the end product of either innovation or
substantial effort.''73 Nor does the report contain technical
documentation detailing how SBC employees should operate SBC's
computer systems, marketing surveys, plans for new products or
services, memoranda describing technical assessments or
evaluations of different vendor systems, customer lists, or
detailed instructions or the source code needed for programming
SBC's computer systems. We further find that SBC has not
adequately explained how disclosure would be likely to cause it
substantial competitive harm.74 In brief, nothing about SBC's
section 272(d) audit report would allow a competitor to provide
interLATA telecommunications service more efficiently or obtain
SBC's customers.75 We address each category of financial and
accounting information below.
20. Fixed Asset Listing. SBC seeks confidential treatment
for the total dollar value of assets owned by its section 272
affiliates.76 SBC argues that the asset listing is confidential
because SBC's competitors are not required to disclose comparable
information. We disagree. We note that the information is
aggregated. The report only contains the total value of the
assets; the report contains no details such as the cost of
individual assets. We therefore find that disclosure of the
fixed asset listing is not likely to cause SBC substantial
competitive harm.
21. Accounts Payable of Section 272 Affiliates. SBC argues
that disclosing the accounts payable from its section 272
affiliates to its BOCs ``could show the extent of services
purchased'' by the affiliates and indicate the ``sales volumes
and markets being targeted.''77 We disagree. The accounts
payable information neither indicates sales volumes nor suggests
which markets SBC is targeting to sell its long distance service.
The balances are aggregated by section 272 affiliate and BOC and
could not provide insight into specific services the section 272
affiliates provide. Further, these amounts represent accounts
payable at a single point in time; they do not disclose total
sales volumes for specific services. Even if the accounts
payable information did show sales volumes or indicate SBC's
target markets, it is not clear from SBC's initial and
supplemental requests how disclosure could cause substantial
competitive harm. In addition, the information is aggregated at
the state level, and does not detail activity on an account-by-
account or service-by-service level. We therefore find that
disclosure of the accounts payable of SBC's section 272
affiliates is not likely to cause SBC substantial competitive
harm.
22. Total Billings For Services Not Made Available to Third
Parties. SBC argues that disclosing the total dollar value for
services not made available to third parties would cause
competitive harm by revealing the section 272 affiliate's ``level
of marketing expenses'' and allow competitors to ``check the
rates and make assumptions regarding sales volumes in relation to
marketing costs.''78 We disagree for two reasons. First, as
noted above, the information is highly aggregated (beyond the
state level), so that it only shows the total billings for a
nine-month period by affiliate. The audit report does not
contain, for example, marketing expenses related to specific
product offerings. Second, SBC has not made clear how disclosure
would cause it substantial competitive harm, i.e., how a
competitor ``mak[ing] assumptions regarding sales volumes in
relation to marketing costs'' would cause substantial competitive
harm. We therefore find that disclosure of the total billings
for services not made available to third parties is not likely to
cause SBC substantial competitive harm.
23. Services Provided Between SBC's Section 272 Affiliate
and the SBC BOCs. SBC argues that disclosing the dollar value of
telecommunications services billed by the section 272 affiliate
to the BOC, and the amount paid by the BOC for such services,
would allow competitors to ``determine the exact extent and
nature of competitive services provide by the 272 affiliates.''79
Similarly, SBC argues that disclosing the dollar value of local
telecommunications services purchased by its section 272
affiliate from the SBC BOCs would reveal the ``extent and
location of 272 affiliate operations.'' SBC also contends that
the total amounts charged by the SBC BOCs for exchange access
services provided to the section 272 affiliates ``reveals
potentially competitive marketing information,'' disclosure of
which could result in ``unnecessary and unjustified concern on
the part of non-affiliated entities.''80 We note, however, that
SBC itself already advertises the availability and details of the
competitive services provided by its long distance affiliates.81
In addition, SBC discloses similar (although more aggregated)
information pursuant to the Commission's Part 32 affiliate
transactions rules and Part 43 reporting requirements.82 We
disagree that disclosure would likely pose substantial
competitive harm. The information in the audit report merely
informs the reader of potential discrepancies between the amount
billed by SBC's section 272 affiliate and the amount paid by the
BOC. This information is needed to evaluate whether the BOC is
adhering to the Commission's rules intended to ensure the
relationship takes place at arm's length, but does not appear to
provide any competitive advantage to SBC's competitors.83
Finally, we conclude that neither SBC's initial confidentiality
request nor subsequent filing adequately explains how disclosure
could cause substantial competitive harm. We therefore find that
disclosure of the dollar value of services provided between SBC's
section 272 affiliate and the SBC BOCs is not likely to cause SBC
substantial competitive harm.
24. Revenues for Incidental InterLATA Services. SBC argues
that disclosing the revenue amounts for incidental interLATA
services would reveal ``detailed revenue information about the
specific lines of BOC competitive businesses.''84 We disagree.
The revenue information for certain services is highly aggregated
into three categories, i.e., amounts for Southwestern Bell, all
the former Ameritech states, and Pacific Bell. Further, these
aggregated revenues provide no transaction detail, such as the
amount SBC charges specific customers for these services, the
associated volumes of use, or the marketing costs associated with
these services. Further, SBC has not explained why disclosure of
this information is likely to cause it substantial competitive
harm. We therefore find that disclosure of the revenues for
incidental interLATA services is not likely to cause SBC
substantial competitive harm.
II.C.1.a)ii. Performance Data
25. SBC requests confidential treatment for the performance
data gathered to demonstrate its compliance with section 272(e)
for two reasons. First, SBC argues that disclosure could allow
its competitors to ``discover specific details that indirectly
impact how timely the affiliates provide services to customers
and the quality of service offered.''85 Second, SBC argues that
the information is irrelevant, containing only ``[m]eaningless
variances . . . that could have unnecessary negative consequences
for SBC and may result in unnecessary and unjustified concern on
the part of non-affiliated entities as well as other parties
(e.g., regulators).''
26. We reject SBC's request for confidential treatment for
two reasons. First, the performance data at issue is summary
information aggregated between the categories ``BOC and
Affiliates'' and ``Non-Affiliates.'' The performance data is
also aggregated at the state level. As with the financial
information in the audit report, these data do not represent
individual transactions, but are a roll-up of a number of
transactions. Thus, a competitor could not use this performance
data to identify a specific SBC customer in a specific market to
provide a targeted service offering. Nor could an SBC competitor
use these data to provide interLATA telecommunications service
more efficiently; the performance data does not (by itself or in
conjunction with any other information) provide competing
carriers with more efficient methods for serving customers or
with the information needed to develop an innovative new
telecommunications service offering. Thus, disclosure of the
performance data does not pose substantial competitive harm to
SBC. We also note that SBC, along with the other largest
incumbent local exchange carriers, regularly submit similar
performance data publicly to the Commission in various
contexts.86
27. Second, SBC's request does not provide adequate grounds
for granting confidential treatment of these performance data.
Embarrassing facts, ``unnecessary negative consequences for
SBC,'' or ``unnecessary and unjustified concern'' on the part of
regulators do not constitute grounds for exempting information
from disclosure.87
28. We are concerned with SBC's contention that these
performance data are irrelevant for assessing its compliance with
section 272(e). Indeed, in the SWBT Texas § 271 Order, SBC
submitted affidavits that contained the reporting format it
planned to use to demonstrate compliance with the section 272(e)
nondiscrimination safeguards.88 In fact, the Commission relied
on SBC's representations to make an affirmative finding that SBC
demonstrated compliance with section 272 during the section 271
application process.89 Because the Commission has already
concluded that the data contained in the SBC Section 272(d) Audit
Report are useful for evaluating compliance with section 272(e),
we reject SBC's arguments based on the relevancy of this
information for the purposes of this audit. In sum, we find that
disclosure of SBC's performance data is not likely to cause SBC
substantial competitive harm.
II.C.1.a)iii. Other Commercial Information
29. Leases. SBC seeks confidential treatment for the
number of, and total dollar value of, leases entered into by
SBC's section 272 affiliates that are greater than $500,000 per
year.90 SBC argues that this information is confidential because
its competitors are not required to reveal the same information
and because the information would give its competitors insight
into its strategies to lease versus own office space. We
disagree. The lease information is highly aggregated; the audit
report does not disclose what is being leased, the location, or
the terms of the transactions. The audit report does not
disclose any leases under the $500,000 threshold, or reveal the
affiliates' lease versus buy decisions for individual markets.
Thus, we find that disclosure is not likely to cause SBC
substantial competitive harm.
30. Business Locations. We likewise find that the
information about the business locations of SBC's section 272
affiliates is summary-level and that disclosure does not pose
substantial competitive harm nor a security risk to SBC.91 This
information includes only the number of section 272 affiliate
employees by geographical location and general department. This
is summary information because it does not, for example, reveal
how many employees SBC has devoted to marketing specific
services, their individual qualifications, or SBC's hiring
criteria. Nor does the information reveal specific employee
information such as names or positions. As a result, we find
that a competitor could not use this information to build its own
marketing plan to steal customers from SBC. We therefore find
that disclosure of SBC's section 272 business locations is not
likely to cause SBC substantial competitive harm nor pose a
security risk.
31. Bonus Calculation. SBC argues that the bonus
calculation formula is confidential because ``businesses
generally do not reveal how they pay bonuses.''92 We disagree.
First, we note that SBC has not shown with particularity how a
competitor could use the bonus calculation information to harm
SBC. Second, the calculation does not appear to reveal the bonus
calculation for any individual employee or to provide enough
specificity for competitors to ascertain SBC's compensation
methods. As a result, the information does not reveal SBC's
calculation for specific employees. We further find that the
information is relevant for determining whether the performance
of managers of SBC's section 272 affiliates is tied to the
performance of the SBC BOCs, i.e., whether there is operational
independence between the companies. We therefore find that
disclosure of the bonus calculation is not likely to cause SBC
substantial competitive harm.
32. Vendor and Other Party Names. For the two types of
information at issue here, i.e., the name of an SBC carrier
customer and the names of vendors from whom SBC buys certain
services, SBC argues that it would be inappropriate to disclose
customer names,93 and it has a contractual obligation ``to not
reveal vendor names and other vendor information.''94 We agree.
Unlike the other categories of redacted information, this
contains the names of specific unaffiliated parties. We
recognize the substantial competitive harm that could result if
the names of SBC business partners were disclosed involuntarily.
In addition, we do not see how company names, as opposed to
underlying facts that might suggest possible discrimination, are
relevant to SBC's compliance with section 272 and the
Commission's rules. Because of our conclusion that this
information is not relevant to the subject of the audit, we need
not reach whether, despite any competitive harm, it must
nevertheless be made publicly available under the Section 272(d)
Audit Order. As a result, we grant SBC's request for redaction
of SBC customer and vendor names.
II.C.1.a)iv. Public Interest
33. In addition to the two prongs of the National Parks
test, the Commission has historically applied a public interest
test to determine whether audit information should be made
public.95 We find that the public interest would be served by
release here. Public disclosure of the audit results will
promote meaningful comment on the audit results pursuant to
section 272(d)(2) and thereby help the Commission to determine
whether SBC has complied with section 272 and the Commission's
implementing rules. We note that Verizon's section 272 audit
report drew comments from two of the largest long-distance
competitors, AT&T and WorldCom.96 Many of these comments focused
on information similar to that SBC seeks to shield here, e.g.,
section 272(e)(1) performance data. We also note that the
Commission has indicated in its past 0.459 decisions that the
public interest test is met when the information at issue could
form the basis of an enforcement action.97 SBC's audit results
here, as carrier audit results elsewhere, could form the basis of
enforcement actions. Finally, we find that the audit results
here may be relevant to parties commenting on the Commission's
Separate Affiliate Sunset NPRM.98
34. SBC argues that the redacted audit report contains all
information necessary for parties to judge SBC's compliance with
section 272. Stated differently, SBC argues that the redacted
information would add nothing to parties' evaluation of SBC's
section 272 compliance. We disagree.99 We find it significant
that the information SBC redacted from its audit report is
substantially the same as that Verizon redacted from its audit
report.100 After disclosure of all Verizon's audit information,
parties filed comments, e.g., on Verizon's section 272(e)(1)
performance data.101 The redacted information bears directly on
SBC's compliance with, inter alia, the section 272(b)(1)
requirement to operate independently,102 the section 272(b)(3)
requirement to use separate employees,103 the section 272(b)(4)
requirement addressing credit arrangements,104 the section
272(b)(5) and (c)(2) accounting requirements,105 the section
272(c)(1) nondiscrimination safeguards,106 and the section 272(e)
nondiscrimination safeguards.107
35. Finally, we reject SBC's request to limit access to the
audit information with a Protective agreement. As the Commission
has stated previously, protective agreements should not be used
for otherwise unprotected information.108 And, as we noted in
the Verizon Section 272 Audit Reconsideration Order, protective
agreements necessarily limit access to information.109
36. For the foregoing reasons, we decline to grant SBC's
request for confidential treatment of the information contained
in the final section 272(d) audit report.
III. ORDERING CLAUSES
37. Accordingly, IT IS ORDERED, pursuant to sections 4(i),
220, and 272(d) of the Act, 47 U.S.C. §§ 4(i), 220, and 272(d),
that SBC's request for confidential treatment of the section
272(d) audit report, as noted and described herein, IS DENIED for
the reasons indicated in this Order.
38. IT IS FURTHER ORDERED, pursuant to sections 4(i), 220,
and 272(d) of the Act, 47 U.S.C. §§ 4(i), 220, and 272(d), that
SBC's independent auditor file the unredacted version of SBC's
final section 272(d) audit report in this docket, without
restrictions as to disclosure, within ten days, subject to
paragraph 39 below.
39. IT IS FURTHER ORDERED, pursuant to 0.459(g) of the
Commission's rules, 47 C.F.R. § 0.459(g), that SBC has five
working days from telephone notice of this decision to seek a
judicial stay of this decision. If SBC seeks a judicial stay,
the information in the section 272(d) audit report for which
confidentiality is requested will be treated as confidential
until the court acts on such a stay request.
FEDERAL COMMUNICATIONS COMMISSION
Marlene H. Dortch
Secretary
_________________________
1 See 47 U.S.C. § 272(d).
2 The Commission considers a BOC's compliance with section 272
during the section 271 application process. See, e.g.,
Application of Bell Atlantic New York for Authorization under
Section 271 of the Communications Act to Provide In?Region,
InterLATA Service in the State of New York, CC Docket No. 99?295,
Memorandum Opinion and Order, 15 FCC Rcd 3953, ¶¶ 401-21 (1999)
(subsequent history omitted).
3 See 47 U.S.C. § 272(d); 47 C.F.R. § 53.209.
4 See Accounting Safeguards Under the Telecommunications Act of
1996, CC Docket No. 96-150, Report and Order, 11 FCC Rcd 17359
(1996) (Accounting Safeguards Order), Second Order on
Reconsideration, 15 FCC Rcd 1161 (2000); Implementation of the
Non-Accounting Safeguards of Sections 271 and 272 of the
Communications Act of 1934, as Amended, CC Docket No. 96-149,
First Report and Order and Further Notice of Proposed Rulemaking,
11 FCC Rcd 21905 (1996) (Non-Accounting Safeguards Order), First
Order on Reconsideration, 12 FCC Rcd 2297 (1997), Second Order on
Reconsideration, 12 FCC Rcd 8653 (1997), aff'd sub nom. Bell
Atlantic Telephone Companies v. FCC, 131 F.3d 1044 (D.C. Cir.
1997), Third Order on Reconsideration, 14 FCC Rcd 16299 (1999);
see also 47 C.F.R. §§ 32.27, 53.1-53.213, 64.901-64.904.
5 See Accounting Safeguards Order at ¶ 13; see also Non-
Accounting Safeguards Order at ¶¶ 15-16.
6 See 47 C.F.R. §§ 53.209-213; see Accounting Safeguards Order
at ¶¶ 197-205.
7 See Proposed Model for Preliminary Biennial Audit
Requirements, Public Notice, 12 FCC Rcd 13132 (1997) (Proposed
Model Biennial Audit Requirements).
8 By ``final audit report,'' we mean the report submitted on
December 17, 2001.
9 See Letter from Anu Seam, Senior Counsel, SBC, to Magalie
Salas, Secretary, Federal Communications Commission (Dec. 17,
2001) (SBC December 17, 2001 Confidentiality Request) Thus, SBC
redacted information on 42 percent of the pages in the final
audit report (excluding the title and table of contents pages).
By comparison, Verizon redacted information on twenty-eight of
eighty-seven pages in its section 272 audit report, or 32
percent. See Accounting Safeguards Under the Telecommunications
Act of 1996: Section 272 Biennial Audit Procedures, CC Docket
No. 96-150, Memorandum Opinion and Order, 17 FCC Rcd 1374, 1375,
at ¶ 4 (2002) (Section 272(d) Audit Order).
10 See Section 272(d) Audit Order, 17 FCC Rcd at 1375-76, ¶¶ 5-6.
11 Id. at ¶ 13.
12 Letter from Joan Marsh, Director, Federal Government Affairs,
AT&T Corporation to Magalie Roman Salas, Secretary, Federal
Communications Commission (Feb. 12, 2002) (AT&T February 12, 2002
Letter).
13 Letter from Michelle Thomas, Executive Director - Federal
Regulatory, SBC, to William F. Caton, Acting Secretary, Federal
Communications Commission (Mar. 19, 2002) (SBC March 19, 2002
Supplemental Confidentiality Request).
14 See Accounting Safeguards Under the Telecommunications Act of
1996: Section 272 Biennial Audit Procedures, CC Docket No. 96-
150, Order on Reconsideration, 2002 WL 534612, FCC 02-111 (rel.
Apr. 11, 2002) (Section 272(d) Audit Order on Reconsideration).
15 Letter from H. Russell Frisby, Jr., President, CompTel, to
Michael K. Powell, Chairman, Federal Communications Commission
(July 30, 2002).
16 As explained below, we do not require disclosure of certain
irrelevant information relating to the names of specific
customers and vendors. See ¶ 32, infra.
17 See Section 272(d) Audit Order, 17 FCC Rcd at 1375-77, ¶¶ 5-
8.
18 47 U.S.C. § 272(d) (2).
19 See Section 272(d) Audit Order, 17 FCC Rcd at 1376-77, ¶ 7;
Accounting Safeguards Order at ¶ 197 (concluding that the purpose
of the section 272(d) audit is to determine whether the BOCs and
their separate affiliates are complying with the section 272
requirements); Non-Accounting Safeguards Order at ¶ 323 (stating
that the ``broad audit requirement is intended to verify BOC
compliance with the accounting and non-accounting
requirements'').
20 See Section 272(d) Audit Order, 17 FCC Rcd at 1380-83, ¶¶ 13-
20.
21 See id. at 1381-82, ¶ 16.
22 See id. at 1381-82, ¶¶ 16-19.
23 47 C.F.R. § 0.459.
24 5 U.S.C. § 552(b)(4); Section 272(d) Audit Order, 17 FCC Rcd
at 1380, ¶ 13.
25 See, e.g., Gulf & Western Indus. v. United States. For
purposes of this order, we assume the commercial or financial and
``from a person'' requirements are met. Our analysis will focus
on the ``confidential or proprietary'' prong.
26 See National Parks and Conservation Ass'n v. Morton, 498 F.2d
765, 770 (D.C. Cir. 1974) (National Parks); Critical Mass Energy
Project v. NRC, 975 F.2d 871 (D.C. Cir. 1992) (en banc) (Critical
Mass).
27 See Critical Mass, 975 F.2d at 880.
28 See Critical Mass, 975 F.2d at 879.
29 Critical Mass, 975 F.2d at 879.
30 National Parks, 498 F.2d at 770.
31 See Examination of Current Policy Concerning the Treatment of
Confidential Information Submitted to the Commission, Report and
Order, 13 FCC Rcd 24816 at ¶ 53 (1998) (Confidential Treatment
Policy), Order on Reconsideration, 14 FCC Rcd 20128 (1999).
32 See 47 C.F.R. §§ 0.459(b)(3), (b)(5).
33 See 47 C.F.R. § 0.459(b)(5).
34 See 47 C.F.R. § 0.459(b)(6).
35 See 47 C.F.R. § 0.459(b)(7).
36 Id. at § 0.459(c).
37 See SBC December 17, 2001 Confidentiality Request.
38 See SBC March 19, 2002 Supplemental Confidentiality Request.
39 See SBC December 17, 2001 Confidentiality Request at 3.
40 See SBC March 19, 2002 Supplemental Confidentiality Request
at 8. SBC also states that it will not ``willingly agree to
include additional information not specifically necessary to
assess compliance with the relevant requirements.'' Id.
41 See SBC December 17, 2001 Confidentiality Request at 3-4.
42 See SBC March 19, 2002 Supplemental Confidentiality Request
at A-6.
43 Id. at 1.
44 47 U.S.C. § 272(d); see 47 C.F.R. § 53.209-.213.
45 See n. 30 supra.
46 The Commission is currently considering whether to sunset
section 272's structural separation and related requirements.
See Section 272(f)(1) Sunset of the BOC Separate Affiliate and
Related Requirements, WC Docket No. 02-112, Notice of Proposed
Rulemaking, FCC 02-148 (rel. May 24, 2002) (Separate Affiliate
Sunset NPRM).
47 47 U.S.C. § 272(d)(3).
48 See Section 272(d) Audit Order, 17 FCC Rcd at 1381-82, ¶¶ 16-
19.
49 See National Exchange Carrier Association, Inc., et al.,
Requests for Confidential Treatment of Certain Financial
Information, Memorandum Opinion and Order, 5 FCC Rcd 7184 (1990)
(NECA Order); BellSouth Corp., BellSouth Telecommunications, Inc.
Request for Confidential Treatment of Certain Financial
Information and Release of Audit Findings, AAD 93-127, Memorandum
Opinion and Order, 8 FCC Rcd 8129 (1993); Bell Telephone
Operating Companies, Requests for Confidential Treatment of
Certain Commercial and Financial Information and Release of
Summary of Audit Findings, 10 FCC Rcd 11541 (1995). In the
recent Qwest case, the Court of Appeals for the D.C. Circuit
affirmed the Commission's authority to release audit data under
section 220 of the Act. Qwest Communications International, Inc.
v. FCC, 229 F.3d 1172 (2000). The court did find, however, found
that the Commission did not sufficiently explain its rationale
for disclosing ``raw audit data.'' See id. at 1173. Raw audit
data meant individual assets and their costs, as recorded in the
carriers' books. See id. at 1175.
50 There is an exception where the independent auditor identified
customer and vendor names. See SBC Redacted Section 272 Audit
Report at 39, Attachment A-2. We will not require disclosure of
these items as they have no bearing on SBC's compliance with
section 272.
51 See, e.g., Africa Fund v. Mosbacher, No. 92-289, 1993 WL
183736, at *8 (S.D.N.Y May 23, 1993) (rejecting argument that
exemption is permanent because ``[w]hat today may be deemed . . .
a `trade secret' quite conceivably may be of little consequence
tomorrow''); Lee v. FDIC, 923 F.Supp. 451, 455 (S.D.N.Y. 1996)
(potential harm caused two-year-old information ``would seem
likely to have mitigated with the passage of time'').
52 SBC Section 272(d) Audit Report at 2, 3.
53 Id. at 10.
54 Id. at 16, 23.
55 Id. at 20.
56 Id. at 21.
57 Id. at 26.
58 Id. at 32.
59 Id. at 33.
60 Id. at 34-36.
61 Id. at 37.
62 Id. at 37.
63 Id. at 39.
64 Id. at Attach. A-5a, A-5b, A-5c.
65 Id. at Attach B-1, 1-2.
66 See generally SBC December 17, 2001 Confidentiality Request.
67 Id.
68 SBC Supplemental Confidentiality Request at 3-4, n.12.
69 Id. at 7-9.
70 Id. at Attachment.
71 We stress that nothing about this decision releases the
independent auditor's workpapers, which contain more detailed,
disaggregated information than the audit report.
72 See Confidential Treatment Policy at ¶ 55.
73 Public Citizen Health Research Group v. FDA, 704 F.2d 1280,
1288 (D.C. Cir. 1983).
74 See 47 C.F.R. § 0.459(b)(5).
75 As discussed below, we do find that some customer information
could be disclosed through the audit report, and do not therefore
require disclosure of that information.
76 See SBC Redacted Audit Report at 2-3. We note that the
independent auditor included the information in the report only
because SBC could not prove that the assets were not owned
jointly with the SBC BOCs.
77 Id. at Attachment, 2 (addressing SBC Section 272(d) Audit
Report at 10).
78 Id.
79 Id. at Attachment, 3.
80 SBC also argues that competitors ``can use tariff rates and
determine the 272 affiliate's minutes of use and other sales and
volume information, thus gaining useful information about the
extent of the 272 affiliate's operations.'' It is not at all
clear from SBC's request, however, precisely how a competitor
could use this information to obtain a competitive advantage by,
for example, providing interLATA telecommunications service more
efficiently.
81 See, e.g.,
http://www.swbell.com/Products_Services/Business/Catalog/1,1965,-
17-0-6-1-17,00.html (visited July 18, 2002); Niagra Mohawk Power
Corp. v. United States Dep't of Energy, 169 F.3d 16, 19 (D.C.
Cir. 1998) (Exemption 4 cannot be used to protect information
already in the public domain); Anderson v. HHS, 907 F.2d 936, 952
(10th Cir. 1990) (``[N]o meritorious claim of confidentiality''
can be made if information is in the public domain).
82 See 47 C.F.R. §§ 32.27, Part 43;
http://www.fcc.gov/wcb/armis/instructions/. SBC's asset and
services affiliate transactions appear in Automated Reporting
Management Information System (ARMIS) Report 43-02 (Uniform
Systems of Accounts Report), Tables B-4 (Analysis of Assets
Purchased From or Sold to Affiliates) and I-2 (Analysis of
Services Purchased From or Sold to Affiliates).
83 In particular, the Commission's Part 32 affiliate
transactions rules establish a specific hierarchy for recording
the costs of transactions between a BOC and its section 272
affiliate. See 47 C.F.R. § 32.27. For tariffed
telecommunications services (such as those listed in Table 6 of
the SBC Section 272 Audit Report), the BOC must record the cost
of these transactions at the tariffed rates.
84 Id. at Attachment, 4.
85 SBC December 17, 2001 Confidentiality Request at 4.
86 See, e.g., http://www.fcc.gov/wcb/armis/. These are
performance data that SBC submits into the Commission's ARMIS
system. See 47 C.F.R. § 43.21.
87 See CNA Fin. Corp. v. Donovan, 830 F.2d 1132, 1154 (D.C. Cir.
1987).
88 SWBT Texas § 271 Order at ¶ 412, n.1198.
89 Pursuant to section 271(d)(3)(B), the Commission shall not
approve a BOC's section 271 application unless it finds, among
other things, that the authorization ``will be carried out in
accordance with the requirements of section 272.'' 47 U.S.C. §
271(d)(3)(B).
90 See SBC Redacted Audit Report at 5, 10.
91 See SBC March 19, 2002 Supplemental Confidentiality Request at
6, Attachment, 6.
92 See SBC March 19, 2002 Supplemental Confidentiality Request at
Attachment, 1.
93 Id. at Attachment, 5.
94 Id. at Attachment, 6
95 See Confidential Treatment Policy at ¶ 53.
96 See Comments of AT&T and WorldCom in CC Docket No. 96-150
(filed April 8, 2002).
97 See NECA Order at ¶ 7.
98 See n.46 supra.
99 We disagree except for the limited category of vendor and
other company names described above. See ¶ 32 supra.
100 For example, the section 272(e)(1) performance data is
similar in SBC's and Verizon's audit reports. Verizon's report
contains the performance data for Verizon (including Verizon
affiliates) and non-affiliates, for regular and high-speed
services. See Verizon section 272 audit report at Appendix A,
Tables 14(a), 14(b), and 14(c). SBC's report divides the data
between SBC (including SBC affiliates) and non-affiliates, for
DS-0, DS-1, and DS-3 services. See SBC Redacted Section 272
Audit Report at Attachment A-7.
101 See n.96 supra.
102 See id. at 1-2.
103 See id. at 5-9.
104 See id. at 9.
105 See id. at 10-22.
106 See id. at 23-28.
107 See id. at 29-30, Attachment A-7; Section 272(d) Audit Order
17 FCC Rcd at 1377-78, ¶ 8.
108 See Confidential Treatment Policy at ¶ 22.
109 See Section 272(d) Audit Order on Reconsideration at ¶ 3.