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                           Before the
                Federal Communications Commission
                     Washington, D.C.  20554

In the Matter of                        )
                              )    File No. EB-03-IH-0616
                              )    NAL Account No. 200432080025
BellSouth Telecommunications, Inc. )    EB Docket No. 03-197
                              )
Apparent Liability for Forfeiture            )    FRN No. 0001-
8579-52

                  NOTICE OF APPARENT LIABILITY 
                         FOR FORFEITURE 

     Adopted:  March 24, 2004                Released:  March 25, 
2004

By the Chief, Enforcement Bureau:

I.   INTRODUCTION 

     1.   In this Notice of Apparent Liability for Forfeiture 
(``NAL''), we find that BellSouth Telecommunications, Inc. 
(``BellSouth''),1 apparently violated section 53.203(a)(3) of the 
Commission's rules2 during the period May 24, 2002 through at 
least March 17, 2004 by allowing a BellSouth affiliate, BellSouth 
Carrier Professional Service (``BCPS''), to perform operations, 
installation, and maintenance (``OI&M'') functions for 
BellSouth's section 272 affiliate, BellSouth Long Distance, Inc. 
(``BSLD'').3  Based on our review of the facts and circumstances 
of this case, and for the reasons discussed below, we find that 
BellSouth is apparently liable for a monetary forfeiture in the 
amount of $75,000.

II.  BACKGROUND

     2.   Section 271 of the Communications Act of 1934, as 
amended (``the Act''), prohibits Bell Operating Companies 
(``BOCs'') from providing in-region interLATA services without 
Commission authorization.  To receive such authorization, a BOC 
must demonstrate to the Commission that it satisfies the 
conditions of a fourteen-point competitive checklist; that 
authorization is in the public interest, convenience, and 
necessity; and that the BOC will carry out its in-region 
interLATA operations through a separate affiliate in accordance 
with section 272.4  Section 272 establishes certain structural, 
transactional, and nondiscrimination safeguards that govern the 
relationship between the BOC and its section 272 affiliate.5  
These statutory safeguards were designed to prevent BOCs from 
giving an anti-competitive advantage to their own long distance 
affiliates to the detriment of unaffiliated carriers.6  One such 
safeguard requires that the section 272 affiliate ``operate 
independently'' from the BOC.7  To help the Commission determine 
if a BOC is complying with section 272 and the Commission's 
implementing rules after the BOC receives section 271 authority, 
the Act requires the BOC to obtain a biennial joint federal/state 
audit conducted by an independent auditor.8 

     3.   In a series of orders, the Commission implemented the 
section 272 separate affiliate safeguards, designing rules to 
deter BOCs from unfairly favoring their in-region interLATA 
operations by discriminating in favor of their long distance 
operations against unaffiliated competitors.9  In support of the 
``operate independently'' requirement, the Commission articulated 
a clear rule prohibiting the section 272 affiliate from receiving 
OI&M services from the BOC or any BOC affiliate other than the 
section 272 affiliate itself.10  In the Non-Accounting Safeguards 
Order, the Commission explained that section 272(b)(1) ``bar[s] a 
section 272 affiliate from contracting with a BOC or another 
entity affiliated with the BOC to obtain operating, installation, 
and maintenance functions associated with the section 272 
affiliate's facilities.''11  In its Second Report and Order in 
that docket, the Commission reiterated that ``operational 
independence . . . bars a BOC or any BOC affiliate, other than 
the section 272 affiliate itself, from performing operating, 
installation, or maintenance functions associated with the 
facilities that the section 272 affiliate owns or leases from a 
provider other than the BOC with which it is affiliated.''12

     4.   After the Second Report and Order, BellSouth petitioned 
the Commission to reconsider its position with respect to OI&M.13  
BellSouth contended that ``the Commission improperly determined 
that section 272(b)(1) prohibits a BOC affiliate, other than the 
section 272 affiliate, from providing installation and 
maintenance services to both the BOC and its section 272 
affiliate.''14  The Commission specifically considered and 
rejected BellSouth's position, concluding that ``allowing a third 
affiliate to provide such installation and maintenance services 
would, in essence, create a loophole around the separate 
affiliate requirement.''15  

     5.   During 2002, the Commission authorized BellSouth to 
provide in-region interLATA service through a section 272 
separate affiliate in Alabama, Florida, Georgia, Kentucky, 
Louisiana, Mississippi, North Carolina, South Carolina, and 
Tennessee. 16  The planning stage of the first section 272 
biennial audit began in 2002 to ascertain BellSouth's compliance 
with section 272 and Commission rules during the period May 24, 
2002 through May 23, 2003.  At that time, BellSouth requested 
inclusion of audit procedures involving BCPS. 17  BellSouth 
argued that procedures for this affiliate should be included 
because BCPS was ``272 compliant'' although it was not in fact 
the section 272 affiliate company.  In order to obtain more 
information about BCPS, the federal/state joint oversight team 
agreed to include selected audit procedures for BCPS.18

     6.   BellSouth's first biennial audit was performed by 
independent auditor PricewaterhouseCoopers, LLP (``PWC'') and 
filed with the Commission by PWC on December 23, 2003.19  The 
Audit Report disclosed that during the audit period BCPS 
performed approximately $44 million in services for BSLD, 
including both services that qualified as OI&M and other 
management and vendor supervision tasks.20  The Audit Report 
noted that BellSouth management confirmed that BCPS ``perform[s] 
OI&M functions on BSLD network facilities.''21  The Audit Report 
noted that the services provided by BCPS to BSLD were encompassed 
by section 53.203(a)(2)-(3) of the Commission's rules,22 and that 
Commission orders ``prohibit a BOC or BOC affiliate from 
performing OI&M functions on facilities either owned by the 
section 272 Affiliate, or leased from a third party by the 
Section 272 Affiliate.''23

     7.   BellSouth's response was included in the Audit Report. 
24  BellSouth disclosed that BCPS was established by BellSouth 
because BSLD management ``determined that the type of 
professional services provided by the engineering group . . . was 
a potentially profitable line of business to be offered to third 
parties'' and that ``BellSouth determined that corporate 
governance would be better served by establishing and placing 
these operations in a new corporate entity.''  BellSouth asserted 
that BCPS was ``compliant with Section 272 rules'' because it 
``remained completely separate from'' the BOC.  BellSouth 
emphasized that BCPS was never intended to and never did provide 
any services to the BOC.  Further, BellSouth claimed that BCPS 
never provided services to any non-affiliated company.25  As 
such, BellSouth argued that ``BCPS's provision of OI&M services 
to BSLD is the equivalent of one Section 272 Affiliate providing 
OI&M services to another Section 272 Affiliate.''26

     8.   Upon request, BellSouth provided the Enforcement Bureau 
with additional information concerning BCPS.27  According to 
BellSouth, BCPS was incorporated on July 15, 1999.  Despite the 
purpose for the affiliate's formation, the company has not 
provided services to any entity outside of BellSouth.28  
BellSouth reported that approximately $4.4 million of the total 
value of services provided by BCPS to BSLD during the audit 
period was attributable to OI&M functions.  BellSouth concedes 
that since the close of the audit period, there has been no 
alteration in the way BCPS and BSLD interact.

     9.   After a public notice,29 on March 9, 2004, AT&T filed 
comments on the Audit Report, recommending enforcement action 
for, inter alia, BellSouth's violation of the ``operate 
independently'' requirements.30

     10.  On November 4, 2003, the Commission issued a Notice of 
Proposed Rulemaking to re-examine its rules implementing the 
``operate independently'' requirements of section 272(b)(1) of 
the Act.31  On March 17, 2004, the Commission released an order 
eliminating on a prospective basis the prohibition against 
sharing of OI&M functions by BOCs and their section 272 
affiliates, finding that the prohibition is not a necessary 
component of the statutory requirement to ``operate 
independently'' and that the prohibition is no longer necessary 
to prevent cost misallocation or discrimination by BOCs against 
unaffiliated rivals.32  The Operate Independently Order made 
clear that prior to its release the Commission's rules were 
unambiguous and there was an absolute prohibition against a BOC 
affiliate provisioning OI&M services to a 272 affiliate, 
``includ[ing] the prohibition against a non-section 272 affiliate 
providing OI&M services to a section 272 affiliate.''33  The 
Operate Independently Order in no way excused any BOC for 
violations of the Commission's OI&M prohibitions prior to release 
of the order.  In fact, the order acknowledged potential 
enforcement action relating to certain OI&M violations.34

III. DISCUSSION

     11.  Under section 503(b)(1) of the Act, any person who is 
determined by the Commission to have willfully or repeatedly 
failed to comply with any provision of the Act or any rule, 
regulation, or order issued by the Commission shall be liable to 
the United States for a monetary forfeiture penalty.35  In order 
to impose such a forfeiture penalty, the Commission must issue a 
notice of apparent liability, the notice must be received, and 
the person against whom the notice has been issued must have an 
opportunity to show, in writing, why no such forfeiture penalty 
should be imposed.36  The Commission will then issue a forfeiture 
if it finds by a preponderance of the evidence that the person 
has willfully or repeatedly violated the Act or a Commission 
rule.37  

     12.  The fundamental issue in this case is whether BellSouth 
violated the ``operate independently'' provisions of section 
53.203(a)(3)38 of the Commission's rules, as they existed during 
the period May 24, 2002 to the effective date of their 
elimination, when BCPS, a BellSouth affiliate, provided OI&M 
services to BSLD, the section 272 affiliate.  As discussed below, 
we answer this question affirmatively.  Based on a preponderance 
of the evidence, we therefore conclude that BellSouth is 
apparently liable for a forfeiture of $75,000 for apparently 
willfully and repeatedly violating section 53.203(a)(3) of the 
Commission's rules.

A.   BellSouth Apparently Willfully and Repeatedly Violated the 
     ``Operate Independently'' Requirement

     13.  According to the Audit Report, ``BSLD Management'' 
confirmed that BCPS ``employees performed OI&M functions on BSLD 
network facilities and also managed and supervised vendors that 
performed OI&M functions for BSLD network facilities.''39  The 
Audit Report also observed that ``[T]he amount that BCPS bills 
BSLD each month is the total cost incurred by BCPS, plus a rate 
of return calculated on BCPS's total salaries and wages for the 
month, less the cost of providing services to other BellSouth 
companies.''40  BellSouth concedes that BCPS is a BOC affiliate 
and not the 272 affiliate.41  During the audit period, BellSouth 
admits that BCPS provided approximately $4.4 million worth of 
OI&M services to BSLD.  BellSouth admits that BCPS did not alter 
its operations after the close of the audit period.42  The record 
indicates that BellSouth created BCPS in 1999, after determining 
that certain activities, including the provision of certain OI&M 
functions, could provide a profitable line of business.43  In 
that same year the Commission rejected BellSouth's petition for 
reconsideration of its OI&M prohibition.44

     14.  We disagree with BellSouth's position45 that the 
provision of OI&M by BCPS to BSLD is not a violation of 
Commission rules because BellSouth satisfied the ``spirit'' of 
the ``operate independently'' requirement by maintaining BCPS as 
wholly separate from the BOC.  The Commission's rules and its 
statements in repeated orders demonstrate that during the 
relevant period there was a clear rule prohibiting a BOC's 
section 272 affiliate, such as BSLD, from receiving OI&M from 
another BOC affiliate, such as BCPS.  Although language in the 
Third Reconsideration Order demonstrates that the Commission's 
principal concern in creating this rule was to prevent the 
integration of essential functions between the BOC and its 272 
affiliate, the rule patently does not, as BellSouth suggests, 
contemplate an exception permitting a 272 affiliate to receive 
OI&M from a BOC affiliate if that affiliate does not also serve 
the BOC.  Indeed, the Commission specifically noted in denying 
BellSouth's petition for reconsideration of the OI&M rule that a 
clear prohibition was established for the purpose of avoiding the 
burdensome regulatory involvement that would result from the 
Commission's need to police subtle distinctions and procedures in 
the absence of a clear rule.46  With full knowledge of the 
Commission's clear pronouncements concerning OI&M and the 
Commission's denial of BellSouth's petition for reconsideration, 
BellSouth established the corporate structure of BCPS for the 
purpose of providing OI&M to the section 272 affiliate and 
allowed BCPS to continue to provide OI&M services to BSLD 
throughout the audit period and thereafter.

     15.  Based on the information in the audit report, and 
BellSouth's admissions, we conclude that during the period May 
24, 2002 through at least March 17, 2004, BellSouth authorized an 
affiliate other than the section 272 affiliate itself to provide 
OI&M services to the 272 affiliate.47  Accordingly, we conclude 
that BellSouth apparently willfully and repeatedly violated 
section 53.203(a)(3) of the Commission's rules.

  B.   Proposed Forfeiture Amount

     16.  Section 503(b)(2)(B) of the Act authorizes the 
Commission to assess a forfeiture of up to $120,000 for each 
violation or each day of a continuing violation, up to a 
statutory maximum of $1,200,000 for a single act or failure to 
act.48  In determining the appropriate forfeiture amount, we 
consider the factors enumerated in section 503(b)(2)(D) of the 
Act, including ``the nature, circumstances, extent and gravity of 
the violation, and, with respect to the violator, the degree of 
culpability, any history of prior offenses, ability to pay, and 
such other matters as justice may require.''

     17.  The record is undisputed that BellSouth provided OI&M 
to BSLD through BCPS, another BellSouth affiliate.  Based on the 
facts described above, it appears that BellSouth deliberately 
chose to implement a corporate structure that violated Commission 
rules despite the Commission's clear rejection of this proposed 
structure in its petition for reconsideration.  Due to 
BellSouth's apparently willful and repeated violation of section 
53.203(a) of the Commission's rules, we find that a proposed 
forfeiture is warranted.  The Commission has not established a 
base forfeiture amount for a violation of the section 272(b)(1) 
``operate independently'' requirement or the section 53.203(a)(3) 
OI&M prohibition.  We note, however, that section 503(b)(2)(D)49 
of the Act and the Forfeiture Policy Statement50 allow the 
Commission considerable flexibility in determining the 
appropriate forfeiture.51  In determining the appropriate amount 
of the proposed forfeiture, we take into account the fact that 
the Commission recently eliminated the OI&M prohibitions in 
section 53.203(a) of the Commission's rules, finding that the 
prohibition was an overbroad means of preventing cost 
misallocation or discrimination by BOCs against unaffiliated 
rivals.52  While we do not believe the Commission's prospective 
rulemaking insulates BellSouth from the imposition of a proposed 
forfeiture for its apparent violation of a clear rule during the 
relevant period, we will consider the Commission's holding in 
assessing an appropriate penalty.53  Balancing the clear rule 
violation against the prospective elimination of the rule yields 
a proposed forfeiture of $75,000.  

     18.  For the reasons discussed above, we find that BellSouth 
is in apparent willful and repeated violation of section 
53.203(a)(3) of the Commission's rules.  These violations pertain 
to the nondiscrimination safeguards established by the Act and 
the Commission's rules to promote efficient competition.  Based 
on our review of the facts and circumstances of this case, we 
find that a forfeiture of $75,000 is appropriate, pursuant to 
section 503(b) of the Act and section 1.80 of the Commission's 
rules.

V.   ORDERING CLAUSES

     19.  ACCORDINGLY, IT IS ORDERED THAT, pursuant to section 
503(b) of the Communications Act of 1934, as amended, 47 U.S.C.  
503(b), and sections 0.111, 0.311, and 1.80 of the Commission's 
rules, 47 C.F.R.   0.111, 0.311, and 1.80, BellSouth 
Telecommunications, Inc. is hereby NOTIFIED of its APPARENT 
LIABILITY FOR FORFEITURE in the amount of seventy-five thousand 
dollars ($75,000) for willfully and repeatedly violating section 
53.203(a)(3) of the Commission's rules.

     20.  IT IS FURTHER ORDERED THAT, pursuant to section 1.80 of 
the Commission's rules, 47 C.F.R.  1.80, within thirty days of 
the release date of this NOTICE OF APPARENT LIABILITY FOR 
FORFEITURE, BellSouth Telecommunications, Inc. SHALL PAY the full 
amount of the proposed forfeiture currently outstanding on that 
date or SHALL FILE a written statement seeking reduction or 
cancellation of the proposed forfeiture.

     21.  Payment of the forfeiture may be made by check or 
similar instrument, payable to the order of the Federal 
Communications Commission.  Such remittance should be made to 
Forfeiture Collection Section, Finance Branch, Federal 
Communications Commission, P.O. Box 73482, Chicago, Illinois 
60673-7482.  The payment must include the NAL/Acct. No. and FRN 
No. referenced above.

     22.  The response, if any, to this NOTICE OF APPARENT 
LIABILITY FOR FORFEITURE must be mailed to William H. Davenport, 
Chief, Investigations and Hearings Division, Enforcement Bureau, 
Federal Communications Commission, 445 12th Street, S.W., Room 3-
B443, Washington, D.C.  20554 and must include the NAL/Acct. No. 
referenced above.

     23.  The Commission will not consider reducing or canceling 
a forfeiture in response to a claim of inability to pay unless 
the petitioner submits:  (1) federal tax returns for the most 
recent three-year period; (2) financial statements prepared 
according to generally accepted accounting practices (``GAAP''); 
or (3) some other reliable and objective documentation that 
accurately reflects the petitioner's current financial status.  
Any claim of inability to pay must specifically identify the 
basis for the claim by reference to the financial documentation 
submitted.

     24.  Requests for payment of the full amount of this NOTICE 
OF APPARENT LIABILITY FOR FORFEITURE under an installment plan 
should be sent to Chief, Revenue and Receivables Operations 
Group, 445 12th Street, S.W., Washington, D.C.  20554.54

     25.  Under the Small Business Paperwork Relief Act of 2002, 
Pub.L.No. 107-198, 116 Stat. 729 (June 28, 2002), the Commission 
is engaged in a two-year tracking process regarding the size of 
entities involved in forfeitures.  If you qualify as a small 
entity and if you wish to be treated as a small entity for 
tracking purposes, please so certify to us within 30 days of this 
NAL, either in your response to the NAL or in a separate filing 
to be sent to the Investigations and Hearings Division, 
Enforcement Bureau, 445 12th Street, S.W., Washington, D.C.  
20054.  Your certification should indicate whether you, including 
your parent entity and its subsidiaries, meet one of the 
definitions set forth in the list in Attachment A of this NAL.  
This information will be used for tracking purposes only.  Your 
response or failure to respond to this question will have no 
effect on your rights and responsibilities pursuant to section 
503(b) of the Communications Act.  If you have any questions 
regarding any of the information contained in Attachment A, 
please contact the Commission's Office of Communications Business 
Opportunities at (202) 418-0990.

     26.  IT IS FURTHER ORDERED that the Secretary shall send, by 
certified mail/return receipt requested, a copy of this NOTICE OF 
APPARENT LIABILITY FOR FORFEITURE to Stephen L. Earnest, 
Regulatory Counsel, BellSouth Corporation Legal Department, 675 
West Peachtree Street, Suite 4300, Atlanta, GA 30375-0001.


                         FEDERAL COMMUNICATIONS COMMISSION


                         David H. Solomon
                         Chief, Enforcement Bureau                         ATTACHMENT A


                FCC List of Small Entities

   As described below, a ``small entity'' may be a small 
                       organization,
  a small governmental jurisdiction, or a small business.

(1)  Small Organization 
Any not-for-profit enterprise that is independently owned 
and operated and 
is not dominant in its field.

  
(2)  Small Governmental Jurisdiction
Governments of cities, counties, towns, townships, villages, 
school districts, or 
special districts, with a population of less than fifty 
thousand.


(3)  Small Business
Any business concern that is independently owned and 
operated and 
is not dominant in its field, and meets the pertinent size 
criterion described below.
  

      Industry Type          Description of Small Business 
                                     Size Standards
                 Cable Services or Systems
                            Special Size Standard - 
Cable Systems                Small Cable Company has 400,000 
                            Subscribers Nationwide or Fewer
Cable and Other Program 
Distribution                     $12.5 Million in Annual 
                                    Receipts or Less

Open Video Systems 
       Common Carrier Services and Related Entities
Wireline Carriers and 
Service providers 
                                1,500 Employees or Fewer
Local Exchange Carriers, 
Competitive Access 
Providers, Interexchange 
Carriers, Operator Service 
Providers, Payphone 
Providers, and Resellers


Note:  With the exception of Cable Systems, all size 
standards are expressed in either millions of dollars or 
number of employees and are generally the average annual 
receipts or the average employment of a firm.  Directions 
for calculating average annual receipts and average 
employment of a firm can be found in 
13 CFR 121.104 and 13 CFR 121.106, respectively.





                  International Services
International Broadcast 
Stations






                                $12.5 Million in Annual 
                                    Receipts or Less
International Public Fixed 
Radio (Public and Control 
Stations)
Fixed Satellite 
Transmit/Receive Earth 
Stations
Fixed Satellite Very Small 
Aperture Terminal Systems
Mobile Satellite Earth 
Stations
Radio Determination 
Satellite Earth Stations
Geostationary Space Stations
Non-Geostationary Space 
Stations
Direct Broadcast Satellites
Home Satellite Dish Service
                    Mass Media Services
Television Services

                             $12 Million in Annual Receipts 
                                        or Less
Low Power Television 
Services and Television 
Translator Stations
TV Auxiliary, Special 
Broadcast and Other Program 
Distribution Services
Radio Services
                             $6 Million in Annual Receipts 
                                        or Less
Radio Auxiliary, Special 
Broadcast and Other Program 
Distribution Services
Multipoint Distribution      Auction Special Size Standard -
Service                      Small Business is less than 
                            $40M in annual gross revenues 
                            for three preceding years
          Wireless and Commercial Mobile Services
Cellular Licensees
                                1,500 Employees or Fewer
220 MHz Radio Service - 
Phase I Licensees
220 MHz Radio Service -      Auction special size standard -
Phase II Licensees           Small Business is average gross 
                            revenues of $15M or less for 
                            the preceding three years 
                            (includes affiliates and 
                            controlling principals)
                            Very Small Business is average 
                            gross revenues of $3M or less 
                            for the preceding three years 
                            (includes affiliates and 
                            controlling principals)
700 MHZ Guard Band Licensees


Private and Common Carrier 
Paging
Broadband Personal 
Communications Services          1,500 Employees or Fewer
(Blocks A, B, D, and E)
Broadband Personal           Auction special size standard -
Communications Services      Small Business is $40M or less 
(Block C)                    in annual gross revenues for 
                            three previous calendar years
                            Very Small Business is average 
                            gross revenues of $15M or less 
                            for the preceding three 
                            calendar years (includes 
                            affiliates and persons or 
                            entities that hold interest in 
                            such entity and their 
                            affiliates)
Broadband Personal 
Communications Services 
(Block F)
Narrowband Personal 
Communications Services


Rural Radiotelephone Service     1,500 Employees or Fewer
Air-Ground Radiotelephone 
Service
800 MHz Specialized Mobile   Auction special size standard -
Radio                        Small Business is $15M or less 
                            average annual gross revenues 
                            for three preceding calendar 
                            years
900 MHz Specialized Mobile 
Radio
Private Land Mobile Radio        1,500 Employees or Fewer
Amateur Radio Service                      N/A
Aviation and Marine Radio 
Service                          1,500 Employees or Fewer
Fixed Microwave Services
                            Small Business is 1,500 
Public Safety Radio Services employees or less
                            Small Government Entities has 
                            population of less than 50,000 
                            persons
Wireless Telephony and 
Paging and Messaging             1,500 Employees or Fewer
Personal Radio Services                    N/A
Offshore Radiotelephone          1,500 Employees or Fewer
Service
Wireless Communications      Small Business is $40M or less 
Services                     average annual gross revenues 
                            for three preceding years
                            Very Small Business is average 
                            gross revenues of $15M or less 
                            for the preceding three years 

39 GHz Service
                            Auction special size standard 
                            (1996) -
Multipoint Distribution      Small Business is $40M or less 
Service                      average annual gross revenues 
                            for three preceding calendar 
                            years
                            Prior to Auction -
                            Small Business has annual 
                            revenue of $12.5M or less
Multichannel Multipoint 
Distribution Service             $12.5 Million in Annual 
                                    Receipts or Less
Instructional Television 
Fixed Service
                            Auction special size standard 
                            (1998) -
Local Multipoint             Small Business is $40M or less 
Distribution Service         average annual gross revenues 
                            for three preceding years
                            Very Small Business is average 
                            gross revenues of $15M or less 
                            for the preceding three years 
                            First Auction special size 
                            standard (1994) -
                            Small Business is an entity 
                            that, together with its 
                            affiliates, has no more than a 
218-219 MHZ Service          $6M net worth and, after 
                            federal income taxes (excluding 
                            carryover losses) has no more 
                            than $2M in annual profits each 
                            year for the previous two years
                            New Standard - 
                            Small Business is average gross 
                            revenues of $15M or less for 
                            the preceding three years 
                            (includes affiliates and 
                            persons or entities that hold 
                            interest in such entity and 
                            their affiliates)
                            Very Small Business is average 
                            gross revenues of $3M or less 
                            for the preceding three years 
                            (includes affiliates and 
                            persons or entities that hold 
                            interest in such entity and 
                            their affiliates)
Satellite Master Antenna 
Television Systems               $12.5 Million in Annual 
                                    Receipts or Less
24 GHz - Incumbent Licensees     1,500 Employees or Fewer
24 GHz - Future Licensees    Small Business is average gross 
                            revenues of $15M or less for 
                            the preceding three years 
                            (includes affiliates and 
                            persons or entities that hold 
                            interest in such entity and 
                            their affiliates)
                            Very Small Business is average 
                            gross revenues of $3M or less 
                            for the preceding three years 
                            (includes affiliates and 
                            persons or entities that hold 
                            interest in such entity and 
                            their affiliates)
                       Miscellaneous
On-Line Information Services  $18 Million in Annual Receipts 
                                        or Less
Radio and Television 
Broadcasting and Wireless 
Communications Equipment          750 Employees or Fewer
Manufacturers
Audio and Video Equipment 
Manufacturers
Telephone Apparatus 
Manufacturers (Except            1,000 Employees or Fewer
Cellular)
Medical Implant Device            500 Employees or Fewer
Manufacturers
Hospitals                     $29 Million in Annual Receipts 
                                        or Less
Nursing Homes                    $11.5 Million in Annual 
                                    Receipts or Less
Hotels and Motels             $6 Million in Annual Receipts 
                                        or Less
Tower Owners                 (See Lessee's Type of Business)

_________________________

1 BellSouth Telecommunications, Inc., the Bell Operating Company 
of BellSouth Corporation, provides local exchange service in 
Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, 
North Carolina, South Carolina, and Tennessee.  
2 47 C.F.R.  53.203(a)(3).
3 BellSouth and BSLD are direct and wholly-owned subsidiaries of 
BellSouth Corporation.
4 47 U.S.C.  271.
5 47 U.S.C.  272.
6 See Separation of Costs of Regulated Telephone Service from 
Costs of Nonregulated Activities; Amendment of Part 31, the 
Uniform System of Accounts for Class A and Class B Companies To 
Provide Nonregulated Activities and To Provide for Transactions 
Between Telephone Companies and Their Affiliates, Report and 
Order, 2 FCC Rcd 1298 (1987), modified on recon., 2 FCC Rcd 6283 
(1987), modified on further recon., 3 FCC Rcd 6701 (1988), aff'd 
sub nom. Southwestern Bell Corp. v. FCC, 896 F.2d 1378 (D.C.Cir. 
1990).
7 47 U.S.C.  272(b)(1) (``The separate affiliate . . . shall 
operate independently from the Bell operating company.'')
8 47 U.S.C.  272(d).  The Commission adopted requirements 
governing the section 272(d) biennial audit.  See Accounting 
Safeguards under the Telecommunications Act of 1996, Report and 
Order, 11 FCC Rcd 17539, 17628-632,  197-205 (1996) 
(``Accounting Safeguards Order''), Second Order on 
Reconsideration, 15 FCC Rcd 1161 (2000); 47 C.F.R.  53.209-
53.213.
9 See Accounting Safeguards Order; Implementation of the Non-
Accounting Safeguards of Sections 271 and 272 of the 
Communications Act of 1934, as Amended, 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) 
(``Third Reconsideration Order''); see also 47 C.F.R.  32.27, 
53.1-53.213, 64.901-64.904.
10   47 C.F.R.  53.203(a)(3) provides that a ``BOC or BOC 
affiliate, other than the section 272 affiliate itself, shall not 
perform any operating, installation, or maintenance functions 
associated with the facilities that the BOC's section 272 
affiliate owns or leases from a provider other than the BOC.''
11   See Non-Accounting Safeguards Order, 11 FCC Rcd at 21984,  
163.
12   See Regulatory Treatment of LEC Provision of Interexchange 
Services Originating in the LEC's Local Exchange Area, Second 
Report and Order in CC Docket No. 96-149 and Third Report and 
Order in CC Docket No. 96-61, 12 FCC Rcd 15756, 15816,  104 
(1997) (``Second Report and Order'').
13   BellSouth Corporation, Petition for Reconsideration, CC 
Docket No. 96-149 (filed Feb. 20, 1997).
14   Third Reconsideration Order, 14 FCC Rcd at 16314-15,  20.
15   Id.
16See Application by BellSouth Corporation, BellSouth 
Telecommunications, Inc., and BellSouth Long Distance, Inc. for 
Authorization to Provide In-Region, InterLATA Services in Florida 
and Tennessee, Memorandum Opinion and Order, 17 FCC Rcd 25828 
(2002); Joint Application by BellSouth Corporation, BellSouth 
Telecommunications, Inc., and BellSouth Long Distance, Inc. for 
Authorization to Provide In-Region, InterLATA Services in 
Alabama, Kentucky, Mississippi, North Carolina, and South 
Carolina, Memorandum Opinion and Order, 17 FCC Rcd 17595 (2002); 
Joint Application by BellSouth Corporation, BellSouth 
Telecommunications, Inc., and BellSouth Long Distance, Inc. for 
Authorization to Provide In-Region, InterLATA Services in Georgia 
and Louisiana, Memorandum Opinion and Order, 17 FCC Rcd  9018 
(2002).  The section 272 requirements, other than section 272(e), 
expire three years after section 271 authorization, unless the 
Commission extends the three-year period.  47 U.S.C.  272(f)(1).  
Sunset of these requirements is on a state-by-state basis.   See 
Section 272(f)(1) Sunset of the BOC Separate Affiliate and 
Related Requirements, Memorandum Opinion and Order, 17 FCC Rcd 
26869 (2002).  BellSouth agreed in a consent decree with the 
Commission that it will comply with the separate affiliate 
requirements set forth in 47 U.S.C.  271, including section 
272(d), until such time as each of the nine states in BellSouth's 
region is relieved of the requirements.  BellSouth Corporation, 
Order and Consent Decree, 18 FCC Rcd 15135, 15143,  11(a)(i).
17   See Letter from Stephen L. Earnest, Regulatory Counsel, 
BellSouth Corporation to Maureen F. Del Duca, Division Chief, 
Investigations and Hearings Division, Enforcement Bureau, FCC 
(Feb. 27, 2003).
18   See Letter from Maureen F. Del Duca, Division Chief, 
Investigations and Hearings Division, Enforcement Bureau, FCC to 
Stephen L. Earnest, Regulatory Counsel, BellSouth Corporation 
(Feb. 28, 2003) (granting BellSouth's request to expand the scope 
of the section 272(d) audit to include another BellSouth 
affiliate and reminding BellSouth that expansion of the audit did 
not constitute a waiver or modification of any Commission rule, 
order, or requirement that applied to BellSouth or its 
affiliates).
19   BellSouth initially requested confidential treatment for 
portions of the audit report and a redacted version of the 
document was filed by PWC with the Commission.  See Letter from 
Stephen L. Earnest, BellSouth Corporation to Terry Bowling, 
Partner, PWC, EB Docket No. 03-197 (Nov. 7, 2003); BellSouth 
Telecommunications, Inc., Section 272 Biennial Agreed-Upon 
Procedures Engagement, Public Version - Redacted, EB Docket No. 
03-197 (Nov. 10, 2003).  That request was later withdrawn and a 
complete copy of the audit report was then filed with the 
Commission by PWC.  BellSouth Telecommunications, Inc., Section 
272 Biennial Agreed-Upon Procedures Engagement, EB Docket No. 03-
197 (Dec. 23, 2003) (``Audit Report'')
20   Audit Report, Appendix A at 13, Appendix B at 64-79, 
Attachment C at 1-2.  No break down was provided detailing the 
dollar value of services attributable to OI&M functions. 
21   Audit Report, Attachment C at 1.
22   47 C.F.R.  53.203(a)(2)-(3).
23   Id.
24   Audit Report, Attachment C at 1-2.
25   During the audit period, BCPS provided some services to two 
non-BOC BellSouth affiliates, BellSouth.net and BellSouth 
Technology Group.  See Letter from Mary L. Henze, BellSouth 
Corporation, to Hillary DeNigro, Enforcement Bureau (Jan. 16, 
2004) at 3 (``BellSouth Jan. 16 Letter'').
26   Id.
27   See id. at 3-4.  On Jan. 9, 2004, BellSouth met with staff 
from the Investigations and Hearing Division of the Enforcement 
Bureau to provide information concerning certain items in the 
Audit Report.  At the Bureau's request, the additional 
information contained in the BellSouth Jan. 16 Letter was 
thereafter provided to the Bureau.
28   See BellSouth Jan. 16 Letter at  n.25.
29   ``Enforcement Bureau Seeks Comment on BellSouth 
Telecommunications, Inc. Section 272 Biennial Audit Report in EB 
Docket No. 03-197,'' Public Notice, DA 04-33 (rel. Jan. 9, 2004).
30   See Section 272(d) Biennial Audit of BellSouth 
Telecommunications, Inc., EB Docket No. 03-197, Comments of AT&T 
Corp. on BellSouth's Section 272 Compliance Biennial Audit Report 
(``AT&T Comments'').
31   See Section 272(b)(1)'s ``Operate Independently'' 
Requirement for Section 272 Affiliates, Notice of Proposed 
Rulemaking, 18 FCC Rcd 23538 (2003).  Comments were filed on 
December 10, 2003.
32   Section 272(b)(1)'s ``Operate Independently'' Requirement 
for Section 272 Affiliates, Report and Order in WC Docket No. 03-
228 Memorandum Opinion and Order in CC Docket Nos. 96-149, 98-
141, 01-337, FCC 04-54 (rel. Mar. 17, 2004) (``Operate 
Independently Order'').  The elimination of the rule becomes 
effective upon publication of the Operate Independently Order in 
the Federal Register.
33   Operate Independently Order at n.51.
34   See id at n.68.
3547 U.S.C.  503(b)(1)(B); 47 C.F.R.  1.80(a)(1); see also 47 
U.S.C.  503(b)(1)(D) (forfeitures for violation of 14 U.S.C.  
1464).  Section 312(f)(1) of the Act defines willful as ``the 
conscious and deliberate commission or omission of [any] act, 
irrespective of any intent to violate'' the law.  47 U.S.C.  
312(f)(1).  The legislative history to section 312(f)(1) of the 
Act indicates that this definition of willful applies to both 
sections 312 and 503(b) of the Act, H.R. Rep. No. 97-765, 97th 
Cong. 2d Sess. 51 (1982), and the Commission has so interpreted 
the term in the section 503(b) context.  See, e.g., Application 
for Review of Southern California Broadcasting Co., Memorandum 
Opinion and Order, 6 FCC Rcd 4387, 4388 (1991) (``Southern 
California Broadcasting'').  The Commission may also assess a 
forfeiture for violations that are merely repeated, and not 
willful.  See, e.g., Callais Cablevision, Inc., Grand Isle, 
Louisiana, Notice of Apparent Liability for Monetary Forfeiture, 
16 FCC Rcd 1359 (2001) (``Callais Cablevision'') (issuing a 
Notice of Apparent Liability for, inter alia, a cable television 
operator's repeated signal leakage).  ``Repeated'' means that the 
act was committed or omitted more than once, or lasts more than 
one day.  Southern California Broadcasting, 6 FCC Rcd at 4388,  
5; Callais Cablevision., 16 FCC Rcd at 1362,  9.
3647 U.S.C.  503(b); 47 C.F.R.  1.80(f).
37See, e.g., SBC Communications, Inc., Apparent Liability for 
Forfeiture, Forfeiture Order, 17 FCC Rcd 7589, 7591,  4 (2002).
38   47 C.F.R.  53.203(a)(3).
39   Audit Report, Objective I, Appendix A at 1.
40   Audit Report, Objective I, Appendix A at 2 (emphasis added).  
We agree with AT&T's argument that under such a billing 
arrangement (which is not on a per service basis), there could be 
an undisclosed indirect subsidy from the BOC to BSLD.  See AT&T 
Comments at 9-10.
41   Audit Report, Attachment C at 1.
42   Audit Report, Objective I, Appendix A at 1-3.  According to 
the audit report, BCPS performs the following OI&M functions on 
BSLD network facilities:  network planning, engineering, 
installation, operations, maintenance, fraud management, 
provisioning, service assurance, and customer care.  Id. at 2.
43   See Audit Report, Attachment C at 1.  BCPS never provided 
such services to BellSouth or to a non-affiliated company.  BCPS 
provided some services, however, to two non-BOC BellSouth 
affiliates, BellSouth.net and BellSouth Technology Group.
44   Third Reconsideration Order, 14 FCC Rcd at 16314-15,  20.
45   Audit Report, Attachment C at 1-2.
46   Third Reconsideration Order, 14 FCC Rcd at 16314-15,  20.  
47   47 C.F.R. 53.203(a)(3).
4847 U.S.C.  503(b)(2)(B); see also 47 C.F.R.  1.80(b)(2); see 
also Amendment of Section 1.80(b) of the Commission's Rules, 
Adjustment of Forfeiture Maxima to Reflect Inflation, Order, 15 
FCC Rcd 18221 (2000).
49   47 U.S.C.  503(b)(2)(D).
50   The Commission's Forfeiture Policy Statement and Amendment 
of Section 1.80 of the Rules to Incorporate the Forfeiture 
Guidelines, 12 FCC Rcd 17087 (1997), recon. denied, 15 FCC Rcd 
303 (1999).
51   47 U.S.C.  503(b)(2)(D); see also Forfeiture Policy 
Statement, 12 FCC Rcd at 17100-01,  27; 47 C.F.R. 1.80(b)(4).
52   Operate Independently Order at  1.
53   The Commission has previously proposed to penalize a company 
for intentionally violating a rule even while the Commission 
amended the rule prospectively and authorized a prospective 
waiver for the conduct at issue.  See Ameritech Corporation, 
Notice of Apparent Liability for Forfeiture and Order to Show 
Cause, 10 FCC Rcd 10559 (1995) (finding Ameritech apparently 
liable for a $200,000 forfeiture for violation of section 214 of 
the Communications Act and the Commission's implementing rule, 47 
C.F.R.  63.01, for constructing cable facilities without first 
obtaining authorization from the Commission and delegating 
authority to grant a prospective temporary waiver to the Chief, 
Common Carrier Bureau, issued contemporaneously with a Commission 
order amending the authorization process required by 47 C.F.R.  
63.01); Telephone Company-Cable Television Cross-Ownership Rules, 
Fourth Report and Order, 11 FCC Rcd 818 (1995) (streamlining the 
section 214 authorization process and implementing 47 C.F.R.  
63.16 for authorization disclosures in lieu of 47 C.F.R.  
63.01); Application of Ameritech New Media Enterprises, Inc., 
Order and Authorization, 10 FCC Rcd 10873 (1995) (granting 
temporary authority to construct cable facilities).
54See 47 C.F.R.  1.1914.