Errata - Federal Communications Commission

Before the
Federal Communications Commission
Washington, D.C. 20554 In re Application of )
)
GTE CORPORATION, )
Transferor, )
)
and )
) CC Docket No. 98-184
BELL ATLANTIC CORPORATION, )
Transferee )
)
For Consent to Transfer Control of Domestic )
and International Sections 214 and 310 )
Authorizations and Application to Transfer )
Control of a Submarine Cable Landing License )
)
MEMORANDUM OPINION AND ORDER Adopted: June 16, 2000 Released: June 16, 2000 By the Commission: Commissioners Ness and Tristani issuing separate
statements; Commissioners Furchtgott-Roth and Powell concurring in part,
dissenting in part, and issuing separate statements. TABLE OF CONTENTS
Paragraph I. INTRODUCTION 1 II. EXECUTIVE SUMMARY 5 III. BACKGROUND 6
A. The Applicants 6
B. The Merger Transaction 10
C. The Merger Review Process 11
1. Department of Justice Review 11
2. State Review 12
3. Commission Review 12 IV. PUBLIC INTEREST FRAMEWORK 20 V. COMPLIANCE WITH SECTION 271 26
A. Applicants' Spin-off Proposal 29
B. Discussion 39
1. Ownership 41
2. Analysis of the Applicants' Spin-off Proposal 59
3. Control 76
4. Other Issues 92 VI. ANALYSIS OF POTENTIAL PUBLIC INTEREST HARMS 96
A. Overview 96
B. Loss of Competition Between Bell Atlantic and GTE in the Local
Market 97
1. Background 97
2. Discussion 100
3. Relevant Markets 101
C. Comparative Practices Analysis 127
1.Need for Comparative Practices Analyses 132
2.Effect of Reduction in Number of Benchmarks 134
3.Adverse Effects of Bell Atlantic/GTE Merger 143
4.Continued Need for Major Incumbent LEC Benchmarks 152
5.Conclusion 171
D. Increased Discrimination 173
1. Overview 173
2. Analysis 179 VII. ANALYSIS OF PUBLIC INTEREST BENEFITS 209
A. Background 209
B. Internet Backbone Services 214
C. Local Exchange and Bundled Services 218
1. Entry into Out-of-Region Local Exchange Markets 220
2. Provision of Nationwide Bundled Services 226
D. Long Distance Services 232
E. Wireless Services 235
F. Efficiencies 239
G. Conclusion 245 VIII. CONDITIONS 248
A. Adopted Conditions 248
1. Promoting Equitable and Efficient Advanced Services
Deployment 260
2. Ensuring Open Local Markets 279
3. Fostering Out-of-Territory Competition 319
4. Improving Residential Phone Service 324
5. Ensuring Compliance with and Enforcement of these
Conditions 332
B. Benefits of Conditions 349
1. Mitigating Harm from Loss of Potential Competition
350
2. Mitigating Harm from Loss of Benchmarks 353
3. Mitigating Harm from Potential Increased Discrimination
359
4. Additional Benefits from Conditions 366
C. Other Requested Conditions or Modifications to Proffered
Conditions. 373 IX. MOBILE COMMUNICATIONS SERVICES 376
A. Licenses and Service Offerings 378
B. Analysis of Potential Competitive Harms 380
1. Overlapping Ownership Interests 380
2. Revised Consent Decree 383
3. Compliance with CMRS Ownership Rules 385
4. Other Competitive Issues 390
C. Conclusion 393 X. INTERNATIONAL ISSUES 394
A. General 394
B. Foreign Affiliation 400
1. Standards 402
2. Specific Affiliations 406
3. Cable Landing Licenses 423 XI. OTHER ISSUES 427
A. Service Quality Issues 427
B. Character Issues 429
C. Requests for Evidentiary Hearing 434 XII. ORDERING CLAUSES 439 APPENDIX A: List of Commenters APPENDIX B: Genuity Conditions APPENDIX C: Summary of Confidential Information
[TEXT NOT AVAILABLE IN PUBLICLY RELEASED VERSIONS] APPENDIX D: Market-Opening Conditions APPENDIX E: GTE April 17, 2000 Ex Parte Letter APPENDIX F: GTE April 28, 2000 Ex Parte Letter
INTRODUCTION In this Memorandum Opinion and Order, we consider the joint applications of
Bell Atlantic Corporation (Bell Atlantic) and GTE Corporation (GTE)
(collectively, Applicants)[1] pursuant to sections 214(a) and 310(d) of the
Communications Act of 1934, as amended (Communications Act or Act),[2] for
approval to transfer control of licenses and lines from GTE to Bell
Atlantic in connection with their proposed merger.[3] In order to persuade
us to grant their applications, Bell Atlantic and GTE must demonstrate that
their proposed transaction will serve the public interest, convenience, and
necessity.[4] As described in more detail below, Bell Atlantic and GTE
supplemented their original applications with an additional filing that
included proposed merger conditions to which both parties voluntarily
committed.[5] In addition, the Applicants submitted a proposal to transfer
the Internet and related assets of GTE Internetworking, Inc., now known as
Genuity, Inc. (Genuity), to an independently owned public corporation so
that consummation of the merger would not instantly result in a violation
of section 271[6] of the Telecommunications Act of 1996.[7] We first conclude that the Applicants' proposal to spinoff GTE's Internet
backbone and related assets into a separate public corporation is
sufficient to demonstrate that completion of the merger would not result in
a violation of section 271. Under the transaction we approve herein and
that the Applicants must complete prior to merger closing, the Applicants
will retain shares that represent less than 10 percent of the spun-off
entity and that contain a conditional conversion right. Applying a three-
part test, we conclude that the merged firm will not own an equity interest
or the equivalent thereof of more than 10 percent of Genuity. We further
find that the merged firm will not control Genuity, nor will it be
providing interLATA services through its post-spin-off relationship with
Genuity. In addition, we find in this Order that, absent conditions, the merger of
Bell Atlantic and GTE will harm consumers of telecommunications services by
(a) denying them the benefits of future probable competition between the
merging firms; (b) undermining the ability of regulators and competitors to
implement the pro-competitive, deregulatory framework for local
telecommunications that was adopted by Congress in the 1996 Act; and (c)
increasing the merged entity's incentives and ability to discriminate
against entrants into the local markets of the merging firms. Moreover, we
also find that the asserted public interest benefits of the proposed merger
will not outweigh these public interest harms. The Applicants, however, have proposed conditions that will alter the
public interest balance. These conditions are designed to mitigate the
potential public interest harms of the Applicants' transaction, enhance
competition in the local exchange and exchange access markets in which Bell
Atlantic or GTE is the incumbent local exchange carrier (incumbent LEC),
and strengthen the merged firm's incentives to expand competition outside
of its territories. We believe that the voluntary merger conditions
proposed by the Applicants and adopted in this Order will not only
substantially mitigate the potential public interest harms of the merger,
but also provide public interest benefits that extend beyond those
resulting from the proposed transaction. Accordingly, we conclude that
approval of the applications to transfer control of Commission licenses and
lines from GTE to Bell Atlantic serves the public interest, convenience,
and necessity and, therefore, satisfies sections 214 and 310(d) of the
Communications Act given these significant and enforceable conditions.
EXECUTIVE SUMMARY The applications before us concern the proposed merger of one of four
remaining Regional Bell Operating Companies (RBOCs) and an incumbent LEC of
a size comparable to that of an RBOC.[8] We conclude that, with the
conditions adopted in this Order, the Applicants have demonstrated that the
proposed transfer of licenses and lines from GTE to Bell Atlantic will
serve the public interest. We also make the following determinations in
support of this conclusion: . Compliance with Section 271. Because GTE will transfer its
Internet backbone and related assets to a separate public
corporation (Genuity) prior to merger closing, the proposed
transaction will not result in a violation of section 271 of the
Act. The merged firm will retain shares of Genuity stock that will
comprise less than 10 percent of Genuity's voting, dividend and
distribution rights. These Class B shares will contain a
contingent right that enables the merged firm to convert the shares
into additional shares of up to 80 percent of Genuity only if it
obtains section 271 authority with respect to 95 percent of Bell
Atlantic's in-region access lines within five years of the merger's
closing. We conclude that this conditional conversion right is not
an equity interest or its equivalent