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X- Table of Contents ă  X-X` hp x (#%'0*,.8135@8:"(#L 1 II. Backgroundp!(#F 17 xA. The Applicantsp!(#F 17 XxB. The Applications(#p!(#F 21 XxC. Petitioners and Commenters(#p"(#I 25 XxD. HartScottRodino Documents(#p"(#I 28 XxPIII. Legal Standards p"(#I 29 IV. Analysis of Potential Public Interest Harmsp"(#I 37 XxA. Background and Summary(#p"(#I 37 XxB. Relevant Markets(#p"(#I 49 XxC. Market Participants(#p"(#I 58 XxD. Analysis of Competitive Effects(#p"(#I 95 XxX` ` 1. Effect of the Merger on Unilateral Conduct (#`  X#'-x ` ` by Providers of Mass Market Local Servicesp!(#C 101ك XxX` ` , ` ` 2. Effect of the Merger on Unilateral Conduct x` ` by Providers of Mass Market Bundled Servicesp!(#C 114"(,))ZZ'"ԌXxX` ` 3. Effect of the Merger on Coordinated Interaction(#` p!(#C 121 XxX` ` , ` ` 4. Effect of the Merger on Dynamic Market Performance p!(#C 125 XxX` ` , ` ` 5. Potential Entry and Expansion p!(#C 128 XxX` ` , ` ` 6. Potential Competition Doctrine and x` ` Measurement of Market Concentrationp!(#C 136 XxX` ` 7. Conclusion(#` p!(#C 144  Xv-X` hp x (#%'0*,.8135@8:. Bell Atlantic Mobile Systems, Inc. and NYNEX Mobile Comm.  yO0-Co., Order, 10 FCC Rcd 13368 (WB 1995), application for review pending (BAMSNYNEX Mobile) Bell Atlantic NYNEX Mobile describes itself as "the largest wireless provider on the East coast . . . [offering] a full range of wireless voice, data & paging communications solutions to  Xd-customers in the Northeast [and] mid-Atlantic."dh<^ yO}"-ԍ See Bell Atlantic NYNEX Mobile, Bell Atlantic NYNEX Mobile Home Page (visited Aug. 4, 1997) . "M ,-(-(ZZ"Ԍ X-x20. Bell Atlantic and NYNEX also provide interLATA service between northeastern  X-New Jersey and the New York City metropolitan area.<^ yOb-ԍ All Bell Operating Companies have generally been prohibited from offering interLATA services since 1982  yO*-by the MFJ, supra note  MFJ13 , and were subsequently prohibited from providing inregion interLATA services by Section 271 of the Communications Act. The "corridor" interLATA services between northeastern New Jersey and  yO-the New York City metropolitan area were "grandfathered" under the MFJ and later under Section271. See  yO-Policy & Rules Concerning the Interstate, Interexchange Marketplace & Implementation of Section 254(g) of the  yOJ-Communications Act of 1934, as Amended, Order, DA 97129 at 1 & n.2, 1997 WL 20688 (CCB) (Jan. 17, 1997). The facilities through which this interLATA service is provided are owned by Bell Atlantic on the New Jersey side of the  X-Hudson River and by NYNEX on the New York side.@<^ yO -ԍ Bell AtlanticNYNEX Oct. 23, 1996 Reply Comments in Opposition, Attach. 5 Declaration of Nancy Sayer 16. Each Applicant also has, in and near its "home region," a brand name recognition and a reputation for providing high quality local exchange and exchange access service to the mass market of small business and residential customers.   XH-x B. The Applications  X -x21. The Applicants have filed fifteen applications requesting consent to the transfer of  X -control to Bell Atlantic of two groups of licenses and authorizations.= <^ yOL-ԍ Application at 58.= The first group consists of Section 214 and Title III authorizations that are held or requested by subsidiaries of NYNEX, primarily the New York Telephone Company and the New England Telephone &  X -Telegraph Company. ( <^ yO-ԍ "Requested" authorizations refers to authorizations for which applications are pending at the Commission. The second group consists of Section 214 and Title III authorizations used to provide cellular services that are held by two partnerships, Cellco Partnership ("Cellco") and PrimeCo Personal Communications, L.P. ("PrimeCo") in which NYNEX holds  Xy-negative control. y <^ yO-ԍ Application at 68. Cellco holds or controls authorizations to operate cellular radiotelephone systems in more than 80 cellular service areas, and also holds a Section 214 authorization for the resale of international services. PrimeCo holds or controls authorizations under Part 24 to construct broadband PCS systems in 11  yO -service areas, and holds an experimental radio license under Part 5. Id. See also BAMSNYNEX Mobile, 10 FCC Rcd at 13369.  The licenses or authorizations sought to be transferred include Section 214 authorizations and licenses to operate domestic public fixed radio services, experimental radio service, public mobile services, satellite radio services, maritime services, aviation services, private land mobile radio services, private operational fixed microwave services, and personal communications services. Many of these licenses are used, or could be used immediately, to" 0,-(-(ZZ "  X-provide local exchange service and exchange access.! X<^ yOy-ԍ MCI Telecommunications Corp. v. FCC, 561 F.2d 365, 36979 (D.C. Cir. 1977), cert. denied, 434 U.S. 1040 (1978) (explicit public interest findings are necessary to bar carrier from using its facilities to provide any type of service). ! In addition, on July 19, 1997, Bell  X-Atlantic and NYNEX submitted an ex parte filing proffering a number of specific commitments they would undertake as conditions of our approval of the transfer of licenses  X-and Section 214 certificates, and subsequently clarified those commitments in and ex parte  X-filing on August13, 1997.w!X<^ yOA -ԍ Bell Atlantic and NYNEX July 19, 1997 ex parte (filed as an attachment to Bell Atlantic and NYNEX July  yO -21, 1997 ex parte). See also Bell Atlantic and NYNEX Aug. 13, 1997 ex parte (clarifying certain aspects of the  yO -Bell Atlantic and NYNEX July 19, 1997 ex parte).w  Xz-x22. Under the terms of the merger agreement, Bell Atlantic will form a new  Xc-subsidiary that will merge into NYNEX.="c<^ yO-ԍ Application at 23.= NYNEX, the surviving corporation, will become a whollyowned subsidiary of Bell Atlantic. NYNEX's shareholders will receive .768 newly  X5-issued shares in Bell Atlantic for each NYNEX share owned.9#5<^ yO~-ԍ Id. at 3.9 Approximately 56 percent of Bell Atlantic shares will be held by current Bell Atlantic shareholders and 44 percent by current NYNEX shareholders.  X -x23. The only change in ownership will occur at the holding company level. NYNEX will survive as a whollyowned subsidiary of Bell Atlantic, and the NYNEX subsidiaries that hold Section 214 or 310 authorizations will survive as whollyowned subsidiaries of NYNEX  X-and will continue to provide service to the public.3$( <^ yOm-ԍ Id.3 The whollyowned subsidiaries of Bell Atlantic that hold Section 214 or 310 authorizations will continue to be whollyowned by Bell  Xf-Atlantic and to provide service to the public.3%f <^ yO-ԍ Id.3  X8-x24. The proposed transfer was reviewed by the United States Department of Justice  X!-("DOJ") pursuant to the HartScottRodino ("HSR") amendment to the Clayton Act.I&X!H <^ yO"-ԍ HartScottRodino Antitrust Improvements Act of 1976, 15 U.S.C.  18 (1994). The HSR premerger review process provides an opportunity for the DOJ or the Federal Trade Commission ("FTC") to seek a court order to block a proposed combination that would violate federal antitrust laws.I DOJ completed its review without taking action against the proposed merger. On April 24, 1997, DOJ issued a press release stating that the proposed merger does not violate the antitrust" h&,-(-(ZZ "  X-laws.'<^ yOy-ԍ United States Department of Justice, Antitrust Division Statement Regarding Bell Atlantic/NYNEX Merger. press release (visited Aug. 8, 1997) . We do not regard the DOJ action as resolving the issues before the Commission, which involve consideration of the public interest.   X- xC. Petitioners and Commenters  X-x25. Several parties filed timely comments or petitions to deny or impose conditions upon a grant of the transfer applications, arguing primarily that the transfer is not in the public interest because it will impair competition. These commenters are: AT&T Corporation ("AT&T") and MCI Communications Corporation ("MCI"), each of which is a  X1-customer of the Applicants as a purchaser of exchange access and, as stated infra, a precluded  X -competitor in LATA 132 and the New York metropolitan area;L( <^ yO -ԍ See part IV.B and part IV.C.L Teleport Communications Group Inc. ("TCG"), a competitive local exchange carrier operating in Bell Atlantic and NYNEX territories; Consumer Federation of America ("CFA") and Competition Policy Institute ("CPI"), each of which is a consumer advocacy group; Cablevision Systems Corporation ("Cablevision"), a company that develops and markets telecommunications and  X -video programming services, including as a CLEC in the New York City metropolitan area;) <^ yO -ԍ Petition to Deny of Cablevision Systems Corporation at 1, filed Sept. 23, 1996 ("Cablevision Petition to Deny"). Cablevision states that it services more than two million subscribers, more than half of which reside in Bell Atlantic and NYNEX territories, and that it is the parent company of Rainbow Programming Holdings, Inc. which provides video programming services, and of Cablevision Lightpath, Inc., a facilitiesbased competitive local exchange carrier. Cablevision filed additional informal comments on May 19, 1997, which we accept because of this proceeding's "permitbut disclose" status. and Comcast Cellular Communications, Inc. ("Comcast"), a substantial owner and investor in  X{-TCG and owner of wireless interests.*{( <^ yOT-ԍ Informal Comments of Comcast Cellular Communications, Inc. at 1, filed Sept. 23, 1997 (Comcast Comments). Diana J. Lutz, a former employee of NYNEX, and Thomas Lutz request that the Commission deny the merger until all outstanding NYNEX labor grievances have been resolved. Applicants replied to these submissions. Commenters  X6-supporting the proposed transfer applications included United Homeowners Association et"6 *,-(-(ZZ "  X-al.8+<^ yOy-ԍ United Homeowners Association et al. consists of United Homeowners Association, National Association of Commissions for Women, Latin American Women and Supporters, National Trust for the Development of AfricanAmerican Men, World Institute on Disability, National Urban League, Inc., United Seniors Health Cooperative, National Association of Secondary School Principals, National Hispanic Council on Aging, American Association for Adult and Continuing Education, and National Association of Development Organizations. 8 and Dr. Barbara O'Connor, chairperson of the Alliance for Public Technology and  X-professor at California State University, Sacramento, California., x<^ yO-ԍ Appendix A lists of each of the filings and ex partes addressing the applications, and the party and date on which it was filed. A list of several dozen others who filed letters supporting the proposed transfer applications appears in Appendix B. CAI Wireless submitted latefiled comments on March 24, 1997, but withdrew those comments on May 20, 1997.   X-x26. None of the state commissions in Applicants' regions filed comments in this  X-proceeding regarding the effects of the merger on competition.-` <^ yO-ԍ In future cases, we encourage all affected states to perform a competitive analysis of their markets and provide us information as to how competition would be advanced or reduced by approval of the merger. Thirteen state commissions, however, reviewed the proposed merger. Only three, the New York Public Service Commission, the Maine Public Utilities Commission and the Vermont Public Service Board, discuss the effects of the merger on competition, other than referring to the DOJ's review of the transaction. The Maine and Vermont Commissions concluded that Bell Atlantic was not a  X3-likely entrant into those states. .3 <^ yO-ԍ Jt. Petition of NYNEX Corp. and Bell Atlantic Corp. for Approval of a Merger of a Whollyowned Subsidiary  yOd-of Bell Atlantic Corp. into NYNEX Corp., Order in Docket No. 5900 (Vt. P.S.B. Feb.26, 1997).  The Maine Commission also found, however, that "it was likely that, absent the merger, Bell Atlantic would have been a competitor to NYNEX  X -somewhere (probably in New York) for both local and interexchange services."/ <^ yO-ԍ NYNEX Proposed Joint Petition for Reorganization Intended to Effect the Merger with Bell Atlantic  yO-Corporation, Docket No. 96388, Order Part II at 11, MA P.U.C. (Feb. 6, 1997). The New York Commission concluded that "[t]he record in these proceedings supports the conclusion that Bell Atlantic might have entered the local exchange market in New York as a competitor, but that the impact of its absence is difficult to ascertain with certainty. Nevertheless, . . . Bell Atlantic would have had an understanding of the resources, commitment and difficulties  X-of becoming a fullfledged facilitiesbased competitor of NYNEX."0h<^ yO -ԍ Opinion Approving Proposed Merger [of NYNEX and Bell Atlantic] Subject to Conditions, Opinion No. 978 at 29 (NY P.S.C. May 30, 1997). The New York Commission then concluded that the transaction met its public interest standard, subject to certain conditions some of which go beyond policies underlying the federal Communications  XM-Act.:1M<^ yO%-ԍ Id. at 30.: x"6P1,-(-(ZZf"Ԍ X-x27. On June 12, 1997, the Common Carrier Bureau released a public notice designating this a "permitbutdisclose" proceeding, upon determining that "the public interest  X-would be served by modifying the applicable ex parte procedures in this case to permit a  X-fuller exchange on the complex and broad legal and policy issues under consideration."42X<^ yO6-ԍ Federal Communications Commission, Common Carrier Bureau Declares Bell AtlanticNYNEX Transfer of  yO-Control Proceeding a "PermitButDisclose" Proceeding for Ex Parte Purposes (NSDL9610) (Public Notice), DA 971234 (June 12, 1997). 4  X-Numerous ex parte presentations were made.3 <^ yO? -ԍ On June 17, 1997, the City of Buffalo, Erie County, and Nassau County also filed a document styled "Comments." Because the document was not served on all parties of record, we have treated these comments as  yO -ex parte submissions and published notice of them in the Commission's periodic public notice of ex parte presentations.  Xz- xD. HartScottRodino Documents  XL-x28. AT&T requested that the Commission review, and permit parties to review, the HartScottRodino documents Bell Atlantic and NYNEX filed with the DOJ. Applicants objected primarily on grounds that the Commission already had sufficient information on which to make an informed decision and that delay would be expensive. On November 22, 1996, the Common Carrier Bureau issued a letter requiring Bell Atlantic and NYNEX to make approximately 30,000 of the documents available pursuant to a simultaneously issued protective order. The Commission requested documents pertaining to the following subjects: (1) Applicants' strategic planning related to the proposed transfers; (2) perceived and actual potential competition; (3) inregion interexchange service; and (4) the state of competition in the local exchange markets in the applicants' service areas. On February 19, 1997 and June9, 1997, the Common Carrier Bureau issued letters requiring applicants to provide additional access to documents. Pleadings pertaining to the HartScottRodino documents  X8-have been filed under seal pursuant to the confidentiality agreements.48<^ yO-ԍ Bell Atlantic Corp. and NYNEX Corp., Modified Protective Order, NDL9610 (CSB Dec. 5, 1996). Redacted versions  X!-were filed for the public record.5!` <^ yO2-ԍ The pleadings are listed in Appendix A. In future cases, we encourage parties to redact portions of pleadings selectively. On July 22, 1997, at the request of the Common Carrier Bureau, the Applicants filed certain of the HartScottRodino documents with the Commission under seal. The portion of this decision that discusses the HartScottRodino documents has been issued under seal as Appendix E.  X-; III. LEGAL STANDARDS ă" 5,-(-(ZZR"Ԍ X-ԙx29. Pursuant to Title II and Title III of the Communications Act of 1934, as amended, the Commission must review the Applicants' requests to transfer the certificates, licenses and authorizations involved in this proposed merger and determine whether the transfer serves the  X-public interest, convenience and necessity.c6<^ yO4-ԍ 47 U.S.C. 214(a), 303(r), 309(e), 310(d) (1997).c Under both Title II and Title III, applicants bear  X-the burden of demonstrating that the transaction is in the public interest.7( X<^ yO-ԍ See e.g., 47 U.S.C. 309(e) (1997) (burdens of proceeding and proof rest with the applicant); American Telephone and Telegraph Co. and MCI Communications Corporation Petitions for the Waiver of the International  yO= -Settlements Policy, 5 FCC Rcd 4618, 4621  19 (1990) (applicant seeking a waiver of an existing rate bears the burden of proof to establish that the public interest would be better served by the grant rather than the denial  yO -of the waiver request); United Broadcasting Co., 93 FCC 2d 517, 562  138 (1978) (renewal applicant met its burden of proof on the designated issues and competing applicant failed to demonstrate its qualifications to be  yO] -a licensee); LeFlore Broadcasting Co., Inc., 66 FCC 2d 734, 73637  23 (1975) (on the ultimate issue of whether the applicants have the requisite qualifications to be or to remain Commission licensees, and whether a grant of the applications would serve the public interest, convenience and necessity, as on all issues, the  yO-burden of proof is on the licensees); Carolina Broadcasting Co., 18 FCC 2d 482, 483  5 (1969) ("Since our rules presumptively serve the public interest, those seeking their waiver have the burden of establishing that the public interest is better served, on the facts presented, by a waiver than by application of the appropriate rules."). The Commission also has authority pursuant to the Clayton Act to review proposed mergers of common  Xv-carriers and to determine whether such a merger violates Section 7 of the Clayton Act.K8vH <^ yOo-ԍ 15 U.S.C. 18, 21 (1997).K The Communications Act permits the Commission to impose such conditions as are necessary to serve the public interest, and the Clayton Act permits the Commission to issue a cease and desist order and negotiate through a consent order such conditions as the public interest may  X -require.9  <^ yO-ԍ 15 U.S.C. 21(b) (1997). Cf. California v. American Stores Company, 495 U.S. 271, 27576 (1990)  yOk-(negotiation and consent order issued by FTC pursuant to complaint it filed under Clayton 7); FTC v. Dean  yO3-Foods Company, 384 U.S. 597, 606 (1966) (Clayton Act grants FTC the power to order divestiture in appropriate  yO-cases and the courts of appeals jurisdiction to review final Commission action); Pan American World Airways,  yO-Inc. v. United States, 371 U.S. 296, 31213 & n.17 (1963) ("Authority to mold administrative relief is indeed like the authority of courts to frame injunctive decrees subject of course to judicial review. . . . The power to order divestiture need not be explicitly included in the powers of an administrative agency to be part  yO-of its arsenal of authority."); FTC v. Ruberoid Co., 343 U.S. 470, 473 (1952) (FTC has wide discretion in  yO-formulating appropriate remedies to deal with violations of the antitrust law); L.G. Balfour Company v. FTC, 442 F.2d 1, 23 (7th Cir. 1971) (FTC has the power to order divestiture to restore competition. An order of  yOs!-divestiture is no less proper even where other, less harsh, methods are available); Western Fruit Growers Sales  yO;"-v. FTC, 322 F.2d 67, 69 (9th Cir. 1963), citing  FTC v. Mandel Bros, Inc., 359 U.S. 385, 39293 (1959) ("An agency is not limited to prohibiting `the illegal practice in the precise form' existing in the past and `may fashion its relief to restrain other like or related unlawful acts.'"). In this case, because we find the transaction as supplemented by the commitments proffered by the Applicants is in the public interest, and because our public interest review here has subsumed Clayton Act considerations, we will not initiate a proceeding under Section11 of the Clayton Act. " 9,-(-(ZZ "Ԍ X-ԙx30. Section 214(a) of the Communications Act provides that no common carrier shall acquire any line "unless and until there shall first have been obtained from the Commission a certificate that the present or future public convenience and necessity require or will require"  X-the operation of the line.D:<^ yO4-ԍ 47 U.S.C.  214 (1997).D Section 214(c) of the Communications Act also authorizes the Commission to attach to the certificate "such terms and conditions as in its judgment the  X-public convenience and necessity may require."j;X<^ yO-ԍ 47 U.S.C.  214(c) (1997). See, e.g., MCI Communications Corp, 9 FCC Rcd 3960, 3968  39 (1994); Sprint  yO^ -Corp., 11 FCC Rcd 1850, 186772  100133 (1996); GTE Corp., 72 FCC 2d 111, 135  76 (1979); see also, Atlantic  yO& -Tele-Network, Inc. v. FCC, 59 F.3d 1384, 138990 (D.C. Cir. 1995); GTE Service Corp. v. FCC, 782 F.2d 263, 268  yO -(D.C. Cir. 1986); Western Union Tel. Co. v FCC, 541 F.2d 346, 355 (3rd Cir. 1976), cert. denied, 429 U.S. 1092 (1977). j Similarly, Section 310(d) of the Communications Act provides that no construction permit or station license may be transferred, assigned or disposed of in any manner except upon a finding by the Commission  XH-that the "public interest, convenience and necessity will be served thereby."I<H<^ yO-ԍ 47 U.S.C. 310(d) (1997). I On a Title III application, if the Commission lacks sufficient evidence to find the transaction is in the public interest, then it must either deny the application or designate it for hearing as to material  X -issues of fact.=X <^ yOL-ԍ 47 U.S.C. 309(e) (1997). See, e.g., TeleMedia Corp. v. FCC, 697 F.2d 402, 409 (D.C. Cir. 1983);  yO-Southwestern Operating Co. v. FCC, 351 F.2d 834, 835 n.2 (D.C.Cir. 1965); Sprint Corp., 11 FCC Rcd 1850, 1855  yO-33 (1996). Cf. ITT World Communications, Inc. v. FCC, 595 F.2d 897, 901 n.9 (2nd Cir. 1979). If the Commission is able to determine that the application would serve the public interest if particular conditions are met, the Commission can grant the application  X -subject to compliance with the specified conditions.> <^ yO>-ԍ 47 C.F.R. 1.110. See, e.g., Infinity Broadcasting Corp., FCC 96495 (Dec. 26, 1996) (1996 WL 738831);  yO-Citicasters, Inc., FCC 96380 (rel. Sep. 17, 1996) (96 WL 532324); Pyramid Communications, 11 FCC Rcd 4898  yO-(1995); TeleCommunications, Inc., 10 FCC Rcd 2147 (CSB 1995); Craig O. McCaw & American Tel. & Tel. Co., 9  yO-FCC Rcd 5836 (1994), recon. denied on other grds., 10 FCC Rcd 11786 (1995) (hereinafter "McCaw"), affirmed sub  yO^-nom. SBC Comm., Inc. v. FCC, 56 F.3d 1484 (D.C. Cir. 1996); Viacom, Inc., 9 FCC Rcd 1577 (1994). Section 303(r) of the Communications Act authorizes the Commission to prescribe such restrictions or conditions, not inconsistent  X -with law, as may be necessary to carry out the provision of the Act.?x 0<^ yO -ԍ 47 U.S.C. 303(r) (1997).  See, e.g., Columbia Broadcasting System, Inc. v. FCC, 453 U.S. 367, 386 (1981)  yOP!-(rules requiring access to broadcast time by political candidates properly adopted pursuant to 303(r)); FCC v.  yO"-National Citizens Committee for Broadcasting, 436 U.S. 775 (1978) (broadcastnewspaper crossownership rules  yO"-properly adopted pursuant to 303(r)); Red Lion Broadcasting Co., Inc. v. FCC, 395 U.S. 367, 37980 (1969); U.S. v.  yO#-Southwestern Cable Co., 392 U.S. 157, 178 (1968) (303(r) powers permit FCC to order cable company not to  yOp$-carry broadcast signal beyond station's primary market); United Video, Inc. v. FCC, 890 F.2d 1173, 118283 (D.C.Cir. 1989) (syndicated exclusivity rules adopted pursuant to 303(r) powers). "p?,-(-(ZZ"Ԍ X-x31. Both the Title II public convenience and necessity standard and the Title III public interest convenience and necessity standard are to be "so construed as to secure for the  X-public the broad aims of the Communications Act."@X<^ yOK-ԍ Western Union Division, Commercial Telegrapher's Union, A.F.of L. v. United States, 87 F. Supp. 324, 335  yO-(D.D.C. 1949), aff'd, 338 U.S. 864 (1949). See also, Washington Utilities and Transportation Comm'n. v. FCC, 513  yO-F.2d 1142, 1147 (9th Cir. 1975); FCC v. RCA Communications, Inc., 346 U.S. 86, 9395 (1953). These broad aims include those expressed in Section 1 of the Communications Act, to "make available . . . to all the people of the United States . . . a rapid, efficient, Nationwide, and worldwide . . . communication  X-service,"A<^ yO& -ԍ 47 U.S.C. 151 (1997). These goals date to the original Communications Act of 1934. See H.R. Rep. No. 1918, 73d Cong., 2d Sess. 1 (1934). and those expressed in the 1996 Act, to establish a "procompetitive, deregulatory national policy framework designed to . . . open[] all telecommunications markets to  X_-competition."B_@<^ yOP-ԍ H.R. Rep. No. 104458 at 1; Telecommunications Act of 1996, Pub. L. No. 104104 (preamble), 110 Stat. 56 (1996). Thus, we believe the public interest standard necessarily encompasses the goals of promoting competition and deregulation. Moreover, because interstate switched access is generally provided over the same "bottleneck" facilities and by the same providers as provide local exchange and exchange access service, failure to create competition among local service providers necessarily means a lack of competition to provide interstate switched access.  X -x32. In fulfilling the statutory obligation to serve the public interest, the Commission examines whether a proposed license transfer is consistent with the policies of the Communications Act, including, among other things, the transfer's effect on Commission  Xy-policies encouraging competition and the benefits that would flow from the transfer.OCy<^ yO-ԍ ABC Cos. Inc., 7 FCC 2d 245, 249 (1966). The public interest can also include other factors, such as  yO-diversity, spectrum efficiency, "just, reasonable and affordable" rates, national security, etc. See, e.g., Federal yOR-State Joint Board on Universal Service, Report and Order, CC Docket No. 9645, FCC 97157  4355 (May 8, 1997) (public interest factors include principles for the preservation and advancement of universal service and  yO-competitive neutrality); Infinity Broadcasting Corp. and Westinghouse Electric Corp., FCC 96-495  3948, 91 (rel. Dec. 26, 1996) (public interest benefits of diversity can include improved news, children's programming,  yOr-and provision of time to political candidates); Capital Cities/ABC, Inc., 11 FCC Rcd 5841, 588595  8299  yO:-(1996) (public interest includes concerns regarding diversity and concentration of economic power); Market  yO -Entry and Regulation of ForeignAffiliated Entities, 11 FCC Rcd 3873, 387490  5672 (1995), recon. pending. (additional public interest factors include national security, law enforcement, foreign policy and trade concerns raised by the Executive Branch).O Commission analysis of the effect of the transfer on competition is informed by antitrust  XK-principles,D XK<^ yO$-ԍ See FCC v. RCA Communications, Inc., 346 U.S. 86, 9395 (1953) ("There can be no doubt that  yO%-competition is a relevant factor in weighing the public interest."); US v. FCC, 652 F.2d 72, 8182 (D.C. Cir. 1980)  yO&-(en banc) (quoting Northern Natural Gas Co. v. FPC, 399 F.2d 953, 961 (D.C. Cir. 1968)); see also, FCC v. National  yOL'-Citizens Committee for Broadcasting, et al., 436 U.S. 775, 795 (1978). Indeed, the courts have construed our"L'C,-(-(L'" statutory authority to mean that the Commission has discharged its antitrust responsibilities "when [it] seriously considers the antitrust consequences of a proposal and weighs those consequences with other public  yO -interest factors." United States v. FCC, 652 F.2d at 88; OTI Corp., 6 FCC Rcd 1611, 1612 (1991).  but not limited by the antitrust laws.gExK<^ yO-ԍ See United States v. FCC, 652 F.2d at 88 (the Commission is not responsible for enforcing the antitrust  yOx-laws); see also, TeleprompterGroup W, 87 FCC 2d 531 (1981), aff'd on recon., 89 FCC 2d 417 (1982) (Commission independently reviewed the competitive effects of a proposed merger, even though the DOJ had also reviewed  yO-the merger and found the proposed transaction would not violate the antitrust laws); Equipment Distributors'  yO-Coalition, Inc. v. FCC, 824 F.2d 1197, 1201 (D.C. Cir. 1987). Cf. Northeast Utilities Service Co. v. FERC, 993 F.2d 937, 94748 (1st Cir. 1993) (public interest standard does not require agencies "to analyze proposed mergers under the same standards that the Department of Justice . . . must apply.").g The public interest standard, and the"K( E,-(-(ZZ+" competitive analysis conducted thereunder, are necessarily broader than the standard applied  X-to ascertain violations of the antitrust laws.FFX( <^ yO -ԍ United States v. FCC, 652 F.2d at 88 (The Commission's "determination about the proper role of competitive forces in an industry must therefore be based, not exclusively on the letter of the antitrust laws, but also on the `special considerations' of the particular industry.") F Under the public interest standard, the burden  X-of proof is on the applicant, not the Commission.>GH <^ yO-ԍ See infra note 55. In addition, the obligations imposed on the Commission to make affirmative determinations regarding the affect of a transaction on the public interest or convenience apply to all applications filed pursuant to Sections 214 and 310(d) of the Communications Act. Accordingly, parties submit public interest showings with their applications. In contrast, while Section 7 of the Clayton Act can be invoked to prohibit a transaction that will substantially lessen competition, Section 7 does not require that all  yO-transactions affirmatively be found to be procompetitive. See Brunswick Corp. v. Pueblo BowlOMat, Inc., 429 U.S. 477, 485 (1977) (Section 7 is a prophylactic measure intended to arrest apprehended consequences of  yOC-intercorporate relationships before those relationships could work their evil); see also Brown Shoe Co. v. US, 370  yO -U.S. 294, 317318, 323 (1962); Continental TV, Inc. v. GTE Sylvania, Inc., 433 U.S. 36, 49 (1977).> In addition, under the public interest standard, the Commission may consider the trends within and needs of the industry, the factors that influenced Congress to enact specific provisions for a particular industry, and the  X-complexity and rapidity of change in the industry. H @<^ yOV-ԍ See FCC v. RCA Communications, Inc., 346 U.S. at 9495, 98 (reliance on "independent conclusion[s]" on the "impact upon [the particular industry] of the trends and needs of this industry" is appropriate. "[W]hat competition is and should be in [areas in which active regulation is entrusted to an administrative agency] must be read in the light of the special considerations that have influenced Congress to make specific provision  yOv-for the particular industry."); United States v. Storer Broadcasting Co., 351 U.S. 192, 203 (1956) (FCC's "authority covers new and rapidly developing fields." As such, the "Communications Act must be read as a whole and with appreciation of the responsibilities of the body charged with its fair and efficient operation. The growing complexity of our economy induced the Congress to place regulation of businesses like communication in specialized agencies with broad powers. Courts are slow to interfere with their conclusions when reconcilable  yO&#-with statutory directions."); National Broadcasting Co. v. United States, 319 U.S. 190, 219 (1943) (emphasizing Congress' grant of broad powers to the Commission, in order to safeguard the public interest in a "new and  yO$-dynamic" area of regulation); FCC v. Pottsville Broadcasting Co., 309 U.S. 134, 138 (1940) (The public interest standard "serves as a supple instrument for the exercise of discretion by the expert body which Congress has charged to carry out its legislative policy . . . . Underlying the whole law is recognition of the rapidly fluctuating factors characteristic of the evolution of [industries under the FCC's jurisdiction] and of the corresponding"'G,-(-(&" requirement that the administrative process possess sufficient flexibility to adjust itself to these factors." As such, the "Communications Act is not designed primarily as a new code for the adjustment of conflicting private rights through adjudication. Rather it expresses a desire on the part of Congress to maintain, through  yO-appropriate administrative control, a grip on the dynamic aspects" of the telecommunications industry.); United  yO-States v. FCC, 652 F. 2d at 88 (resolution of the sometimesconflicting public interest considerations "is a complex task which requires extensive facilities, expert judgment and considerable knowledge of the . . .  yO@-industry. Congress left that task to the Commission. . . ." quoting McLean Trucking Co. v. United States, 321 U.S. 67, 87 (1944).). "H,-(-(ZZ"Ԍ X-ԙx 33. The Commission also has concurrent jurisdiction with the DOJ and the FTC under Sections 7 and 11 of the Clayton Act to disapprove acquisitions of "common carriers engaged in wire or radio communications or radio transmissions of energy . . . where in any line of commerce in any section of the country" the effect of such acquisition may be "substantially  X-to lessen competition, or to tend to create a monopoly."I<^ yO% -ԍ 15 U.S.C 18, 21(a) (1997). Both Bell Atlantic and NYNEX are common carriers. Section 7 of the Clayton Act incorporates the policies underlying Sections 1 and 2 of the Sherman Act prohibiting  Xv-combinations in restraint of trade and actual or attempted monopolization.!Jv` <^ yO-ԍ See 15 U.S.C.  1, 2, 18 (1997). See also, United States v. PennOlin Chem. Co., 378 U.S. 158, 170171  yOO-(1964); American Bar Association, Antitrust Section, Antitrust Law Developments 275 (3d ed. 1992).! Because our jurisdiction under the Communications Act is sufficient to address the competitive concerns raised by this merger including the issue of whether the proposed transfer may injure  X1-competitionK1 <^ yO-ԍ McCaw, 9 FCC Rcd at 5843-44 & n. 25; BAMSNYNEX Mobile, 10 FCC Rcd at 13373 & n.19. and because the conditions modifying the merger sufficiently offset our concerns regarding potential adverse competitive impacts flowing from the merger, we choose  X -not to exercise our Clayton Act authority in this case.NL H <^ yO-ԍ Cf. US v. FCC, 652 F.2d at 88.N However, we would not hesitate to exercise our Clayton Act authority, issue a complaint and initiate a hearing in the appropriate case.  X -x!34. In their June 23 Comments, for the first time Applicants challenge the Commission's jurisdiction under the Communications Act to consider the competitive effects  Xy-of the proposed merger in local exchange and exchange access services.PMy<^ yO -ԍ Applicants' June 23 Comments at 1418.P Bell Atlantic and NYNEX assert that the Commission cannot use Sections 214 and 310 to disapprove the  XK-merger because of concerns over intrastate wireline services.=NKh<^ yOd#-ԍ Id. at 1718.= Bell Atlantic and NYNEX also assert that the Commission cannot utilize Sections 214 or 310 to impose conditions related to intrastate wireline services because to do so would overstep the jurisdictional"N,-(-(ZZ)"  X-limitation on Commission authority contained in Sections 2(b) and 221(b) of the Act.3O<^ yOy-ԍ Id.3 Applicants further argue that even if it has jurisdiction, the Commission lacks the authority to review the competitive concerns raised in this proceeding because there is no "nexus"  X-between the alleged competitive harms resulting from the transaction (i.e., the elimination of potential competition for wireline service in LATA 132) and the scope and purposes of the  X-specific licenses to be transferred.=PX<^ yO-ԍ Id. at 1416.= The Applicants also challenge the Commission's  Xx-authority under Sections 7 and11 of the Clayton Act.=Qx<^ yO -ԍ Id. at 1819.=  XJ-x"35. Because Applicants have now proffered a set of commitments they would be willing to undertake as a condition of approval, these arguments are moot. We disagree, however, with all of the Applicants' arguments relating to our authority under the Communications Act. We also disagree with all of the Applicants arguments regarding our authority under the Clayton Act. Because we do not herein invoke our Clayton Act authority, however, we will not address these arguments. As noted at the outset, our public interest authority is very broad and encompasses the goals of promoting competition and deregulation. There is longstanding precedent supporting fulsome public interest analyses of the  X-competitive implications of transfers of Title II certificatesR` x<^ yO-ԍ GTE and Telenet, 72 FCC 2d 11, 135149 (1979), request for comments, 85 FCC 2d 409 (1981), order on  yO-monitoring compliance, 91 FCC 2d 215 (1982) (In reviewing common carrier merger, Commission stated that comprehensive analysis of, and remedial conditions imposed on, proposed transaction were designed to accomplish four interrelated goals: (1) to structure market entry to ensure that the GTETelenet combination was an efficient and innovative competitor; (2) to allow Telenet as a subsidiary to obtain the economically desirable benefits of a parentsubsidiary relationship while ensuring that ratepayers and competitors were protected from abuse; (3) to ensure that Telenet as part of GTE would continue to perform in the public  yO3-interest; and (4) to encourage competition in market.). See also BAMSNYNEX Mobile, 10 FCC Rcd 13368 (1995);  yO-Craig O. McCaw and AT&T, 9 FCC Rcd 5836 (1994); Mackay Radio and Telegraph Co., 19 FCC 1321 (1955). See FCC  yO-v. RCA Communications, Inc., 346 U.S. 86 (1953); United States v. FCC, 652 F.2d 72, 88 (D.C. Cir. 1980); MCI  yO-Telecommunications Corporation v. FCC, 561 F.2d 365 (D.C. Cir. 1977), cert. denied, 439 U.S. 980 (1978); Centel  yOS-and Sprint, 8 FCC Rcd 1829, 1832 18 (1993); OTI Corp., 6 FCC Rcd 1611, 1612 (1991). and Title III licenses,SX<^ yO-ԍ See, e.g., XeroxWestern Union International, 74 FCC 2d 471 (1979) (Commission reviewed the competitive effects of Xerox's proposal to acquire Western Union upon the international record carrier market);  yOs!-Teleprompter and Group W, 87 FCC 2d 531, 541 21 (1981), aff'd, 89 FCC 2d 417 (1982) ("[O]ur duty [is] to refuse licenses or renewals to any person who engages or proposes to engage in practices which will prevent either himself or other licensees or both from making the fullest use of radio facilities. . . . [and to] examine the allegations . . . of anti-competitive activity . . . insofar as they may bear on the issue of whether grant of  yO$-the pending applications would be in the public interest, convenience, and necessity."); see also FCC v. RCA  yO[%-Communications, 346 U.S. at 9397; US v. FCC, 652 F. 2d at 91; Mansfield Journal Company v. FCC, 180 F.2d 28, 33 (D.C. Cir. 1950) ("Monopoly in the mass communication of news and advertising is contrary to the public"#&R,-(-( &"Ԍ yO-interest, even if not in terms proscribed by the antitrust laws."); OTI Corp. and MCI Communications, 6 FCC Rcd  yOX-1611 (1991); In re Athena Communications, 47 FCC 2d 535 (1974); TelePrompTer Transmission of KansasH&B, 25 FCC 2d 469 (1970). and for"S,-(-(ZZj" review of large merger transactions even where the Commission authorized licenses represent  X-only a very small part of the overall transaction.T<^ yO-ԍ Athena Communications, 47 FCC 2d 535 (1974) (Commission rejected argument that the transfer of only  yOJ-eleven CARS licenses was insufficient to bestow jurisdiction to review impact of cable merger on industry as a whole, recognizing that the "subject application for Commission consent to transfer of control of eleven CARS  yO-stations represents, of course, a larger transaction" i.e., the license transfer "reflect[ed], in essence, a merger" of the third and 18th largest MSOs in the country at the time of the transaction and would affect over  yOj -500,000 subscribers.) See also, Cox Cable Communications and Times Mirror Co., 10 FCC Rcd 1559 (CSB 1994);  yO2 -ATCTimeLife, 43 FCC 2d 983 (1973).  See also Teleprompter Corporation, 87 FCC 2d 531 (1981), where the Commission undertook a detailed study of a proposed cable industry merger, including examining the size of the corporations, the potential for abuse of local distribution monopolies, the potential to deny programming to alternative distributors, and horizontal concentration in the cable industry. This Commission cannot approve transfers of certificates or licenses that, on balance, are not in the public interest. There is also ample precedent for the imposition of conditions that would render the transaction consistent with  X-the public interest.UH  <^ yO-ԍ Atlantic TeleNetwork, Inc. v. FCC, 59 F.3d 1384, 138990 (D.C. Cir. 1995) (upholding FCC imposition of proportionate return condition on carrier's 214 authorization to provide international service. "[W]e see no basis for concluding that the Commission acted arbitrarily and capriciously when, in the exercise of its judgement of what the public convenience and necessity required, it decided to offset that risk [of the carrier using its ability and incentive to discriminate against competing domestic carriers] by imposing a proportionate  yO-return condition."); GTE Service Corp. v. FCC, 782 F.2d 263, 268 n.5 (D.C. Cir. 1986) (court affirmed FCC determination to authorize transfers of 214 authorizations to implement breakup of AT&T without imposing  yOM-certain accounting conditions but rather holding those for a future rulemaking); Western Union Tel. Co. v. FCC, 541 F.2d 346, 355 (3rd Cir. 1976) (upholding FCC's imposition of a waiver as a condition to issuance of a 214 certification: the court stated: "The gravamen of the [Western Union] argument is that such an interpretation [allowing the FCC to impose a waiver of contract as a condition] would allow the Commission to do "indirectly" by condition what it is forbidden to do "directly" by tariff, viz., modify or abrogate contracts. The argument fails because of the brute fact that there is a significant difference between a voluntary waiver of rights in order to secure a benefit not otherwise obtainable, and the extinguishment of rights by tariffs which provide no  yO-quid pro quo" . . . . Far from overstepping its statutory bounds, the Commission appears to have acted  yO-carefully and consciously within the express language of section 214(c)."); see also Craig O. McCaw, 9 FCC Rcd  yOU-5836 (1994); Teleprompter Corporation, 87 FCC 2d 531 (1981).  In addition, the public interest analysis necessarily includes a review of the nature and extent of local competition, as exemplified by the fact that Section 271 of the  Xv-Act specifically applies the public interest standard to, inter alia, a review of local market  Xa-conditions.MVa<^ yO"-ԍ 47 U.S.C. 271(d)(3)(C) (1997).M  X3-x#36. Moreover, as noted above, the Applicants had the burden of demonstrating that the transaction served the public interest. In our rapidly evolving telecommunications marketplace, they must demonstrate not only the efficiency benefits of the merger, but how the merger would enhance or not retard competition. Failure to carry the burden of proof"  V,-(-(ZZ " means the Commission must deny the applications or designate them for hearing. As discussed below, by considering both the transaction and Applicants' proffered conditions, we reach the conclusion that Applicants have met their burden of demonstrating that the transaction is in the public interest. We will, therefore, grant the applications expressly conditioned on compliance with the proffered commitments. Such conditions will be  X-enforceable through our usual processes.EW<^ yO-ԍ See infra part V.B.2.E   X_- IV. ANALYSIS OF POTENTIAL PUBLIC INTEREST HARMS ׃  X1- xA. Background and Summary  X -x$37. In evaluating the competitive impact of a proposed merger and thus whether a proposed merger will enhance competition, we use a framework for competitive analysis that we use for assessing market power in other contexts and that is also embodied in the antitrust laws, including the Department of Justice and Federal Trade Commission 1992 Horizontal  X -Merger Guidelines and the April 8, 1997 revisions.X X<^ yO-ԍ See Regulatory Treatment of LEC Provision of Interexchange Services Originating in the LEC's Local  yOx-Exchange Area and Policy and Rules Concerning the Interstate, Interexchange Marketplace, Second Report and Order in CC Doc. No. 96149 and Third Report and Order in CC Docket No. 9661, FCC 97142 (Apr. 18, 1997);  yO-Rulemaking to Amend Parts 1, 2, 21, and 25 of the Commission's Rules to Redesignate the 27.5-29.5 GHz Frequency Band, To Reallocate the 29.5-30.0 GHz Frequency Band, To Establish Rules and Policies For Local  yO-Multipoint Distribution Service and for Fixed Satellite Services, CC Docket No. 92-297, Second Report and Order,  yO`-Order on Reconsideration, and Fifth Notice of Proposed Rulemaking, FCC 97-82 (Mar. 13, 1997); Pacific Telesis  yO(-Group, Memorandum Opinion and Order, 12 FCC Rcd 2624 (Jan. 31, 1997); Motion of AT&T Corp. To Be Declared  yO-NonDominant for International Service, Order, 11 FCC Rcd 17963 (1996); Sprint Corporation, Declaratory Ruling  yO-and Order, 11 FCC Rcd 1850 (1996); Motion of AT&T Corp. To Be Reclassified as a NonDominant Carrier, Order,  yO-11 FCC Rcd 3271 (1995); BAMSNYNEX Mobile, 10 FCC Rcd 13368 (1995); Market Entry and Regulation of Foreign  yOH-Affiliated Entities, IB Docket No. 9522, Report and Order, 11 FCC Rcd 3873 (1995); Craig O. McCaw & American  yO-Tel. & Tel. Co, Memorandum Opinion & Order, 9 FCC Rcd 5836 (1994), recon. denied, 10 FCC Rcd 11786 (1995),  yO-aff'd sub nom. SBC Communications v. FCC, 56 F.3d 1484 (D.C. Cir. 1995); Request of MCI Communications Corp.  yO-British Telecommunications PLC, File No. ISP91013, Declaratory Ruling and Order, 9 FCC Rcd 3960 (1994).  With respect to mergers that may present horizontal market power concerns, we begin by defining the relevant markets, both in  Xy-terms of the relevant products and geographic scope.6Yy<^ yO -ԍ See United States Dep't. of Justice & Federal Trade Comm'n, 1992 Horizontal Merger Guidelines, 57 Fed.  yO -Reg. 41552, 4155441555  1.0 1.2 (1992) (1992 Horizontal Merger Guidelines). See also Brown Shoe Co.v.  yO!-United States, 370 U.S. 294, 32425 (1962) (defining relevant product market in terms of reasonable  yOZ"-interchangeability of a service or product and its substitute, while considering price, use, and quality); United  yO"#-States v. FCC, 652 F.2d 72, 97 (D.C. Cir. 1980); Craig O. McCaw, 9 FCC Rcd at 5845  10, nn.2728. With regard to  yO#-the definition of the relevant geographic scope of relevant markets, see United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 359 (1963) (defining relevant geographic market as an area in which a buyer may purchase a product or service from alternative sources, or in which the presence of other sellers restrains prices charged to buyers).6 Once we have defined the relevant markets, we identify the market participants, especially the most significant market"bY,-(-(ZZ,"  X-participants.|Z<^ yOy-ԍ See 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 4155641557  1.3.| Next, we evaluate the effects of the merger on competition in the relevant market, such as whether the merger is likely to result in either unilateral or coordinated  X-effects that enhance or maintain the market power of the merging parties.[X<^ yO-ԍ See, e.g. Philadelphia Nat'l Bank, 374 U.S. at 363 ("[A] significant increase in the concentration . . . must be enjoined in the absence of evidence clearly showing that the merger is not likely to have such  yOk-anticompetitive effects."). See also 1992 Horizontal Guidelines at 41558  2.1, 2.2; New York v. Kraft General  yO3-Foods, 926 F. Supp. 321, 359 (S.D.N.Y. 1995); Amendment of Parts 20 and 24 of the Commission's Rules --  yO-Broadband PCS Competitive Bidding and the Commercial Mobile Radio Service Spectrum Cap, WT Docket No.96-59, Report and Order, 11 FCC Rcd 7824 (1996). In addition, we also consider the effect of the merger on the Commission's ability to constrain market power as competition develops, but before competition is itself sufficient to constrain market  X-power.k\<^ yO% -ԍ See SBCPacTel, 12 FCC Rcd at 263940  3233.k We also consider whether the proposed transaction will result in mergerspecific efficiencies such as cost reductions, productivity enhancements, or improved incentives for  X_-innovation,]_w<^ yO-ԍ See Revision to the Horizontal Merger Guidelines Issued by the U.S. Department of Justice and the  yOf-Federal Trade Commission, April 8, 1997 (visited July 29, 1997) ; see, e.g., FTC v. University Health, Inc., 938 F.2d 1206, 1213 (11th Cir. 1991) (stating that defendants must show that acquisition would result in significant efficiencies that would benefit competition and the consumer). and whether the merger will support the general policies of marketopening and barrierlowering that underlie the 1996 Act. In the appropriate case, we would also examine  X1-whether the proposed merger has vertical effects that enhance market power.^ 1> <^ yO -ԍ See generally Implementation of Sections 11 and 13 of the Cable Television Consumer  yO-Protection and Competition Act of 1992 Horizontal and Vertical Ownership Limits, MM Docket No. 92-264, Second  yO-Report and Order, 8 FCC Rcd 8565; Michael H. Riordan & Steven C. Salop, Evaluating Vertical Mergers: A Post yOx-Chicago Approach, 63 Antitrust L.J. 513 (1995). As previously discussed, the burden is on the applicants to demonstrate that the transaction will be in the public interest, convenience and necessity.  X -x%38. To determine whether the proposed merger enhances competition, we examine the proposed merger in light of a number of significant changes to the laws governing the provision of telecommunications services made by the 1996 Act. As previously noted, that Act set forth a "procompetitive, deregulatory national policy framework designed to accelerate rapidly private sector deployment of advanced telecommunications and information technologies and services to all Americans by opening all telecommunications markets to  XK-competition. . . ."T_K&<^ yO"#-ԍ H.R. Rep. No. 104458, at preamble (1996).T To implement this framework, the 1996 Act amended the  X4-Communications Act of 1934 to add provisions that, inter alia: proscribe state and local laws, regulations and legal requirements that "prohibit or have the effect of prohibiting the ability"_,-(-(ZZ)"  X-of any entity to provide any interstate or intrastate telecommunications service;"G`<^ yOy-ԍ 47 U.S.C.  253 (1997). G require incumbent local exchange carriers ("incumbent LECs") to offer to competitors interconnection and the ability to lease on an unbundled basis elements of the incumbent LEC network ("unbundled network elements") at just, reasonable and nondiscriminatory rates, terms and conditions; require incumbent LECs to offer retail services at wholesale rates; require incumbent LECs to provide reciprocal compensation for the transport and termination of traffic at rates not exceeding the additional costs of terminating such calls; require incumbent LECs to protect competitors physically to collocate equipment necessary for interconnection or access to unbundled network elements; and require all local exchange carriers, including  X1-incumbent LECs, to implement number portability and dialing parity.Pa1X<^ yO: -ԍ 47 U.S.C.  251, 252 (1997). P The Act also terminated the Modification of Final Judgment ("MFJ") that had precluded Bell Companies from providing any interLATA service, and substituted Section 271, which permits a Bell Company immediately to provide long distance services outside those states in which it provided wireline local exchange service prior to the 1996 Act, and to receive authorization from this Commission to provide long distance service originating within any of its "in X -region" states upon satisfaction of specific criteria.SbX <^ yO@-ԍ 47 U.S.C.  271 (1997). Under Section 271(j), a Bell Company also must receive authorization pursuant to  271 to provide certain 800 services, private line services or their equivalent long distance services that terminate within any of its inregion states. 47 U.S.C.  271(j) (1997).S These requirements, when and to the extent fully implemented, will reduce barriers to entry to providing both local and long distance telecommunications.  XK-x&39. Declining entry barriers affect our competitive analysis in at least four ways. First, the definition of the relevant product market may change as a result of entry, as providers enter currently complementary product markets from which they were previously precluded by law, regulatory, or the economic or operational barriers addressed by the 1996 Act. As these providers create bundled offerings, the manner in which consumers perceive the product may change, shifting away from the traditional view of a local service package and a long distance service package to a view of the product as a package of all telecommunications regardless of distance. Second, the geographic scope of the relevant market may also change if, as a result of changes in entry barriers, firms enter adjacent geographic markets such that the area within which consumers face similar choices expands. Third, in identifying market participants, we must include not only those firms currently in the market, but also those firms that are "precluded" competitors, i.e. that would be likely to enter in the absence of the entry barriers the 1996 Act seeks to address, such as the need to build a full parallel local distribution network, the unavailability of retail services for resale, the inability to receive reciprocal compensation for transport and termination at no more than additional cost, the inability to collocate equipment necessary for interconnection or access to unbundled network elements, the lack of dialing parity and number portability, or the legal"b,-(-(ZZ" prohibition against Bell Company provision of inregion long distance service prior to receiving authorization from this Commission under Section 271. We must also evaluate the capabilities and incentives of both actual and precluded competitors to compete effectively in the relevant market, and in particular which carriers are the most significant market participants in terms of their effect on competition in the relevant markets as these markets are developing. Finally, we must consider whether applicants have met their burden of showing the merger will enhance competition taking into account the competitive significance of the merging parties compared with other actual or precluded competitors, and any efficiencies created by and attainable only through the proposed merger.  X -x'40. In evaluating the extent to which a proposed merger potentially alters the market structure, conduct or performance, we examine the potential impact of the merger both during and as the 1996 Act is more fully implemented. In examining the markets as if the 1996 Act were more fully implemented, we are not making a judgment that such implementation will occur swiftly. Indeed, as previously discussed, there is considerable uncertainty as to how quickly the barriers the 1996 Act sought to address will actually decline. Examining market structure as if the 1996 Act were more fully implemented, however, illuminates the extent to which the merger will change future market structure, and increase market power or slow its decline. Changes in the speed of fuller implementation of the 1996 Act may alter the amount of time necessary to see any potentially harmful effects on competition manifest themselves, but not whether the proposed merger would tend to produce such effects.  X-x(41. In evaluating the potential impact of the proposed merger on telecommunications markets during and as the 1996 Act is more fully implemented, we will necessarily be making predictions of future market conditions and the likelihood of success of individual competitors. In making our predictions, we are not bound by the rules of evidence that may  X-apply in judicial contexts, because as the Supreme Court stated in FCC v. RCA  X-Communications Inc.: XxX` ` To restrict the Commission's action to cases in which tangible evidence appropriate for judicial determination is available would disregard a major reason for the creation of administrative agencies, better equipped as they are for weighing intangibles by specialization, by insight gained through experience, and by more flexible procedure. In the nature of things, the possible benefits of competition do not lend themselves to  X-detailed forecast . . . .cxX<^ yOX"-ԍ FCC v. RCA Communications Inc., 346 U.S. 86, 9697 (1953) (omitting citations to and quotations from  yO #-Far East Conference v. United States, 342 U.S. 570, 575 (1952) and NLRB v. Seven-Up Bottling Co., 344 U.S. 344,  yO#-348 (1953)), cited with approval in Washington Utils. & Trans. Comm'n v. FCC, 513 F.2d 1142, 115860 (9th Cir.),  yO$-cert. denied, 423 U.S. 836 (1975). See also FCC v. WNCN Listeners Guild, 450 U.S., 582, 594-95 (1981) (citing and  yOx%-quoting FCC v. National Citizens Committee for Broadcasting, 436 U.S. 775, 814 (1978) and FPC v.  yO@&-Transcontinental Gas Pipe Line Corp., 365 U.S. 1, 29 (1961): "[T]he Commission's decisions must sometimes rest on judgment and prediction rather than pure factual determinations. In such cases complete factual support"'b,-(-(&" for the Commission's ultimate conclusions is not required, since a forecast of the direction in which future public interest lies necessarily involves deductions based on the expert knowledge of the agency." (footnotes and internal quotations omitted). ` "c,-(-(ZZ"ԌPredictions of market evolution are the most judgmental when, as now, competition in a key portion of the marketplace, local exchange and exchange access services, is in the earliest stages. It is, however, precisely because such competition is just beginning at this time and uncertainties exist that care in evaluating the potential impact of mergers in evolving markets is crucial to ensuring the development of a procompetitive, deregulatory national telecommunications industry structure.  X_-x)42. Even upon hypothetical full implementation of the Telecommunications Act of 1996, significant barriers to entry into the local telecommunications marketplace will remain. Entrants must still be able to attract capital, as well as to amass and retain the technical, operational, financial and marketing skills necessary to operate as a telecommunications provider in the local market. For mass market services, entrants will have to invest in establishing the brand name recognition and, even more importantly, the mass market reputation for providing high quality telecommunications services. These consumer "goodwill" assets take significant amounts of time and resources to acquire. An unknown entrant's attempts to build "goodwill" by providing reliable, high quality service relies heavily on the cooperation of the incumbent LEC that provides interconnection, unbundled elements, resold services or transport and termination, and can be frustrated by the incumbent LEC if that carrier engages in discriminatory conduct affecting service quality, reliability or timeliness. For all these reasons, we cannot at this time simply assume that implementation of the Telecommunications Act of 1996 and the potential for development of competition will eliminate any concerns about potential competitive effects of mergers, particularly the effects on the pace of the development of competition. Nor should we lose sight of the fact that mergers can raise competitive concerns even in markets that appropriately are not subject to regulation, as competition is often a matter of degree.  X-x*43. With respect to the proposed merger of Bell Atlantic and NYNEX, we conclude that the proposed merger will likely eliminate Bell Atlantic as a competitor to NYNEX and therefore retard competition and its development. We conclude first that the relevant market is the provision of local exchange and exchange access services to residential and small business customers, particularly in LATA 132. There is significant evidence that bundled local and long distance services may become a relevant product market as well as firms begin to enter complementary markets. Because there is also significant evidence that the New York metropolitan area, including northern New Jersey, may likely become a relevant geographic market as competition develops, we will treat the New York metropolitan area as  X-a relevant geographic market as well.bd<^ yOt%-ԍ See, supra, part IV.B; Appendix E  23. b The record further suggests that other geographic markets may also be relevant, including Boston, Massachusetts and Providence, Rhode Island. "!xd,-(-(ZZ "Ԍ X-x+44. We next identify the market participants in the relevant markets, including LATA132 and the New York metropolitan area market. We conclude that Bell Atlantic was likely to enter the LATA 132/New York metropolitan area and other NYNEX territories to provide service to the relevant markets. Bell Atlantic did plan to enter these markets and that  X-it first halted those plans during the pendency of merger discussions.ee<^ yO-ԍ See, infra, part IV.C; Appendix E  1213. e While the universe of actual competitors and "precluded" competitors is potentially large, we conclude that Bell Atlantic and NYNEX are two of the five most significant market participants in the relevant markets in terms of their competitive assets and incentives for serving the mass market, and their ability to more quickly to serve the relevant markets.  X -x,45. We then examine the competitive effects of the merger, considering the relative significance of Bell Atlantic, NYNEX and other market participants, particularly other significant market participants. We conclude that the proposed merger likely strengthens NYNEX's unilateral market power against erosion from competition by removing one of the  X -most significant market participants.ef X<^ yO-ԍ See, infra, part IV.C; Appendix E  3536. e We also conclude that the merger increases the likelihood of coordinated action among the remaining four most significant market  X-participants to increase prices, reduce quality or restrict output.Xg<^ yO)-ԍ See, infra, part IV.D.1, part IV.D.3. X Moreover, although Bell  Xy-Atlantic's arguments focus on whether Bell Atlantic would have entered de novo in competition with NYNEX, the proposed merger eliminates these significant capabilities from  XM-any form of competition with NYNEX, whether by de novo entry, acquisition of a smaller, existing entrant, or joint venture. Market power, moreover, remains an important concern, even in the present regulated market environment. In order to reach a procompetitive deregulatory industry structure, market performance must improve to the point where competition, rather than regulation, effectively constrains market power. Even under regulation, a firm can exercise market power if, for example, (1) a price cap fails to bind sufficiently to lower prices to competitive levels or allows flexibility with respect to a basket of services, (2) a bundled product offering, such as combined local and long distance service,  X-is only partially price regulated, or (3) quality is difficult to specify and monitor.6hx<^ yO-ԍ See, e.g., Ingo Vogelsang & J?rg Finsinger, A Regulatory Adjustment Process for Optimal Pricing by  yO -Multiproduct Monopoly Firms, 10 Bell Journal of Economics 157 (1979); JeanJacques Laffont & Jean Tirole,  yOP!-Creating Competition Through Interconnection: Theory and Practice, 10 J. Reg. Econ. 22756 (1996); B. Douglas  yO"-Bernheim & Robert D. Willig, The Scope of Competition in Telecommunications, Ch. 4 American Enterprise Institute (1996).6  Xi-x-46. We also conclude that the potential unilateral and coordinated effects of the proposed merger will not likely be mitigated by competitive forces. Barriers to entry or expansion are not likely to be sufficiently low that actual or potential competitors can and";( h,-(-(ZZ" would expand or enter with sufficient strength, likelihood and timeliness to render  X-unprofitable an attempted exercise of market power resulting from the merger.Li<^ yOb-ԍ See, infra, part IV.D.5. L  X-x.47. We also examine the effects of the proposed merger on the Commission's ability to develop and enforce the procompetitive rules necessary to achieve competition and deregulation. We conclude that the merger will to some extent reduce this Commission's ability to develop and enforce such rules, and to constrain market power during the period until competition develops sufficiently to constrain market power.  X1-x/48. Accordingly, we conclude that the evidence in the record suggests that the proposed merger likely will eliminate or retard competition, and therefore that applicants must demonstrate offsetting procompetitive benefits in order for this Commission to find that the  X -transaction, on balance, is in the public interest.Hj X<^ yO-ԍ See, infra, part IV.D.7.H   X - xB. Relevant Markets  X-x049. The first step in a merger analysis is to define the relevant product and  Xy-geographic markets.pky<^ yO-ԍ E.g., Brown Shoe Co. v. United States, 370 U.S. 294, 324 (1962).p It is important to note that no party to the proceeding, including the Applicants, proposed any definition of relevant markets even though the burden is on the  XK-Applicants to establish the relevant markets.-lKx<^ yOt-ԍ Ordinarily, we would have expected the Applicants to assert relevant markets. See, e.g., HTI Health  yO<-Services, Inc. v. Quorum Health Group, Inc., 960 F. Supp. 1104, 1115 (S.D. Miss. 1997) ("The burden is on the plaintiff to prove the relevant product market or markets."), 1117 ("It is the plaintiff's burden to define its  yO-product markets."), citing C.E. Services, Inc. v. Control Data Corp., 759 F.2d 1241, 1244 (5th Cir.), cert. denied,  yO-Control Data Corp. v. C.E. Services, Inc., 474 U.S. 1037 (1985); United States v. Engelhard Corp., 19971 Trade Cas.  71,773, 1997 WL 314410 (M.D. Ga) ("Indeed, the evidence is insufficient to make any reasonable judgment as to what the relevant product market is. Thus, Plaintiff has failed to meet its ultimate burden of persuasion  yO-as to essential elements of its case,"), citing FTC v. University Health, Inc., 938 F.2d 1206, 121718 (11th Cir. 1991).-  X-x150. In defining the relevant product and geographic markets, the Commission follows  X-the approach taken in the LEC InRegion Interexchange Order.NmXH <^ yO"-ԍ Regulatory Treatment of LEC Provision of Interexchange Services Originating in the LEC's Local  yO#-Exchange Area, Second Report & Order, CC Dkt. No. 9661, FCC 97142, 1997 WL 193831 (rel. April 18, 1997)  yO$-("LEC InRegion Interexchange Order").N In that Order, the Commission defined a product market as a service or group of services for which there are no"hm,-(-(ZZ"  X-close demand substitutes.nX<^ yOy-ԍ LEC InRegion Interexchange Order at  27; See Brown Shoe Co. v. United States, 370 U.S. 294 (1962);  yOA-United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377 (1956) (the product market is defined as those products or services that are "reasonably interchangeable by consumers for the same purposes"). This is consistent with the 1992 Merger Guidelines, which state  X-that, "market definition focuses solely on demand substitution factors, i.e., possible consumer  X-responses."ro<^ yOm-ԍ 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 41554  1.0.r To determine relevant product markets, the Commission must consider whether, if, in the absence of regulation, all carriers raised the price of a particular service or group of services, customers would be able to switch to a substitute service offered at a lower  X-price.p x<^ yO -ԍ LEC InRegion Interexchange Order at  28; See 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 41554  1.11 (the relevant product market is "a product or group of products such that a hypothetical profit maximizing firm that was the only present and future seller of those products (`monopolist') likely would impose at least a `small but significant and nontransitory increase in price'"). In the LEC InRegion Interexchange Order, we further observed that for purposes of analysis we could aggregate separate products markets for which customers faced the same  Xc-competitive alternatives.^qc` <^ yOt-ԍ LEC InRegion Interexchange Order at  42.^ For the reasons described below and for purposes of this proceeding, we define the following three relevant product markets: (1) local exchange and exchange access service; (2) long distance service; and, (3) local exchange and exchange access service bundled with long distance service.  X -x251. In the LEC InRegion Interexchange Order, we treated, for purposes of determining proper regulatory treatment of interexchange affiliates of the Bell Companies and  X -independent LECs, interstate, domestic, long distance|r <^ yOe-ԍ We use "long distance," "interexchange," and "interLATA" services interchangeably.| service as a separate product  X -market.es <^ yO-ԍ LEC InRegion Interexchange Order at  1651. e We will treat local exchange and exchange access services as a relevant product market separate from interstate, interexchange, long distance service, because while each point to point local calling route constitutes a separate market, the fact that each customer faces the same competitive alternatives for each route allows us to aggregate these routes into a service called local exchange and exchange access service. In addition, the MFJ's prohibition on Bell Company provision of interexchange services and the federalstate regulatory structure have lead to consumers facing different competitive alternative sources for local exchange and exchange access service and long distance service.  X-x352. As competition increases, however, and more and more companies enter each others' markets, we believe that telecommunications services packages that bundle a"s,-(-(ZZ"  X-combination of services may become a separate product market as well.t <^ yOy-ԍ It is well established that relevant markets in antitrust cases may be bundles of services.  See, e.g.,  yOA-United States v. Philadelphia National Bank, 374 U.S. 321, 356 (1963) (product market was "the cluster of products (various kinds of credit) and services (such as checking accounts and trust administration) denoted by the term 'commercial banking'"). Applicants clearly  X-contemplate providing "onestop shopping" to their customers.Qu<^ yOJ-ԍ See Appendix E at  5, 92.Q Once the Bell Companies comply with the requirements of Section 271 of the Communications Act, they will be able to offer both local exchange and exchange access services and inregion long distance  X-services.Dv@<^ yO -ԍ 47 U.S.C.  271 (1997).D As both Applicants and other competitors move to offer bundled local exchange and exchange access services and long distance services, consumer expectations and perceptions of the product may also change. We believe that to the extent consumer demand for bundled service packages forces carriers to offer such bundles, the bundling of local exchange and exchange access services with long distance services may well become a relevant product market even if, today, it is still nascent in most markets and nonexistent in many others.  X -x453. Within a product market it is possible to identify and aggregate consumers with similar demand patterns. We conclude there are at least three customer groups that can be identified as having similar patterns of demand: (1) residential customers and small businesses; 2) mediumsized businesses; and 3) large businesses/government users. Each of these customer groups exhibits distinct buying patterns. Bundles of services that appeal  Xy-strongly to one segment (e.g., residential customers may want local service featuring CallWaiting) are often not acceptable substitutes for the services preferred by the other segments  XM-(e.g, large businesses may not need Call Waiting but may want multiple lines, ISDN and an  X8-extensive voice mail system).w8<^ yO-ԍ Michael E. Porter, Competitive Strategy 3840 (1980) (references value of a "focus" competitive strategy that addresses the specific needs of a particular segment of customers rather than of the entire market.)  Additionally, residential or small business customers may have a different decision making process than do large businesses or government users. Residential and small business customers are served primarily through mass marketing  X-techniques including regional advertising and telemarketing.Jx? <^ yO-ԍ See Appendix E at  93.J In our experience, medium sized businesses are targeted by specialized firms that do not necessarily seek to address the mass market. Larger business and governmental users, in contrast, are served under  X-individual contracts and marketed through direct sales contracts.Jy <^ yO.$-ԍ See Appendix E at  94.J Because the greatest competitive concerns arise with respect to service to residential and small business customers" _ y,-(-(ZZo" and because this is the market segment that Bell Atlantic was most likely to enter, we focus  X-our examination of competitive concerns on that market segment.zX<^ yOb-ԍ Appendix E at  5. See also infra partIV.C; Brown Shoe Co. v. United States, 370 U.S. at 324 (1962) (Court is not required to find anticompetitive effects in each relevant market in order for merger to be proscribed.).  X-x554. A geographic market aggregates those consumers with similar choices regarding a  X-particular good or service in the same geographical area.v{<^ yO= -ԍ See, e.g., Tampa Elec. Co. v. Nashville Co., 365 U.S. 320, 327 (1961).v In the LEC InRegion  X-Interexchange Order, we found that each pointtopoint market constituted a separate  Xz-geographic market.c|zx<^ yO -ԍ LEC InRegion Interexchange Order at  64.c We further concluded, however, that we could consider groups of  Xc-pointtopoint markets where customers faced the same competitive conditions.d}c<^ yO-ԍ LEC InRegion Interexchange Order at  67, n.181.d We will therefore treat as a geographic market, an area in which all customers in that area will likely  X5-face the same competitive alternatives for a product.a~X5<^ yO~-ԍ See Assessment of the Status of Competition in the Market for the Delivery of Video Programming, CS Dkt. No. 9561, Second Annual Report, 11 FCC Rcd 2060 (1996). This approach is also consistent with the  yO-definition of geographic markets in the LEC InRegion Interexchange Order.a This approach allows assessment of the market power of a particular carrier or group of carriers based on unique market situations by recognizing, for example, that certain carriers may target particular types of customers,  X -provide specialized services or control independent facilities in specific geographic areas.\ <^ yOY-ԍ LEC InRegion Interexchange Order at  21\  X -x655. We conclude that LATA 132, which essentially covers the same territory as NYNEX's New York Metropolitan Regional Calling Area, currently constitutes a relevant  X-geographic market for the three product markets. H <^ yO-ԍ See supra note 13. LATA 132 and the NYNEX Metropolitan Regional Calling Area consists of the five boroughs of New York City; Nassau and Suffolk Counties, except Fishers island; Westchester, Rockland, Putnam Counties and the southern portion of Orange County (Greenwood lake, Highland Falls and Tuxedo); and the Greenwich/Byram section of Connecticut. 1997 NYNEX New York City Telephone Book at 14. At present, any carrier that offers service in the New York Metropolitan Regional Calling Area offers that service to all customers in that area. Thus, with respect to mass market customers, each customer in the area can select  XO-service from the same alternative providers.O0<^ yO0$-ԍ Although there may be isolated areas where consumers have more choices than others, we find these areas too small to affect our analysis. Applicants appear to concede that LATA 132"O!,-(-(ZZ"  X-is a relevant geographic market.J<^ yOy-ԍ  See Appendix E at  95.J Additionally, the New York television advertising market, as well as most of the New York radio advertising market, encompasses  X-all of LATA 132./X<^ yO-ԍ The Nielsen New York TV Designated Market Area (DMA) includes the following radio Metro markets: New York; NassauSuffolk; StamfordNorwalk, CT; Morristown, NJ; MonmouthOcean, NJ; Poughkeepsie, NY; and NewburghMiddletown, NY (MidHudson Valley). Broadcasting & Cable Yearbook, C198 (R.R. Bowker 1997). The  yO3-Yearbook also contains a list of radio stations in the New York area.  Id. at B307308.  See also BIA Publications, Inc., Radio and Television Master Access Database (1997)./  X-x756. We also conclude, however, that as new entry occurs and customers in a broader area come to have the same choice among competitors, there may well be a wider geographic market. We therefore will also treat the New York metropolitan area, including northern New Jersey (the "New York metropolitan area") as a relevant market. There are economies of  XH-scope for advertising in this market.JH<^ yO-ԍ  See Appendix E at  96.J The television advertising market, as well as most of  X1-the radio advertising market, of New York City extends into northern New Jersey.G1<^ yOz-ԍ See, supra, note 131. .G Many residents from New Jersey work or travel to New York on a regular basis, making it increasingly likely that the New York advertising market reaches these potential consumers.  X -Bell Atlantic itself advertises in New York media in order to target New Jersey residents.J <^ yO-ԍ See Appendix E at  97.J The record also contains other evidence indicating that many companies, including Bell  X -Atlantic, believe the New York Metropolitan market may extend beyond LATA 132.R <^ yO-ԍ See Appendix E at  34, 6.R To the extent, however, that the market would permit price discrimination between services offered in New York City and those in northern New Jersey, northern New Jersey may  Xy-continue to be a separate geographic market.sXy<^ yO:-ԍ See 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 41556  1.22. ("The Agency will consider additional geographic markets consisting of particular locations of buyers for which a hypothetical monopolist would profitably and separately impose at least a `small but significant and nontransitory' increase in price.").s  XK-x857. While parties generally agreed that the most serious competitive concerns focused  X4-on LATA 132,J40<^ yO%-ԍ  See Appendix E at  98.J some parties raised concerns that there may be competitive effects in other"4",-(-(ZZf"  X-parts of the northeast.J<^ yOy-ԍ See Appendix E at  98.J Bell Atlantic was planning entry not only in LATA 132, but in other  X-parts of the NYNEX territory as well.YX<^ yO-ԍ See Appendix E at  2022, 24, 31.Y Bell Atlantic's Chairman and Chief Executive Officer noted in an announcement of the proposed merger: "[O]ur two regions are really one big market, with all the major urban areas up and down the east coast and lots of  X-communities of interest."<^ yO= -ԍ BellAtlanticNYNEX Merger Gets Mixed Reviews from Consumer Groups, New York PSC Staff, State & Local Communications Report, Dec. 13, 1996 (1996 WL 15854506). Demographers refer to contiguous areas in the country, irrespective of political boundaries, that have similar economic and social characteristic as  Xv-communities of interest.@v@<^ yOg -ԍ Rand McNally, for example, makes designations of Basic Trading Areas (BTAs) defined as areas surrounding a city which serves as a center for shopping goods purchases, including specialized services, such as medical care, entertainment, higher education and a daily newspaper for the surrounding area. Rand McNally has also determined that there are areas, referred to as Major Trading Areas (MTAs) which contain two or more BTAs around a city that serve as one of the trading area's primary centers of wholesaling, distribution, banking,  yO-and specialized services, such as advertising. 1996 Commercial Atlas & Marketing Guide, Rand McNally & Company 40 (127th Ed. 1996). We note that various demographers identify communities of interest that extend well beyond the New York Metropolitan area. For example, the Office of Management and Budget's ("OMB") New York Consolidated Metropolitan Statistical Area  X1-(CMSA), includes portions of Connecticut, Pennsylvania, New York and New Jersey.1H <^ yO*-ԍ CMSAs are Metropolitan Statistical Areas of one million or more population that constitutes a comprehensive definition of one of the nation's large metropolitan areas. An MSA is defined as a "geographical area consisting of a large population nucleus together with adjacent communities and areas having a high  yO-degree of economic and sound integration with that nucleus." 1996 Commercial Atlas & Marketing Guide, Rand  yOJ-McNally & Company 3637 (127th Ed. 1996); Revised Standards for Defining Metropolitan Areas in the 1990's, 55 Fed. Reg. 12159 (1990). The New York CMSA includes the following Primary Metropolitan Statistical Areas (PMSAs): BergenPassaic, NJ; Bridgeport, CT; Danbury, CT; Dutchess County, NY; Jersey City, NJ; MiddlesexSomersetHunterdon, NJ; MonmouthOcean, NJ; NassauSuffolk, NY; New HavenMeridian, CT; New York, NY; Newark, NJ; Newburgh, NYPA; StamfordNorwalk, CT; Trenton, NJ; Waterbury, CT. The New York PMSA includes  yO2-eight counties: Bronx, Kings, New York, Putnam, Queens, Richmond, Rockland and Westchester. 1996  yO-Commercial Atlas & Marketing Guide, Rand McNally & Company 5559 (127th Ed. 1996).  The Department of Commerce's Bureau of Economic Analysis includes within its New York Economic Area, portions of New York, northern New Jersey, Pennsylvania, Connecticut, and  X -Massachusetts.  <^ yOE#-ԍ The Department of Commerce has divided the continental United States into 172 Economic Areas (EA) which are based on local economic activity, local interindustry economic relationships and internal population  yO$-movements such as commuting patterns. Final Redefinition of the BEA Economic Areas, 60 Fed. Reg. 1311413202 (Mar. 10, 1995). For the purposes of this decision, however, we will focus on the competitive effects of the merger on local exchange and exchange access service in" #,-(-(ZZ! " LATA132/New York metropolitan area and on bundled local and long distance services originating in LATA 132/New York metropolitan area ("the relevant markets") that are offered to residential and small business customers.   X- xC. Market Participants  Xv-x958. The second step in our competitive analysis is to identify those companies in each  X_-relevant market we have defined that are the most significant market participants.{_<^ yO-ԍ See 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 41556 1.3.{ From the universe of actual and precluded competitors, we identify these participants based on an analysis of capabilities and incentives to compete effectively in the relevant market. Of particular interest are those market participants that are likely to be at least as significant a competitive force as either of the merging parties.  X -x:59. We first identify "actual competitors" as market participants. We define "actual competitors" as firms that are now offering the relevant products in the relevant geographic  X -market+X X<^ yO-ԍ See 1992 Horizontal Merger Guidelines, 57 Fed. Reg. 41552, 41556 1.31 (Current Producers or Sellers: "[I]dentification of firms that participate in the relevant market begins with all firms that currently produce or sell in the relevant market.").+ and that we expect to be doing so as the 1996 Act, and particularly Sections 251, 252, and 271, become more fully implemented.  Xb-x;60. We also identify as market participants those firms that have been effectively "precluded" from the market. These "precluded competitors" are firms that are most likely to enter but have until recently been prevented or deterred from market participation by barriers  X-to entry the 1996 Act seeks to lower.$Xx<^ yOF-ԍ Barriers to entry represent anything that prevents an entrepreneur from instantaneously creating a  yO-new firm in a market. See Dennis W. Carlton and Jeffrey M. Perloff, Modern Industrial Organization, 919 (2d ed. 1994).$ Such barriers can be legal, regulatory, economic, or operational, and include exclusive franchises, the MFJ prohibition on the provision long distance service by the Bell Companies and the Section 271 limitations on inregion long distance service, the availability and price of interconnection, unbundled network elements, retail services for resale, transport and termination, and collocation, as well as dialing parity and number portability and access to poles, conduits and rights of way.  X|-x<61. Even as the 1996 Act is more fully implemented, however, significant entry barriers will remain, including economic and operational barriers such as difficulties in obtaining financial capital; obtaining and retaining the technical, operational, financial and marketing skills necessary to operate as a telecommunications vendor; and attracting and holding customers. Indeed, implementation of the 1996 Act will also not eliminate all legal and regulatory restrictions: for example, licenses will still need be required, and spectrum" $,-(-(ZZ[" assignments will continue to be made pursuant to legislative and regulatory procedures. These remaining entry barriers narrow the universe of significant market participants who will be able more quickly to enter and serve the relevant markets. Accordingly, we will also analyze the capabilities and incentives of each possible competitor to see whether that possible competitor (a) has the capabilities and incentives such that it would be reasonably  X-likely to enter the relevant market as the 1996 Act is implemented<^ yO-ԍ For brevity's sake, in an appropriate case we may consider precluded competitors by class, such as "all cable television companies." and (b) would likely exert pressure on competitors in the absence of regulation to lower prices, innovate or upgrade services.  X1-x=62. In determining the most significant market participants from the universe of actual and precluded competitors, we identify the market participants that have, or are likely to speedily gain, the greatest capabilities and incentives to compete most effectively and soonest in the relevant market. Some of these capabilities are basic to the operation of a local telephone company, relatively technical, and concern access to the necessary facilities, "know how," and operational infrastructure such as sales, marketing, customer service, billing and network management. Other capabilities are less tangible. They include brand name recognition in the mass market, a reputation for providing high quality, reliable service, existing customer relationships, or the financial resources to obtain these intangible assets. Another factor is whether the actual or precluded competitor had plans to enter the relevant market or was engaged in such planning. Such plans would be probative evidence of a perception of possession of capabilities and incentives necessary to affect the market.  X-x>63. In evaluating the relative significance of market participants, we also consider matters that would be material to the entry of all precluded competitors as a class, but not to any one entity in particular. Such factors would include whether the relevant market is expanding, prevailing prices in the relevant market, and the availability of capital both generally and in the relevant market.  X|-x?64. The foregoing factors are similar to those factors used in cases applying the  Xe-antitrust doctrine of actual potential competitione <^ yO6-ԍ Case law distinguishes between actual potential competition and perceived potential competition. See,  yO-e.g., Tenneco v. FTC, 689 F.2d 346, 351 (2d Cir. 1982) This distinction is not made in the Merger Guidelines. to determine whether firms proposing to merge would have entered relevant markets with capabilities equivalent to those of other  X7-potential entrants. 7x<^ yO`#-ԍ In United States v. PennOlin Chemical Co., 378 U.S. 158, 17475 (1964), the U.S. Supreme Court listed the following factors: Xxthe industry was rapidly expanding; . . . ; few corporations had the inclination, resources and know-how to enter this market; both parent corporations of [the joint venture under scrutiny] had great resources; each had long been identified with the industry, one owning"H',-(-(>'" valuable patent rights while the other had engaged in sodium chlorate production for years; each had other chemicals, the production of which required the use of sodium chlorate; right up to the creation of [the joint venture], each had evidenced a long-sustained and strong interest in entering the relevant market area; each enjoyed good reputation and business connections with the major consumers of sodium chlorate in the relevant market . . . ; and, finally, each had the know-how and the capacity to enter that market and could have done so individually at a reasonable profit. Moreover, each company had compelling reasons for entering the southeast market. Pennsalt needed to expand its sales to the southeast, which it could not do economically without a plant in that area. Olin was motivated by 'the fact that (it was) already buying and using a fair quantity (of sodium chlorate) for the production of sodium chlorite and that (it was) promoting the Mathieson process of the generation of chlorine dioxide which uses sodium chlorate.' Unless we are going to require subjective evidence, this array of probability certainly reaches the prima facie stage. [Parentheses in original.] ƥ And, as in actual potential competition cases, in deciding whether a given"7% ,-(-(ZZ{" precluded competitor has the capabilities and incentives to be a market participant, probative evidence may be documents from the precluded competitor's files showing it would likely  X-have entered the relevant market.EX <^ yO-ԍ See, e.g., Tenneco, Inc. v. FTC, 689 F.2d 346, 353 (2d Cir. 1982) ("The Commission relied upon internal Tenneco and Walker documents identifying shock absorbers as complementary to Walker's exhaust system products line and urging entry into the shock absorber market."). E Documents, if they demonstrate serious consideration of entry, may create an inference of a capability to effect the market without a detailed  X-examination of the competitor's capabilities and incentives.%x<^ yO-ԍ Regardless of the contents of any such documents, however, we may decide that a precluded competitor would have entered the relevant market and been able to exert substantial downward pressure on prices simply  yO-because of its capabilities and incentives. Cf. United States v. Falstaff Brewing Corp., 410 U.S. 526, 548 (1973) (Marshall, J., concurring) ("I would hold that where, as here, strong objective evidence indicates that a firm is a potential entrant into a market, it is error for the trial judge to rely solely on the firm's subjective prediction  yO-of its own future conduct"), cited with approval in Mercantile Texas Corp. v. Board of Governor, 638 F.2d 1255, 126970 (5th Cir. Unit A Feb. 1981).%  Xv-x@65. Finally, in determining the most significant market participants from among the actual and precluded competitors, it is particularly relevant to identify which competitors, other than the merging parties, are likely to be as significant a competitor as the lesser of the merging parties. If one of the merging parties has the same capabilities and incentives as a large number of other competitors, then the loss of that one participant may be unlikely to remove much individual discipline from the market. But, to conclude that a merger would  X -have little or no competitive effect on these grounds, the number of similar (i.e., most  X -significant) market participants must be large.`X <^ yOh#-ԍ Alexis Jacquemin & Margaret E. Slade, Cartels, Collusion, and Horizontal Merger in I Handbook of Industrial Organization 415, 421 (Richard Schmalensee & Robert D. Willig, eds., 1989); F.M. Scherer & David Ross,  yO$-Industrial Market Structure and Economic Performance 27779 (1990).` " &,-(-(ZZ "Ԍ X-xA66. In assessing just how many other significant market participants must remain for our competitive concern to diminish, we are guided by the underlying policy and economic  X-analysis of the 1984 Merger Guidelines. Our conclusion, however, departs from the standard  X-articulated in those Guidelines for several reasons.x<^ yO6-ԍ Department of Justice, 1984 Merger Guidelines, 49 Fed. Reg. 26823, 26835 4.133. ("1984 Merger  yO-Guidelines"). DOJ states in its discussion of the doctrine of Potential Competition, that in evaluating how many other potential entrants are "equivalent" to the potential entrant that a proposed merger will eliminate, the Department may be satisfied if, after the proposed merger, there would still be three such entrants: "The Department is unlikely to challenge a potential competition merger if the entry advantage ascribed to the acquiring firm (or another advantage of comparable importance) is also possessed by three or more other firms." First, telecommunications markets such as local exchange and exchange access services presently have only one supplier as a practical matter or, as in the case of mass market bundled local exchange and exchange access, and long distance services, no current actual suppliers. In contrast, in the typical potential competition case the relevant markets are oligopolies with four or more  XL-competitors.(L<^ yO-ԍ See, e.g., United States v. Marine Bancorporation, 418 U.S. 602, 609 (1974) (in the relevant market, there  yO-were six competitors, of whom the top three had a combined market share of 92%); Yamaha Motor Co. v. FTC,  yO-657 F.2d 971 at 974 (9th Cir. 1981), cert. denied, 456 U.S. 915 (1982) ("The United States outboard motor industry is . . . dominated by a few firms. The four largest firms . . . accounted for 94.9% of the United States market in terms of units sold, with the top two firms . . . controlling 72.9%. Market-share totals by dollar  yO-volume indicate even greater concentration."); Kennecott Copper Corp. v. FTC, 467 F.2d 67, 7576 (10th Cir.  yO-1972), cert. denied, 416 U.S. 909 (1974) ("Ordinarily the potential competition concept comes into play where  yO-the industry is regarded as an oligopoly."); B.A.T. Industries, Ltd., 104 F.T.C. 852, 935 (1984) (Traditional Perceived Potential Competition postulates that the prospect of entry may pressure firms in oligopolistic markets to behave more competitively than they might otherwise; traditional actual potential competition postulates a market of oligopolistic firms.).( In a four member oligopoly with four potential competitors, the loss of one potential competitor that leaves behind three equivalent ones still holds out the possibility of a sevenfirm market. In telecommunications markets that are virtual monopolies or that are not yet developed, however, the loss of even one significant market participant can adversely  X -affect the development of competition and the attendant proposals for deregulation. <^ yO -ԍ Phillip E. Areeda & Herbert Hovenkamp, 3 Antitrust Law (rev. ed. 1996) 170d at 134136: XxMerger with a potential competitor acquires special significance when one of the firms is a monopolist. . . . [W]hen one of the merging firms is a monopolist and the other is a potential entrant into the same market in which the monopolist has its power, anticompetitive concerns are much more realistic. . . . As a general matter, a monopolist's acquisition of a 'likely' entrant into the market in which monopoly power is held is presumptively anticompetitive.... [E]ven if [the potential entrant] seems clearly to be one of several firms which are "equally probable" potential entrants, it is important to preserve all those significant possibilities of eroding the monopoly, and to prevent possible reinforcement of the monopolist's position via the assets acquired (paragraphing omitted.).   X -xB67. In addition, the doctrine of actual potential competition as reflected in the 1984  X -Merger Guidelines has usually been applied to stable markets that potential entrants have" ',-(-(ZZ "  X-decided not to enter.T<^ yOy-ԍ See, supra, cases cited in note 154.T In contrast, telecommunications markets are undergoing major change, with new entry anticipated as implementation of the 1996 Act progresses.  X-xC68. We therefore see no reason to apply mechanistically the 1984 Merger Guidelines' provisions on potential competition to the novel features of telecommunications markets, and will evaluate the number of most significant market participants and the competitive effects of mergers among them, even where three other potential competitors with equivalent  Xa-competitive capabilities to the merging parties will remain. Our decision in SBC-PacTel might be read to suggest that we would examine the competitive effects of a proposed merger  X5-only when fewer than three potential competitors would remain following the merger.5X<^ yO> -ԍ Pacific Telesis Group and SBC Communications, Inc., Memorandum Opinion & Order, 12 FCC Rcd 2624,  yO -2637 24 (1997)("SBCPacTel"). We  X -believe that the relevant provision of the 1984 Merger Guidelines, to which we referred in  X -SBC-PacTel, does not support such a reading of SBC-PacTel. Section 4.133 of the 1984  X -Merger Guidelines does not provide immunity from antitrust review when at least three potential competitors with equivalent competitive capabilities would remain, but indicates  X -only that the Department of Justice is "unlikely" to challenge the merger.e <^ yO)-ԍ See also 1984 Merger Guidelines  1 ("Although the Guidelines should improve the predictability of the Department's merger enforcement policy, it is not possible to remove the exercise of judgment from the evaluation of mergers under the antitrust laws. Because the specific standards set forth in the Guidelines must be applied to a broad range of possible factual circumstances, strict application of those standards may provide  yOI-misleading answers to the economic questions raised under the antitrust laws.").e As discussed above, the structure of our analysis here is a more complete and fully developed articulation of potential and precluded competition issues presented by mergers during implementation of the 1996 Act, and is therefore more consistent with reviewing the effect of the proposed  Xl-merger on the public interest.  X>-xD69. We also note that our analysis in this Order would not compel a contrary result in  X'-SBC PacTel. Nothing in the record of the SBCPacTel proceeding suggested that SBC or PacTel had incentives to enter each others' local service territory, or capabilities that would have made them among other than a large number of most significant market participants. In that case, unlike this one, the two merging companies' territories were not adjacent (and certainly without a major center of population and telecommunications on their border); neither company had assets, customers, or a recognized brand name in the other's territory; and there was no realistic suggestion that either one had ever considered entering the other's markets for local exchange service. We note, however, that the determination of the identification and number of likely most significant market participants is fact specific; and that it is certainly possible, in an appropriate case, to find that a merger of nonadjacent LECs would present competitive concerns. ",(` ,-(-(ZZz"Ԍ X-xE70. Having defined our analytical framework, we now identify, and assess, the relative strengths of actual and precluded competitors for local exchange and exchange access  X-services to residential and small business consumers, i.e., the mass market in LATA 132 and  X-the New York metropolitan area.<^ yO6-ԍ We do not conduct a separate analysis of the bundled local exchange, local exchange access, and long distance services market: entering that market will require two components, and local exchange and exchange access services is the more difficult to acquire and operate. Accordingly, we find that our analysis of the competitive effects of the merger in the local exchange and exchange access markets will be a valid analysis of competitive effects in the bundled market. We conclude that five companies NYNEX, Bell Atlantic, AT&T, MCI, Sprint are the most significant market participants: that is, they are either in the market already or are the most likely to enter and to have an effect on the market for local exchange and exchange access services, and bundled local exchange, exchange access and long distance services to the mass market. NYNEX is currently both an actual provider of local exchange and exchange access services and a precluded provider of bundled local exchange, exchange access, and long distance services in LATA 132, as is Bell Atlantic in a broader New York metropolitan area market. The remaining four most significant market participants distinguish themselves from the universes of actual and precluded competitors and of other market participants by their experience and strong brand reputation in the provision of telephone service to the mass market. Technological change, successful marketing, and modification of consumer perceptions may eventually result in additional companies having significant competitive effects in this market should their comparable or substitutable services achieve widespread acceptance. As we explain below in greater detail, we, at present, do not consider other potential providers identified by the Applicants such as cable multiple system operators ("MSOs"), competitive access providers ("CAPs"), or commercial mobile telephone service providers to be among the most significant market participants in the relevant markets in LATA 132 on a par with Bell Atlantic, although  X-we would certainly hope that they will so evolve.<x<^ yOH-ԍ Some or all of these providers may be significant market participants in other local exchange markets. Although these market participants are not the most significant market participants in LATA 132, as we  yO-evaluate the potential public interest harms and benefits of the merger in Part IV. D., infra, we will consider whether entry or expansion by such providers will sufficiently mitigate any competitive harms that might otherwise flow from a merger of two of the most significant market participants.<  X-xF71. We first consider whether NYNEX and Bell Atlantic are market participants with respect to the mass market for local exchange, exchange access, and bundled services in LATA 132 and the New York metropolitan area.  X-xG72. NYNEX. NYNEX is an actual participant in the market for local exchange and exchange access services for the mass market in LATA 132 and in at least a portion of the")( ,-(-(ZZ"  X-New York metropolitan area market. <^ yOy-ԍ The Commission has recently found that incumbent local exchange carriers, such as NYNEX, have  yOA-approximately 99.5 percent of local exchange and exchange access services nationwide. Implementation of the Telecommunications Act of 1996, Accounting Safeguards Under the Telecommunications Act of 1996, Notice of  yO-Proposed Rulemaking, FCC 96309, 11 FCC Rcd 9054, 9058  6 (1996). NYNEX is also a precluded competitor in the market for bundled local exchange, and exchange access, and long distance telecommunications service in LATA 132 and at least a part of the New York metropolitan area. NYNEX is precluded from providing this bundled product until it receives authorization to provide inregion interLATA services pursuant to Section 271 of the Communications Act.  Xv-xH73. Bell Atlantic. We find that Bell Atlantic is both a precluded competitor and among the most significant market participants both in the market for local exchange and exchange access, and in the market for bundled local exchange, exchange access, and long distance services for the mass market in LATA 132 and the New York metropolitan area. The basis for this conclusion is that Bell Atlantic was actively seeking to enter those markets using wireline technology and has the capabilities necessary to have an effect on those markets. As described in greater detail in Appendix E, Bell Atlantic's internal documents establish that Bell Atlantic was, until merger discussions were well underway, engaged in planning outofregion entry into local exchange, exchange access, and long distance services in a number of locations in the NYNEX region, most notably LATA 132. The extent of planning reflected in the documents persuades us that Bell Atlantic would likely have entered LATA 132. The documents also show Bell Atlantic would have been most likely to target mass market, not large business, customers.  X6-xI74. Bell Atlantic seeks to minimize its potential participation in LATA 132 by distinguishing between "the plans of a company, with resource commitments behind them, and business case studies or evolving explorations of business options by middle management  X-or outside consultants."<^ yOR-ԍ Response of Bell Atlantic and NYNEX to December 26 Comments of AT&T and MCI Jan. 3, 1997, at2 (Bell AtlanticNYNEX Jan. 3, 1997 Response) Bell Atlantic claims that its planning amounted only to the latter and describes its documented activities as reflective of "the undeveloped conditional, provisional, character of even the middle managers' consideration of a localservice addon to  X-a longdistance offering."G<^ yOe -ԍ See Appendix E  98.G Essentially, Bell Atlantic asserts that the work done by middle management was exploratory and did not amount to a "plan" because senior management had  X~-not given a goahead to commit significant resources to the project.G~<^ yO#-ԍ See Appendix E  99.G  XP-xJ75. Although a decision by the Board of Directors actually to commence entry into LATA 132 would be conclusive evidence that Bell Atlantic was a precluded competitor, we"9*( ,-(-(ZZ" believe that planning done prior to such a decision remains important and probative, especially when done with the continued oversight of senior management. We do not accept Bell Atlantic's view that the actual potential competition doctrine considers a company's plans to enter in determining whether it is a market participant only if it is shown that the decision to enter had been made irrevocably and at the company's highest levels or until the company  X-had committed resources to entry.[<^ yO-ԍ Bell AtlanticNYNEX Jan. 3, 1997 Response at 34.[ The case law under the actual potential competition doctrine does not compel this level of proof. The more authoritative and reasonable case law applying the doctrine of actual potential competition requires only a showing that a company was reasonably likely to enter, not that entry be certain as shown by vote of the Board of  X1-Directors or by the commitment of resources. 81X<^ yO: -ԍ On the facts before us, we believe the compelling authority is contained in United States v. Falstaff  yO -Brewing Corp., 410 U.S. 526, 566 (1973), (Marshall, J., concurring). Concurring in the result, Justice Marshall wrote: XxNor do our prior cases hold that the district courts are bound by subjective statements of company officials that they have no intention of making a de novo entry. We have emphasized that the decision whether the acquiring firm is an actual potential entrant is, in the last analysis, an independent one to be made by the trial court on the basis of all relevant evidence properly weighted according to its  yOz-credibility. Thus, in FTC v. Procter & Gamble Co., for example, managers of Procter & Gamble testified that they had no intention of making a de novo entry, and the Court of Appeals thought itself bound by  yO -that testimony. See 386 U.S., at 580, 87 S.Ct., at 1231, and id., at 585, 87 S.Ct., at 1233 (Harlan, J., concurring). We reversed, holding that '(t)he evidence . . . clearly shows that Procter was the most  yO-likely entrant.' Id., at 580, 87 S.Ct., at 1231. (#  yO*-See, e.g., Yamaha Motor Co. v. FTC, 657 F.2d 971, 97779 (8th Cir. 1981), cert. denied, 456 U.S. 915 (1982) (Yamaha was an actual potential entrant; it had "available feasible means" and those means offered a  yO-substantial likelihood of ultimately producing market deconcentration or other procompetitive effects.);  yO-Mercantile Texas Corp. v. Federal Reserve Board, 638 F.2d 1255, 126870 (5th Cir. 1981) (Citing Justice  yOJ-Marshall's concurring opinion in Falstaff, it was within the Board's discretion to give little weight to the selfserving statements proffered to demonstrate the merger applicant would not enter the relevant market  yO-independently.); United Statesv. Siemens Corp., 621 F.2d 499, 50708 (2d Cir. 1980) (Citing Justice Marshall's  yO-concurring opinion in Falstaff, "although selfserving testimony by officials of the acquiring firm must be viewed with skepticism, it is entitled to some weight when, as here, it is confirmed by objective evidence  yO2-suggesting the market is unattractive to de novo entry."); BOC Int'l, Ltd. v. FTC, 557 F.2d 24, 2829 (2d Cir. 1977) (In an actual potential entrant situation, the record must contain evidence supporting a finding of a reasonable probability of entry in the near future (with "near" defined in terms of entry barriers and the time  yO -necessary for entry in the particular industry), referring to Justice Marshall's concurring opinion in Falstaff. );  yOR!-and FTC v. Atlantic Richfield Co., 549 F.2d 289, 29495 (4th Cir. 1977) (The conclusion that Arco was not a potential entrant was buttressed by the admittedly selfserving subjective evidence of Arco's top management that Arco would never seriously consider original entry or entry by toehold acquisition, citing Justice Marshall's  yO#-concurring opinion in Falstaff.)  Based on the documents before us, we find that Bell Atlantic's officials, including those at the highest levels, had advanced sufficiently far in their detailed planning that it is likely that Bell Atlantic would have entered LATA 132 but for the proposed merger. In this regard, we wish to make clear for the future that we consider all plans, regardless of whether they have been formally adopted or backed by a" +X,-(-(ZZ " commitment of resources, as potentially relevant to the analysis of market participants. Accordingly, the facts and circumstances concerning such planning should be forthrightly presented to the Commission.  X-xK76. Our analysis of Bell Atlantic's documents is buttressed by other indications that Bell Atlantic had incentives to enter LATA 132. With respect to capabilities, local exchange and exchange access services for the mass market are product offerings most strongly tied to Bell Atlantic's capabilities, as it currently provides these services within its own region. While Bell Atlantic also has substantial experience in providing mobile telephony in both its own region and the NYNEX region through its combined operation with NYNEX, we do not believe that it planned to use this technology as an entry vehicle. We reach this conclusion both based on a review of documents and because the economics of such an entry strategy are  X -not favorable at present.T <^ yOe -ԍxSee Appendix E  737.T Bell Atlantic is now providing mobile telephony in LATA 132 at  X -higher prices than the prices for wireline local exchange and exchange access services.h X<^ yO-ԍ Compare, for example, the wireline rates listed in the 1997 NYNEX Manhattan phonebook (The basic monthly charge for Residence Message Rate service is $6.60; the basic monthly charge for Residence Flat Rate service is $12.45 to $20.16 depending on location) with a BANM wireless promotion available on August 12, 1997 as advertised at http://www.banm.com/nydigital.htm (The bundled NY/NJ Metro region offer includes a digital mobile phone for $199, $24.99 monthly access including 30 minutes of home rate airtime, several free services but an early termination fee of $175.).h For Bell Atlantic to enter the market for those services pursuant to a wireless strategy and compete with NYNEX's wireline service, it would have to price its wireless service to mass market customers at a fraction of what its current mobile telephone customers are paying. This would create a significant risk of arbitrage by customers that would force down the price of Bell Atlantic's mobile telephone service. Bell Atlantic, we think, would be unwilling to undertake this risk.  X-xL77. We observe that relative rate structure differences between New Jersey and New York, revealed in the record, may create incentives for Bell Atlantic to enter not only LATA  X-132, but also other markets in New York State.s<^ yOp-ԍ See Comments of the City of Buffalo, Erie County and Nassau County.s Flat rates for local exchange service charged by NYNEX in New York State substantially exceed the flat rates charged by Bell Atlantic in New Jersey. Bell Atlantic's highest flat rate, charged to customers in the Newark and Jersey City free calling areas, is $8.19, compared to a rate of $20.16 charged to customers in Buffalo and Albany. NYNEX's lowest standard rate of $12.45, charged in free calling areas with 1,300 customers or fewer, still substantially exceeds Bell Atlantic's highest  Xe-New Jersey rate.9e` <^ yOv%-ԍ Id. at 4.9 This evidence, although not dispositive because it does not expressly take cost information into account (such data is not in the record), suggests that Bell Atlantic may"N, ,-(-(ZZ" be able to enter any of a number of markets in New York state and profitably undercut NYNEX.  X-xM78. All of the above factors, as well as the specific planning and marketing information further detailed in Appendix E, lead us to conclude that Bell Atlantic is a precluded competitor and among the most significant market participants in the market for providing local exchange and exchange access services or bundled local exchange, exchange access, and long distance services to the mass market in LATA 132. Of course, in a New York metropolitan area market, Bell Atlantic would also be an actual competitor, and among the most significant market participants.  X -xN79. Bell Atlantic described its brief and apparently unsuccessful experience in  X -providing outofregion long distance service in North Carolina.B <^ yOe -ԍ See Appendix E  100.B Bell Atlantic has not, however, sustained its burden of proof that such effort is a significant predictor of results were it to enter LATA 132. For the thirteen years since divestiture, Bell Atlantic advertising to its northern New Jersey customers has reached New York metropolitan area consumers outside of its service territory because of the reach of the New York area broadcast and print market outlets. There is also significant commuting and business activity shared between LATA 132 and Bell Atlantic's territory in northern New Jersey. From the record in this case, it appears that no such special relationship exists between Bell Atlantic's inregion services in southern Virginia and the area in North Carolina where it briefly offered long distance services.  X-xO80. Other Entities. We next consider whether other entities are actual or precluded competitors and whether they can be classified among the most significant market participants in the market for local exchange and exchange access services or bundled local exchange, exchange access, and long distance services to the mass market in LATA 132 and the New York metropolitan area.  Xg-xP81. The Applicants have provided us with a list of selected carriers to which the New York Public Service Commission has granted "Certificates of Public Convenience and  X9-Necessity to Resell All Forms of Telephone Service in New York" as of January 27, 1997.H9X<^ yOB -ԍ See Appendix E  101.H We do not consider, however, certification alone as defining any class of competitors. We view such certification as a step necessary for entry, but not dispositive of the company's capabilities and incentives. Many such entrants target large business customers with specialized service offerings, and offer little or no small business or residential service. As discussed above, for purposes of analyzing this merger, we are evaluating whether actual and precluded competitors have the requisite capabilities and incentives to enter and have an"!-,-(-(ZZ " effect on the provision of local exchange and exchange access services and bundled local exchange, exchange access, and long distance service to the mass market.  X-xQ82. AT&T, MCI, and Sprint. We conclude that the three largest interexchange carriers are precluded participants and among the most significant market participants in the mass market for local exchange and exchange access or bundled local exchange, exchange  Xx-access and long distance service. The Applicants draw similar conclusions.\x<^ yO-ԍ Application, Ex. B Public Interest Statement at 4.\ Each of these  Xa-carriers meets our definition of precluded competitors, i.e., each is likely to enter the relevant  XL-markets.:LX<^ yOU -ԍ Id. at 13.: Each is also among the most significant market participants because each has the capabilities and incentives to acquire a critical mass of customers in the relevant markets and to do so relatively rapidly. AT&T still serves 63% of long distance customers nationwide  X -and in fiscal year 1996 had total revenues of $52.2 billion and a net income of $5.9 billion. <^ yO-ԍ Joe Bender, Federal Communication Commission, Long Distance Market Shares at 4 (July 1997); AT&T Annual Report at 28 (1996). MCI serves approximately 15% of long distance customers nationwide and had operating  X -revenues of $18.5 billion in 1996, with net income of $1.2 billion. @<^ yO-ԍ Joe Bender, Federal Communication Commission, Long Distance Market Shares at 4 (July 1997); MCI Annual Report at 11 (1996). Sprint currently serves approximately 7% of long distance customers nationwide and had net operating revenues of  X -$14 billion in 1996, with net income $1.2 billion. <^ yO-ԍ Joe Bender, Federal Communication Commission, Long Distance Market Share at 4 (July 1997); Sprint  yO-Communications Corporations, 1996 Annual Report 34 (1997). Each has announced major local entry  X-initiatives. <^ yO5-ԍ MCI has announced that it will enter markets for local exchange and exchange access services with a $2 billion plan to put fiberoptic systems through abandoned Western Union conduit in the 20 largest US cities. Bell AtlanticNYNEX, Oct. 23, 1996, Reply to Comments in Opposition, , Affidavit of Richard Schmalensee and  yO-William Taylor at 29, citing to Edmund L. Andrews, MCI Plans to Enter Local Markets, The New York Times, Jan. 5,  yOU-1994, at D1. See also John J. Keller, AT&T Plans $9 Billion Outlay This Year to Expand Its Networks to New  yO-Markets, Wall St. J., Mar. 4, 1997, at A3. Our conclusion that AT&T, MCI, and Sprint are among the most significant market participants is further supported by the customer preference survey information in the  Xf-record.Nfh<^ yO"-ԍ See Appendix E  6084.N  X8-xR83. Other Interexchange Carriers. We disagree with Applicants' implicit suggestion that the smaller interexchange carriers ("IXCs") should be considered as more significant"#.,-(-(ZZG"  X-market participants than Bell Atlantic.k<^ yOy-ԍ Application, Ex. B, Public Interest Statement at 21 and exhibits.k We distinguish the three largest IXCs from all other IXCs in our analysis with respect to their capabilities to serve the mass market more quickly and effectively. While many long distance providers have access to facilities, knowledge and operational infrastructure, the smaller ones do not have as significant an existing customer  X-base or as great a financial ability as AT&T, MCI, Sprint.X<^ yO-ԍ As of December 1996, AT&T served 100.2 million customers in the United States, MCI 22.9 million, and Sprint 11.8 million. As indicated above, in 1996, AT&T had total revenues of $52.2 billion, MCI had operating revenues of $18.5 billion, and Sprint had operating revenues of $14 billion. By contrast, the next largest long distance carrier, WorldCom, served 4.3 million customers and had operating revenues of approximately $4.5  yO -billion. See, Joe Bender, Federal Communication Commission, Long Distance Market Shares at 5 (July 1997);  yO -WorldCom Communications Group, 1996 Annual Report 6 (1997). The smaller IXCs' infrastructure investments are not on the same scale, and their experience in serving the mass market is not as broad as the three largest carriers. In addition many focus primarily on serving large business customers.  X1-xS84. Most significantly, these smaller IXCs generally lack the brand reputation and recognition in the relevant markets that are critical assets for offering services to the mass market. As further described in Appendix E, Bell Atlantic has a much higher brand  X -recognition and consumer preference in the relevant markets than any of the small IXCs.N <^ yOm-ԍ See Appendix E 5983.N Only one smaller IXC showed signs of brand recognition and consumer preference, but with  X -lower recognition and consumer preference than Bell Atlantic. ` <^ yO-ԍ This IXC was the second choice of significantly fewer customers than Bell Atlantic and performed poorly  yO-compared to Bell Atlantic in a "pairwise comparison." See Appendix E  6673. Developing a stronger brand reputation will require significant investments of time and resources, as well as substantial, reliable performance. We remain unconvinced, therefore, that any of the smaller IXCs currently have other capabilities that compensate sufficiently for them to be considered among the most significant market participants at this time.  X4-xT85. Cable MSOs. Incumbent cable television providers ("Multiple System Operators" or "MSOs") have facilities in LATA 132 and the New York metropolitan area that are capable of being upgraded to provide local exchange and local exchange access services to residential and business customers. Among the major New York area MSOs are Time Warner Communications, Cox Communications, Comcast, TCI, U S West Media Group, and Cablevision Lightpath. Each has a discrete territory within which it is the only coaxial cable television provider.  X~-xU86. Like the other current service providers, MSOs have name recognition and a reputation with their customers (although not a reputation for providing telecommunications"g/ ,-(-(ZZ"  X-services).O<^ yOy-ԍ See Appendix E  67, 78.O Like the three largest IXCs, a major component of their customer base is residential. Their reputation for dependable, highquality service, however, is significantly less than those of the three largest IXCs. Documents provided by the Applicants indicate that only an inconsequential share of surveyed consumers in LATA 132 would select a cable  X-company as a local telephony service provider.3X<^ yO-ԍ Id.3 We do believe, however, that MSOs are endeavoring to improve their performance, and, hence their service reputation among their  Xv-existing customer base.v<^ yO -ԍ Annual Assessment of the Status and Competition in the Market for Delivery of Video Programming, CS  yO -Dkt. No. 96133, Third Annual Report, 12 FCC Rcd 4358, 444246  170184 (1977). Insofar as improvements in service performance are related to improved facilities, the record contains evidence that suggests some MSOs in the New York area are moving toward a technology platform that could support telephony or Internet  X1-services to an emerging market.j 1@<^ yO"-ԍ See, e.g., Bell Atlantic Ex Parte, June 25, 1997, Local Exchange Competition in New York City: Market Share Estimates, at 56, "Sixtyfive percent of local phone customers in New York are already signed up with a cable company [for cable service] one million customers with Time Warner, another million with Cablevision. Cable plant is more easily upgraded to carry data than voice. Cable will therefore first be upgraded to provide competing data connections and Internet access. In New York, Time Warner is rapidly upgrading its LATA 132 network to full 750 MHz capacity... If the company's planned exchange of cable properties with TCI is completed, Cablevision will soon gain 820,000 additional subscribers in LATA 132." To build support for that transaction, the company has announced it will extend Optimum Online's highspeed data transmission services  yOb-throughout its service area. (citations omitted). See also Plow Ahead with Telephony, Multichannel News, March 17, 1997 ("The new wild card in residential telephony involves carrying calls over highspeed data networks Internet protocol telephony.") IP [Internet Protocol] telephony has been recently touted by cable multisystem operator engineers as a low cost, capital efficient way of introducing telephone service over cable infrastructure. Its differentiation from POTS ["plain old telephone service"] would come from providing cheap longdistance service by connecting cable modems to a headend router that passes signals directly to the interexchange carriers. j MSOs have the capabilities and incentives that potentially enable them to become significant market participants sometime in the future. Still evolving technical and financial constraints may limit their ability to enter and compete in the relevant  X -markets as quickly as the most significant market participants we have identified.X <^ yO]-ԍ Our analysis here has focused on cable MSOs as providers of retail services, the relevant market here. We have not considered, because it is not at issue, cable MSOs as providers of services or network capabilities to other carriers.  X -xV87. CAPs. We accept the Applicants' assertion that a few of the larger CAPs, such as Teleport Communications Group (TCG) and MFS/Worldcom (MFS), have the requisite access to facilities, knowledge and operational infrastructure to qualify them as precluded  X{-competitors in the relevant market.\{<^ yO '-ԍ Bell AtlanticNYNEX June 23, 1997 Comments at 78.\ As of May 1995, Teleport had 600 business customers"{0p,-(-(ZZ"  X-for local exchange and exchange access services in New York,<^ yOy-ԍ Bell AtlanticNYNEX Oct. 23, 1996 Reply, Affidavit of Richard Schmalensee and William Taylor, at32n.72. and as of October 25, 1995, it had three switches in New York and a fiber optic network that extended 400 miles through  X-Manhattan and parts of Queens, Brooklyn, Nassau and Suffolk Counties, and White Plains.@X<^ yO-ԍ Id. at 32, n.73.@ MFS also provides service in the New York metropolitan market. MFS offers voice, data and other enhanced services and telecommunication systems oriented toward business and  X-government users.:<^ yO& -ԍ Id. at 33.: According to the Applicants, MFS has begun to provide local exchange and exchange access services in the New York City metropolitan market with approximately  X_-250 miles of fiber optic cable.@_x<^ yO -ԍ Id. at 33, n.80.@  X1-xW88. Nevertheless, the financial capabilities of these larger CAPs are limited compared to those of Bell Atlantic, AT&T, MCI, and Sprint. (TCG had 1996 gross revenues of $267.7  X -million in 1996 and a net loss of $114.9 million.l <^ yO-ԍ Teleport Communications Group, 1996 Annual Report 49 (1997).l MFS had 1996 revenues of $4.49 billion  X -and a net loss of $2.2 billion.o <^ yO5-ԍ MFS Communications Company, Inc., 1996 Annual Report 27 (1997).o) Both companies are experiencing substantial growth in their core business. Although reputation among the existing customer base is an important asset to a CAP, Bell Atlantic's market research indicates that the CAPs have a limited brand name  X -reputation among residential and small business customers in LATA 132.G ( <^ yO-ԍ See Appendix E  67.G We have no reason to believe that CAPs would have a stronger brand reputation in other parts of the New York metropolitan area. Because of their relatively limited access to capital and their low brand name recognition among small business and residential customers, we are unpersuaded by the Applicants that CAPs are, either singularly or as a class, likely to have significant competitive impact in the relevant markets. Accordingly, while this is a close case, we do not consider even the larger CAPs among the most significant market participants in terms of their ability quickly to enter and serve the relevant markets.  X-xX89. Mobile Telephone Service Providers. Providers of mobile telephone service via radio consist primarily of cellular and broadband Personal Communications Services licensees, but also include digital specialized mobile radio providers. Several of these firms have formidable financial resources and are recognized and regarded favorably by both wireless and wireline users. Among the principal wireless providers that currently compete in LATA 132 and the New York metropolitan area are AT&T, Sprint Telecommunications Venture, SBC, Omnipoint, Nextel, and Bell AtlanticNYNEX Mobile ("BAMSNYNEX"P1 ,-(-(ZZ0" Mobile"), a joint venture involving the Applicants. As explained below, this competition takes place in a market distinguishable from the relevant markets at issue in this proceeding.  X-xY90. Mobile telephone service providers are currently positioned to offer products that  X-largely complement, rather than substitute for, wireline local exchange.<^ yO-ԍ Second Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile  yO-Services, FCC 9775,  53 55, (rel. Mar. 6, 1997). These providers utilize spectrum whose carrying capacity is relatively finite. There are economic and technical limits to increasing spectrum reuse through reduction in cell size and use of compression and encoding techniques. Additionally, their installed technology and facilities are specialized for use in mobile communications. These factors limit the ability of wireless carriers to compete on a mass market scale with wireline providers in the local exchange and exchange access services market. Although the Applicants predict that some of these providers will become competitors to wireline providers, the Applicants recognize that, as  X -stated supra, such competition is currently precluded as a practical matter by the higher prices that mobile telephone service providers can charge. Thus, only if wireline prices were to increase or other factors caused wireless prices to decline materially, would this class of entrants become viable competitors in the relevant market. Accordingly, we are unpersuaded by the Applicants and CFA that mobile telephone service providers are, at this time, either singularly or as a class, significant market participants; they lack the requisite incentives and access to facilities that would allow them to compete effectively in the relevant market. We are mindful, however, of the possibility that conditions could alter significantly as a result of increased spectrum being made available (either through reallocation or through developments in mobile and fixed wireless technologies), major pricing shifts as a result of competition, or the alteration of consumer perceptions as to the substitutability of wireless for wired telephony.  X-xZ91. We do believe that fixed wireless may ultimately become a viable (and, in some markets, a formidable) substitute for wireline service, but whether that occurs depends on spectrum availability, technological issues, and other future events. Fixed wireless service for the mass market will be among the potential applications that will benefit as more spectrum becomes available for wireless or is used more efficiently, and as this Commission continues to allocate and license such spectrum. These regulatory proceedings and the business rollout for such new competitors, however, will take considerable time. Neither the Applicants nor AT&T, the largest wireless carrier in this country, nor any other party has submitted any evidence on the underlying business and technological issues pertaining to near term prospects for wireless competition in the relevant markets.  X -x[92. We also reject CFA's arguments that: (1) the grant of the application to transfer the relevant authorizations would eliminate wireless as an effective competitive threat in the"!2 ,-(-(ZZ "  X-Applicants' markets for local exchange and exchange access services;q<^ yOy-ԍ Consumer Federation of America, Petition to Deny, Sept. 23, 1996, at 5.q and (2) a combination of the Applicant's wireless services will inhibit the development of competition in the wireless  X-industry. Within their wireline service areas, the Applicants hold no more than one blockX<^ yO-ԍ "Block" as used here signifies an individual assignment of spectrum to cellular and broadband PCS firms. of the currently issued licenses, and are constrained by our CMRS spectrum cap in their ability to acquire additional licenses. Multiple blocks of licenses have been issued to other companies expected to compete with the Applicants' wireless operations. Accordingly, we find that divestiture is unnecessary to promote effective wirelesswireline competition. Moreover, CFA's general concerns about prospects for competition in wireless services ignore the fact that the vast majority of the Applicant's wireless license holdings are already jointly operated; the Commission is considering an appeal of this decision and it would be inappropriate to address the issue here.  X -x\93. NonAdjacent OutofRegion Bell Companies. We do not doubt that nonadjacent outofregion Bell Companies have financial strength and expertise in providing local exchange and exchange access services. This expertise should permit them to enter LATA 132 and the New York metropolitan area via resale and unbundled network elements. The fact that each Applicant contemplated entry into the other's territory supports the inference that other Bell Companies may contemplate entry into such attractive markets as LATA 132. No party, however, has shown that any one of those companies, or that those companies as a class, have a broadly recognized brand name and reputation for quality service, and/or an existing customer base in the mass market in LATA 132 or the New York metropolitan area. Accordingly, we view them as precluded competitors in LATA 132, but not among the most significant market participants.  X-x]94. Conclusion. We conclude that five companies NYNEX, AT&T, MCI, Sprint, and Bell Atlantic are the most significant market participants in LATA 132. NYNEX is an actual competitor in the market for local exchange and exchange access services to small business and residential customers, and a precluded competitor in the market for bundled local exchange, exchange access, and long distance services to small business and residential customers. AT&T, MCI, Sprint, and Bell Atlantic are each precluded competitors, and among the most significant market participants, in both these relevant markets. We find that although many other companies are precluded competitors, and some may be actual market participants in one or both of the relevant markets, no other company is among the most significant market participants in either of the relevant markets. We note that because our identification of the most significant market participants focuses on those carriers that have the greatest capabilities and incentives to compete most effectively and soonest, our evaluation does not in any way indicate any opinion as to the long term viability of other market participants as competition develops over time in the relevant markets."!3,-(-(ZZ "Ԍ X-ٙ xD. Analysis of Competitive Effects  X-x^95. Having identified the relevant markets and the most significant market participants, we now examine the competitive effects of the merger. There are several reasons we believe that some competitive effects those producing an increase in market power, or an enhanced ability to maintain market power will generally not be in the public interest, even when the exercise of market power arguably is constrained by regulation. The 1996 Act set a clear national policy that competition leading to deregulation, rather than continued regulation of dominant firms, shall be the preferred means for protecting  X1-consumers.n1<^ yO -ԍ Joint Statement of Managers, S. Conf. Rep. No. 104230, at 1 (1996).n Mergers that increase market power or retard the decline of market power conflict with this policy by maintaining rather than decreasing, the need for continued regulation. A merger that reverses or slows the decline of market power may also hinder or make more costly the transition to competitive, deregulated telecommunications markets. Finally, to the extent that regulation is not completely effective at preventing the exercise of  X -market power, a merger that increases market power adversely affects consumer welfare. o<^ yO-ԍ Price cap regulation, for example, may not constrain market power for several reasons. First, to the extent that competition from a close substitute would cause the incumbent to offer prices below the price cap, a merger between the two firms would result in prices that are higher than they otherwise would have been. Second, if carriers offer bundles that contain both pricecapped services and some services not subject to price caps but potentially subject to the exercise of market power, the price of the overall bundle is not price capped and market power may be exercised by increasing the overall price of the bundle. Third, the incumbent may have considerable flexibility to choose prices for a basket of services constrained by an overall price cap. Finally, regulated firms can sometimes exercise market power by lowering quality or reducing output even when they face constraints on their ability to increase prices.  X-x_96. Ordinarily, our analysis of the competitive effects of a particular horizontal merger (between two firms that compete with each other) will follow the framework of the  Xb-1992 Horizontal Merger Guidelines,zb? <^ yOR-ԍ See 1992 Horizontal Merger Guidelines, supra, 57 Fed. Reg. at 41553.z with an assessment of present market conditions and an analysis of the ways in which the transaction is likely to alter the market. We believe that this is a useful way of applying economic principles in most merger cases (indeed, this is the  X-precise purpose for which the 1992 Horizontal Merger Guidelines have been developed). In some cases, however, the transaction will have a greater effect on future, rather than present, market performance. This is especially true if a merger may be a strategic response to declining entry barriers, in which an incumbent firm is seeking to avoid competition by eliminating a potentially significant future competitor. In the case of local telecommunications markets, competition is only now emerging and a merger between a current monopolist and one of the new competitors may have a substantial adverse impact on future market performance even though the new competitor currently has only a small number of customers. "R4 ,-(-(ZZ"Ԍ X-x`97. When faced with a proposed merger that affects markets that are themselves in a  X-process of rapid change (e.g., where competition is emerging as a result of regulatory change, or where necessary technology and resources are only beginning to be deployed), the best way to analyze the likely effect of the merger is to isolate the effect of the merger from all other factors affecting the development of the relevant markets over time. This is achieved by framing the analysis in a way that holds constant the effects of all changes in market conditions other than those directly caused by the merger. An example of our use of this approach in analogous circumstances is the analysis we used to assess the likely competitive effects of particular outcomes in the auction of Direct Broadcast Service ("DBS") spectrum. When we conducted that analysis, we assumed that the spectrum being auctioned would be deployed, and compared the ways in which the identity of the licensee could affect market  X -development. <^ yO~ -ԍ Revision of Rules and Policies for the Direct Broadcast Satellite Service, IB Docket No. 95168, Report and Order, 10 FCC Rcd 9712, 972041 2376 (1995). Such an approach, when applied to the merger before us, would remain  X -faithful to the structure of the 1992 Horizontal Merger Guidelines (i.e., by examining the effect of the merger on market structure and competition) while assuming an appropriate set  X -of market conditions (i.e., emerging competition in telecommunications markets due to the implementation of the 1996 Act).  X-xa98. To isolate the effects of the merger, we first assume that the key local competition provisions of the 1996 Act, are being implemented, and that new entrants take advantage of the opportunities created by these provisions to enter markets from which they  X:-have historically been precluded.H: <^ yO -ԍ See supra parts IV.B.C.H Although we could also isolate the effect of the merger by looking at markets as they existed prior to the first effects of the local competition provisions of the 1996 Act, such an approach would be inconsistent with the competitive paradigm established by the Act and would be unlikely to reveal the extent to which the merger is likely to affect future market structure, conduct, and performance. Our analysis also assumes that both Bell Atlantic and NYNEX have received authorization to provide inregion interexchange services pursuant to Section 271 of the Act. Finally, we consider whether entry and expansion by other firms (in response to the merger) may alter the merger's effects.  XT-xb99. In evaluating the competitive effects of the proposed merger between Bell Atlantic and NYNEX, we first analyze the competitive effect in LATA 132, and then use these findings as a proxy for the likely competitive effects of the merger on the broader New York metropolitan area. Based on the data provide by the applicants, we include precluded competitors as participants in the relevant markets, with AT&T, Bell Atlantic, MCI, and Sprint joining NYNEX (currently the sole provider throughout most of LATA 132) as the most significant participants in the market for local and exchange access services provided to the mass market (residential and lowvolume and mediumvolume (collectively, small"!5,-(-(ZZ " business) customers) in LATA 132. We also include NYNEX in the market for interexchange services in LATA 132, which means that it and other competitors in the market can offer bundled local and interexchange services in LATA132. Finally, we include Bell Atlantic in the market for interexchange services in New Jersey, which means that it can offer bundled services in northern New Jersey as well as LATA 132.  Xv-xc100. Based on our review of the record, we find that it likely that the proposed merger will limit or retard the development of competition. The evidence demonstrates that, by removing one of the five most significant market participants, the merger is likely to: (1)increase firms' ability to exercise market power unilaterally in the market for local mass market services in LATA 132; (2)increase firms' ability to exercise market power unilaterally in the market for bundled local and interexchange services in LATA 132; (3)increase the likelihood that firms will exercise market power through coordinated interaction; and (4)adversely affect the dynamic development of competition in both local and bundled markets in LATA 132. The presence of other, less significant market participants is not likely to constrain such behavior. We also find that additional entry that could occur in response to an exercise of market power is unlikely to have a constraining effect on such an exercise of market power. Finally, we conclude that the commitments made by Bell Atlantic, and made a condition of our approval of the merger, mitigate, but do not fully offset, the  XK-potential adverse effects of the merger on consumers in the relevant markets.eXK<^ yO-ԍ As discussed more fully in Section V.B, however, we conclude that Applicants have carried their burden of proving that the merger is in the public interest because the benefits of the commitments outweigh the potential adverse effects of the merger throughout the entire Bell AtlanticNYNEX region taken as a whole.e   W<X` hp x (#%'0*,.8135@8: (visited Aug. 11, 1997).- The balancing of these issues involved with bundling is one of the principal subjects of rules such as the accounting and nonaccounting safeguards provided by Section 272 of the 1996 Act and the rules promulgated thereunder, and opponents have not presented any reason for reconsidering that balance in the context of the  X-proposed merger.fxi yO -ԍ 47 C.F.R. 53.200, et seq. See Implementation of the Telecommunications Act of 1996 (Accounting  yO -Safeguards), CC Docket No. 96150, Report and Order, 11 FCC Rcd 17539 (1996) (Accounting Safeguards Order);  yO] -Implementation of the NonAccounting Safeguards of Sections 271 and 272 of the Communications Act of 1934,  yO% -as Amended, CC Docket No. 96149, First Report and Order and Further Notice of Proposed Rulemaking, 11 FCC  yO -Rcd 21905 (1996) (NonAccounting Safeguards Order), on recon. (FCC97-52 1997), recon. pending CC Docket No.  yO-96149, petition for summary review in part denied and motion for voluntary remand granted sub nom., Bell  yO}-Atlantic v. FCC, No. 971067 (D.C. Cir. filed Mar. 31, 1997), petition for review pending sum nom., SBC  yOE-Communications v. FCC, No. 971118 (D.C. Cir. filed Mar. 6 1997) (held in abeyance pursuant to court order filed May 7, 1997).f In addition, we note that the merged entity will not have an exclusive ability to create such packaging. We believe that, by using the entry routes contemplated by the 1996 Act, MCI and other market participants also will be capable of offering onestop  X_-shopping.*_H i yOo-ԍ Section 271(e)(1) prohibits major interexchange carriers from joint marketing a Bell Company's resold local services until the Bell Company has obtained authority under Section 271 to offer inregion long distance service in that state, or until 36 months have passed from the date of enactment of the Telecommunications Act of 1996. 47 U.S.C. 271(e)(1). The interexchange carriers will thus eventually be permitted to bundle their long distance services with resold local services from the merged entity.* The customers who want onestop shopping may choose the combined services of the merged entity or those of one of its competitors.  X -xp113. The Conditions on Our Approval of the Merger Substantially Address the  X -Unilateral Exercise of Market Power. The commitments made by Bell Atlantic, which we have made conditions of our approval of the merger, help to mitigate the ability of the merged entity unilaterally to exercise market power. They also address the likelihood that other market participants may be able to behave less competitively as a result of the merger. In particular, those conditions increase the likelihood that precluded competitors that are not currently among the most significant market participants will become such significant participants. They reduce the risk to competitors of receiving inferior access and interconnection from Bell AtlanticNYNEX; they reduce the time and expense associated with OSS development; they make it more feasible to use unbundled transport facilities, permitting smaller scale deployment of facilities; and they facilitate the ability of competing carriers to make investment and pricing decisions based on a cost structure that more accurately reflects the true economic cost of the facilities and services obtained from Bell AtlanticNYNEX. Thus, the conditions increase the ability of precluded firms to become significant market participants, and the speed with which they may do so. Therefore, the potential harm to";,-(-(ZZr" consumers through the unilateral exercise of market power brought on by the elimination of Bell Atlantic as a significant market participant will be reduced, and will be more quickly addressed.   W<x 44` ` 2.  Effect of the Merger on Unilateral Conduct by  W<x44` `  Providers of Mass Market Bundled Services   X_-xq114. For the same reasons that the proposed merger would likely have unilateral effects in the relevant markets for local exchange and exchange access services, the proposed merger is likely to have effects in a market for bundled local and long distance telecommunications provided to residential and small business customers. The evidence in the record demonstrates that many of these mass market customers would like to purchase both local and long distance telecommunications services as part of a single bundled  X -service.j i yOe -ԍ See Application, Exh.B, Public Interest Statement, at 19.j Therefore, we must also consider the extent to which the merger may adversely affect market performance in the bundled service market in LATA 132. For the most part, this analysis does not differ from the analysis in the prior section of competitive effects in the local exchange market. Arguments raised in opposition to the merger, however, present an additional concern. The merging parties control facilities and services that are essential for providers of interexchange telecommunications services, and those services are an integral component of the bundled services that may emerge as a relevant market. Accordingly, we must consider whether the merging parties would gain an increased ability to price strategically to inhibit competition among interexchange service providers and, thereby, adversely affect market performance in the bundled service market.  X-xr115. Price Squeeze Concerns. Opponents to the proposed merger have raised arguments about a particular form of strategic pricing involving the applicants' monopoly control over bottleneck local loop facilities to inhibit competition from longdistance rivals. AT&T and MCI argue that, once the merged entity begins selling inregion long distance service through an interexchange affiliate, it will charge higher prices to its long distance rivals for switched access than it charges to its interexchange affiliate, thereby setting up a  XP-"price squeeze."UPoi yOp-ԍ AT&T Reply at 5456; MCI Comments at 1415.U By imposing this price squeeze, commenters contend, the merged entity will be able to acquire market share unfairly, and ultimately obtain market power in the interexchange market.  X-xs116. A price squeeze, as the term is used by MCI, refers to a particular, welldefined strategy of predation that would involve the merged entity setting "high" prices for interstate exchange access services, over which it has monopoly power (albeit constrained by regulation), while its long distance affiliate offers "low" prices for longdistance services in competition with the other longdistance carriers. Because interstate exchange access services are a necessary input for longdistance services, MCI argues that applicants can create a"#<,-(-(ZZ"" situation where the relationship between the merged entity's "high" exchange access prices and its affiliate's "low" prices for longdistance services forces competing longdistance carriers either to lose money or to lose customers even if they are more efficient than the merged entity's long distance affiliate at providing longdistance services. It is this unprofitable relationship between the input prices and the affiliate's prices, and not the absolute levels of those prices, that defines a price squeeze.  X_-xt117. As we discussed in the recent First Access Reform Report and Order, absent appropriate regulation, Bell AtlanticNYNEX and its interexchange affiliate could potentially implement a price squeeze once its affiliate began offering inregion, interexchange toll services. In that decision, however, we concluded that we have in place adequate safeguards  X -against such conduct.g i yO~ -ԍ Access Charge Reform Order, FCC 97158 28082.g One basis for our conclusion was that interconnection and unbundled network elements ("UNEs") are available at rates based on the economic costs of providing such services and facilities. Although we are less convinced today that we may generally rely on the availability of interconnection and UNEs to provide alternatives to exchange access  X -services in light of the Eighth Circuit's decision,f Xi yO-ԍ Iowa Utilities Board v. FCC, 1997 WL 403401, *at 3*9.f the commitments made by Bell Atlantic and implemented as conditions to our approval of the merger that interconnection and UNEs will be offered as forward looking economic costbased prices largely mitigate this new concern. Accordingly, in light of the conditions we impose today, together with the reasons  XM-set forth in the Access Charge Reform Order, we believe that price squeeze tactics are likely to fail under the circumstances presented here as a predatory tactic aimed at eliminating competition among interexchange competitors.  X-xu118. MCI argues that the transfer will increase applicants' ability to engage in anticompetitive price squeezes because the merged entity will provide inregion long distance  X-over a larger area than would each company separately.Ri yO^-ԍ AT&T Reply at 5456; MCI Comments at 14.R MCI argues that, with a larger proportion of long distance calls both originating and terminating inregion, a merged Bell AtlanticNYNEX will be the sole access provider and, thus, receive all of the alleged benefits of access price discrimination, for a greater proportion of calls. While we agree with MCI that the merged entity will provide both originating and terminating services on a substantially greater proportion of individual interexchange telephone calls than either Bell Atlantic or NYNEX does separately, it is not apparent how the merger increases the likelihood of a successful price squeeze. The combined firm will provide access services in precisely the  X -same instances as did the two firms separately.X xi yO6%-ԍ In other words, the total amount of originating traffic for Bell AtlanticNYNEXwill equal the sum of the originating traffic for Bell Atlantic and the originating traffic for NYNEX. Similarly, the total amount of terminating traffic for Bell AtlanticNYNEX will equal the sum of the terminating traffic for Bell Atlantic and"&,-(-(&" the terminating traffic for NYNEX.  Accordingly, MCI has not explained how" =X,-(-(ZZ[" the combined entity will reap a greater share of the benefits of a price squeeze than would the two firms separately.  X-xv119. NonPrice Discrimination. MCI also argues that risks of nonprice discrimination against long distance carriers will increase if the proposed transfer is approved. MCI alleges that once Applicants and other Bell Companies are allowed to compete against other carriers offering inregion long distance services, the Bell Companies will try to stifle competition by engaging in nonprice discrimination such as refusing or delaying interconnection or degrading connections to competitors. Cablevision makes similar claims  X3-with respect to video services.^3Xi yO< -ԍ MCI Comments at 13, 15; Cablevision Comments at 78.^  X -xw120. In theory, each applicant could, albeit unlawfully, currently engage in nonprice discrimination within its own territory. Although the merger increases the number of instances in which the same incumbent LEC is the access provider at both ends of an interexchange call, opponents of the proposed merger have not indicated how this could increase Applicants' incentive or ability to engage in nonprice discrimination. For the most part, nonprice discrimination practiced at one end of a telecommunications circuit (origination or termination) would seem to be sufficient to harm a competitor. In any event, nonprice discrimination is a violation of several provisions of the Communications Act, including those requiring Bell Companies to provide interexchange service only through a separate subsidiary, not to favor their subsidiaries, and to provide nondiscriminatory access to  X-all long distance carriers.CXi yO-ԍ 47 U.S.C. 251, 271, 272. We have adopted a number of rules implementing these provisions. 47 C.F.R.  yO-53.200, et seq. See also Accounting Safeguards Order, 11 FCC Rcd 17539; NonAccounting Safeguards Order, 11 FCC Rcd 21905.C In addition, the Commission has adopted rules designed to  X-prevent such discrimination.ii yO-ԍ See LEC InRegion, Interexchange Order, FCC97-142.i The protection afforded by these provisions should reduce the merged entity's ability to engage in nonprice discrimination in interexchange markets. Moreover, the conditions to our approval of the merger should increase the ability of additional firms to become more significant market participants, and to do so more quickly. We believe this will significantly reduce the merged firm's ability to profitably engage in nonprice discrimination against rivals in interexchange markets   Wg<x 44` ` 3. Effect of the Merger on Coordinated Interaction  "P>,-(-(ZZ"Ԍ X-xx121. Market performance can also be adversely affected if a merger increases the  X-potential for coordinated interaction by firms remaining in the postmerger market.i yOb-ԍ FTC v. University Health, Inc., 938 F.2d 1206, 1224 (11th Cir. 1991); FTC v. Elders Grain, Inc., 868 F.2d  yO*-901, 905 (7th Cir. 1989); Hospital Corp. of Am. v. FTC, 807 F.2d 1381, 138788 (7th Cir. 1986), cert. denied, 481  yO-U.S. 1038 (1987); United States v. Rockford Mem. Corp., 717 F. Supp. 1251, 1285 (N.D. Ill. 1989), aff'd, 898 F.2d  yO-1278 (7th Cir. 1990), cert. denied, 498 U.S. 920 (1990); B.F. Goodrich Co., 110 F.T.C. 207 (1988), modified 112  yO-F.T.C. 83 (1988); State v. Kraft General Foods, 926 F. Supp. at 34249; 1992 Horizontal Merger Guidelines, supra, 57 Fed. Reg. at 41552  0.1 ("[I]n some circumstances, where only a few firms account for most of the sales of a product, those firms can exercise market power, perhaps even approximating the performance of a  yO-monopolist, by either explicitly or implicitly coordinating their actions."); 1992 Horizontal Merger Guidelines,  yO -supra, 57 Fed. Reg. at 41558 2.1 ("Lessening of Competition Through Coordinated Interaction"). Coordinated interaction is defined as "actions by a group of firms that are profitable for each  X-of them only as a result of the accommodating reactions of the others."i yO -ԍ 1992 Horizontal Merger Guidelines, supra, 57 Fed. Reg. at 41558 2.1. A merger can adversely affect market performance when it increases the ability of the most significant  X-market participants to engage in coordinated interaction that harms consumers.D( i yOf-ԍ See, e.g., id.D As the number of most significant market participants decreases, all other things being equal, the remaining firms are increasingly able to arrive at mutually beneficial market equilibria, to the  XH-detriment of consumers.H i yO-ԍ E.g., Michael Waterson, Economic Theory of the Industry 51 (1984); F.M. Scherer & David Ross, Industrial  yOy-Market Structure and Economic Performance 27779 (3d ed. 1990) In general, increased concentration facilitates coordinated interaction for at least three reasons: (1) with fewer firms, the relative gains from "cheating" against the other firms decrease (as market share increases there are fewer customers to win from other providers); (2)it becomes easier to detect deviations from the coordinated conduct;  X -and (3)other firms are more able to punish cheating by a deviant firm through retaliation.| i yO-ԍ E.g., Merger Guidelines, supra, 57 Fed. Reg. at 41559 2.12.|  X -xy122. The markets for mass market local and bundled local and long distance telecommunications services in LATA 132 and in the New York metropolitan area possess  X-many of the characteristics identified by Merger Guidelines as conducive to coordinated interaction. For example, as the incumbent LEC, NYNEX has access to significant amounts of information about the rival firms' customers and services because all market participants will need to terminate the majority of their traffic over NYNEX's network. In addition, its control over essential inputs such as transport and termination services could afford NYNEX the ability act as a "ringleader" and discipline other firms that did not cooperate in arriving at  X-mutually beneficial coordinated outcomes.i yOY%-ԍ See Thomas G. Krattenmaker & Steven C. Salop, Anticompetitive Exclusion: Raising Rivals' Costs to  yO!&-Achieve Power Over Price, 96 Yale L.J. 209 (1986). Accordingly, it is not unreasonable to conclude that the risk of coordinated interaction is particularly high in the markets in which Bell"?,-(-(ZZ" Atlantic and NYNEX compete. Therefore, the removal of one of the five most significant market participants substantially increases the likelihood that coordinated interaction could adversely affect consumers in LATA 132.  X-xz123. In addition, the removal of Bell Atlantic appears especially likely to increase the risk of coordinated interaction in the mass market for bundled services. Unlike the other most significant market participants, Bell Atlantic would enter LATA 132 with no existing customer relationships and no market share to protect. As such, Bell Atlantic would have little incentive to participate in tacitly coordinated pricing arrangements. Each of the other most significant market participants, however, has "something to lose," in that each is an incumbent in LATA 132, either in local exchange service or long distance service. As a result, these other most significant market participants have the incentive to price their services in a coordinated manner to protect market share and maintain prices at as profitable a level as possible. With no such customer base to protect in LATA132, Bell Atlantic would be unlikely to profit from a coordinated arrangement, at least initially. Rather, Bell Atlantic would have the incentive to price competitively (that is, to undercut prices that were above the competitive level) in order to win customers. Thus, absent the merger, Bell Atlantic  Xy-could have been classified as a "maverick firm,"@yi yO-ԍ 1992 Horizontal Merger Guidelines, supra, 57 Fed. Reg. at 4155960 2.12. See also State v. Kraft  yO-General Foods, 926 F. Supp. at 34243, 351, 36465 (implicit that a maverick competitor would be more  yO-deserving of protection under the Clayton Act than a price follower); McCaw, 9 FCC Rcd at 5872 (citing as a procompetitive effect of a merger that it will "preserve the independence of the largest 'nonwireline' cellular carrier that is not controlled by a 'wireline' telephone company (such as the Bell Companies or GTE). . . . . If cellular service ever has the potential to compete directly with traditional "wireline" telephone service, the existence of a cellular carrier such as AT&T/McCaw appears likely to ensure that possibility becomes a reality sooner than might otherwise be the case. i.e., a competitor well situated to disrupt any coordinated pricing that might occur among the likely largest competitors.  X4-x{124. The Conditions on Our Approval of the Merger Substantially Address the  X-Exercise of Market Power Through Coordinated Interaction. The commitments made by Bell Atlantic, and made conditions of our approval of the merger significantly address the incentive and ability of remaining market participants to exercise market power through coordinated interaction. In particular, the conditions concerning unbundled transport facilities and providing interconnection and unbundled elements at the economic cost of the facilities and services should permit smallerscale deployment of facilities. This may make it more likely that larger numbers of market participants can successfully establish significant market shares, thereby reducing the likelihood of coordinated interaction. In addition, the operational support systems and performance and reporting requirements should inhibit coordinated interaction by reducing the possibility that Bell Atlantic/NYNEX could discriminate against other market participants when providing access and interconnection.  W <x 44` ` 4. Effect of the Merger on Dynamic Market Performance  "@,-(-(ZZ"Ԍ X-x|125. When considering the likely competitive effect of a particular merger, we will also look at factors that are not properly thought of as affecting "unilateral conduct" or "coordinated interaction" but, rather, affect the development of the market over time without regard to any individual firm's products or prices. These other factors affect the dynamic performance of the market including, for example, inhibiting the efforts of regulators to promote conditions that facilitate competition.  X_-x}126. Several opponents of the proposed merger argue that an incumbent LEC brings  XH-special advantages to competition in an outofregion local market.PHi yO -ԍ AT&T Reply at 5; MCI Comments at 910.P In particular, AT&T argues that an incumbent LEC entering an outofregion local market would bring particular expertise to the process of implementing the 1996 Act and other procompetitive measures, and further argues that this would benefit all other competitors because they could take  X -advantage of the better terms obtained by such a superior bargaining agent.? Xi yO-ԍ AT&T Petition at 27. ? This is similar to the argument, discussed below, that the process of opening markets to competition benefits  X -from more, rather than fewer, independent incumbent LECs.A i yOW-ԍ See infra part V.A It is different, however, in that it is specifically focused on the effect of the merger on the development of competition in the relevant markets.  Xb-x~127. We agree that the removal of Bell Atlantic as a significant participant in the market for mass market telecommunications services in LATA 132 is likely to impede the process of opening and fostering competition. Not only would Bell Atlantic have brought to the market substantial skills not possessed by other market participants (as discussed above), it would have contributed a unique perspective to the competitive process. In particular, Bell Atlantic's position as an incumbent LEC extending into another incumbent LEC's region would surely have led it to make significant procompetitive contributions to efforts by this Commission and the New York Commission to implement procompetitive policies and rules. Accordingly, the loss of Bell Atlantic as an independent market participant will likely slow the development of marketopening measures in the relevant markets. The commitments made by Bell Atlantic and made a condition of our approval, however, significantly mitigate these negative effects of the proposed merger because they produce solutions to important issues that could hasten the competitive process in the relevant markets.   W <x 44` ` 5. Potential Entry and Expansion   X-x128. We next consider whether competitive entry will be likely, prompt and effective enough to counteract the priceraising and qualitylowering incentives that may result from the proposed merger. The exercise of market power can be constrained if rivals and new entrants have the capacity and incentive to expand output in response to practices of"!Ax,-(-(ZZ "  X-incumbents that allow them to earn supracompetitive profits. i yOy-ԍ See United States v. Falstaff Brewing Corp., 410 U.S. 526, 559 (1973) (quoting United States v. PennOlin  yOA-Chem. Co., 378 U.S. 158, 174 (1964): "'The existence of an aggressive, well equipped and well financed corporation engaged in the same or related lines of commerce waiting anxiously to enter an oligopolistic market [is] a substantial incentive to competition which cannot be underestimated.'" (brackets in original));  yO-Rebel Oil Co. v. Atlantic Richfield Co., 51 F.3d 1421 (9th Cir.), cert. denied, 116 S.Ct. 515 (1995); Application of OTI Corp. for Consent to the Transfer of Control of Overseas Telecommunications, Inc. to MCI Communications  yO)-Corp., 6 FCC Rcd 1611, 1612 16 ("Even if we assumed, arguendo, that the proposed merger would result in high concentration in the relevant markets, where, as here, entry into those markets is relatively easy, existing  yO-competitors could not successfully raise price for any significant period of time"); Application of General Elec.  yO -Co. for Authority to Transfer Control of RCA Global Communications to MCI Communications Corp., File No. ENF yOI -881, Memorandum Opinion & Order, 4 FCC Rcd 8207 (1989). Cf. American Professional Testing Serv., Inc. v.  yO -Harcourt Brace Jovanovich Legal & Professional Pubs., Inc., 108 F.3d 1147, 1154 (9th Cir. 1997) (stating in an attempted monopolization case that, even with a high market share, "neither monopoly power nor a dangerous probability of achieving monopoly power can exist absent evidence of barriers to new entry or expansion"). In this part of the analysis,  X-we move beyond simply identifying potential entrants.>H i yO-ԍ In the usual merger case, barriers to entry and expansion are not a primary consideration in the identification of market participants. The fact that both the identification of market participants and the consideration of the potential for entry to discipline the exercise of market power concern "entry" in this particular case is a result of the historical developments brought on by the Telecommunications Act of 1996 precluded competitors have to enter to become participants in markets from which they have been excluded. > The focus is on the extent, if any,  X-to which entry would increase as a result of an attempted exercise of market power. Specifically, we consider the increased incentives for entry brought on by the supracompetitive margins associated with eliminating Bell Atlantic as an independent market participant.  Xa-x129. Our analysis of entry and expansion lead us to conclude that the supply of telecommunications services is unlikely to increase quickly in response to an exercise of market power. We reach this conclusion because we believe that, despite the entry provisions of the 1996 Act, there will continue to be significant barriers to quick and relatively costless entry, expansion, and exit. Among potential barriers to entry and exit are the need to incur  X -sunkcost investmentsHX i yO-ԍ Sunk costs are fixed costs that cannot be recovered once incurred. In contrast, a fixedcost asset that  yO_-can be converted to other uses often does not generate significant sunk costs. See, e.g., Carlton & Perloff,  yO' -supra, at51.H and nonrecurring charge obligations associated with interconnection  X -and unbundled elements.:x i yO"-ԍ Nonrecurring charges are payments made to cover fixed costs. These charges may be collected as a lump sum or over time. In the case of entry in local telecommunications markets pursuant to the 1996 Act, these nonrecurring charges are designed to compensate the incumbent LEC for the cost of interconnection with a competitor, or unbundling its network and provisioning the UNEs to competitors. While we do not hereby question their validity, nor the policy reasons for nonrecurring charges, we do note that such charges do pose a barrier to entry in even the strictest sense of the term. George Stigler has defined a barrier to entry as "a cost of producing (at some or every rate of output) which must be borne by a firm which seeks to enter an"P',-(-(A'"  yO-industry but is not borne by firms already in the industry." George J. Stigler, The Organization of Industry 67 (1968). The cost of unbundling an incumbent's network, when passed on to entrants, may be just such a cost.: The fact that these barriers inhibit quick and relatively costless" B ,-(-(ZZ " exit from the market is particularly significant. For a firm to reasonably calculate that it can benefit from entry or expansion of existing operations for the purpose of taking advantage of supracompetitive profits resulting from the exercise of market power, the firm must be able to exit quickly in response to the restoration of competitive market conditions. Otherwise, entrants will understand that, after they enter, they may have to compete in the market under premerger conditions, and the exercise of market power provides little additional incentive for entry or expansion. This realization could very well deter entry or expansion in response  X_-to a price increase or other exercise of market power._ i yO0 -ԍ See Richard J. Gilbert, Mobility Barriers, 1 Handbook of Indus. Org. 52023 (1989).  X1-x130. The 1992 Horizontal Merger Guidelines distinguish between two types of entry, committed entry and uncommitted entry. Committed entry is defined as "new competition  X -that requires expenditure of significant sunk costs of entry and exit," i yOf-ԍ 1992 Horizontal Merger Guidelines, supra, 57 Fed. Reg. at 41561 3.0. such as by a new carrier that intends to commit itself to the market for the long term. The extent to which committed entry can counteract a merger's effect on competition depends on the timeliness of such entry (firms must be able to enter within two years), the likelihood of such entry (it must be profitable at premerger prices and the minimum viable scale must be smaller than the likely sales opportunities), and the sufficiency of entry (entrants must be able to offer  X{-comparable services to a substantial percentage of customers).J{@i yOl-ԍ See, e.g., id.J If barriers to entry into a market are substantial, then entry will be less likely, especially entry that is significant enough to discipline the exercise of market power. If, however, barriers to entry are few and insubstantial, then the potential for entry as a market disciplining force is given considerable weight.  X-x131. Uncommitted entry refers to entry that can occur quickly (within one year) and without expenditure of significant sunk costs, and is likely to occur in response to the  X-exercise of market power.i yOD -ԍ See 1992 Horizontal Merger Guidelines, supra, 57 Fed. Reg. at 41556 1.32; LEC InRegion,  yO !-Interexchange Order, FCC 97142 at 27 n.78. Because uncommitted entry, by definition, is entry that is possible without making a commitment to stay in business for the long term, such entrants can enter and steal customers from firms that attempt to exercise their market power, and then exit without having to continue operating profitably after the market returns to a more  Xg-competitive equilibrium.Sg( i yO@&-ԍ E.g., Gilbert, supra, at 527.S Such "hit and run" entry can, therefore, provide a substantial check against the exercise of market power. In general the prospects for uncommitted entry"PC ,-(-(ZZ" in telecommunications markets appear limited. In markets for mass market local exchange and exchange access and bundled telecommunications services, uncommitted entry might occur through resale or use of unbundled elements, provided the nonrecurring charges and marketing costs are not so high that they impose significant costs on entry and exit in order to acquire significant numbers of customers.  Xv-x132. As mentioned above, we believe that substantial legal, regulatory, and economic factors make entry and expansion a costly and timeconsuming process in local telecommunications markets. Although the 1996 Act put in place a number of mechanisms that dramatically increase the opportunities for competitive entry, the business of telecommunications will still involve substantial barriers to rapid and costless entry and exit that are intrinsic to the economics of the industry. These barriers include very high reliance on sunk cost investment in facilities (or reliance on the cooperation of competitors), a high value on brand name reputation for providing quality services and proficiency in the marketing services to residential and small business customers. Moreover, the process of implementing the 1996 Act and establishing those mechanisms is not likely to be completed quickly. Many arbitration agreements remain to be negotiated and enforced, rates for unbundled network elements ("UNEs") have not been finalized in many states (and may be appealed once finalized in some of those states), and OSS interfaces are still being developed.  X4-x133. We find that firms other than the most significant market participants are unable to quickly and effectively enter local exchange markets in response to the exercise of market power. A new entrant into the relevant markets will need the following assets: (1) a strong reputation for providing acceptable levels of service at current prices; (2) access to facilities or services, either via ownership, leasing UNEs, or reselling the incumbent's services; and (3) financial incentives and access to financial resources adequate to fund startup operations as  X-well as future expansion in this market.!Xi yO#-ԍ These are the same factors that we used to identify firms that would enter in response to the 1996 Act, which seems appropriate since the necessary requirements are unlikely to change as a result of the exercise of market power after the merger. ! The most significant market participants have expended considerable resources developing their brand reputations and massmarket telecommunications operations. Moreover, they have been doing this for many years. No other firms are in such a position, however. Accordingly, we find that every firm not currently in the market, whether a competitive LEC, cable MSO, wireless provider, or other potential entrant, would have to expend considerable resources over an extended period of time in order to offer a strong check on the exercise of market power.  X-x134. Finally, we observe that market participants other than NYNEX would also face  X-considerable obstacles in expanding their local operations in response to the exercise of market power. Such expansion would, among other things, require additional sunk cost investment. In sum, it appears that the adverse competitive effects resulting from the removal of Bell Atlantic as a significant participant in the market for mass market local""D,-(-(ZZ!" telecommunications services in LATA 132 will not be obviated by the ability of other, less significant actual and precluded competitors to enter or expand in response to the exercise of market power. Neither the firms remaining in the market nor other telecommunications firms not currently in the market appear able to quickly and effectively increase their presence in response to any exercise of market power in the relevant market.  Xv-x135. The Conditions on Our Approval of the Merger Substantially Address the  Xa-Inability of Entry to Discipline an Exercise of Market Power. The commitments made by Bell Atlantic, and our conditions based on those commitments, are designed explicitly to help overcome some of the obstacles to entry discussed in this section. In particular, Bell Atlantic has made commitments that should have the effect of making resale and UNEs available on a lowerpriced and more efficacious basis than they generally are at present. As a result, we believe that remaining market participants will more easily be able to rapidly expand their operations in response to the exercise of market power. In addition, entry and exit will be much easier, and therefore will become materially more attractive to some precluded competitors. Such improved resale and UNEs may afford entrants a longer period to establish brand identity in customers' minds, and to begin a revenue stream before substantial investment of sunk costs is necessary. .   WO<x 44` ` 6. Potential Competition Doctrine and  W8<x44` `  Measurement of Market Concentration   X -x136. Finally, we will compare the results of our analysis of the competitive effects of the merger with those produced using the antitrust law's Potential Competition doctrine, and  X-by measuring market concentration using the quantitative analysis used in the 1992 Horizontal  X-Merger Guidelines the HerfindahlHirschman Index (HHI).i yO@-ԍ See 1992 Horizontal Merger Guidelines 1.51 (a)(c). We have used HHI analysis in numerous contexts  yO-as an initial means of measuring the significance of changes in market concentration. See, e.g., Annual  yO-Assessment of the Status of Competition in the Market for the Delivery of Video Programming, CS Docket  yO-No.96133, Third Annual Report, 12 FCC Rcd 4358, 442021 12021, (1997); Amendment of Parts 20 & 24 of the Commission's Rules Broadband PCS Competitive Bidding and the Commercial Mobile Radio Service  yO(-Spectrum Cap, WB Docket No. 9659, Report & Order, 11 FCC Rcd 7824, 786973, 7899904 (1996). The HHI has also been used by antitrust courts as a basic tool and has been called "a standard measure of market  yO-concentration," Western Resources, Inc. v. Surface Trans. Board, 109 F.3d 782, 875 (D.C. Cir. 1997), and "[t]he  yO-most prominent method of measuring market concentration." FTC v. University Health, Inc., 938 F.2d at 1211n.12. These are tools of general  X-application that have been developed from economic principles.DX` i yO"-ԍ The construction of the HHI is discussed below. The formula for the HHI can be traced directly to  yO#-economic theories about the relationship between market structure and market performance. See, e.g.,  yOS$-Waterson, supra, at 20.D Because the telecommunications industry has a relatively unique history and is characterized by economic, legal, and technical circumstances that are not shared by many other industries, we generally conduct our own expert analysis developed through our experience dealing with"mE ,-(-(ZZ" telecommunications and competition policy. We still use these tools of general application, but we are not bound by rigid adherence to their results where our independent expert analysis produces differing outcomes.  X-x137. Analysis Under Potential Competition Doctrine. The Applicants and the parties opposing the proposed merger have argued extensively about the merits of the antitrust  Xx-doctrine of potential competition and its application to the facts of this case.]xi yO-ԍ Applicants' Reply at 1516; AT&T petition at 1819.] Potential competition doctrine focuses on whether a merger will effectively remove either merging company from "the edge" of the other's market and will, as a result, reduce a competitive  X3-effect that existed before the merger or would have existed but for the merger.u3Xi yO< -ԍ 1984 Merger Guidelines, supra, 49 Fed. Reg. at 26834  4.11.u  X -x138. The traditional actual potential competition doctrine has five elements: (1) the  X -market in question ("the target market") is highly concentrated; i yO-ԍ Marine Bancorporation, 418 U.S. at 630-31; United States v. Siemens Corp., 621 F.2d 499, 505 (2d Cir.  yOO-1980); Antitrust Law Developments, supra, at 323, n.284. (2) few other potential  X -entrants are "equivalent" to the company that proposes to enter the target market by merger;X @i yO-ԍ Antitrust Law Developments, supra, at 323-24, n.286. See also 1984 Guidelines, supra, 49 Fed. Reg. at 26835 4.132 ("The more difficult entry into the market is, the more likely the Department is to challenge the  yOX-merger"). Cf. Mercantile Tex. Corp. v. Board of Governors, 638 F.2d 1255, 1267 (5th Cir. 1981). (3) the company entering the target market by merger was reasonably likely to have entered  X -the market but for the proposed merger;: ` i yO-ԍ Concerning this element, there is case law holding that such entry must be certain. See FTC v. Atlantic  yO-Richfield Co., 549 F.2d 289, 29495 (4th Cir. 1977). We choose, however, to follow the larger and, in our opinion,  yOJ-more reasonable line of cases holding that entry need only be reasonably likely. See, e.g., Tenneco, Inc.v. FTC,  yO-689 F.2d 346, 352 (2d Cir. 1982); Yamaha Motor Co. v. FTC, 657 F.2d 971, 97779 (8th Cir. 1981), cert. denied,  yO-456 U.S. 915 (1982); Mercantile Texas Corp., 638 F.2d at 126869; United States v. Siemens Corp., 621 F.2d 499,  yO-50607 (2d Cir. 1980); BOC Int'l, Ltd. v. FTC, 557 F.2d 24, 2829 (2d Cir. 1977). : (4) that company had other feasible means of entry; and (5) such alternative means of entry offer a substantial likelihood of ultimately  X{-producing deconcentration in the target market or other significant pro-competitive effects.{i yO -ԍ Marine Bancorporation, 418 U.S. at 633; B.A.T. Indus., Ltd., 104 F.T.C. 852, 923-25 (1984); Antitrust Law  yO -Developments, supra, at 324-25, nn.291-93.  Xd-The doctrine applies to situations where a firm (e.g., Bell Atlantic) proposes to enter a concentrated market (e.g., local exchange and exchange access services in New York City) by merging with a company that is already in the market (NYNEX) and, but for the merger, the"8F0,-(-(ZZH"  X-firm likely would have entered in another way (de novo or by acquiring a smaller firm in a  X-"toehold" merger) that would have reduced concentration.Txi yOd-ԍ Antitrust Law Developments, supra, at 322. This doctrine has not been expressly adopted by the United  yO,-States Supreme Court but has been used by lower courts and Federal Trade Commission. See id., at 324-25. It  yO-has been used in previous Commission decisions. See, e.g., SBCPacTel, 12 FCC Rcd at 263338  1728;  yO-Alascom, Inc., File No. WPC 7037, Order & Authorization, 11 FCC Rcd 732, 755 52 (1995); Satellite Bus. Sys., File No. 7DSSP76, Memorandum Opinion, Order, Authorization & Certification, 62 FCC2d 997, 1061-100  yOL-179309, recon. denied, 64 FCC2d 872 (1977), aff'd en banc sub nom.United States v. FCC, 652 F.2d 72 (D.C. Cir. 1980). T  X-x139. Because we are determining whether the Applicants have carried their burden of demonstrating that the proposed merger is in the public interest rather than whether the transaction violates the antitrust laws, we do not reach the question of whether the record establishes a violation of Section 7 of the Clayton Act. Accordingly, we need not conduct an analysis under this doctrine. However, we note that the record contains sufficient evidence of potential harm to competition under application of the actual potential competition doctrine, including evidence of likely entry and deconcentrating effect in the relevant markets, that we cannot, in the absence of procompetitive conditions, conclude that Applicants have met their  X -burden of demonstrating that the merger is in the public interest. i yO-ԍ See Areeda & Hovenkamp, supra, at 170d ("As a general matter, a monopolist's acquisition of a 'likely' entrant into the market in which monopoly power is held is presumptively anticompetitive."). We also note that, consistent with the actual potential competition doctrine, even if a new entrant is able merely to "shake things up" or "engender competitive motion" in the monopolized market, that alone  X -may make a significant contribution to competition.H ` i yO-ԍ See BOC Int'l, 557 F.2d at 27: XxThere is some question as to the importance of [predicting whether the new entrant will have a pro-competitive effect in the market], since typically in an oligopolistic situation the entry  yO-of a large firm as a new competitor necessarily has significant pro-competitive effects, see  yO-Ford Motor Co. v. United States, 405 U.S. 562, 587, 92 S.Ct. 1142, 31 L.Ed.2d 492 (1972) (Burger, C. J., concurring and dissenting), at least to the extent of "shak(ing) things up," Turner, supra, 78 Harv.L.Rev. at 1383, or engendering "competitive motion," Robinson, supra, 74 Colum. L. Rev. at 183-84.[Footnote] [Text of footnote:] According to Professor Turner: (T)he problem of proving that the new entrant would have been a substantial competitive factor can be overstated. It is highly likely that a new entrant in . . . a tight oligopoly industry . . . will shake things up a great deal in the process of trying to acquire a substantial market share,  yO1!-even if in the end its inroads are rather modest. 78 Harv.L.Rev. at 1383. . . ." (Parentheses  yO!-and ellipsis in original; brackets added.)    yO#-Cf. Yamaha Motor Co. v. FTC, 657 F.2d at 979 ("Any new entrant of Yamaha's stature would have had an obvious procompetitive effect leading to some deconcentration").  X-x140. Analysis of Concentration Using HerfindahlHirschman Indices. We now develop a quantitative analysis of market concentration using the HerfindahlHirschman Index"}Gp,-(-(ZZK"  X-(HHI) to calculate changes in market concentration and postmerger concentration. i yOy-ԍ 1992 Horizontal Merger Guidelines, supra, 57 Fed. Reg. at 41558 1.5. The HHI is calculated by summing the squares of the firms' percentage shares of the market. A market with an HHI below 1000 is generally regarded as "unconcentrated," a market between 10001800 is generally deemed "moderately  yO-concentrated," and a market above 1800 is "highly concentrated." Id., 57 Fed. Reg. at 41558 1.51. Under the  yO-1992 Horizontal Merger Guidelines, transactions that keep a market HHI under 1000 as "unlikely to have adverse competitive effects." If the merger results in a market HHI between 1000 and 1800 and increases the HHI by more than 100, the Department of Justice and the Federal Trade Commission may consider the merger to  yO-"potentially raise significant competitive concerns." Id. In a market with an HHI above 1800, they generally regard mergers that increase the HHI by more than 50 as "potentially rais[ing] significant competitive concerns" and consider increases of more than 100 points as "likely to create or enhance market power or  yOI -facilitate its exercise." Id. The HHI analysis is typically used as a "screen" to identify cases in which a merger significantly aggravates or creates highly concentrated markets. Further analysis is conducted using the economic principles discussed throughout this section. Because competition in the relevant markets in this case, has been precluded until recently, we will compute hypothetical future market shares based on our analysis of the most significant market participants.  X_-x141. We recognize that evidence of firms' and consumers' expectations as to their likely choice of provider has only limited usefulness as a predictor of future market shares. Nonetheless, we use such evidence in this case to estimate market shares for the limited purpose of confirming our results through HHI analysis of concentration in the relevant local markets. This HHI analysis can be interpreted as characterizing the consequences of the merger for the concentrated ownership of brand name assets. In other circumstances, market shares may be more appropriately calculated for the purpose of HHI analysis based on capacity, revenue, minutes of use, or other measures of economic performance. In fact, under  X -the 1992 Horizontal Merger Guidelines, "[m]arket shares will be calculated using the best  X-indicator of firms' future competitive significance." ( i yOk-ԍ See 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 41557 1.41 (discussing a variety of possible measures of market share and situations where they are particularly useful). In the case of future mergers involving wireline carriers, for example, we would urge parties, where appropriate, to provide us with data regarding the share of total wireline revenues (including local service, toll, and access) possessed by each market participant in the relevant local markets.  X-x142. Based on confidential market research results submitted under seal in this proceeding, we assign hypothetical market shares to each of the most significant market  X-participants in the markets we are analyzing.G  i yO"#-ԍ See Appendix E 62.G Using the HHI to calculate changes in market concentration and postmerger concentration based on these hypothetical market shares, we find that the proposed merger would increase the HHI by over 200 points, to a postmerger  X-HHI above 3400. This is well above the thresholds of the 1992 Horizontal Merger  X-Guidelines for identifying a merger "likely to create or enhance market power or facilitate its"H ,-(-(ZZ"  X-exercise," absent other contrary evidence. i yOy-ԍ See 1992 Horizontal Merger Guidelines, supra, 57 Fed. Reg. at 41558 1.51(c) ("Where the post-merger HHI exceeds 1800, it will be presumed that mergers producing an increase in the HHI of more than 100 points are likely to create or enhance market power or facilitate its exercise"). Even if Bell Atlantic's market share were only 1% and NYNEX's were 53%, the postmerger HHI would exceed 1800 and the merger would increase the HHI by more than 100. In fact, any measurable entry may be reasonably expected to produce a significant procompetitive effect in a monopolized market. For example, even if entry by a merging firm would reduce the dominant firm's market share by only 2%, from 95% to 93%, that would be significant. A merger between those two firms  X-would increase the HHI in the market by 372 points,  xi yO -ԍ The postentry market shares would be 93% for the incumbent LEC and 2% for the new entrant, which produces: 93 x 93 = 8,649; 2 x 2 = 4. The postentry HHI would be at least 8649 + 4, or 8,653. In the postmerger market, however, the monopolist's 95% market share would produce an HHI of 95 x 95, or 9,025. Accordingly, the merger would result in a change of 9,025 8,649 = 372. far more than the 100 that leads to a  X-presumption under the 1992 Horizontal Merger Guidelines that a merger would be "likely to  Xx-create or enhance market power or facilitate its exercise."x` i yO-ԍ 1992 Horizontal Merger Guidelines, supra, 57 Fed. Reg. at 41558 1.51(c).   XJ-x143. The fact that HHI analysis indicates that the merger is "likely to create or enhance market power or facilitate its exercise," however, does not substitute for our more detailed examination of competitive concerns. Rather, it confirms our analysis by showing  X -that the merger does generate competitive concerns. In fact the 1992 Horizontal Merger  X -Guidelines state, "market share and concentration data provide only the starting point for analyzing the competitive impact of a merger. Before determining whether to challenge a  X -merger, . . . other market factors" must be considered.~ i yOe-ԍ 1992 Horizontal Merger Guidelines, supra, 57 Fed. Reg. at 41558 2.0. See also HTI Health Services, Inc.  yO--v. Quorum Health Group, Inc., 960 F. Supp. 1104,1128 (S.D. Miss. 1997) (market share statistics are not  yO-conclusive indicators that a merger will have anticompetitive effects); AntiMonopoly, Inc. v. Hasbro, Inc., 958 F.  yO-Supp. 895, 903 (S.D.N.Y. 1997), citing United States v. Waste Management., Inc. 743 F.2d 976, 983 (2d Cir. 1984),  yO-and Ball Memorial Hospital, Inc. v. Mutual Hospital Ins., Inc., 784 F.2d 1325, 1335 (7th Cir. 1986) ("Where barriers to entry into the relevant market are low, a defendant's large market share may not accurately reflect market  yO-power"); FTC v. Butterworth Health Corp., 946 F. Supp. 1285, 1294 (W.D. Mich. 1996) ("In order to prevent injunctive relief, defendants must rebut this prima facie case by showing under the facts of this case, notwithstanding the statistical evidence, that the proposed merger is not likely to result in anticompetitive  yOm -effects"); United States v. KimberlyClark Corp., 1996-1 Trade Cases 71,405, 1996 WL 351145, at 11 (N.D. Tex. 1996) ("Scott's market share, however, understates its competitive significance.").~   W<x 44` ` 7. Conclusion   Xh-x144. Based on the evidence in the record and our analysis of competitive market conditions, we find the proposed merger of Bell Atlantic and NYNEX is likely to have two predictable effects. First, we conclude that the merger is likely to strengthen NYNEX's":IP,-(-(ZZ" market power against erosion from competition, and to increase the likelihood that one or more of the most significant market participants may unilaterally exercise market power, Second, we conclude that the merger increases the likelihood of coordinated interaction among the most significant remaining market participants to increase (or not reduce) prices, reduce quality or restrict output.  Xv-x145. We further conclude that, although this remains a regulated market environment, the possible increase in market power remains an important concern. Such increased market power would be fundamentally inconsistent with the primary policy goal of the 1996 Act the development of competition in, and the deregulation of, telecommunications markets.  X -x146. Finally, we find that the Applicants have not demonstrated that additional entry and expansion that might occur in response to the exercise of market power is likely to be rapid or sufficient enough to mitigate our concern that the proposed merger may have an adverse impact for consumers. We do find, however, that the commitments made by Bell Atlantic, and made a condition of our approval of the merger, mitigate the concerns that we have as a result of our analysis of the likely competitive effects of the merger.   Xb-x E.44Other Competitive Effects  X4-x147. Until competition develops sufficiently to erode market power and permit deregulation, we will be concerned with the impact of proposed mergers on the effectiveness of this Commission's and state commissions' ability to constrain market power and ensure fair rules for competition. A reduction in the number of separately owned firms engaged in similar businesses will likely reduce this Commission's ability to identify, and therefore to contain, market power. One way that this can happen is by reducing the number of separately owned and operated carriers that can act as "benchmarks" for evaluating the  X-conduct of other carriers or the industry as a whole. i yO -ԍ That benchmarks can be of value for regulation is explained by the economic theory of principalagent  yO-relationships. See, e.g., Bengt Holmstrom, Moral Hazard and Observability, 10 Bell J. Econ. 74-91 (1979). Holmstrom observes that agent performance improves when the principal can obtain additional sources of information about the agent's activity or the state of nature. We find that the ability to compare actions of a larger number of carriers improves our ability to identify and constrain market power. Recently, for example, we determined whether any individual LEC's physical collocation tariff was unreasonable by examining whether that tariff substantially deviated  X7-from averages of the tariffs submitted by all LECs.)X7i yO"-ԍ Local Exchange Carriers' Rates, Terms, and Conditions for Expanded Interconnection Through Physical  yO`#-Collocation for Special Access and Switched Transport, Second Report & Order, FCC 97208  143, 146 (June13, 1997).) Also, in establishing the productivity adjustment factor for price cap LECs, we rely on calculations of industrywide productivity. The smaller the base on which this number is calculated, the more likely it is to include" J,-(-(ZZ=" distortions and create unwanted incentives for cost misallocation by regulated companies that price caps were intended to mitigate.  X-x148. The existence of several Bell Companies as an important regulatory tool has  X-been praised by the DOJ, the Courts, and the Bell Companies themselves.i yO-ԍ Peter W. Huber, United States Department of Justice, Antitrust Division, The Geodesic Network: 1987  yO-Report on Competition in the Telephone Industry 3.543.55 (1987). The issue of the number of Bell Companies was not discussed to any significant degree in either the MFJ or in the District Court's opinion approving the  yOu-Bell System Plan of Reorganization.  See United States v. AT&T, 552 F. Supp. 131 (D.D.C. 1982); United States v.  yO= -Western Elec. Co., 569 F. Supp. 1057 (D.D.C.), affirmed sub nom. California v. United States, 464 U.S. 1013 (1983). In commenting on the proposed divestiture of local Bell Companies by AT&T ("the divestiture), the DOJ observed that it would consider the impact of the proposed configuration of Bell Companies  X_-on the likelihood that the MFJ's nondiscrimination requirements would be achieved._xi yO -ԍ United States v. Western Electric Co., 47 Fed. Reg. 7170, 71745 (Feb. 17, 1982) (United States Department of Justice, Competitive Impact Statement). In addition, Peter W. Huber, in his 1987 report as a consultant to the Department of Justice, observed that reliance on benchmarking also improved the Commission's regulation of interconnection and monitoring of network performance: "Benchmarking one LEC's performance against another in the postdivestiture marketplace has proved an effective regulatory tool. Laggard or eccentric LEC performance stands out when eight large holding companies line up for periodic regulatory inspection. . . . In the three years since divestiture the FCC has thus had recent occasion to use highestcommondenominator regulation among the LECs." The report cites a plan by Ameritech to introduce "Feature Node Service Interface" interconnection to their switches, which triggered the Commission to require  yO-"open architecture" proposals from other Bell Companies. Peter W. Huber,  The Geodesic Network, supra, at 3.24 & n.84. Several years later, responding to an appeal of the MFJ's lineofbusiness restrictions, the U.S. Court of Appeals for the District of Columbia Circuit noted: XxThere is a lot of evidence that the breakup and other recent developments have enhanced regulatory capability. . . . [T]he existence of seven [R]BOCs increases the number of benchmarks that can be used by regulators to detect discriminatory pricing. . . . Indeed, federal and state regulators have in fact used such benchmarks in evaluating compliance with equal access requirements. . . and in comparing installation and maintenance practices for  Xy-customer premises equipment.yi yO -ԍ United States v. Western Elec. Co., 993 F.2d 1572, 1580 (D.C. Cir.), cert. denied, 126 L. Ed. 2d 438 (1993).   XK- x149. Aside from the DOJ and the courts, the Bell Companies themselves have emphasized the importance of benchmarks, and especially seven benchmarks, as an important regulatory tool. Ameritech stated: "No amount of sophistry can suppress the importance of  X-benchmarks"hi yO&-ԍ Ameritech Response to Comments on the Report and Recommendations of the United States Concerning  yO&-the Line of Commerce Restrictions, Civil Action No. 820192 (Apr. 24, 1987), at 23.  See also id. at 21, 42. and that "division of the local exchange networks among seven independent"K,-(-(ZZ" companies has greatly enhanced the detectability of any monopoly abuse and the effectiveness  X-of regulation. Anticompetitive conduct was far less detectable in the predivestiture era . . ." i yOb-ԍ Ameritech Comments on the Report and Recommendations of the United States Concerning the Line of  yO*-Business Restrictions, Civil Action No. 820192 (Mar. 13, 1987), at 10.  See generally id. at 712.  See Ameritech Reply to Responses to Comments on the Report and Recommendations of the United States Concerning the Line of Business Restrictions, Civil Action No. 820192 (May 22, 1987), at 47.  Bell Atlantic stated: "Each BOC serves as a benchmark against which the Commissions can measure the performance and behavior of the next; such comparisons were quite impossible  X-before divestiture."i yO -ԍ Bell Atlantic, BellSouth, NYNEX and Southwestern Bell Corporation Motion to Vacate the MFJ, Civil Action No. 820192 (July 6, 1994), at 29. BellSouth stated: "The [seven RBOCs] will also facilitate the detection of questionable competitive practices by allowing each BOC to serve as a benchmark for the  Xv-others."xvi yO/-ԍ BellSouth Response to Comments on the Justice Department Recommendations and Memorandum in Support of Motion for Relief from II(D) of the Modified Final Judgment, Civil Action No. 820192 (Apr. 27,  yO-1987), at 16. See BellSouth Corporation Comments on the Justice Department Recommendations Concerning Section II(D) of the Modified Final Judgment, Civil Action No. 820192 (Mar. 13, 1987), at 18, 22 ("Since there are now seven [RBOCs], regulators can and do compare the activities of all so that the practices of any BOC manufacturing affiliate can be used as a benchmark to detect undesirable conduct by other BOCs," citing  yO-Huber, Geodesic Network, at 15.10, 16.21). NYNEX stated: "Without such benchmarks, there was no uncomplicated and ready test for uncovering anticompetitive conduct. Divestiture changed all this. There are now seven independent companies. A firm, constant and readily available basis exists for  X1-comparing the actions of any one against the actions of another."1H i yO*-ԍ NYNEX Response to Comments Filed on the Report and Recommendations of the Department of Justice,  yO-Civil Action No. 820192 (Apr. 27, 1987), at 2223.  See id. at 7; NYNEX Comments on the Department of Justice's Report and Recommendations Concerning the Line of Business Restrictions Contained in the Modified Final Judgment, Civil Action No. 820192 (Mar. 13, 1987) at 2526, (one Bell Company's behavior is restricted by the standard set by the other six). Pacific Bell stated: ""The ability to discriminate has also been markedly reduced by the postdivestiture emergence of vigorous competition among the BOCs providing real yardsticks against which to evaluate  X -any individual BOC's actions."m i yO-ԍ Pacific Telesis Motion for Waiver of the Line of Business Restrictions, Civil Action No. 820192 (Apr.27,  yO]-1987), at 59. See id. at 89, 41, 75, 89, 95; Affidavit of Jerry A. Hausman,  26, appended to the Pacific Telesis Motion for Waiver; Pacific Telesis Group Comments in Support of the Recommendations of the United States, Civil Action No. 820192 (Mar. 13, 1987), at 810; Pacific Telesis Group Reply to Comments in Support of Motion to Remove Certain Line of Business Restriction, Civil Action No. 820192, Ref. 3505 (May22, 1987), at 1921.m Southwestern Bell stated that seven benchmarks provide "an effective deterrent against even subtle attempts to abuse any advantage which might arise  X -from the ownership of local exchange communications facilities."X i yO%-ԍ Southwestern Bell Corporations Comments on the Report and Recommendations of the United States  yO%-Concerning Line of Business Restrictions, Civil Action No. 820192 (Mar. 13, 1987), at i.  See also Southwestern Bell Reply to Responsive Comments and Comments of the United States Regarding the Line of Business"&,-(-(&" Restrictions (May 22, 1987), at 14. U.S. West stated that" LX,-(-(ZZ " "lingering concerns about discrimination are unwarranted" after the divestiture because benchmarking would effectively detect any discrimination which might occur when a Bell  X-Company attempts to abuse access to customer or network information.xXi yO-ԍ U.S. West Comments Concerning the Report and Recommendations of the United States Concerning the Line of Business Restrictions Imposed on the Bell Operating Companies by the Modified Final Judgment, No.82 yOk-0192 (Mar. 13, 1987), at 3637.  See also U.S. West Memorandum Presenting Points and Authorities in Support of its Motion for Relief from the Line of Business Restrictions Imposed by II(D), Civil Action No.82-0192 (Apr. 27, 1987), at 135, 147 (Benchmarking would prevent any crosssubsidy between the local exchange and interexchange by U.S.West. "In this respect, the effectiveness of federal and state regulatory agencies has been significantly enhanced by divestiture."), 149, 151.  X-x150. Not only the number, but also the size, of Bell Companies influences the Commission's benchmarking practices. As part of its price cap regulation, the Commission calculates a single "X Factor" applied to all "PriceCap LECs" based on industrywide increases in productivity. The Commission has committed to review the level of the X Factor  XH-every two years.cHi yO-ԍ Access Charge Reform Order, FCC 97-159 at 166.c Periodically readjusting a carrier's X Factor to reflect its own  X1-productivity gains can blunt that carrier's incentives to increase its productivity.@1( i yO -ԍ Id. at 167.@ Also, when a carrier's productivity gain is a small component of a calculation of an industrywide X Factor, readjustment of the X Factor will have very little effect on the carrier's incentives to become more efficient. A merger between Bell Companies, however, increases the relative importance of the newly formed carrier in the calculation of the industrywide X Factor. This increases the blunting effect on productivity incentives that any readjustment of the X Factor will have on the merged carriers. Thus, a merger between large incumbent LECs will reduce the Commission's ability both to give carriers the incentive to become more effective and to reflect accurately the state of productivity in the X Factor.  XK-x151. Third, a decrease in the number of Bell Companies impairs the Commission's ability to monitor service quality. Large incumbent LEC service quality is monitored by the Commission through the use of data collected in the Commission's Automated Reporting Management Information System ("ARMIS"). If the number of large incumbent LECs is reduced, the Commission would obtain service quality information from fewer independent entities. As a result, the Commission would have fewer diverse sources of information about the service quality of incumbent LECs.  X-x152. In addition, consolidation among major incumbent LECs may also hinder and delay the transition to competitive, deregulated telecommunications markets by making it more difficult for the Commission and state regulators to develop and enforce necessary procompetitive rules. Mergers between incumbent LECs will likely reduce experimentation and"NM ,-(-(ZZ" diversity of viewpoints in the process of opening markets to competition. Also, mergers increase the likelihood that cooperation among incumbent LECs can effectively inhibit or delay the implementation of the 1996 Act and other procompetitive initiatives.  X-x153. As AT&T notes, the proposed combinations of major incumbent LECs may deprive this Commission, state commissions, and the courts of a unique and valuable contribution to the continued implementation of the 1996 Act and to the process of replacing  X_-regulation with competition._i yO-ԍ AT&T Sept. 23, 1996 Petition at 27-28 (discussion of "best practices"); AT&T Dec. 26, 1996 Comments,at 3843. During the implementation of the 1996 Act, we will attempt to determine the best ways to encourage competition and pave the way for deregulation in local markets. The more independent LECs there are in this process, the more experimentation in different implementation efforts they will likely attempt. Through such experimentation and diversity, we are likely to discover solutions to issues and to resolve problems sooner than we otherwise would. We believe that the process of opening local telecommunications markets to competition and deregulation will likely be slowed by consolidation among incumbent LECs who would otherwise be participating in the process.  X-x154. Another likely harmful effect of mergers of major incumbent LECs is to increase their ability and incentive to resist the procompetitive process. On many issues, incumbent LECs as a group would best serve their collective interest if they all cooperated minimally with regulators and competitors during the process of opening their local markets to competition. On any particular issue, however, one incumbent LEC may have an incentive to  X-cooperate with its competitors, contrary to the interests of other LECs. x i yO-ԍ For example, this may arise from regional differences between the areas served by different incumbent LECs. An incumbent LEC serving many densely populated areas may have the ability and incentive to develop a method for accommodating competitive LECs there that would be developed only later by another incumbent LEC whose territory includes only a few densely populated areas. This would enable competitive LECs in the latter incumbent LEC's territory to be accommodated sooner than would otherwise be the case. If those two incumbent LECs were under common management, however, the combined entity might not have as much incentive and ability as the first incumbent LEC would to develop such a method. If the incumbent LEC cooperates, that will reduce the others' ability to refuse to cooperate the same way (or in some other ways of their own devising). This incentive for individual incumbent LECs to  X-"break ranks"?!X` i yO -ԍ Over time, a LEC's dilemma in deciding whether to cooperate at some time with one or more competitors appears somewhat analogous to the "Prisoners' Dilemma." Dennis W. Carlton & Jeffrey M. Perloff,  yOy"-Modern Industrial Organization 25456 (2d ed. 1994).? speeds the procompetitive process. If two major incumbent LECs merge, however, then this incentive may be reduced. To the postmerger incumbent LEC, cooperation in one area may have untoward consequences in another and cooperation may be against the firm's overall interests. This may result in the postmerger incumbent LEC"N !,-(-(ZZ" cooperating less than the premerger incumbent LECs would have in enabling competition to  X-grow.F"i yOb-ԍ See supra part IV.D.3.F  X-x155. With respect to the proposed merger, combining Bell Atlantic and NYNEX  X-would reduce the number of Bell Companies by one, from six to five. Opponents of the proposed merger also present arguments concerning the optimum number of Bell Companies. AT&T contends that the MFJ created seven regional Bell Companies so that each would be  X_-the size required for efficient operations.N#_Xi yOh -ԍ AT&T Sept. 23, 1996 Petition at 68.N AT&T also argues that there are no close historical parallels that can be used to determine what regulatory measures will best ensure competition, so that the development of local competition will be advanced by having the  X -greatest number of major incumbent LECs acting independently to unbundle their networks.$ i yO-ԍ AT&T Sept. 23, 1996 Petition at 27. MCI similarly argues that Bell Companies entering each other's regions will establish benchmarks that will be useful for other entrants. MCI Comments at 10. CPI and others contend that the merged LECs will be more difficult for regulators to  X -police,Q% @i yO-ԍ CPI Petition at 14; MCI Comments at 10.Q and that Congress expected the Bell Companies to compete, not merge.& i yO-ԍ CPI Petition at 10. In support of this last contention, CPI cites the 1996 Act provision that prohibits any  yOL-Bell Company from manufacturing in conjunction with another BOC. See 47 U.S.C.  273(a) (1997). In response, applicants respond merely that AT&T's interpretation of the MFJ is wrong and that even after the proposed merger there will remain "5 RBOCs, GTE, SNET, and countless other  X -independents."d' ? i yO-ԍ Bell AtlanticNYNEX Oct. 24, 1996 Reply Comments at 3132.d  Xy-x156. We agree with Applicants that the reduction in the number of Bell Companies from six to five does not sufficiently impair our ability to ensure just and reasonable rates, constrain market power, or establish and enforce the procompetition rules necessary to achieve competition and deregulation that we should find the proposed merger is not in the public interest. In this case, too, the commitments made by Bell Atlantic represent substantial cooperation with our procompetitive goals. Further reductions, however, become more and more problematic as the potential for coordinated behavior increases and the impact of individual company actions on our aggregate measures of the industry's performance grows. We therefore reject suggestions in the record that there would be no issues raised by the  X-consolidation of all Bell Companies into a single company.( i yO*$-ԍ Bell AtlanticNYNEX June 23, 1997 Comments, Attachment 2 (Declaration of William F. Baxter) at 3, 3(c). Accordingly, although we do not find the reduction in major incumbent LECs caused by the proposed merger sufficient to"O' (,-(-(ZZo" render it against the public interest, further reductions in the number of Bell Companies or comparable incumbent LECs would present serious public interest concerns.  X- rV. ANALYSIS OF POTENTIAL PUBLIC INTEREST BENEFITS ă  X-x157. Once we have examined the potential harms to competition of the proposed  Xv-merger, we next examine any potential procompetitive benefits of the transaction.)vi yO-ԍ Such an inquiry is whollyconsistent with both antitrust law and our own precedent. See, e.g., FTC v.  yO-University Health, Inc., 938 F.2d, 1206, 1222 (11th Cir. 1991); Bell Atlantic Mobile Systems, Inc., Order, 10 FCC  yO -Rcd 13368, 1338485 (WTB 1995), application for review pending on other grounds. Cf. HTI Health Services, Inc.  yOG -v. Quorum Health Group, Inc., 960 F. Supp. 1104, 1140 passim (S.D. Miss. 1997) ("Because the Court finds as a fact that Quorum did not enter into the merger with the specific intent to monopolize, but with the intent to  yO -provide better health care to the Vicksburg community, Columbia's Sherman Act claim is denied"); 1992 Merger  yO -Guidelines,  4, supra, 57 Fed. Reg. at 51,562. To the extent that the April revision to the 1992 Guidelines is a  yOg -refinement of our prior policy , see, e.g., Pacific Telesis Group and SBC Communications, Inc., Memorandum Opinion and Order, Rpt No LB9632, 12 FCC Rcd 2624, 265761 70-84 (1977), we find it to be a more precise measurement of public policy effects and therefore beneficial. These procompetitive benefits include any efficiencies arising from the transaction if such efficiencies are achievable only as a result of the merger, are sufficiently likely and verifiable, and are not the result of anticompetitive reductions in output or increases in price. Procompetitive benefits also include procompetitive conditions either proffered by the applicants, by other parties, or imposed by the Commission on its own motion. Applicants can carry their burden of demonstrating that the proposed transaction is in the public interest only if the transaction on balance will enhance and promote, rather than eliminate or retard, competition. This necessarily is a balancing process that weighs the potential public interest harms against public interest benefits. As the harms to the public interest become greater and more certain, the degree and certainty of the public benefits must also increase commensurately in order for us to find that the transaction on balance serves the public interest, convenience and necessity.   XK-x A. Efficiencies  X-x158. Efficiencies are the procompetitive benefits of a merger that improve market performance. Efficiencies generated through a merger can mitigate competitive harms if such efficiencies enhance the merged firm's ability and incentive to compete and therefore result in  X-lower prices, improved quality, enhanced service or new products.*` i yO -ԍ See Department of Justice & Federal Trade Commission, 1992 Horizontal Merger Guidelines, 1997 WL  yO!-166999 (April 8, 1997) (revision) (1997 Horizontal Merger Guidelines Revisions). Procompetitive  X-efficiencies include only those efficiencies that are merger specific, i.e., that would not be  X-achievable but for the proposed merger.+X i yO%-ԍ Cf. id. ("The agency will consider only those efficiencies likely to be accomplished with the proposed merger and unlikely to be accomplished in the absence of the proposed merger or other means having comparable anticompetitive effects.") Efficiencies that can be achieved through means"P+,-(-(ZZ" less harmful to competition than the proposed merger, therefore, cannot be considered to be true procompetitive benefits of the merger. Efficiencies are particularly significant if they improve market performance in a relevant market and thereby reduce the competitive harms  X-otherwise presented by the proposed merger.,Xi yO4-ԍ See id. (". . . the Agency considers whether cognizable efficiencies likely would be sufficient to reverse the merger's potential to harm consumers in the relevant market, e.g., by preventing price increases in that market.") In order to mitigate competitive harms, however, efficiencies cannot result from anticompetitive reductions in output or service. Applicants bear the burden of showing both that merger specific efficiencies will occur, and that they sufficiently offset any harm to competition such that we can conclude that the transaction is procompetitive and therefore in the public interest. Finally, applicants cannot carry their burden if their efficiency claims are vague or speculative, and cannot be verified by reasonable means.  X -x159. Efficiencies are most likely to make a difference in our public interest review of  X -a merger when the likely adverse competitive effects, absent the efficiencies, are not great.7- i yO-ԍ See id.7  X -However, efficiencies almost never justify a merger to monopoly or near-monopoly.7. xi yO-ԍ See id.7   W <x 44` ` 1. Applicants' Efficiency Claims   Xy-x160. Bell Atlantic and NYNEX contend that the proposed merger will produce  Xb-substantial cost savings that are "hard, real and certain."/bi yO-ԍ Applicants June 23, 1997 Comments, at 2  3, Declaration of Lawrence T. Babbio, Jr. (June23, 1997) at  3 (Babbio June 23 Declaration) (Redacted Version). In particular, Applicants foresee four main efficiency benefits from the proposed merger: (1) costofservice efficiencies from eliminating redundant functions; (2) the creation of a more viable longdistance competitor; (3) improved telephone service quality in the New York and New England areas; and (4)  X-more rapid and widespread deployment of broadband services.x0` i yO-ԍ Id. See also Application, Ex. B, Public Interest Statement, at 4.x  X-x161. Costof Service Efficiencies. Applicants represent that within three years of consummating the merger, Applicants expect to achieve annual cost savings that approach $1 billion per year. According to Applicants, these savings fall into two broad classifications: operating expenses (totalling approximately $600 million per year) and capital savings"Q 0,-(-(ZZ`"  X-(totalling $250 to $300 million per year).;1i yOy-ԍ Id. at 89.; These asserted cost savings are described further  X-in Appendix E.Q2Xi yO-ԍ See Appendix E at  8488.Q  X-x162. Applicants breakdown their purported operating expense savings into ten basic accounts: (1) corporate staff reductions; (2) procurement savings from expanded base; (3) development of new software systems; (4) research and development consolidation; (5) advertising savings; (6) combined business development and strategic planning; (7)  X_-consolidation of corporate fees (auditing, bank fees, etc.); (8) product management and development savings; (9) consolidation of White and Yellow Page directories; and (10)  X3-savings in the cost to provide longdistance services. W33i yO -ԍ Babbio June 23 Declaration, at  517.W  X -x163. In addition to the aforementioned operating expense savings, Applicants expect the merger to produce $250 to $300 million in annual capital expenditure savings in two basic ways: first, Applicants expect to achieve capital purchasing savings from increased volume discounts the two companies will obtain when they pool their annual network capital  X -expenditures.F4 xi yO-ԍ Id. at  4, 18.F Second, Applicants expect to save substantial dollars in capital expenses  X-annually by consolidating field trials of new equipment and test laboratories.5i yOK-ԍ Id. at  19. See also Application, Ex. B, Public Interest Statement at 57.  Xd-x164. Creation of a More Viable LongDistance Competitor. Applicants contend that the merger will generate additional efficiency savings because the merger will create a more viable longdistance competitor to AT&T, Sprint and MCI. These efficiencies are detailed  X!-further in Appendix E.R6!i yOj-ԍ See Appendix E at  86, 88.R  X-x165. Improvements to NYNEX Service Quality. Applicants maintain that the merger will enhance NYNEX's ability to fix its quality of service problems. In support, Applicants point out that the NYPSC, in its March 21, 1997 decision approving the proposed merger, specifically recognized that the merger holds the very real prospect of significantly improving the level of NYNEX's service quality to the level enjoyed by the Bell Atlantic states. Applicants further argue that the magnitude of the opportunity to achieve these efficiency  Xk-savings is even supported by the Commission own data.Q7k( i yOD&-ԍ Babbio June 23 Declaration, at  23.Q "TR 7,-(-(ZZ0"Ԍ X-x166. Broadband Deployment. According to the Applicants, telephone companies, as a generic industry necessity, are beginning a process of replacing their existing networks with new "broadband" networks constructed from high capacity, digital equipment capable of  X-carrying video signals.8i yO6-ԍ Id. at  20. See also Application, Ex.B, Public Interest Statement, at 7.  X-x167. Applicants state that despite the necessity of this upgrade, network deployment  Xx-has been slower and more difficult than expected.Q9xXi yO -ԍ Babbio June 23 Declaration, at  20.Q Thus, argue Applicants, the merger will hasten the deployment of broadband in three ways: (1) the merger will reduce certain perunit costs such as software development which, postmerger, could then be spread across a larger customer base; (2) not only will the merger increase the merged entity's financial strength (and, with such strength, hopefully lower its cost of capital), but the merger will also create substantial cash savings, some or all of which Applicants intend to invest into broadband network deployment; and (3) given the size of the merged entity's geographic footprint, the merger would help mitigate many of the numerous network compatibility  X -problems the industry is currently experiencing.?: i yOY-ԍ Id. at  22.? These alleged efficiencies are detailed  X -further in Appendix E.J; xi yO-ԍ See Appendix E at  87.J   W{<x 44` ` 2. Discussion   XM-x168.CONSUMERS We conclude, based upon review of the evidence submitted in the record, that Applicants have not carried their burden of demonstrating that the proposed merger will create verifiable mergerspecific efficiencies that offset the merger's competitive harms. Applicants have not proved that the alleged cost savings will offset the unilateral and coordinated effects of the proposed merger in the relevant markets. Nor have they demonstrated that the merger is necessary to create from two ineffective long distance carriers a single effective competitor. In addition, they have not demonstrated that the improvements to service quality could not be achieved but for the merger. Finally, they failed to prove that improved deployment of broadband services is mergerspecific, and that the improved deployment of broadband services is sufficiently likely to occur to offset the loss of competition in the relevant markets.  X9-x169. Costsavings. Even if we accept Applicants' claims as to the amounts of the asserted efficiencies, Applicants have failed to show that all of these costsavings are mergerspecific, or that they mitigate the competitive harms. We have previously found that the" S;,-(-(ZZ"  X-merger will likely have unilateral and coordinated effects that harm competition.D<i yOy-ԍ See supra part IV.D.D Merger generated efficiencies can offset unilateral effects to the extent that such efficiencies reduce  X-marginal costs and thereby counteract the merged firm's incentive to elevate price.m=Xi yO-ԍ See, e.g., 1997 Horizontal Merger Guidelines Revisions m Merger generated efficiencies can also make coordinated interaction less likely or effective if those efficiencies are reductions in marginal costs that make coordination less likely or effective by enhancing the incentive of a maverick firm to lower price or by creating a new maverick  Xv-firm.3>vi yO -ԍ Id.3  XH-x170. First, we note that, at best, only a small fraction of Applicants' asserted cost  X1-savings reduce marginal costs, rather than fixed or overhead costs.Q?1xi yOZ-ԍ See Appendix E at 8487.Q Procurement savings and savings in the costs to provide longdistance services appear to be the only asserted  X -savings that arguably could reduce marginal costs.+@X i yO-ԍ Procurement savings reduce the cost of incremental inputs, thereby reducing marginal cost. Savings in the cost of providing long distance services, to the extent that they represent real productive efficiencies, also represent a reduction in marginal cost.+ Accordingly, most of the claimed costsavings will do little to eliminate the unilateral or coordinated effects of the proposed merger. Moreover, Applicants have not even asserted that the claimed cost savings would turn NYNEX into a maverick competitor in the market to provide local exchange and exchange access, or bundled local exchange, exchange access and long distance services to residential and small business customers in either LATA 132 or the New York metropolitan area. To the contrary, we have previously found that the merger would likely eliminate a firm, Bell  Xb-Atlantic, that had incentives to act as a maverick firm in the relevant market.DAb( i yO;-ԍ See supra part IV.D.D  X4-x171. Second, some of Applicants' asserted cost savings may be the result of the reduction of competition between two firms that would otherwise compete. Research and development, for example, is a means through which firms engage in nonprice competition, by seeking means to differentiate products either in function or quality. Elimination of parallel research and development efforts would eliminate this form of nonprice competition. Applicants bear the burden of proving that the asserted efficiencies are not another form of reducing output, in this case research and development, and they have not carried that burden.  X|-x172. Creation of a More Viable LongDistance Competitor. Mergergenerated efficiencies can also enhance competition if they permit two ineffective competitors to"gT A,-(-(ZZ1"  X-become one effective competitor.fBi yOy-ԍ See 1997 Horizontal Merger Guidelines Revisions.f Applicants have not, however, shown that Bell Atlantic and NYNEX would be ineffective competitors to AT&T, Sprint, MCI and other interexchange carriers. To the contrary, the experience of GTE and SNET in offering inregion, interexchange services suggests that Applicants will be quite effective competitors once they receive authorization pursuant to Section 271 of the Communications Act to offer inregion  X-interexchange services.C Xi yO-ԍ See, e.g., Zaiba Nanji and Kirk Parsons, So Many Choices, Telephony, July 14, 1997 (reporting that J.D. Power research indicates that approximately onethird of SNET's local customer base currently uses the company to place longdistance calls, and that GTE signed up a million longdistance customers within its first year of offering the service).  X_-x173. For reasons outlined above, and more fully described in Appendix E, we therefore conclude that Applicants have not demonstrated in a specific and verifiable manner  X1-that these efficiencies could not be achieved in the absence of the merger.RD1@i yO"-ԍ See Appendix E at  86, 88.R  X -x174. Improvements to Service Quality. Applicants have also not carried their burden of showing that service quality improvements could not be achieved but for the proposed merger. To the extent that service quality improvements result from greater expertise at network operation or management, Applicants have not demonstrated that this expertise could only be achieved through merger. Nor have Applicants demonstrated that the merger is the only means of financing any necessary network improvements. Accordingly, we cannot find that these claimed efficiencies are mergerspecific.  XM-x175. Broadband Deployment. Applicants, and parties supporting Applicants,^EMi yO-ԍ See generally, O'Connor Comments passim.^ have not demonstrated that the asserted efficiencies of the merger with respect to broadband deployment are mergerspecific, likely to occur and reasonably verifiable. Applicants do not even assert, much less demonstrate, that accelerated broadband deployment and improved connectivity between broadband systems cannot be achieved in the absence of the proposed merger or that such benefits can only be achieved through means that have comparably harmful effects on competition.  X-x176. Accordingly, for the reasons stated above and as further detailed in  X-AppendixE,JF` i yO$-ԍ See Appendix E at  87.J we conclude that Applicants have demonstrated only that the merger generates a small amount of likely, verifiable efficiencies that could not be achieved through means other than the merger. We also conclude that even if Applicants fully substantiated all of their claims of cost savings, those efficiencies are not likely fully to mitigate the proposed";U F,-(-(ZZ" mergers' potential competitive harms because they do not sufficiently reduce the likelihood or the magnitude of either the coordinated or unilateral effects of the proposed merger.   X-x B.44Conditions  W<x44` ` 1. General   X_-x177. Previously in part IV, we discussed the potential competitive harms that may arise, especially in the LATA 132 residential and small business local markets, as a result of the merger of NYNEX and one of the most significant participants in this mass market. We have also discussed our concerns that the merger of Bell Atlantic and NYNEX will continue to reduce the diversity, and hence the quality, of comparisons of regulatory and market performance between the Bell Companies. We have also concluded that these concerns are  X -not substantially mitigated by the potential efficiencies the Applicants posit.IG i yON-ԍ See supra part V.A.I If our analysis of the effect of the proposed merger ended at this point, we would have to conclude that the Applicants had not demonstrated that the transaction was procompetitive, and, therefore, served the public interest, convenience, and necessity.  Xb-x178. On July 19, 1997, Bell Atlantic and NYNEX submitted an ex parte filing proffering a number of specific commitments they would undertake as conditions of the approval of the transfer of licenses and 214 certificates, and subsequently clarified those  X-commitments in an ex parte filing on August 13, 1997.|HXXi yO(-ԍ Bell Atlantic and NYNEX July 19, 1997 Ex Parte (filed as an attachment to Bell Atlantic and NYNEX July  yO-21, 1997 Ex Parte); see also Bell Atlantic and NYNEX Aug. 13, 1997 Ex Parte (clarifying certain aspects of the  yO-Bell Atlantic and NYNEX July 19, 1997 Ex Parte).| As discussed further below, these conditions to some extent mitigate the potential adverse competitive effects of the proposed merger in the LATA 132 residential and small business local exchange and exchange access telecommunications markets. These proposed conditions, however, would also apply both inside and outside LATA 132 and the New York metropolitan area. Accordingly, we will also consider whether the procompetitive benefits of the conditions applying to service areas outside LATA 132 and the New York metropolitan area are sufficient to outweigh any residual concerns regarding competitive harms in LATA 132 or the New York metropolitan area. For the reasons set forth below, we conclude that with these commitments, which we incorporate into our order and make express conditions of our approval of the requested transfer of licenses and certificates, the transaction will serve the public interest, convenience and necessity.  X-x179. By our finding that these commitments are sufficient to outweigh the harm to the public interest due to increased market power arising from the removal of a significant potential competitor, we do not suggest that it will be possible in all instances for either applicants or the Commission to craft a set of conditions that create public interest benefits"!VxH,-(-(ZZ " that are sufficient to offset harms to the public interest. It is quite plausible that there will be some mergers of actual or precluded competitors that will present such significant potential harms to competition that there will be no means to conclude that the transaction serves the public interest, convenience and necessity. The elimination of an even more significant market participant than Bell Atlantic would raise even greater competitive concerns. That is not, however, the case we address today.   W_<x 44` ` 2. Conditions To Be Imposed   X1-x180. As noted above, on July 19, 1997, Bell Atlantic and NYNEX filed an ex parte letter in which they specified certain commitments that they would undertake if the  X -transaction were approved, and they further clarified those commitments in an ex parte letter filed on August 13, 1997. We incorporate these commitments and clarifications into our order and make them express conditions of our approval of the transfer of licenses and certificates. As stated above, these conditions apply to the entire Bell AtlanticNYNEX region after the merger. Bell Atlantic's and NYNEX's proffered commitments, and the conditions we impose, are not limited to interconnection agreements that are executed after  X}-approval of the merger.BI}i yO-ԍ Appendix C, Condition 9.B As clarified by their August 13, 1997 ex parte, Bell AtlanticNYNEX must negotiate supplements and amendments to existing interconnections agreements where necessary in response to a request that is covered by the conditions, regardless of  X:-whether such existing agreements expressly provide for amendment or modification.xJ:Xi yOC-ԍ Appendix C, Condition 9; Bell Atlantic and NYNEX Aug. 13, 1997 ex parte.x Bell Atlantic and NYNEX must also treat these conditions as changes in the Commission's rules for the purposes of any clauses in existing interconnection agreements that permit  X-amendments to account for changes in the Commission's rules.Ki yO-ԍ Appendix C, Condition 9; Bell Atlantic and NYNEX Aug. 13, 1997 ex parte; see also 47 C.F.R. 51.301(c)(3);  yOV-Local Competition Order, 11 FCC Rcd at 15576  152. To the extent competing carriers wish to take advantage of the benefits offered by the conditions, they may do so. There is, however, no obligation imposed on competing carriers to incorporate the conditions into preexisting interconnection agreements, or to use the conditions in negotiating future  X-interconnection agreements.(LX@i yO -ԍ See Cablevision July 28, 1997 ex parte (requesting the Commission to clarify that the proposed conditions are only baseline requirements, and do not supersede the terms of interconnection agreements that exceed those baseline requirements). (  Xk-x181. The specific conditions that we impose on Bell Atlantic and NYNEX as a result of this merger are set forth in Appendices C and D to this Order. We expect Bell AtlanticNYNEX to implement each of these conditions in good faith and in a reasonable manner to ensure that competing carriers are able to obtain the full benefits of these conditions as"&W` L,-(-(ZZ" described below. These conditions will sunset fortyeight months after the release of this Order. By requiring these conditions as conditions of the approval of this transaction, we neither preclude this Commission or state commissions from adopting additional requirements in other proceedings, nor do we affect conditions imposed by state commissions on the merging parties. We do not concur with Applicants' assertions that this Commission otherwise lacks jurisdiction to impose these conditions in the context of reviewing a transaction under Sections 214 and 310(d) of the Communications Act, or Sections 7 and 11 of the Clayton Act, or in considering an application for approval to provide inregion,  XH-interLATA service pursuant to Section 271(d) of the Communications Act.MHi yO -ԍ Bell Atlantic and NYNEX July 19, 1997 ex parte at 12. See also infra part III.  X -x182. Several of the conditions listed in Appendix C concern Bell AtlanticNYNEX's OSS systems. Pursuant to these conditions, Bell AtlanticNYNEX must prepare and provide performance monitoring reports for the OSS functions it provides to its retail operations, any separate local exchange affiliate, requesting carriers in the aggregate, and individual  X -requesting carriers.N Xi yO-ԍ Appendix C, Condition 1.b. See also Bell AtlanticNYNEX July 19, 1997 ex parte, Commitment 1.b. These reports cover the provision of unbundled network elements (UNEs), both individually and on a recombined basis, interconnection, as well as resold  X-services.Oi yO@-ԍ Appendix D. See also Bell AtlanticNYNEX July 19, 1997 ex parte, Att. A. The measurements in the performance monitoring reports will cover no larger an  Xy-area than a single state.Pyi yO-ԍ Appendix C, Condition 1.i. See also Bell AtlanticNYNEX Aug. 3, 1997 ex parte, Clarification 1. In addition, Bell AtlanticNYNEX must negotiate with requesting carriers to establish in interconnection agreements performance standards for network performance and the following OSS functions: preordering, ordering, provisioning, billing, and maintenance and repair. Bell AtlanticNYNEX must negotiate with requesting carriers to establish enforcement mechanisms to ensure compliance with each performance standard,  X-including private or selfexecuting remedies.Qi yO-ԍ Appendix C, Condition 7. See also Bell AtlanticNYNEX July 19, 1997 ex parte, Commitment 7. By imposing these conditions, we do not preclude requesting carriers from seeking to modify or to expand upon the listed items in the context of negotiating performance standards. For example, a requesting carrier and Bell AtlanticNYNEX could agree that information about services and facilities that are provided be separately reported for business and residential customers.  X|-x183. Bell AtlanticNYNEX must, within fifteen months, provide uniform interfaces  Xe-for OSS functions throughout the Bell AtlanticNYNEX region (including both a GUIbasedbRei yO#-ԍ The term "GUI" refers to a graphical user interface. b  XN-or other comparable interface and an EDIbased`SN? i yO>&-ԍ The term "EDI" refers to electronic data interchange. ` or other comparable application to application interface), while continuing to provide to individual requesting carriers any"7X S,-(-(ZZ"  X-interfaces agreed upon in preexisting interconnection agreements.Ti yOy-ԍ Appendix C, Condition 2. See also Bell AtlanticNYNEX July 19, 1997 ex parte, Commitment 2. Within the current NYNEX region, Bell AtlanticNYNEX must offer uniform interfaces (including both a GUIbased or other comparable interface and an EDIbased or other comparable interface) no later  X-than 120 days following Commission approval of the merger.UXi yO-ԍ Appendix C, Condition 2.b. See also Bell AtlanticNYNEX July 19, 1997 ex parte, Commitment 2.b. Similarly, within the current Bell Atlantic region, Bell AtlanticNYNEX must offer uniform interfaces (including offering an EDIbased or comparable applicationtoapplication ordering interface and making available, upon request, PCbased software comparable to a GUItype interface) no later than  X_-120 days following Commission approval of the merger.eV_i yO -ԍ Id.; Bell AtlanticNYNEX Aug. 3, 1997 ex parte.e In meeting the requirement for uniform interfaces, Bell AtlanticNYNEX must implement any future standards or guidelines established under the aegis of the Alliance for Telecommunications Industry Solutions (ATIS) within 180 days after final adoption through ATIS. This condition is not limited to any subset of OSS functions, and, therefore, necessarily applies to interfaces for all OSS functions, including preordering, ordering, provisioning, billing, and maintenance and repair. For those standards or guidelines that were adopted through ATIS prior to Commission approval of the merger, Bell AtlanticNYNEX must implement these no later than 180 days after final approval of the standards or within 150 days from Commission approval of the  X-merger, whichever is later.Wxi yO-ԍ Appendix C, Condition 2. See also Bell AtlanticNYNEX July 19, 1997 ex parte, Commitment 2. Bell AtlanticNYNEX must, however, continue to offer both an EDIbased and a GUIbased interface, or comparable interfaces, throughout the Bell AtlanticNYNEX region. Thus, for example, if an ATISsponsored committee adopts EDIbased standards for ordering and provisioning, Bell AtlanticNYNEX must continue to offer a GUIbased interface. Likewise, because Bell AtlanticNYNEX has committed to undertake all commercially reasonable efforts to implement each industry adopted standard or guideline, the commitment covers the latest industry standard for any function.  X-x184. Also with respect to OSS, Bell AtlanticNYNEX must allow a requesting carrier to conduct carriertocarrier testing within fortyfive days of Bell AtlanticNYNEX's receiving  X-a request for such testing.Xi yOc -ԍ Appendix C, Condition 3. See also Bell AtlanticNYNEX July 19, 1997 ex parte, Commitment 3. Requesting carriers may engage in such testing prior to entering into an interconnection agreement. We expect Bell AtlanticNYNEX to work with carriers to establish reasonable parameters for any such tests. Moreover, within six months after the release of this Order, Bell AtlanticNYNEX must provide evidence to the Commission demonstrating that its OSS interfaces are capable of handling reasonably expected demands for all OSS functions with respect to resold services, UNEs, and combinations of UNEs. " YX,-(-(ZZ"Ԍ X-x185. The conditions also contain certain pricing requirements. As an initial matter, we note that Bell AtlanticNYNEX must offer in negotiations, and in certain instances in proposals to state commissions, rates for interconnection, UNEs, and transport and termination that are based upon the forwardlooking economic cost of providing these  X-items.3Y7i yO4-ԍ The Commission has outlined the theory of "forwardlooking economic cost" in its Local Competition  yO-and Universal Service orders. See Local Competition Order, 11 FCC Rcd at 15812869  618732, vacated, Iowa  yO-Utilities Board, 1997 WL 403401 at *9 (vacating on jurisdictional grounds alone, without reviewing the rules on  yO-their merits); FederalState Joint Board on Universal Service, FCC 97157 at  22336, 250.3 This condition extends to both recurring and nonrecurring charges.Zi yO -ԍ Appendix C, Condition 6. See also Bell AtlanticNYNEX July 19, 1997 ex parte, Commitment 6. As noted above, Bell AtlanticNYNEX must, irrespective of whether either Bell Atlantic or NYNEX has a prior agreement with a competing carrier, offer all of the terms contained in the  X_-conditions to all competing carriers upon request.[ _Wi yOg -ԍ See AT&T July 24, 1997 ex parte at 3 (requesting Bell AtlanticNYNEX to clarify that its commitment to use forwardlooking economic costs to determine rates for interconnection, transport and termination, and UNEs applies not merely to "propose[d] rates" as stated in the Bell AtlanticNYNEX letter, but also to rates for existing arrangements and offerings).  X1-x186. In addition to the forwardlooking cost requirement, Bell AtlanticNYNEX must offer to requesting carriers the payment schemes listed in Appendix C for payment of the  X -nonrecurring charges associated with resold services, UNEs, and collocation.\ ? i yO-ԍ Appendix C, Condition 4. See also Bell AtlanticNYNEX July 19, 1997 ex parte, Commitment 4. These payment schemes must be proposed in addition to the option of paying a onetime nonrecurring charge. These payment schemes cover four types of nonrecurring charges. We note that in requiring Bell AtlanticNYNEX to offer different payment schemes for certain nonrecurring charges, we are not suggesting that in all instances it is appropriate to impose a  X-charge at all, nor are we endorsing the level at which the charge is set.]X i yO-ԍ See Cablevision July 28, 1997 ex parte (requesting the Commission to clarify that any approval of the proposed installment payment plan for nonrecurring charges not be construed as an endorsement of the legitimacy of such charges).  Xb-x187. Under the first payment scheme, Bell AtlanticNYNEX must offer all competing carriers an optional plan that assesses nonrecurring charges on a recurring basis for UNEs  X4-and resold services used in the provision of basic residential and business services.^4 i yO!-ԍ Appendix C, Condition 4.a. See also Bell AtlanticNYNEX July 19, 1997 ex parte, Commitment 4.a. The second payment scheme applies to collocation and certain other large nonrecurring charges. Under this scheme, Bell AtlanticNYNEX must offer to competing carriers, with gross revenues of less than two billion dollars, an installment payment plan over a period of up to  X-eighteen months._i yO'-ԍ Appendix C, Condition 4.b. See also Bell AtlanticNYNEX July 19, 1997 ex parte, Commitment 4.b. "Z_,-(-(ZZ"Ԍ X-ԙx188. The third and fourth payment schemes provide payment mechanisms for carrier specific construction and equipment costs, and common construction costs, related to collocation that apportion costs between Bell AtlanticNYNEX and collocating carriers consistent with the requirements that the Commission recently established for LECs in the  X-federal context.7`i yO-ԍ Appendix C, Condition 4.c. (citing Local Exchange Carriers' Rates, Terms, and Conditions for Expanded  yO-Interconnection Through Physical Collocation for Special Access and Switched Transport, CC Docket No.93-162,  yO-Second Report and Order, FCC 97208 at  3233, 4551, and 5456 (rel. June 13, 1997) (Rates for Expanded  yOu-Interconnection Through Physical Collocation). See also Bell AtlanticNYNEX July 19, 1997 ex parte, Commitment 4.c.7 Essentially, Bell AtlanticNYNEX must offer competing carriers the same payment options for the recovery of intrastate nonrecurring charges associated with collocation that they are currently required to offer for interstate nonrecurring charges. Under the third payment scheme, an interconnector may apportion the nonrecurring charges for equipment or construction dedicated to that specific interconnector if the interconnector discontinues service before the end of the useful life of these assets. Pursuant to the Commission's requirement, Bell AtlanticNYNEX must provide the initial interconnector a pro rata refund for the undepreciated value of the assets, provided that a subsequent interconnector takes service and uses the assets or Bell AtlanticNYNEX uses the assets.  X -x189. The fourth payment scheme, consistent with the Commission's requirements in  X -its Rates for Expanded Interconnection Through Physical Collocation order, requires Bell AtlanticNYNEX to choose between three different payment options for the recovery of nonrecurring charges associated with common construction costs. Each of the three payment options enable the initial interconnector to divide the common costs between itself and subsequent interconnectors, or Bell AtlanticNYNEX. Under the first option, Bell AtlanticNYNEX may require the initial interconnector to pay a nonrecurring charge equal to the full amount of common costs that may be incurred in serving the initial interconnector and subsequent interconnectors. Subsequent interconnectors must then pay their proportionate share of the remaining undepreciated value of the common physical collocation assets and Bell AtlanticNYNEX must refund the initial interconnector an amount reflecting what is collected from subsequent interconnectors. Under the second option, if Bell AtlanticNYNEX requires an initial interconnector to pay for all of the common physical collocation construction through a recurring charge, Bell AtlanticNYNEX must reduce this recurring charge when subsequent interconnectors take service and use the same assets. Finally, under the third option, Bell AtlanticNYNEX may charge the initial interconnector a portion of the common construction costs based on a reasonable estimate of the total demand by interconnectors for physical collocation.  X -x190. Finally, Bell AtlanticNYNEX must provide shared transport as a network  X-element for purchase and use in conjunction with unbundled local switching.axi yO&-ԍ Appendix C, Condition 5. See also Bell AtlanticNYNEX July 19, 1997 ex parte, Commitment 5. Bell AtlanticNYNEX is required to price shared transport based on forwardlooking economic cost on a"[a,-(-(ZZ" per minute of use basis. Under this shared transport requirement, Bell AtlanticNYNEX must provide requesting carriers access to the same routing instructions as used by Bell AtlanticNYNEX to route its own local traffic. This will ensure that traffic originated by and terminated to a purchasing carrier's end user subscriber will be routed in the same manner as Bell AtlanticNYNEX's own traffic. Finally, Bell AtlanticNYNEX must offer shared transport without the imposition of interstate access charges.  X_-x191. In response to multiple ex parte filings regarding this Commission's authority to  XJ-enforce the Bell Atlantic and NYNEX commitments,{bJi yO -ԍ AT&T July 24, 1997 Ex Parte at 2; Cablevision July 28, 1997 ex parte.{ we note that, as conditions of the license and 214 certificate transfers, these commitments will be binding upon the Applicants. Individuals may bring any violations of the conditions to our attention through, for example,  X -the filing of complaints pursuant to Section 208 of the Communications Act-c Xi yO-ԍ Nothing in the recent Eighth Circuit decision limiting our authority to adjudicate section 208 complaints regarding noncompliance with state interconnection decisions with sections 251 and 252 limits in any way our authority to adjudicate section 208 complaints regarding the parties' noncompliance with the interconnectionrelated commitments they have proffered and which are made conditions of the grant of the  yO.-applications. See Iowa Utilities Board, 1997 WL 403401 at *13*15.- or oppositions to future applications of the Bell AtlanticNYNEX for additional radio licenses under Section309 or for certificates of convenience and necessity under Section 214. In addition, we note that individuals may also bring suit in federal district court pursuant to Section 207 for a violation of the conditions. The Commission also remains free to investigate any  X-possible violations on its own motion.Udi yOK-ԍ See, e.g., 47 U.S.C.  403 (1997).U Resulting enforcement actions may lead to  X{-sanctions, including, for example, award of damages,Ne{i yO-ԍ See 47 U.S.C.  209 (1997).N imposition of forfeitures,Qf{( i yOT-ԍ See 47 U.S.C.  503(b) (1997).Q and  Xd-license revocation.Tgd i yO-ԍ See 47 U.S.C.  312(a)(3) (1997).T We find that it is not appropriate, as part of this merger review proceeding, to link the adherence of the conditions listed in Appendices C and D, or related  X6-requirements, to Bell AtlanticNYNEX's ability to market long distance services.h@6H i yO/!-ԍ See LCI July 25, 1997 ex parte, Att. at 4. LCI argues that negotiated enforcement mechanisms are inadequate "to ensure Bell AtlanticNYNEX's adherence to the performance intervals established by the states."  yO"-Id. According to LCI, the states and the Commission must have the option of halting for some period of time  yO#-Bell AtlanticNYNEX's ability to market long distance services. Id. We are considering the issue of performance  yOO$-intervals and related enforcement mechanisms in the proceeding related to LCI's petition for rulemaking. See  yO%-Comments Requested on Petition for Expedited Rulemaking to Establish Reporting Requirements and  yO%-Performance and Technical Standards for Operations Support Systems, Public Notice, DANo.971211, RM 9101  yO&-(rel. June 10, 1997) (LCI Public Notice). We"6\Ph,-(-(ZZ*" conclude that issues concerning the marketing and provision of long distance services by Bell AtlanticNYNEX are better addressed in the context of a Section 271 proceeding.   W<x44 ` ` 3. Benefits of the Conditions   X-x192. As noted above, the proposed merger will remove a significant precluded competitor from local markets throughout the NYNEX region, in particular LATA 132. The Commission finds, however, that the conditions described above will, to some extent, mitigate the potential adverse competitive effects of this loss in the LATA 132 and New York metropolitan area residential and small business markets. By reducing the risk and the high sunk costs associated with entry, the conditions will increase the threat of potential entry, and the likelihood of actual entry, as a discipline to any market power exercised by Bell AtlanticNYNEX. Competing carriers will have a better opportunity to compete, by obtaining better quality service, UNEs, and interconnection, which will assist them in developing a brand reputation in Bell AtlanticNYNEX's local market. The Commission also finds that the loss of one of the most significant precluded competitors in the LATA 132 and New York metropolitan area is mitigated to some extent by the fact that entry barriers throughout the Bell Atlantic and NYNEX regions will be reduced as a result of the conditions. Below, we describe how each of the conditions reduce the barriers to entry.  X4-x193. As stated above, several of the conditions concern Bell AtlanticNYNEX's OSS systems. Many competing carriers have emphasized to the Commission the importance of obtaining nondiscriminatory access to OSS functions and of establishing mechanisms to  X-ensure that incumbent LECs comply with the Commission's nondiscrimination requirements.i i yOh-ԍ See, e.g., Petition for Expedited Rulemaking by LCI International Telecom Corp. and Competitive  yO0-Telecommunications Association, CC Docket No. 9698 (filed May 30, 1997) (LCI Expedited Rulemaking Petition);  yO-AT&T Comments on LCI Petition for Expedited Rulemaking, RM 9101 (filed July 10, 1997); ALTS June 24, 1997 ex  yO-parte at 2. In this proceeding, several commenters have suggested that we impose reporting requirements on Bell AtlanticNYNEX as a means of ensuring that it does not discriminate against its  X-rivals.ji yO"-ԍ See, e.g., TCG Sept. 23, 1996 Petition to Deny at 1112; ALTS June 23, 1997 ex parte at 2. We agree that the requirement to produce performance monitoring reports will assist competing carriers in gauging whether they are receiving nondiscriminatory access to OSS functions. The performance monitoring reporting requirements established in Appendices C and D will assist in identifying discrimination in the provision of UNEs, resale, and interconnection by Bell AtlanticNYNEX. To the extent that the reports indicate a lack of parity, the reports can serve as the basis for an appropriate complaint. As a result, it will be easier to enforce compliance with the Commission's nondiscrimination requirements.  X-x194. Moreover, the combination of reporting requirements and negotiated performance standards subject to enforcement mechanisms will help to provide competing carriers with an enforceable means to ensure they will consistently receive nondiscriminatory access and interconnection. The Commission believes that the combination of performance monitoring"!]Wj,-(-(ZZ " reports and performance standards is helpful in two ways. First, the threat of private or selfexecuting remedies, such as, for example, liquidated damages or performance credits, provides Bell AtlanticNYNEX an incentive to meet the predetermined performance standards, independent of complaints to any regulatory authority or the courts. We emphasize that the standard for negotiated enforcement mechanisms is "to ensure compliance with each standard," which may, in some cases, go beyond compensation for tangible economic harm. Second, to the extent that the access and interconnection provided by Bell AtlanticNYNEX falls below the predetermined standards, competing carriers will be able to negotiate to receive some compensation. By reducing the potential for discrimination in the provisioning of OSS functions and by allowing competing carriers to establish performance standards, subject to enforcement mechanisms, the risk of receiving inferior access and interconnection from Bell AtlanticNYNEX is thus reduced. As the level of risk associated with entering the market is reduced, we anticipate that competing carriers will be able to enter the local  X -exchange market more quickly and efficiently.Jk i yON-ԍ In an ex parte filed in this proceeding, ALTS had requested that the Commission commence a proceeding to establish performance standards and service quality standards for implementation of  yO-interconnection agreements. ALTS June 23, 1997 ex parte at 2. ALTS also requested performance and service  yO-quality data, as well as penalties for failure to meet performance standards. Id. The reporting requirements and ability to negotiate performance standards should address ALTS's concerns.J  X -x195. The requirement to provide uniform interfaces on a region-wide basis will also lower entry barriers for new entrants throughout the joint Bell Atlantic and NYNEX region. The condition requiring Bell AtlanticNYNEX to adopt industry standards promptly and on a regionwide basis will reduce the barriers to entry for competing carriers throughout the entire Bell AtlanticNYNEX region. In the interim, we anticipate that the requirement that Bell AtlanticNYNEX provide, within fifteen months after approval of the merger, both the GUIbased and the EDIbased interfaces or other comparable interfaces will ensure that large and small carriers can select the interface that best meets their needs. In this regard, we note that the GUI is a usertosystem electronic interface intended for smallerscale carriers, who seek  X-quick market entry, combined with low investment and an easytouse solution.lxi yO-ԍ See Written Statement of Stuart J. Miller, Vice President, Information Systems, NYNEX, at FCC Forum on OSS, May 28, 1997 at 2. By  X-contrast, the EDIbased interfaces are often preferred by larger carriers.JmXi yOB -ԍ See Comments of Wayne Fonteix, Local Markets Director, AT&T, at FCC Forum on OSS, May 29, 1997, Transcript at 196 (stating that "[the EDI interface] which clearly is AT&T's interface of choice as a large volume carrier . . . Unquestionably, EDI is our interface of choice . . . .").J The grandfathering of any existing interfaces provided for in preexisting interconnection agreements ensures that competing carriers do not lose the benefits of prior agreements. The establishment of uniform interfaces will lower the barriers to entry for competing carriers on a regionwide basis. With regionwide uniform interfaces, an entrant that wants to enter more than one state will not have to test different interfaces for each state. Similarly, if a competing carrier has already"N^ m,-(-(ZZ" entered one state and its interface becomes the region-wide standard, it will be easier for that carrier to enter elsewhere in the region.  X-x196. Similarly, the requirement to allow new entrants to engage in carriertocarrier testing within fortyfive days of receiving a request for such testing, as well as the requirement that Bell AtlanticNYNEX demonstrate operational readiness of OSS capabilities to the Commission, will assist competing carriers in entering the Bell AtlanticNYNEX local market more quickly, as well as in reducing the risks associated with such entry. Requesting carriers will now be able to assess whether the capabilities of Bell AtlanticNYNEX's OSS are sufficient to support their entry into the local exchange market, as well as the sufficiency of the requesting carriers' own OSS. Thus, requesting carriers are likely to be better informed about their systems and their ability to order from Bell AtlanticNYNEX before entering the local market, which increases the potential for successful entry. Moreover, the uniform interface requirement, in conjunction with the testing requirement, will enable a competing carrier to assess Bell AtlanticNYNEX's OSS functions on a regionwide basis, rather than being required to test these systems on a separate statebystate basis.  Xy-x197. The required payment options for compensation of nonrecurring costs are also likely to facilitate entry by competing carriers. The payment option allowing competing carriers who enter as resellers, or with UNEs and/or interconnection, to pay nonrecurring costs on a recurring basis, thereby lowers the cost of entry and reduces the risk associated with entry and expansion. We expect that the effect of initially reducing the sunk cost of winning a customer will provide a greater incentive to competing carriers to enter the local  X-market. nXi yOh-ԍ The sunk cost is reduced because competing carriers need not pay up front the full cost of the nonrecurring charge. Instead, competing carriers can pay the cost on an incremental basis as they earn revenues from the customer.  This pricing structure is expected to increase the threat of potential entry and expansion if the firms in the market engage in coordinated anticompetitive behavior. Moreover, the installment payment option for collocation eases capital requirements for switch deployment by carriers. This encouragement of entry by firms compensates somewhat for the loss of a significant market participant.  Xe-x198. We anticipate that the shared transport requirement will help make entry on both  XN-a large and small scale more economically feasible. As the Commission noted in the Local  X9-Competition Order, by unbundling various dedicated and shared interoffice facilities, a new entrant can purchase all interoffice facilities on an unbundled basis as part of a competing local network, or it can combine its own interoffice facilities with those of the incumbent  X-LEC.joi yO$-ԍ Local Competition Order, 11 FCC Rcd at 1571819,  441.j The opportunity to purchase unbundled interoffice facilities will make the cost of entry much lower than the cost that an entrant would incur if it had to construct all of its own"_xo,-(-(ZZ"  X-facilities.3pi yOy-ԍ Id.3 An efficient new entrant might not be able to compete if it were required to build interoffice facilities when it would be more efficient to use the incumbent LEC's  X-facilities.3qXi yO-ԍ Id.3  X-x199. We believe that access to transport facilities on a shared basis is particularly important for stimulating initial competitive entry into the local exchange market, because new entrants have not yet had an opportunity to determine traffic volumes and routing  X_-patterns.r _i yO -ԍ We are currently considering industrywide issues related to shared transport in another proceeding.  yO -See Petition of the Local Exchange Carrier Coalition for Reconsideration and Clarification, CC Docket No. 9698 and CC Docket No. 95185 (filed Sept. 30, 1996) (concerning the definition of shared transport as an UNE);  yOg -Petition for Clarification of WorldCom, CC Docket No. 9698 (filed Sept. 30, 1996) (same). Moreover, requiring competing carriers to use dedicated transport facilities during the initial stages of competition would create a significant barrier to entry because dedicated transport is not economically feasible at low penetration rates. We note that incumbent LECs have significant economies of scope, scale, and density in providing transport facilities. Requiring transport facilities to be made available on a shared basis will assure that such economies are passed on to competing carriers. Further, if new entrants were forced to rely on dedicated transport facilities, even at the earliest stages of competitive entry, they would almost inevitably miscalculate the capacity or routing patterns. Therefore, we anticipate that Bell AtlanticNYNEX's commitment to provide shared transport will further the entry of competing carriers by allowing additional entry opportunities.  Xb-x200. Finally, the forwardlooking costs requirement allows competing carriers to make investment and pricing decisions based on a cost structure that more accurately reflects the true economic cost of the facilities and services obtained from Bell AtlanticNYNEX, and permits competing carriers to share the economies of scale and scope the incumbent LEC enjoys by virtue of its historic position as a monopolist. We note that the combination of forwardlooking costs and the various payment options for the nonrecurring charges allows the competing carrier to amortize a lower cost over time. We also anticipate that the forwardlooking cost requirement will encourage efficient competitive entry and lead competitors to exert downward pressure on prices. The provisioning of UNEs at prices based on forwardlooking costs is crucial for the development of local competition. Requiring Bell AtlanticNYNEX to set prices based on forwardlooking costs will create an environment in which competitors may enter on an effective basis and drive prices down toward forwardlooking costs. "7`r,-(-(ZZ"Ԍ W<x44` ` 4. Other Proposed Conditions   X-x201. Many parties have suggested other conditions, which we do not impose as conditions of our approval of the proposed merger. Some of these proposals are not related  X-to the potentially harmful effects of the merger that we have identified.si yO-ԍ One such proposal, which we discuss in part IV.C. above, is CFA's proposal that we require applicants to divest their mobile wireless authorizations. Others would merely serve to delay the merger. Other proposed conditions we have adopted in some form. We discuss all these conditions below.  XH-x202. Requiring Bell Atlantic and NYNEX to Meet the Section 271 Checklist Prior to  X3-Consummation of the Merger. Several commenters propose that we require the applicants to meet the checklist of Section 271(c)(2)(B) of the Communications Act in each state of their  X -"home" regions as a precondition to our approval of the proposed merger.t i yO-ԍ CPI Sept. 23, 1996 Petition to Impose Conditions at 1618; TCG Sept. 23, 1996 Petition to Deny at 14;  yO-Cablevision May 12, 1997 Petition to Deny at 14. See also CPI June 25, 1997 ex parte. TCG argues that this procedure will provide at least some assurance that the vertical expansion of the Bell Atlantic and NYNEX operations would not produce anticompetitive effects in local exchange markets as the combined entity enters the interLATA market. AT&T proposes that there should be demonstrated competition throughout the combined region before Applicants may  X-apply for inregion interLATA relief pursuant to Section 271 in any one state.Kuxi yO-ԍ See Appendix E at  102.K  Xf-x203. We believe that the expeditious fulfillment by the Bell Companies of the competitive checklist set forth in Section 271(c)(2)(B) would certainly be in the public interest. We also believe, however, that the Section 271 requirement that the competitive checklist be fully implemented prior to this Commission's approval of any request by the Bell Companies for authorization to provide inregion, interLATA services provides a strong incentive for Bell Companies to promptly implement the checklist. We do not believe that requiring the parties to delay consummation of the merger pending implementation of the checklist would further materially expedite full checklist implementation. We also note that merely delaying consummation of the merger does not serve to mitigate any potential harmful effects on competition, as it is unlikely that, during the period prior to consummation, Bell Atlantic would act as an independent entrant in the relevant markets. Moreover, the determination of whether the proposed merger is in the public interest has no bearing on the question of whether authorization of Bell AtlanticNYNEX to provide inregion interLATA  X;-services would be consistent with the public interest, convenience, and necessity.Wv;i yO$-ԍ See 47 U.S.C.  271(d)(3)(D) (1997).W "$av,-(-(ZZ"Ԍ X-x204. Separate Subsidiaries and Nondiscrimination Safeguards. Cablevision proposes that the Commission establish structural safeguards that would require Bell AtlanticNYNEX  X-to provide non-regulated or "lightly regulated" services through a separate subsidiary.wi yOM-ԍ Cablevision Sept. 23, 1996 Petition to Deny at 9. See also Cablevision June 20, 1997 Ex Parte at 2. In addition to its proposed structural separation requirements, Cablevision urges the Commission to impose certain nondiscrimination safeguards that would control such conduct as Bell  X-AtlanticNYNEX's providing exclusive referrals to its non-regulated subsidiaries.^xXi yO-ԍ Cablevision Sept. 23, 1996 Petition to Deny at 910.^ Cablevision is also concerned that Bell AtlanticNYNEX will have sufficient purchasing power to influence industry hardware and software standards. Cablevision proposes that Bell AtlanticNYNEX be precluded from purchasing these goods unless it can show that the same  X3-terms are available to a competitor.:y3i yO -ԍ Id. at 15.: Finally, Cablevision proposes that we adopt rules similar to those the Commission adopted to implement Section 616 of the Communications Act, which prohibits multichannel video programming distributors (MVPDs) from imposing unfair conditions, such as the forced sale of an interest in the programming to the MVPD, as  X -a condition of carriage.:z xi yO-ԍ Id. at 16.:  X -x205. We find that it is unnecessary, in the context of this merger review proceeding, to require Bell AtlanticNYNEX to establish a separate subsidiary for its "lightly regulated" or nonregulated activities. We note that several of the applicants' nonregulated or lightly regulated businesses, such as cellular, electronic publishing, and video services, are already  XM-subject to regulatory and/or statutory separation requirements.{Mi yO-ԍ See 47 C.F.R.  22.903 (cellular); 47 U.S.C. 274 (electronic publishing); 47 U.S.C.  651 et. seq.  X-x206. We have attempted to address the other nondiscrimination concerns raised by parties through the conditions relating to reporting requirements, performance standards, and private or selfexecuting enforcement mechanisms. These conditions are sufficient for us to find the transaction to be in the public interest. Therefore, we decline to go further and impose additional separation or nondiscrimination conditions in this case. By adopting these conditions we do not, however, foreclose this Commission or state commissions from imposing additional requirements through other proceedings, should such requirements be necessary or appropriate.  XP-x207. Requiring the PassThrough of Cost Savings to Telephone Users. CPI would have us require Bell AtlanticNYNEX to pass through to consumers any benefits that it realizes from operating efficiencies. CPI proposes that we achieve this by requiring rate reductions that reflect cost savings. It acknowledges that such rate reductions would require a" b{,-(-(ZZ" change in regulatory regime, because current price cap regulations employed by the  X-Commission and most states do not require rates to fall when carriers reduce their costs.d|i yOb-ԍ CPI Sept. 23, 1996 Petition to Impose Conditions at 2021.d We decline to force the passthrough of efficiencies through regulation rather than by creating competitive market conditions. The conditions proffered by Bell Atlantic and NYNEX, which we make conditions of the grant of the applications, will help foster a competitive environment that will ultimately yield consumer benefits. Moreover, mandating passthrough of all claimed efficiencies would undermine the incentives our price cap rules create for carriers to become more efficient.  X1-x208. Establishment of Reporting Requirements. Multiple commenters suggest that we impose reporting requirements on Bell AtlanticNYNEX as a means of ensuring that it does  X -not discriminate against its rivals.} Xi yO-ԍ AT&T July 24, 1997 ex parte at 3; TCG Sept. 23, 1996 Petition to Deny at 1112; Cablevision July 28, 1997  yO-ex parte at 1; LCI July 25, 1997 ex parte at 35. After the filing of the Bell AtlanticNYNEX  X -commitments letter, the Commission received several ex partes regarding, among other things, Bell AtlanticNYNEX's commitments to provide performance monitoring reports. TCG asserts that the companies appear to disconnect the performance monitoring reports from the Section 251(c)(2)(C) and (c)(3) requirements to provide parity of performance and quality by  X-stating that these measures can not be used "for any other purpose."~i yO-ԍ TCG July 24, 1997 ex parte at 12 (quoting Bell Atlantic and NYNEX July 19, 1997 ex parte at 2). We disagree with this reading of the proposed commitments. The performance monitoring reports are designed to facilitate detection of discrimination. TCG also argues that without enforcement mechanisms,  XO-reporting requirements are "meaningless."PO@i yO@-ԍ TCG July 24, 1997 ex parte at 2.P We agree, and, therefore, Bell AtlanticNYNEX is required to negotiate performance standards and enforcement mechanisms under the conditions we impose. TCG states that the performance measurement data should be provided now, not ninety days after approval, because the obligation to provide performance  X-parity exists now.3i yOt-ԍ Id.3 While we encourage Bell AtlanticNYNEX to begin making such reports available as soon as possible, it is reasonable to allow some period for implementation of  X-this requirement, with an outer limit of ninety days.  X-x209. Both AT&T and LCI state that Bell Atlantic and NYNEX should commit to provide performance reports on a monthly basis, not quarterly, so that deficiencies can be  Xi-promptly identified and cured.~i` i yOz%-ԍ AT&T July 24, 1997 ex parte at 3; LCI July 25, 1997 ex parte, Att. at 4.~ We note that the conditions provide for monthly tabulation with quarterly publication. Nothing precludes AT&T from seeking in negotiation to obtain reports on a monthly basis. Nor are state commissions, or this Commission, precluded from";c ,-(-(ZZ" requiring more frequent or more detailed reporting in the context of other proceedings. AT&T asserts that Bell AtlanticNYNEX should commit to retain raw data for at least two  X-years to allow audits of its reports and performance.Qi yOK-ԍ AT&T July 24, 1997 ex parte at 3.Q Because it is not clear whether this is feasible, given the state of Bell Atlantic's and NYNEX's information systems, we decline to adopt AT&T's proposed modification at this time.  Xv-x210. Both AT&T and LCI seek modifications to the Bell AtlanticNYNEX performance measurements. AT&T states that Bell AtlanticNYNEX should supply (and  XH-provide support for) measurement objectives.QHXi yOQ -ԍ AT&T July 24, 1997 ex parte at 3.Q LCI asserts that all of the measurement categories listed in its initial comments to its Petition for Expedited Rulemaking should be  X -included as part of the Bell Atlantic and NYNEX commitments.s i yO-ԍ LCI July 25, 1997 ex parte, Att. at 4. LCI also argues that the information in the performance reports should be broken down in terms of services and facilities provided to: 1) Bell AtlanticNYNEX; 2) any local exchange affiliate that Bell AtlanticNYNEX might establish; 3) all competing carriers on average; and 4) an  yO -individual competing carrier. LCI July 25, 1997 ex parte, Att. at 5. We note that the conditions do require  yO-reporting as to services and facilities in such a manner. See Appendix C, Condition 1.b. s AT&T and LCI assert that Bell Atlantic and NYNEX should provide measurement formulas (including any sampling techniques) for each function that will be measured, to assure that the data provided reflect an  X -accurate assessment of its performance.~ i yO-ԍ AT&T July 24, 1997 ex parte at 3; LCI July 25, 1997 ex parte, Att. at 4.~ According to LCI, it has set forth in its initial comments to its Petition for Expedited Rulemaking the minimum measurement formulas that  X -it believes should be adopted for each of the associated measurement categories.P ( i yO-ԍ LCI July 25, 1997 ex parte at 4.P LCI also states that Bell Atlantic and NYNEX fail to address how measurement categories and measurement formulas would be modified periodically to reflect changes in their own systems  Xb-and the market to ensure parity is maintained.Vb i yO-ԍ LCI July 25, 1997 ex parte, Att. at 4.V We will address AT&T's and LCI's concerns more fully in the context of proceedings related to LCI's Petition for Rulemaking. The conditions imposed in this order will provide some base of experience that may be useful to this Commission or state commissions, as the Commission further considers these issues. Because we lack the record here to determine whether all of the performance measurement categories are technically feasible, we decline to specify additional measures at this time based on this record. Similarly, we conclude that the issue of evolving measurement categories and formulas is better addressed in the context of the LCI proceeding, which focuses on performance measurement and reporting. "dH ,-(-(ZZo"Ԍ X-x211. CFA would require Bell AtlanticNYNEX to provide the Commission detailed periodic reports on the cost savings to telephone users in the Bell AtlanticNYNEX service areas. It would also require the merged company to report to the Commission prior to making passive and non-passive investments in, or other equity or ownership agreements  X-with, any entity engaged in providing program content over electronic mass media.Vi yO-ԍ CFA Sept. 23, 1996 Petition to Deny at 910.V  Xv-x212. For the reasons stated above, we decline to adopt CFA's proposal that we monitor any cost savings that Bell AtlanticNYNEX will achieve. Also, given the limited involvement of Bell Atlantic and NYNEX now in the business of program content, we detect no prospect that the proposed merger will confer market power on them in that business. We therefore find no need to monitor their expansion in that business.  X -x213. Establishment of Specific Performance Standards in Conjunction with  X -Enforcement Mechanisms. LCI and TCG ask that we establish specific performance  X -standards. Xi yO-ԍ LCI July 25 ex parte, Att at 45; TCG Sept. 23, 1996 Petition to Deny at 1112. TCG and MCI request that we also impose substantial performance penalties if  X -Bell AtlanticNYNEX fails to meet certain performance levels. i yOD-ԍ TCG Sept. 23, 1996 Petition to Deny at 13; see also MCI June 27, 1997 ex parte, Att. 5 (containing liquidated damages and performance credit provisions excerpted from certain MCI interconnection agreements). In particular, LCI states  X-that Bell Atlantic and NYNEX should establish default performance intervals.X@i yO-ԍ LCI July 25, 1997 ex parte, Att. at 45.X According to LCI, default performance intervals are required in instances in which: 1) Bell AtlanticNYNEX lacks the historical data to establish performance intervals; or 2) Bell Atlantic XO-NYNEX simply fails to disclose its own performance intervals.XOi yO-ԍ LCI July 25, 1997 ex parte, Att. at 45.X According to LCI, the reliance on good faith negotiations for the establishment of performance standards is  X!-inappropriate.\!` i yO2-ԍ LCI July 25, 1997 ex parte, Att. at 1.\ LCI claims that under this approach it will be harder for a smaller carrier,  X -with less bargaining power, to obtain the same terms as can be obtained by a larger carrier.3  i yO -ԍ Id.3  X-LCI claims that the parity mandated by the Commission's Local Competition Order cannot be  X-achieved through negotiations.3 i yO$-ԍ Id.3  X-x214. TCG urges the Commission to require Bell Atlantic and NYNEX each to demonstrate that their premerger performance satisfies the requirements of Sections"e,-(-(ZZ"  X-251(c)(2)(C) and (c)(3).Pi yOy-ԍ TCG July 24, 1997 ex parte at 2.P Moreover, TCG asserts that the Commission should require the merged entity to automatically pay substantial monetary compensation to competing carriers  X-for any quarterly performance that falls below premerger levels.Xi yO-ԍ TCG July 24, 1997 ex parte at 2. See also TCG July 17, 1997 ex parte at 3. In addition to monetary penalties, TCG argues that the Commission should retain the authority to impose additional structural safeguards upon the merged entity, including an unwinding of the merger, for  X-chronic and substantial inability to meet premerger performance levels.i yO& -ԍ TCG July 24, 1997 ex parte at 2. See also TCG July 17, 1997 ex parte at 3.  Xv-x 44  X_-x215. With respect to performance standards, we note that Applicants must negotiate appropriate performance standards and enforcement mechanisms, including private and selfexecuting remedies. We decline to establish specific performance intervals, because we lack the data on this record to determine appropriate intervals for performance. We are separately  X -considering this issue in other proceedings.S xi yO,-ԍ See, e.g., LCI Public Notice.S We also decline to establish specific enforcement levels because it is difficult to do so without determining appropriate performance standards or determining whether meeting a particular standard requires actions  X -by both parties. We will consider these issues further in other proceedings.D i yOw-ԍ See, e.g., id.D TCG's request that we expressly retain authority to "unwind" the merger is unnecessary in light of our decision to impose the proposed commitments as conditions of the transfer of licenses. Any failure to abide by the conditions is grounds for appropriate enforcement, including, where appropriate, revocation of the license transfer authorizations.  X4-x216. Compliance with the Commission's Local Competition Requirements. Two  X-parties request that we condition the merger on compliance with various aspects of our Local  X -Competition rules. Cablevision proposes that we condition the merger on each Applicant's  X-entering into one or more binding agreements that have been approved under Section 252.\i yO>-ԍ Cablevision Sept. 23, 1996 Petition to Deny at 14.\ AT&T asserts that applicants should be required, before consummation of the merger, to comply in each of their states with the requirements of Sections 251 and 252, as interpreted by the Commission in the First Report and Order and Second Report and Order in Docket  X-No. 9698.K( i yOr$-ԍ See Appendix E at  102.K Specifically, AT&T notes that these requirements include comprehensive unbundling of network elements, TELRICbased pricing, unrestricted resale at appropriate wholesale rates, and fully tested OSS that have been demonstrated to support local exchange"kf ,-(-(ZZO"  X-systems (including multiple competing carriers and significant churn).3i yOy-ԍ Id.3 The conditions we adopt today, however, should help to ensure that the Applicants provide requesting carriers with interconnection, collocation, UNEs, and transport and termination on just reasonable and nondiscriminatory rates, terms, and conditions, and that services are available for resale without unreasonable or discriminatory conditions, which is consistent with the Section 251(c) requirements. We conclude that the concerns raised by AT&T and Cablevision regarding adherence to our rules should be addressed by the conditions imposed by this order.  XH-x217. Access Charge Reform. AT&T argues that the Commission should require Applicants, prior to applying for authorization to offer any inregion long distance service now prohibited by Section 271, to demonstrate that for all states in their combined region they provide access service to competitors at direct economic cost based on total service long X -run incremental cost.K Xi yO-ԍ See Appendix E at  102.K In addition, AT&T asserts that the Commission should require the Applicants to file and maintain uniform interstate access rates (all rate elements and charges) for all states in the merged region to reduce the potential competitive distortions arising from  X -strategic pricing.3 i yOB-ԍ Id.3 AT&T also argues that the Commission should require Bell Atlantic and NYNEX to establish terminating switched access rates at zero for all calls to reduce the  X{-opportunity for unfair price squeeze.3{xi yO-ԍ Id.3  XM-x218. Each of these proposals appears to be designed to prevent a "price squeeze" as discussed by AT&T and MCI. We decline to adopt these conditions for the same reasons, including the condition of offering interconnection, UNEs, and transport and termination at forwardlooking costs, described in part IV.D. above, in which we found the allegations of potential "price squeeze" unpersuasive on this record and in light of the conditions we impose. We also do not believe that it is appropriate here to impose conditions on the filing of a request for Section 271 authorization, rather than evaluating such concerns as part of Section 271 proceeding. x44  X~-x219. Billing and Collection. According to MCI, "numerous [Bell Companies]," including NYNEX and Bell Atlantic, have been misrepresenting to MCI's customers that its billing and collections agreements with these companies are either invalid or near  X;-expiration.O;i yO$-ԍ MCI July 7, 1997 ex parte at 1.O According to MCI, the Bell Companies are also representing that the customer may have difficulty obtaining one bill in the future, and that to avoid any such difficulties the"$g,-(-(ZZ"  X-customer should switch to the Bell Company for long distance service.3i yOy-ԍ Id.3 MCI states that Bell Atlantic and NYNEX should commit to continue "Casual Billing Services" indefinitely  X-and extend current contracts through the year 2000.9Xi yO-ԍ Id. at 2.9 MCI also states that the Commission should require Invoice Ready billing and collection under reasonable terms after the  X-expiration of the current terms through the year 2000.3i yO= -ԍ Id.3 In addition, MCI states that the Commission should require Bell Atlantic and NYNEX to adhere to the provisions proposed in  Xv-its Casual Billing petition.3vxi yO -ԍ Id.3 Moreover, MCI states that the Commission should require Bell Atlantic and NYNEX to refrain from engaging in any deceptive practices and making misrepresentations to consumers regarding MCI's and any other entity's ability to provide "all  X1-in one" billing.31i yO-ԍ Id.3  X -x220. The Commission declines to impose these conditions as conditions of the approval of the merger. It is not clear in this regard how the proposed conditions would remedy the potential harms to competition that result from the merger, or how the proposed conditions would speed entry by smaller carriers. Moreover, as MCI notes, however, there is currently a petition pending before the Commission that seeks to address some of these issues. We will examine MCI's billing and collection concerns further in that proceeding. In addition, we note that to the extent that any Bell Companies are in fact marketing long distance services to their customers, by suggesting the customers should switch carriers to avoid future billing problems, Section 272(g)(2) of the Communications Act bars a Bell Company from marketing its affiliate's inregion interLATA service prior to receiving  X-Section271 authorization.i yOf-ԍ 47 U.S.C.  272(g)(2); see also NonAccounting Safeguards Order at  291.  X-x221. Primary Interexchange Carrier (PIC) Freeze. MCI expresses concern about an "increasing number of sales rejections of its long distance changeover or PIC requests by  X-NYNEX."O( i yO"-ԍ MCI July 7, 1997 ex parte at 2.O MCI states that Bell Atlantic and NYNEX should agree to comply with the requirements set out in MCI's recent petition for rulemaking for PIC freeze and carrier  X-restrictions as a condition of merger approval.; i yO%-ԍ Id. at 23.; MCI also urges the Commission to incorporate the additional requirements suggested by AT&T in its comments supporting MCI's"~hH ,-(-(ZZ"  X-rulemaking petition.9i yOy-ԍ Id. at 3.9 We lack here a sufficient record to conclude whether such a requirement would be in the public interest. Accordingly, we conclude that the PIC freeze concerns identified by MCI should be addressed in the context of reviewing MCI's petition for rulemaking.  X-x222. Operational Support Systems. Cablevision asserts that the Commission should  Xx-impose certain requirements on Bell AtlanticNYNEX with respect to its OSS.jxXi yO -ԍ Cablevision June 20, 1997 ex parte, Attachment at 1.j According to Cablevision, Bell AtlanticNYNEX's carrier to carrier support and provisioning systems must be operational, capable of handling the generated traffic volumes, and of equal quality  X3-as that provided to itself, consistent with any state and federal requirements.33i yO -ԍ Id.3 In addition, Cablevision states that Bell AtlanticNYNEX must maintain adequate personnel and capital to meet the requirements of the Communications Act, including the provisioning of services and all interfaces necessary for the seamless and timely transfer of customers to  X -competitors.3 xi yO-ԍ Id.3 Finally, Cablevision states that intercarrier service standards must be in place  X -with relevant penalties that include liquidated damages for nonperformance.3 i yO-ԍ Id.3 x  X-x223. MCI expresses concern about recent statements suggesting that Bell Atlantic's or NYNEX's OSS and related business processes, currently being discussed with MCI, are  Xd-subject to change following a merger between Bell Atlantic and NYNEX.3di yO-ԍ Id.3 According to MCI, the Commission should require Bell Atlantic and NYNEX to state, by a specific date, any changes expected to either Bell Atlantic's or NYNEX's business processes affecting competing carriers' provision of local service, or affecting interexchange service, as related to  X-system access, functionality, or performance.3? i yO-ԍ Id.3 MCI states that competing carriers and interexchange carriers should then be given an opportunity to comment on any such proposed  X-changes prior to Commission action on the merger.3 i yOZ"-ԍ Id.3  X-x224. We note that many of the issues raised by Cablevision are addressed by the conditions we have imposed on Bell Atlantic and NYNEX in this order. The requirement to produce evidence of operational readiness within six months of the Commission's approval of this merger should address Cablevision's concern about Bell AtlanticNYNEX's OSS not"gi_ ,-(-(ZZm" being operational and about Bell AtlanticNYNEX not maintaining adequate personnel and capital to ensure that its OSS is functional. Cablevision's request for intercarrier service standards, along with relevant penalties, is addressed by the requirement that Bell AtlanticNYNEX engage in good faith negotiations with requesting carriers to establish performance standards in conjunction with appropriate enforcement mechanisms for nonperformance.  Xv-x225. We find that it is unnecessary to delay this merger by requiring Bell Atlantic and NYNEX to provide us with information about impending changes to OSS systems and then allowing individuals to comment on such changes. In fact, we find that granting MCI's request at this time would delay the procompetitive benefits to be derived from the establishment of uniform interfaces throughout the Bell AtlanticNYNEX region.  X -x226. Minority Business Contracts. O.P.G. Industries has requested the Commission to seek from Bell Atlantic and NYNEX a commitment to allocate to small and minority  X -businesses ten to twenty percent of contracts for supplies and services.Y i yO9-ԍ O.P.G. Industries July 23, 1997 ex parte.Y We conclude that our review of the Bell Atlantic and NYNEX merger, which is focused on the loss of a precluded competitor in LATA 132, is not the appropriate forum for determining whether Bell AtlanticNYNEX as a merged entity should allocate a certain portion of its contracts to small and minority businesses.  X6-x227. Timing of Bell AtlanticNYNEX Commitments. AT&T states that each commitment should be accompanied by a firm date by which Bell AtlanticNYNEX will be in  X -compliance.Q Xi yO-ԍ AT&T July 24, 1997 ex parte at 2.Q According to AT&T, most if not all of these commitment dates should be no  X-later than the closing date of the merger.3i yO-ԍ Id.3  X-x228. In response to AT&T's request that each Bell AtlanticNYNEX commitment should be accompanied by a date certain by which Bell AtlanticNYNEX will be in compliance, we note that most of the commitments are accompanied by fixed compliance dates. For example, we note that Bell AtlanticNYNEX must comply with the performance monitoring reports requirement, the uniform interfaces requirement, and the testing requirement within specified time periods following the Commission's approval of the  X;-merger.M;xi yOd#-ԍ Appendix C, Conditions 1, 2, and 3.M Those conditions that are not subject to a date certain are those which cover terms that Bell AtlanticNYNEX must make available to competing carriers upon request, beginning"$j,-(-(ZZ"  X-immediately after the Commission's approval of the merger.i yOy-ԍ For example, Bell AtlanticNYNEX must engage in good faith negotiations to establish performance standards. Appendix C, Condition 7. Moreover, we note that  X-individuals may file Section 208 complaints with the Commission if Bell AtlanticNYNEX does not meet any of the deadlines specified in the commitments letter. Therefore, we decline to require Bell Atlantic and NYNEX to implement all of the conditions prior to the approval of this merger. x  Xv-x229. Combinations of Network Elements. According to AT&T, Bell AtlanticNYNEX should commit to provide the combination of loop, switch, transport (shared and/or dedicated), signaling and OSS (with or without Operator Systems) (i.e, the "Platform") at  X3-rates based on forwardlooking economic costs.Q3 i yO -ԍ AT&T July 24, 1997 ex parte at 2.Q Alternatively, AT&T states that Bell AtlanticNYNEX should commit to immediately reduce access charges to levels based on  X -Total Element Long Run Incremental Cost.3 i yOf-ԍ Id.3 AT&T also states that Bell AtlanticNYNEX should commit to provide all other combinations of network elements requested by telecommunications carriers, unless Bell AtlanticNYNEX can prove that the requested  X -combination is not technically feasible.3 @i yO-ԍ Id.3 In addition, AT&T states that Bell AtlanticNYNEX should commit to abide by Section 51.315 of the Commission's rules concerning the  X-combination of UNEs, notwithstanding the Eighth Circuit's decision in Iowa Utilities Board v.  X}-FCC. Finally, AT&T states that Bell AtlanticNYNEX should commit to comply with industry guidelines and procedures for ordering combinations of UNEs, including the  XQ-Platform.3Qi yO-ԍ Id.3  X#-x230. With respect to AT&T's concerns about pricing, we note that, pursuant to the conditions listed in Appendix C, Bell AtlanticNYNEX must offer all carriers rates for UNEs, including shared transport, based on forwardlooking economic costs. With respect to AT&T's assertions regarding the combination of network elements and requiring Bell AtlanticNYNEX to adhere to Section 51.315 of the Commission's rules, irrespective of the Eighth Circuit's decision, we note that the Eighth Circuit upheld our rule prohibiting an incumbent LEC from separating network elements that the incumbent LEC currently  X-combines.` i yO$-ԍ Iowa Utilities Board, 1997 WL 403401 at *32 (affirming 47 C.F.R.  51.315(b)). The Commission will continue to examine the effects of the Eighth Circuit's decision on the use of combinations of UNEs where the competing carrier seeks to activate additional features or capabilities that are already present in the incumbent LEC network. As"Tk ,-(-(ZZ" to industry guidelines and procedures for ordering UNEs, we note that these are a critical part of establishing and operating reliable OSS interfaces.  X-x231. Sunset. LCI expresses concern about the expiration of the commitments forty X-eight months after the Commission's approval of the merger.bi yO-ԍ LCI July 25, 1997 ex parte, Attachment at 5.b Similarly, TCG requests that the Commission require Bell AtlanticNYNEX to provide periodic performance and quality  Xx-reports for five years.xXi yO -ԍ TCG July 24, 1997 ex parte at 2. See also TCG July 17, 1997 ex parte at 3. Cablevision asserts that the Commission should, prior to the expiration of the conditions, conduct a review of their impact on competitive entry.  X3-x232. We conclude that a sunset date is appropriate in the context of the approval of this merger, because our concern here is to accelerate the development of competition that may substitute for the loss of Bell Atlantic as a market participant and as an offset to potential harm to competition and the public interest. Under the circumstances, given the number of market participants in the relevant markets, we believe that four years is likely to be sufficient time for the conditions to have had the bulk of the procompetitive effects that we are balancing against potential harms to competition. We note that this determination is based on the record presented in the context of this merger review proceeding. A different record could, however, compel a different result.   XM-  VI. MISCELLANEOUS ă  X- xA. Procedural Matters  X-x233. Applicants requested that pursuant to Section 212 of the Communications Act and Section 62.12 of the Commission's rules, the Commission find and declare that, upon consummation of the amended Agreement, (1) Bell Atlantic will own more than 50 percent of the voting stock of NYNEX and (2) Bell Atlantic, NYNEX, and their respective subsidiaries will there be deemed to be "commonly owned carriers" as that term is defined in Section 62.2 of the Commission's Rules. Applicants state that the merger contemplates that, as a result of the combination of the companies, Bell Atlantic will hold all of the stock of NYNEX, and that this satisfies the requirement of Section 62.12 that the applicants be commonly owned as a result of the transaction. Because this request is reasonable and unopposed, we grant the request and make the requested finding and declaration.  X-x234. The Applicants make additional procedural requests that are reasonable and  X-unopposed. Accordingly, we grant them. First, pursuant to section 21.39 of our Rules,<i yOv%-ԍ 47 CFR  21.39.< we find that the transfer of authorized but unconstructed microwave facilities that are controlled by NYNEX does not implicate the Commission's antitrafficking restrictions. Second,"!lx,-(-(ZZ "  X-pursuant to sections 1.2111 and 24.839 of our Rules,Ii yOy-ԍ 47 CFR 1.2111, 24.839.I we find that no trafficking or unjust enrichment is involved in the transfer of control of licenses for facilities in the Personal Communications Services which were obtained through competitive bidding in the last three years. Finally, pursuant to sections 21.23(c)(6), 22.123(a), 24.823(g)(3), and 25.116(b)(3) of  X-our Rules,qXi yO-ԍ 47 CFR 21.23(c)(6), 22.123(a), 24.823(g)(3), and 25.116(b)(3).q we grant applicants a blanket exemption from any applicable cutoff rules which would otherwise apply to subsidiaries or affiliates filing amendments to pending Part 21, 22, 24, or 25 applications or other applications to reflect the consummation of the proposed transfer of control.   X1- xB. Basic Qualifications  X -x235. Comcast and AT&T each raise issues concerning Bell Atlantic's character. Comcast asserts that Bell Atlantic and NYNEX have engaged in anticompetitive conduct in  X -connection with their joint wireless operations,NX i yOn-ԍ Comcast Comments at 2, 5. Comcast made substantially the same claims during the Commission's  yO6-review of the license transfers that combined the Bell Atlantic and NYNEX cellular operations. See BAMSNYNEX  yO-Mobile, 10 FCC Rcd at 13373 & n.19.N and that Bell Atlantic has not provided truly  X -reciprocal compensation to cellular interconnectors.A i yOw-ԍ Comcast Comments at 4. A AT&T contends that the confidential documents demonstrate Bell Atlantic's inconsistencies on central issues in this proceeding and  X-that the inconsistencies warrant an investigation of Bell Atlantic's character.i yO-ԍ See Appendix E at 103. See also AT&T March 24 Redacted Supplemental Comments at 5 (asserting that further investigation into seemingly inconsistent statements is warranted). While several parties question whether Bell Atlantic had plans to provide telephone service in NYNEX territory, only AT&T raises a candor issue.  yO1-See e.g., MCI June 20, 1997 Final Comments at 4 (asserting that Applicants' declarations "appear disingenuous, at best").   Xb-x236. We are not persuaded by Comcast's arguments. The relevant Commission policy statements indicate that in deciding character issues, the Commission will consider adjudicated nonFCC misconduct that includes: (a) all felonies, (b) fraudulent representations  X-to governmental units, and (c) violations of antitrust or other laws protecting competition.H i yO"-ԍ Policy Regarding Character Qualifications in Broadcast Licensing, 102 FCC 2d 1179, 119597, 120003  yO"-(1986) ("Character Qualifications"), modified, 5 FCC Rcd 3252 (1990) ("Character Qualifications Modification"),  yO#-recon. granted in part, 6 FCC Rcd 3448 (1991), modified in part, 7 FCC Rcd 6564, 6566 (1992) ("Further  yOn$-Character Qualification Modification"); MCI Telecommunications Corp., 3 FCC Rcd 509, 515 n.14 (1988) (stating that character qualifications standards adopted in the broadcast context can provide guidance in the common carrier context). "m,-(-(ZZ " The acts alleged by Comcast, whether by Bell Atlantic or NYNEX of their cellular or other operations, do not fit any of these three categories.  X-x237. Comcast refers to allegations of anticompetitive conduct previously raised in its comments in the proceeding involving the BAMSNYNEX Mobile merger and raised again  X-on appeal of that decision.RXi yO-ԍ Comcast Comments at 2 & n.4 (citing Comments of Comcast Corporation, Dec. 28, 1994, in the BAMS yO-NYNEX Mobile proceeding) and n.5 (Comcast Cellular, Application for Review, Jun. 19, 1995). See BAMSNYNEX  yO-Mobile, 10 FCC Rcd at 13373.R Comcast alleges that Bell Atlantic and/or BAMS, individually or in concert; 1) restricted competitors' access to certain databases; 2) prevented Comcast from advertising at Veteran's Stadium in Philadelphia by threatening to terminate its own advertising if stadium officials allowed Comcast to advertise; 3) forced Comcast to temporarily "turnoff" its cell site at the Philadelphia Spectrum; and 4) discriminated against  X -Comcast by providing only very short notice to participate in a personal numbering trial. i yO-ԍ See Comcast Comments at 5, citing Comcast Application for Review at 1013. See also BAMSNYNEX  yO{-Mobile, 10 FCC Rcd 13368 (WTB 1995), app'l. for rev. pending.  X -x238. Each of these allegations, insofar as they pertain to Bell Atlantic's cellular operations, has been previously reviewed and adjudicated by the Wireless Telecommunications Bureau. The Bureau found that Comcast, aside from not fitting the alleged misconduct into any of the three criteria stated above, had neither alleged nor shown that the acts were likely to occur more often or to be more severe as a result of the proposed  Xy-cellular merger than they were before.Zy@i yOj-ԍ BAMSNYNEX Mobile, 10 FCC Rcd at 1337981.Z We find that the Bureau's analysis fits Comcast's allegations in this proposed merger of Bell Atlantic and NYNEX. Insofar as the acts alleged by Comcast involve Bell Atlantic and NYNEX, none of them is a felony, a fraudulent representation to a governmental unit, or a violation of an antitrust or other law protecting competition. Nor is there any showing that the merger proposed here will make such alleged acts more frequent or harmful than they were before. Accordingly, the conduct alleged by Comcast has no relationship to the proposed merger of applicants and will not influence our analysis of its competitive effects or its acceptability under the public interest standard.  X-x239. We are also not persuaded by AT&T's allegations that a substantial and material question of fact exists as to whether Bell Atlantic has breached its duty of candor or engaged in misrepresentation. In its application, Bell Atlantic attempted to show that this merger is not barred by the "actual potential competition" doctrine, under which a relevant factor is the  XN-likelihood that Bell Atlantic would enter NYNEX's local service market.Ni yO$-ԍ Application, Exh. B Public Interest Statement; see Tenneco, Inc. v. F.T.C., 689 F.2d 346, 352 (2d Cir. 1982) (describing analysis under the actual potential competition doctrine). Bell Atlantic supported its assertions with a declaration by its Vice Chairman, James G. Cullen, stating, "7n( ,-(-(ZZ"  X-"Bell Atlantic has not at any time had plans to enter NYNEX's local service markets."i yOy-ԍ Application, Exh. B Public Interest Statement, Declaration of James G. Cullen at 9. In addition, Bell Atlantic has stated in pleadings filed in this proceeding that "applicants had no  X-company plans" to compete with NYNEX in local service.Xi yO-ԍ Bell AtlanticNYNEX Jan. 3, 1997 Redacted Response at 2; Bell AtlanticNYNEX Oct. 23, 1996 Reply Comments at 2, 17, 20. In pleadings and submissions  X-filed under seal, the Applicants repeat similar statements.Ki yO -ԍ See Appendix E at  104.K AT&T asserts that such statements appear to be inconsistent with the activities reflected in Bell Atlantic's documents, which, according to AT&T and our findings, demonstrate considerable internal planning for  Xv-and analysis of the advantages of entry into NYNEX's market.Kv@i yOg -ԍ See Appendix E at  105.K  XH-x240. Bell Atlantic responds that AT&T's candor allegations are based on mischaracterizing as company "decisions" or "plans" what were merely business case studies  X -or explorations of possibilities by middle management or outside consultants.b i yO-ԍ Bell AtlanticNYNEX Jan. 3, 1997 Redacted Response at 2.b According to Bell Atlantic, it is appropriate to distinguish between "the plans of a company," with resource  X -commitments behind them, and more tentative activities.c ` i yO-ԍ Id. at 24. See also Appendix E at 106.c  X -x241. We agree with Bell Atlantic that it significantly qualified its representations that  X -it had no "plans" to enter NYNEX's market. Thus, its application recites:^ i yOH-ԍ Application, Exh. B Public Interest Statement at 13.^ Xx,44,` ` Any "[i]nternal plans that have not been approved at [the governing levels of corporate management] cannot be relied upon, regardless of how enthusiastically they promote independent entry, because they cannot be categorized as the concrete plans of the corporation itself." (Citation omitted) . . . . Here, quite simply, there are no such companyadopted plans for... Bell Atlantic . . . to enter [NYNEX's] local service market.... ` Similarly, the Cullen declaration states, after acknowledging that Bell Atlantic staff studied  X-the economics of entering the New York market on two occasions:S i yO%-ԍ Declaration of James G. Cullen at 9.S "o,-(-(ZZ"ԌXx,44,` ` Neither of these studies matured into actual companyadopted plans for entry. Thus, Bell Atlantic has never been an "actual" potential competitor to NYNEX's local exchange and exchangeaccess business. `  X-x242. As discussed above, although we disagree with Bell Atlantic's assertions that no  X-relevant plans existed,OXi yO-ԍ As discussed in part IV.C., supra, we have found that Bell Atlantic was likely to enter the market in LATA 132, and that Bell Atlantic had been engaged in extensive planning regarding entry into the LATA 132 market.  yO-See also Appendix E at 636, 4258.O we agree that the case law has not been consistent as to the types of  Xv-plans that are probative.4vi yO -ԍ Compare B.A.T. Industries, Ltd.,104 F.T.C. 852, 930 (1984) ("[E]stablishing a likelihood of independent entry but for the merger or acquisition at issue requires a proof of concrete internal plans for independent entry that have been at least tacitly approved at the governing levels of corporate management. Internal plans that have not been approved at that level cannot be relied on, regardless of how enthusiastically they promote  yO/-independent entry, because they cannot be characterized as the concrete plans of the corporation itself.") with  yO-United States v. Siemens Corp., 621 F.2d 499, 508 (2d Cir. 1980) ("The opinions of lower level employees without management responsibility, absent some indication that the senior management has seriously considered and endorsed those views, simply do not constitute evidence of a corporate intent or commitment to enter a  yOO-business de novo.") with F.T.C. v. Atlantic Richfield Co., 549 F.2d 289, 297 n.9 (4th Cir. 1977) (". . . there is a fundamental distinction between suggestions and ideas advanced by lowerlevel management that grass roots entry into . . . [a market is] advisable and a commitment by the company to that type of diversification.").4 This does not imply that we believe Bell Atlantic lacked candor.  X_-As the Commission reiterated in Fox Television Stations, Inc., an intent to deceive is an  XJ-essential element of a violation of the duty of candor. JH i yOC-ԍ Fox Television Stations, Inc., 10 FCC Rcd 8452, 8478 5960 (1995), recon. denied, 11 FCC Rcd 7773 (1996). XxLack of candor takes two basic forms: (1) misrepresentation, which involves false statements of fact; and (2) failure to disclose, which involves concealment, evasion, or other failures to be fully informative. The duty of candor requires an applicant before the FCC to be "fully  yO+-forthcoming as to all facts and information relevant" to its application. Swan Creek  yO-Communications v. FCC, 39 F.3d 1217, 1222 (D.C.Cir. 1994). Relevant information is defined as  yO-information that may be of "decisional significance." RKO General [Inc. v. FCC], 679 F. 2d  yO-[215] at 229 [(D.C.Cir. 1981), cert. denied, 456 U.S. 927 and 457 U.S. 1119 (1982)]. The duty of candor can be breached by both affirmative misrepresentation and by a "fail[ure] to come  yO-forward with a candid statement of relevant facts,"id., "whether or not such information is  yO-particularly elicited" by the Commission or its staff, Swan Creek, 39 F. 3d at 1222.   yOk -Id. at 8478 59. In its application, Bell Atlantic explicitly described both the criteria it had used to evaluate whether relevant plans existed and  X -its interpretation of the case law regarding such criteria.a i yO#-ԍ Application, Exh. B Public Interest Statement at 1113.a In view of the foregoing, the record does not suggest that Bell Atlantic's narrow interpretation of the word "plan" was offered with an intent to deceive. These factors persuade us that Bell Atlantic simply advocated in good faith a position that its exploratory efforts did not have significance with" p,-(-(ZZ " respect to the proposed merger. In this regard, we also note that the Commission has reviewed HartScottRodino documents in the past in connection with proposed mergers. Therefore, Bell Atlantic had every reason to expect that the Commission would take into account the various studies that were made, some of which were expressly mentioned in Bell Atlantic's application. Thus, there is no indication that Bell Atlantic attempted to conceal relevant information from the Commission or the parties.  X_-x243. Accordingly, we find no substantial and material questions of fact suggesting lack of candor or misrepresentation by Bell Atlantic. We note, however, that Bell Atlantic's narrow use of the term "plan" has caused unnecessary confusion, and we counsel Bell Atlantic and others to use the term "plan" in accordance with our discussion above. Future applicants now are on notice of both the significance of entry plans, and our definition of  X -such plans.l i yOe -ԍ Fox Television Stations, Inc., 10 FCC Rcd at 8509 141. l We also note, as we did in the Fox Broadcasting case, that we expect absolute candor from our licenses, particularly when the precise material fact about which a candor issue is raised is one upon which the Commission may rely and base its ultimate decision. Our analysis of Bell Atlantic's application would have been greatly assisted by a fuller description of its actual plans, even if Bell Atlantic believed those plans were irrelevant. Nevertheless, as discussed above, the evidence here does not raise a substantial and material question of fact warranting designation for hearing.  X6-x244. Finally, we note that Diana J. and Thomas Lutz propose that we withhold  X-approval of the merger until all outstanding NYNEX labor grievances have been resolved.OXi yO(-ԍ Lutz Sept. 23, 1996 Petition to Deny.O They state that Mrs. Lutz was driven from her job with NYNEX by the actions of a NYNEX supervisor, and that neither NYNEX nor the Communications Workers of America, her union, has adequately addressed her grievances. None of these allegations involve the kinds on nonFCC misconduct deemed relevant to an applicant's character qualifications, let alone an adjudication of such misconduct.  X~-x245. None of the parties contends that Bell Atlantic lacks the citizenship, financial, and technical qualifications to provide service consistent with the public convenience and necessity. Given the company's long history and broad experience in communications, we have no reason to conclude otherwise, and find that Bell Atlantic satisfies the necessary citizenship, financial, and technical qualifications.  "q,-(-(ZZ"  X- VII. ORDERING CLAUSES ׃  X-x246. Accordingly, having reviewed the applications and the record in this matter, IT IS ORDERED, pursuant to Sections 4(i) and (j), 214(a), 214(c), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 214(a), 214(c), 309, 310(d), that the applications filed by Bell Atlantic Corporation and NYNEX Corporation in the above-captioned proceeding ARE GRANTED subject to the conditions stated below.  XH-x247. IT IS FURTHER ORDERED pursuant to Sections 4(i) and (j), 214(a), 214(c), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 214(a), 214(c), 309, 310(d), that the above grant shall include authority for Bell Atlantic to acquire control of:  X -Xxa),44any authorization issued to NYNEX's subsidiaries and affiliates during the Commission's consideration of the transfer of control applications and the period required for consummation of the transaction following approval;(#4  Xy-Xxb),44construction permits held by licensees involved in this transfer that mature into licenses after closing and that may have been omitted from the transfer of control applications; and (#4  X-Xxc),44applications that will have been filed by such licensees and that are pending at the  X-time of consummation of the proposed transfer of control.Oi yO-ԍ McCaw, 9 FCC Rcd at 5909 n.300.O(#4  X-x248. IT IS FURTHER ORDERED that as a condition of this grant Bell Atlantic and NYNEX shall comply with the conditions set forth in Appendices C and D of this Order.  X-x249. IT IS FURTHER ORDERED that all references to Bell Atlantic and NYNEX in this Order shall also refer to their respective officers, directors and employees, as well as to any affiliated companies, and their officers, directors and employees.  X7-x250. IT IS FURTHER ORDERED pursuant to Sections 4(i) and (j), 214(a), 214(c), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 214(a), 214(c), 309, 310(d), that the "Petition of AT&T Corp. to Deny or, in the Alternative, to Defer Pending Further Investigation and Briefing" IS DENIED IN PART AND GRANTED IN PART.  X!-x251. IT IS FURTHER ORDERED pursuant to Sections 4(i) and (j), 214(a), 214(c), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 214(a), 214(c), 309, 310(d), that the "Petition to Deny of Cablevision Systems Corp." IS DENIED IN PART AND GRANTED IN PART. "h$rX,-(-(ZZF#"Ԍ X-ԙx252. IT IS FURTHER ORDERED pursuant to Sections 4(i) and (j), 214(a), 214(c), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 214(a), 214(c), 309, 310(d), that the "Petition to Impose Conditions" of the Competition Policy Institute IS DENIED IN PART AND GRANTED IN PART.  X-x253. IT IS FURTHER ORDERED pursuant to Sections 4(i) and (j), 214(a), 214(c), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 214(a), 214(c), 309, 310(d), that the "Petition to Deny" of the Consumer Federation of America IS DENIED.  X -x254. IT IS FURTHER ORDERED pursuant to Sections 4(i) and (j), 214(a), 214(c), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 214(a), 214(c), 309, 310(d), that the "Petition to Deny" of Teleport Communications Group Inc. IS DENIED IN PART AND GRANTED IN PART.  X -x255. IT IS FURTHER ORDERED pursuant to Sections 4(i) and (j), 214(a), 214(c), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 214(a), 214(c), 309, 310(d), that the "Petition to Deny" of Thomas L. and Diana J.  Xb-Lutz IS DENIED. x  X4-x 256. IT IS FURTHER ORDERED that this Memorandum Opinion and Order SHALL BE EFFECTIVE upon release in accordance with 47 C.F.R. 1.103.  X- x44` `  hh@FEDERAL COMMUNICATIONS COMMISSION x44` `  hh@William F. Caton x44` `  hh@Acting Secretary "7s,-(-(ZZ?"  X-) APPENDIX A ă  X- Comments Comcast Cellular Communications, Inc., filed September 23, 1996 MCI, filed September 24, 1996  XH- Petitions to Deny AT&T, filed September 23, 1996 Cablevision Systems Corporation, filed September 23, 1996 Consumer Federation of America, filed September 23, 1996 Thomas L. and Diana J. Lutz, filed September 23, 1996 Teleport Communications Group Inc., filed September 23, 1996  X4- Petitions to Impose Conditions Competition Policy Institute, filed September 23, 1996  X- Opposition to Petitions to Deny and Reply to Comments Dr. Barbara O'Connor, filed October 23, 1996  X|-United Homeowners Association, et al., filed October 23, 1996  XP- Joint Opposition to Petitions to Deny and Reply to Comments Bell Atlantic and NYNEX, filed October 24, 1996  X- Supplemental Comments AT&T, filed December 26, 1996 (filed under seal) AT&T, filed February 25, 1997 (filed under seal) AT&T, filed March 4, 1997 (filed for public record; redacted version of December 26 comments) "<&t,-(-(ZZ$"ԌAT&T, filed March 24, 1997 (filed for public record; redacted version of February 25 comments) MCI, filed December 26, 1996 (filed under seal) MCI, filed December 26, 1996 (redacted version filed for public record) MCI, filed February 25, 1997 (filed under seal) MCI, filed February 25, 1997 (redacted version filed for public record) MCI, filed June 19, 1997 (filed under seal with a separate redacted version filed for the public record)  X - Supplemental Replies to Comments Bell Atlantic and NYNEX, filed January 3, 1997 (filed under seal; response to AT&T and MCI comments filed December 26, 1996) Bell Atlantic and NYNEX, filed February 27, 1997 (filed under seal; response to AT&T and MCI comments filed February 25, 1997) Bell Atlantic and NYNEX, filed March 6, 1997 (filed for public record; redacted version of January 3 reply) Bell Atlantic and NYNEX, filed March 6, 1997 (filed for public record; redacted version of  X-February 27 reply) Bell Atlantic and NYNEX, filed June 23, 1997 (both confidential and redacted versions)  XN- Ex Parte Filings Bell Atlantic and NYNEX, filed November 18, 1996 NYNEX, filed June 17, 1997 (filed for public record) City of Buffalo, rec'd June 17, 1997 (filed for public record) Bell Atlantic, filed June 18, 1997 (Confidential) Bell Atlantic, filed June 20, 1997 (Confidential) NYNEX, filed June 20, 1997 (filed for public record) "#'u,-(-(ZZ%"ԌCablevision Industries, filed June 20, 1997 (filed for public record) Competition Policy Institute, filed June 20, 1997 (filed for public record) NYNEX, filed June 23, 1997 (filed for public record) WorldCom, filed June 23, 1997 (filed for public record) Association for Local Telecommunications Services, filed June 24, 1997 (filed for public record) Competition Policy Institute, filed June 25, 1997 (filed for public record) Bell Atlantic, filed June 25, 1997 (Confidential) Bell Atlantic, filed June 26, 1997 (Confidential) Bell Atlantic, filed June 26, 1997 (Confidential) Bell Atlantic, filed June 26, 1997 (filed for public record) MCI, filed June 26, 1997 (filed for public record) AT&T, filed June 26, 1997 (filed for public record) Bell Atlantic, filed June 27, 1997 (filed for public record) Bell Atlantic, filed June 27, 1997 (filed for public record) Bell Atlantic, filed June 27, 1997 (filed for public record) Bell Atlantic, filed June 27, 1997 (filed for public record) Bell Atlantic, filed June 27, 1997 (correction, filed for public record) NYNEX, filed June 30, 1997 (filed for public record) Bell Atlantic, filed June 30, 1997 (Confidential) Bell Atlantic, filed June 30, 1997 (filed for public record) MCI, filed June 30, 1997 (filed for public record) NYNEX/Bell Atlantic (Joint), filed July 1, 1997, (filed for public record)"#'v,-(-(ZZ%"ԌMCI, filed July 1, 1997, (filed for public record) MCI, filed July 2, 1997, (filed for public record) MCI, filed July 2, 1997, (filed for public record) NYNEX, filed July 3, 1997, (filed for public record) Bell Atlantic, filed July 3, 1997, (filed for public record) MCI, filed July 7, 1997, (filed for public record) MCI, filed July 7, 1997, (filed for public record) Bell Atlantic, filed July 7, 1997, (filed for public record) NYNEX, filed July 8, 1997 (filed for public record) WorldCom, filed July 9, 1997 (filed for public record) Bell Atlantic, filed July 9, 1997 (filed for public record) AT&T, filed July 10, 1997, (Confidential) Ron Danielian, filed July 10, 1997 (filed for public record) AT&T, filed July 11, 1997, (filed for public record) NYNEX, filed July 11, 1997 (filed for public record) Bell Atlantic, filed July 11, 1997 (Redacted version of previous confidential filings) Bell Atlantic, filed July 11, 1997 (Confidential versions of previous confidential filings) Bell Atlantic, filed July 11, 1997 (filed for public record) Bell Atlantic, filed July 11, 1997 (filed for public record) NYNEX, filed July 16, 1997 (filed for public record) NYNEX, filed July 16, 1997 (filed for public record) NYNEX, filed July 16, 1997 (filed for public record) "#'w,-(-(ZZ%"ԌNYNEX, filed July 17, 1997 (filed for public record) NYNEX, filed July 17, 1997 (filed for public record) AT&T, filed July 17, 1997 (filed for public record) AT&T, filed July 17, 1997 (filed for public record)  XH-Teleport Communications Group, filed July 17, 1997 (filed for public record)xx NYNEX, filed July 18, 1997 (filed for public record) NYNEX, filed July 18, 1997 (filed for public record) NYNEX, filed July 18, 1997 (filed for public record) Bell Atlantic/NYNEX, filed July 19, 1997 (filed as an attachment to Bell Atlantic/NYNEX  Xy-July 21, 1997 Ex Parte) Bell Atlantic/NYNEX, filed July 21, 1997 (filed for public record) NYNEX, filed July 21, 1997 (filed for public record) NYNEX, filed July 21, 1997 (filed for public record) NYNEX, filed July 21, 1997 (filed for public record) NYNEX, filed July 21, 1997 (filed for public record) Bell Atlantic, filed July 22, 1997 (Confidential Filing) NYNEX, filed July 22, 1997 (Filed Under Seal Confidential) NYNEX, filed July 22, 1997 (Resubmission Confidential) NYNEX, filed July 22, 1997 (filed for public record) NYNEX, filed July 22, 1997 (filed for public record) Helen Patterson, filed July 22, 1997 (filed for public record) O.P.G. Industries, filed July 23, 1997 (filed for public record) Richard H. James, filed July 23, 1997, (filed for public record)"%'x,-(-(ZZ%"ԌBell Atlantic, filed July 23, 1997 (Filed Under Seal Confidential) Teleport Communications Group, filed July 24, 1997 (filed for public record) AT&T, filed July 24, 1997, (filed for public record) LCI International, filed July 25, 1997 (filed for public record) Ron Danielian, filed July 25, 1997 (filed for public record) Helen Patterson, filed July 25, 1997 (filed for public record) Cablevision Industries, filed July 29, 1997 (filed for public record) Bell Atlantic, filed July 30, 1997 (Filed Under Seal Confidential) NYNEX, filed July 31, 1997 (Filed Under Seal Confidential) MCI, filed July 31, 1997 (filed for public record) NYNEX, filed August 1, 1997 (filed for public record) Richard James, filed August 1, 1997, (filed for public record) NYNEX, filed August 5, 1997 (Filed Under Seal Confidential) Bell Atlantic, filed August 5, 1997 (Filed Under Seal Confidential) OPG Industries, filed August 12, 1997 (filed for public record) Teleport Communications Group (TCG), filed August 12, 1997 (filed for public record) Bell Atlantic/NYNEX, filed August 13, 1997 (filed for public record) "y,-(-(ZZ"  X-) APPENDIX B ׃ Companies filing letters in support of the application: Abacon Telecommunications Altec Industries, Inc. Amdahl Corporation ARI Audiosears Corporation Avanti/Case-Hoyt Corporation Banta Corporation Barrueta & Associates Basic Communication Group Incorporated Butler Fleet Services Brilliant Color Cards Byers Engineering Company Capital Building Services, Inc. Cedar Direct Centigram Communications Corporation C. A. Chowns Communication, Inc. Clark Specialty Company Inc. Colonial Data Technologies Corp. Colonial Ford Truck Sales, Inc. Computer Associates International, Inc. COPE Systems Inc. CRWaldman Danella Line Services Company, Inc. Dawn Brite, Inc. EMC Corporation Guardian Companies, Inc. Hitachi Data Systems Howard Press Information Builders, Inc. Innovative Telecom Corporation Kline Construction Company, Inc. Liberty General Contracting Inc. Mars Electronics International NEPTCO Incorporated Northern Telecom Opinion Research Corporation Siecor Corporation Southeast Service Corporation TAD Resources International, Inc. Technology Service Group, Inc."#'z,-(-(ZZ%"ԌTelamon Corporation TT Systems Corporation Unisys Corporation Wallace Computer Services, Inc. Wayne Lachman Productions, Ltd. "{,-(-(ZZe"  X-) APPENDIX C ă  X-G% CONDITIONS ă xAs a condition of the grant authorized herein, Bell Atlantic and NYNEX shall comply with the following conditions:  I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)  X_-X4` hp x (#%'0*,.8135@8:&,-(-(ZZ$" Atlantic/NYNEXs own traffic without the payment of interstate interexchange access charges.  X-x6. To the extent Bell Atlantic/NYNEX proposes rates, including in interconnection negotiations and arbitrations, for interconnection, transport and termination, or unbundled network elements, including both recurring and nonrecurring charges, any such proposal shall be based upon the forwardlooking, economic cost to provide those items.  X_-x7. Bell Atlantic/NYNEX shall engage in good faith negotiations with carriers purchasing interconnection in response to reasonable requests to establish performance standards subject to reasonable requirements governing mutuality of performance in the following areas: xa) Preordering, including the response time of the preordering interface and the availability of the preordering interface; xb) Ordering, including the timeliness of order confirmation and order rejection notifications; xc) Provisioning, including the average provisioning interval offered, the average interval in which provisioning is completed, missed installation appointments, and installation trouble reports received within 30 days; xd) Billing, including the timeliness of the wholesale bill and the timeliness of the daily usage feed;  I. A. 1. a.(1)(a) i) a) a) a) a) a) a) a) a) a)xe) Maintenance and repair functions, including the mean time to repair, missed repair appointments, and the percentage of repeat trouble reports; and xf) Network performance, including network blockage. x xIn addition, Bell Atlantic/NYNEX shall engage, upon reasonable request, in good faith negotiations to establish appropriate enforcement mechanisms to ensure compliance with each standard, including good faith negotiations upon reasonable request for private or selfexecuting remedies. x8. These commitments shall sunset 48 months after Commission approval of the merger. x9. Bell Atlantic/NYNEX shall negotiate supplements or amendments to existing interconnection agreements where necessary in response to a request that is covered by the conditions contained herein from a carrier purchasing interconnection. This condition shall apply regardless of whether such existing agreements expressly provide for amendment or modification. Bell Atlantic/NYNEX shall treat the commitments as amendments to":&,-(-(ZZ$" Commission rules in interpreting any clauses that permit amendments to interconnection agreements to take into account changes in Commission rules. ",-(-(ZZ"  X-) APPENDIX D ׃  X-  PERFORMANCE MONITORING REPORTS ă xAs a condition of the grant authorized herein and as specified in Appendix C, Bell Atlantic and NYNEX shall provide Performance Monitoring Reports as set forth below. General Notes & Definitions:  a) a) a) a) a) a) a) a)X` hp x (#%'0*,.8135@8: 10 Days$  X -Dp x(p x(,**6""**6UNE (POTS):$*  X-p x(Dp x(XVVJ,^VVJ"^< 10 lines/circuits and  10 lines/circuits$  X-XVVJ,^VVJ"^Mechanized Orders and NonMechanized Orders$  X{-Dp x(p x(,**6""**6UNE (Specials):$*  Xd-p x(Dp x(XVVJ,^VVJ"^< 10 lines/circuits and  10 lines/circuits$  XM-XVVJ,^VVJ"^Mechanized Orders and NonMechanized Orders $  X-Dp x(p x(,**6""**6Resale (POTS):$*  X-p x(Dp x(XVVJ,^VVJ"^< 10 lines/circuits and  10 lines/circuits$  X-XVVJ,^VVJ"^Mechanized Orders and NonMechanized Orders $  X-Dp x(p x(,**6""**6Resale (Specials):$*  X-p x(Dp x(XVVJ,^VVJ"^ < 10 lines/circuits and  10 lines/circuits$  X-XVVJ,^VVJ"^Mechanized Orders and NonMechanized Orders$n  |"w,-(-(ZZ{" T fZZ fm @@@ fZZfm @@@T n  ^   m 34."""""""" 1. 1. 1. 1. 1. 1. 1. 1.Reject Timeliness V-Definition: Average response time from receipt of service request to distribution of rejection.  V-Methodology: FlowThrough Orders: OSS to provide data on a carrier specific basis. Manual Input Orders: Manual Tracking 100% sample by carrier for Trunks and UNE. Resale currently statistical sampling. 100% sample under development  VA-Report Level: Carrier specific. Reported on a per order basis as follows:  X - 1. 1. 1. 1. 1. 1. 1. 1.""""""""Dp x(p x(,**6""**6Interconnection Trunks:$*  X -p x(Dp x(XVVJ,^VVJ"^Average Response Time$  X -XVVJ,^VVJ"^% > 10 Days$  X -Dp x(p x(,**6""**6UNE (POTS):$*  X -p x(Dp x(XVVJ,^VVJ"^< 10 lines/circuits and  10 lines/circuits$  X-XVVJ,^VVJ"^Mechanized Orders and NonMechanized Orders$  Xr-Dp x(p x(,**6""**6UNE (Specials):$*  X[-p x(Dp x(XVVJ,^VVJ"^< 10 lines/circuits and  10 lines/circuits$  XD-XVVJ,^VVJ"^Mechanized Orders and NonMechanized Orders $  X-Dp x(p x(,**6""**6Resale (POTS):$*  X-p x(Dp x(XVVJ,^VVJ"^< 10 lines/circuits and  10 lines/circuits$  X-XVVJ,^VVJ"^Mechanized Orders and NonMechanized Orders $  X-Dp x(p x(,**6""**6Resale (Specials):$*  X-p x(Dp x(XVVJ,^VVJ"^ < 10 lines/circuits and  10 lines/circuits$  X-XVVJ,^VVJ"^Mechanized Orders and NonMechanized Orders$^ Q   m 3"""""""" 1. 1. 1. 1. 1. 1. 1. 1.5.g 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.Dp x(p % Rejectsg Vn-p p x(Definition: % of total orders received rejected by BA/NYNEX due to error or omission.  V)-Methodology: Manual tracking for nonflow through orders. Mechanized tracking for flowthrough.  V -Report level: Carrier specific. Tracked separately for Interconnection Trunks, UNE and Resale.Q  ^"#,-(-(ZZt"m" T fZZfm @@@ fZZfm @@@T Q   ^ |  3 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.6. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.Timeliness of Completion Notification V-Definition: Average response time from actual completion date to distribution of order completion notification.  V-Methodology: Under development Notification for Trunks and HOT Cut (Loop) orders is done via live phone call upon turn up of circuit. Serial numbers need to be provided by Competing Carriers for systems tracking. Notification for Other UNE and Resale to be completed via electronic notification. Mechanized metric under development.  V* -Report level:  Carrier specific. Tracked separately for Interconnection Trunks, UNE and Resale. l   | & 3 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.7.  1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.% Flow Through Orders  V -Definition: The number of orders processed directly to legacy Provisioning system without manual intervention as a percent of total orders received.  X-Methodology: Mechanized metric  X-Report level: Initially aggregate measure. Carrier specific under study for development. Reported separately for UNE and Resale.l   &"Q,-(-(ZZ| " J fZZfm @@@ fZZf !@J l      X- Provisioning    J fZZf !@ !fZZ fm @@@J       3 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.8. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.Average Offered Interval V-Definition: Average time from receipt of (accepted) service request to due date provided on order confirmation. Excludes orders where customer requested Due Date is beyond offered interval.  V-Methodology: Mechanized metric from ordering system.  Vx-Report level: Reported by Carrier on a per order basis as follows:  XJ - 1. 1. 1. 1. 1. 1. 1. 1.""""""""p x(p x(,**6""**6Interconnection Trunks:$*  X3 -,**6""**6UNE (POTS): by groups of lines on single order. NYNEX breakout, separately tracked for dispatch and no dispatch, as follows (BA breakout to be provided within 10 days):$* p x(Dp x(XVVJ,^VVJ 5 lines/circuits$  X-XVVJ,^VVJ"^6 9 lines/circuits$ XVVJ,^VVJ 10 lines/circuits$  X-Dp x(p x(,**6""**6UNE (Specials):$*  X{-p x(Dp x(XVVJ,^VVJ"^by groups of lines on single order similar to UNE (POTS) described above $  XM-Dp x(p x(,**6""**6Resale (POTS):$*  X6-p x(Dp x(XVVJ,^VVJ"^by groups of lines on single order similar to UNE (POTS) described above $  X-Dp x(p x(,**6""**6Resale (Specials):$*  X-p x(Dp x(XVVJ,^VVJ"^by groups of lines on single order similar to UNE (POTS) described above $",-(-(ZZ"    ' 39."""""""" 1. 1. 1. 1. 1. 1. 1. 1.Dp x(p Average Completed Interval V-p p x(Definition: Average time from receipt of (confirmed) service request to actual order completion date. Excludes orders where customer requested dates are beyond offered interval.  V-Methodology: Mechanized metric from ordering system.  X-Report level:  Xq- 1. 1. 1. 1. 1. 1. 1. 1.""""""""""""""""""""""""p x(p x(,**6""**6Interconnection Trunks:$*  XZ-,**6""**6UNE (POTS): by groups of lines on single order. NYNEX breakout, separately tracked for dispatch and no dispatch, as follows (BA breakout to be provided within 10 days):$* p x(Dp x(XVVJ,^VVJ 5 lines/circuits$  X -XVVJ,^VVJ"^6 9 lines/circuits$ XVVJ,^VVJ 10 lines/circuits$  X -Dp x(p x(,**6""**6UNE (Specials):$*  X-p x(Dp x(XVVJ,^VVJ"^by groups of lines on single order similar to UNE (POTS) described above $  Xt-Dp x(p x(,**6""**6Resale (POTS):$*  X]-p x(Dp x(XVVJ,^VVJ"^by groups of lines on single order similar to UNE (POTS) described above $  X/-Dp x(p x(,**6""**6Resale (Specials):$*  X-p x(Dp x(XVVJ,^VVJ"^by groups of lines on single order similar to UNE (POTS) described above$    '  3"""""""" 1. 1. 1. 1. 1. 1. 1. 1.10.  1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.Dp x(p % Completed within 5 days (POTS 5 or less lines) V-p p x(Definition: Measure of orders completed within 5 days of receipt of confirmed service request for POTS services with 5 or less lines on an order. Excludes orders where customer requested dates are beyond offered interval. Excludes HOT Cut Loop orders (due to coordination requirements).  Vp-Methodology: Mechanized metric from ordering system.  XB-Report level: Resale and UNE POTS NOTE: Metric developed for NYNEX region. Under development for BA region. BA metric to be developed within 120 days of merger approval    "!,-(-(ZZ '" T !fZZ fm @@@ AfZZfm @@@T      3 X- 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.11. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.% Missed Installation Appointments V-Definition: % of Orders where completions are not done by due date on order confirmation. Excludes misses where the competing carrier or end user causes the missed appointment. Information on details for reason is available on an order specific basis upon reasonable request by carriers.  Vo-Methodology: Mechanized metric from ordering system.  XA-Report level: Carrier specific. Reported on a per line basis. Reported as follows:  X - 1. 1. 1. 1. 1. 1. 1. 1.""""""""""""""""""""""""p x(p x(,**6""**6Interconnection Trunks$*  X -,**6""**6UNE POTS dispatch and no dispatch$*  X -,**6""**6UNE Specials$*  X -,**6""**6Resale POTS dispatch and no dispatch$*  X-,**6""**6Resale Specials$*     3"""""""" 1. 1. 1. 1. 1. 1. 1. 1.12. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.p x(p Facility Missed Ordersp p x(% orders with missed committed due dates due to lack of facilities.. Carrier specific basis as follows:  Xm- 1. 1. 1. 1. 1. 1. 1. 1.""""""""p x(p x(,**6""**6Interconnection Trunks$*  XV-,**6""**6UNE POTS dispatch and no dispatch$*  X?-,**6""**6UNE Specials$*  X(-,**6""**6Resale POTS dispatch and no dispatch$*  X-,**6""**6Resale Specials$* """"""""""""""""p x(p x(NOTE: Additional metric under development for NYNEX region. Metric under development for BA region. BA/NYNEX metric to be developed within 120 days of merger approval     l  3"""""""" 1. 1. 1. 1. 1. 1. 1. 1.13. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.% Installation Troubles within 30 Days V-Definition: Troubles received on lines within 30 days of service order activity as a percent of lines ordered in 30 days.  Vi-Methodology: Mechanized metric trouble reports captured in maintenance data, lines ordered from ordering system.  X$-Report level: Carrier specific. Reported on a per line basis. Reported as follows:  X!- 1. 1. 1. 1. 1. 1. 1. 1.""""""""p x(p x(,**6""**6Interconnection Trunks$*  X"-,**6""**6UNE POTS $*  X#-,**6""**6UNE Specials$*  X$-,**6""**6Resale POTS $*  X%-,**6""**6Resale Specials  l "~&,-(-(ZZ&%" J AfZZfm @@@ afZZf !@J       X- Maintenance    J afZZf !@ fZZ fm @@@J       3"""""""" 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.14. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.Customer Trouble Report Rate V-Definition: Initial Customer direct or referred troubles reported within a calendar month where cause is determined to be found to be in the network (not customer premises equipment, inside wire, or carrier equipment) per 100 lines/circuits in service.  V-Methodology: Mechanized metric trouble reports and lines in service captured in maintenance data base.  XJ -Report level: Carrier specific. Reported on a per line basis. Reported as follows:  X - 1. 1. 1. 1. 1. 1. 1. 1.""""""""""""""""""""""""p x(p x(,**6""**6Interconnection Trunks$*  X -,**6""**6UNE POTS $*  X -,**6""**6UNE Specials$*  X-,**6""**6Resale POTS $*  X-,**6""**6Resale Specials$*    l  3"""""""" 1. 1. 1. 1. 1. 1. 1. 1.15. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.p x(p Missed Repair Appointments V-p p x(Definition: % of Trouble reports not cleared by date and time committed. Excludes misses where the competing carrier or end user causes the missed appointment. Appointment intervals vary with force availability in the POTS environment. Specials and Trunk intervals are standard interval appointments of no greater than 24 hours  V-Methodology: Mechanized metric from maintenance data base(s).  X-Report level: Carrier specific. Reported on a per line basis. Reported as follows:  X- 1. 1. 1. 1. 1. 1. 1. 1.""""""""""""""""""""""""p x(p x(,**6""**6UNE POTS Dispatched and Not Dispatched$*  X{-,**6""**6Resale POTS Dispatched and Not Dispatched$*  l "t,-(-(ZZk" T fZZ fm @@@ fZZfm @@@T      3"""""""" 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.16. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.Mean Time to Repair V-Definition: Average duration time from receipt of trouble report to clearing of trouble report. Stop Clock (for specials and trunks). Stop clock refers to the time from trouble clearance to validation of trouble closure by carrier. (Administrative time)  V-Methodology: Mechanized metric from maintenance data base(s).  XX-Report level: Carrier specific. Reported on a per line basis. Reported as follows:  X - 1. 1. 1. 1. 1. 1. 1. 1.""""""""""""""""""""""""p x(p x(,**6""**6Interconnection Trunks$*  X -,**6""**6UNE POTS $*  X -,**6""**6UNE Specials$*  X -,**6""**6Resale POTS $*  X -,**6""**6Resale Specials$*   ]  3"""""""" 1. 1. 1. 1. 1. 1. 1. 1.17. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.p x(p Out of Service > 24 Hours V-p p x(Definition: For Out of Service Troubles (No Dial Tone, can not be called or can not call out): the percent of troubles cleared in excess of 24 hours.  VV-Methodology: Mechanized metric from maintenance data base(s).  X(-Report level: Carrier specific. Reported on a per line basis. Reported as follows:  X- 1. 1. 1. 1. 1. 1. 1. 1.""""""""""""""""""""""""p x(p x(,**6""**6Interconnection Trunks$*  X-,**6""**6UNE POTS $*  X-,**6""**6UNE Specials$*  X-,**6""**6Resale POTS $*  X-,**6""**6Resale Specials$*    ]  3"""""""" 1. 1. 1. 1. 1. 1. 1. 1.18.{ 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.p x(p % Repeat Trouble Reports within 30 daysdp p x(Trouble reports on the same line/circuit as a previous trouble report within the last 30 calendar days as a percent of total troubles reported.  V=-Methodology: Mechanized metric from maintenance data bases  X -Report level: Carrier specific. Reported on a per line basis. Reported as follows:  X"- 1. 1. 1. 1. 1. 1. 1. 1.""""""""p x(p x(,**6""**6Interconnection Trunks$*  X#-,**6""**6UNE POTS $*  X$-,**6""**6UNE Specials$*  X%-,**6""**6Resale POTS $*  Xp&-,**6""**6Resale Specials"p&,-(-(ZZ%|"  r  J fZZfm @@@ fZZf !@J    r   X- Network Performance    J fZZf !@ fZZ fm @@@J      t 3"""""""" 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.19. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.% Common Trunk BlockingMeasure of trunk groups above .005 standard during busy hour on a monthly basis. Standard blocking report for trunk groups for local traffic from all end offices to tandems. Engineering design blocking standard = P.005. Not Carrier or BA/NYNEX specific.    t 3 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.20. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.% Dedicated Final Trunk BlockingMeasure of final trunk groups above .01 standard during busy hour on a monthly basis. Engineering design blocking standard = P.01. Carrier specific metric for dedicated trunks.   J fZZ fm @@@ fZZj f !@J       Xz - Billing   j  J fZZj f !@ !fZZs fm @@@J     j    3 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.21.l  1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.Timeliness of Daily Usage Feed  Xl - 1. 1. 1. 1. 1. 1. 1. 1.""""""""""""""""""""""""p x(p ,s_"s% in 3 business daysJ  XU -,s_"s% in 4 business daysJ  X> -,s_"s% in 5 business daysJ  X'-,s_"s% in 8 business daysJt""""""""""""""""p p x(Measure the number of business days from message creation date to date message information is available to CLEC on Daily usage feed (DUF). Includes messages originating at BA/NYNEX switches (resale and UNE switching), and not alternately billed messages received from other incumbent LECs. Not currently carrier specific. (Note: when carrier specific measures are available this will be provided). Until new report is available, upon reasonable request of carrier, carrier specific reports will be run.  l  s   & 3"""""""" 1. 1. 1. 1. 1. 1. 1. 1.22. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1. 1.Timeliness of Carrier BillMeasure % of carrier bills ready for distribution to carrier within 10 business days of bill date.  Xh-Methodology: Mechanized measure out of CABS billing system for UNE and Interconnection Trunks and Minutes of Use. For NYNEX, utilizes retail billing system for Resale and manually tracks billing timeliness. BA mechanically tracks resale billing.  X-Report Level: per carrierl  &p x(p x(08"в",-(-(ZZ"  P-#X~xP7aXP# Separate Statement of  P-Commissioner James H. Quello ĐTP  R-Re: In re The Applications of NYNEX Corporation and Bell Atlantic Corporation, for Consent to Transfer Control of NYNEX Corporation and its Subsidiaries, Memorandum  Rv-Opinion and Order x` `  hh@hpp  #Ez August 14, 1997 xThe Bell AtlanticNYNEX Merger Order takes two important steps: It sets out a comprehensive framework for the Commission to review future telecommunications mergers, and it imposes conditions that will protect consumers in the Bell AtlanticNYNEX region by improving the opportunity for competitors to enter those markets. Although I would have preferred to conclude our review of this merger more promptly, I support today's action by the Commission. xFirst, the Bell AtlanticNYNEX Merger Order represents new thinking in how the FCC will evaluate telecommunications mergers. The competitive analysis in this Order is guided by the traditional antitrust principles that the government has used to evaluate whether particular mergers would tend to enhance or diminish competition. The Order builds upon these principles by recognizing that only recently have some of the country's best potential competitors, such as Bell Atlantic and NYNEX, been allowed to compete outside of their own territories. I am optimistic that the principles established in this Order will permit the Commission to protect consumers in newlyderegulated markets. xSecond, the narrowlytailored, procompetitive conditions contained in this Order underscore the Commission's unique role in reviewing telecommunications mergers pursuant to the public interest test in the Communications Act. During the past 18 months, the Commission has gained valuable insight and expertise in local competition matters by implementing the Telecommunications Act of 1996. Our ability to impose marketopening conditions in this Order is due in large measure to our ongoing experience with local competition issues. xI have long supported the principle that regulators should provide guidance to the industries we regulate whenever possible. I believe that today's Order provides such guidance without prejudging any future transactions that might come before the Commission. I am also confident that the conditions we impose on this merger will result in lower prices and increased choice for local telephone customers in the Bell Atlantic/NYNEX region.  #Ez   PQ%- #Ez x` `  hh@h "#',-(-(ZZP("ԌSeparate Statement of  Commissioner Rachelle B. Chong T  R-T  R-TPRe:XxIn re the Applications of NYNEX Corporation, Transferor, and Bell Atlantic Corporation, Transferee, for Consent to Transfer Control of NYNEX Corporation  R_-and its Subsidiaries(# xI support today's decision granting the merger applications of two of the Bell Operating Companies, Bell Atlantic Corporation and NYNEX Corporation. This is a significant merger which comes in the midst of a whirlwind of great change in the telecommunications marketplace. This whirlwind has been wrought by the implementation of the historic Telecommunications Act of 1996, the dizzying pace of  R -technological change, and the determined efforts of this Commission over the last decadeandahalf to introduce more competition in the telephone market. xThis particular merger has drawn heightened interest because Bell Atlantic and NYNEX are incumbent monopoly local service providers that were possible rivals due  RK-to their neighboring service areas. I write separately to emphasize that our grant of this application comes only after a very careful analysis of the likely market effects of the merger, and the imposition of certain enforceable procompetitive conditions to help ensure that the local network is opened and stays opened to new competitors. xIn this order, we have performed an analysis using not only traditional antitrust principles, but also broader public interest considerations. In our public interest analysis, we considered whether the merger will enhance and promote competition as  R-weighed against any harms to competition.  S -#&njp P7 &P#э For example, they might include enhancing market power, slowing the decline of market power, or impairing our ability to establish and enforce our rules to ensure a competitive framework.  This balancing of public interest considerations took place against the backdrop of the "trends and needs of the industry" as a whole. In this case, I am pleased that we looked at this merger in the context of this unique time when we are implementing the 1996 Act. As we point out in this decision, competition in the local exchange and exchange access market is still, at best, in its earliest stages. Accordingly, we took a hard look at whether this merger truly would foster competition, or would have adverse competitive effects. We were acutely aware that Bell Atlantic would have been a competitor and among the most  R-significant market participants in the local telephone market in LATA 132@ S$-#&njp P7 &P#э LATA 132 is the Local Access and Transport Area encompassing New York, Long Island, and portions of Westchester County. and the New York metropolitan area. "!,))ZZ""ԌxI am particularly pleased that we took a forwardlooking approach in this order.  R-Because the local telephone market is undergoing a historic transformation, we looked at the likely effects of the proposed merger on competition in the future. There, we made some assumptions that the most critical provisions of Sections 251 and 252 of  R-the 1996 Act are being implemented #I S-#&njp P7 &P#э These provisions include interconnection, unbundled network elements, resale, reciprocal compensation for transport and termination, collocation, dialing parity and number portability.  and that there are no prohibitions against entry by new competitors. I hope we were not overly optimistic in making these assumptions. If it turns out we were wrong, the next Commission may wish to be less optimistic about such assumptions if another BOC merger comes its way. xFinally, some have voiced fears that a nationwide "Ma Bell" monopoly will be rebuilt if the remaining BOCs continue to merge. I believe these fears are misplaced. If Congress' goal of a procompetitive, deregulatory telecommunications marketplace is realized, there will be multiple competitors in the local telephone market including incumbent and competitive local telephone companies, long distance telephone companies, wireless telephone companies, and cable operators. In a vibrantly competitive environment, having five instead of six BOCs will not be particularly problematic. Having said that, I would be concerned if the remaining BOCs focused less on opening their networks to competition, than on merging with other BOCs, who are the most likely possible rivals in the short term.