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R)  X - [ MEMORANDUM OPINION AND ORDER ă  X- Adopted: September 14, 1998hh@h pp Released: September 14, 1998 By the Commission: Commissioner Furchtgott-Roth concurring and issuing a statement; Commissioner Powell issuing a statement, and Commissioner Tristani approving in part, dissenting in part, and issuing a statement.  X-  TABLE OF CONTENTS   ׃ `(#"Paragraph  X-XxPI. INTRODUCTION p>"(#L 1 XxPII. BACKGROUND p>"(#L 2  Xe-XxX` ` xA.` ` The Applicants ` p>"(#L 2  XN-XxX` ` xB.` ` The Merger Applications ` p>"(#L 4 XxPIII. PUBLIC INTEREST FRAMEWORK p>"(#L 8  X -XxX` ` xA.` ` Legal Standards ` p>"(#L 8  X-XxX` ` xB. ` ` Analytical Framework for Assessing Competitive Effects ` p"(#I 15 XxPIV. ANALYSIS OF POTENTIAL PUBLIC INTEREST HARMS p"(#I 23  X!-XxX` ` xA.` ` Domestic Long Distance Services ` p"(#I 23  X"-XxX` ` X ` ` 1.  Relevant Market p"(#I 24  X#-XxX` ` X ` ` 2.  Market Participants p"(#I 32  Xh$-XxX` ` X ` ` 3. Analysis of Competitive Effects p"(#I 36  XQ%-XxX` ` xB.` ` U.S. International Services ` p"(#I 78  X:&-XxX` ` X ` ` 1. Input Markets p"(#I 82":&0*''ZZ$"Ԍ X-XxX` ` X ` ` 2. End User Markets pv!(#@ 119  X-XxX` ` X ` ` 3. GTE's Argument Regarding IMTS and Private Line Services pv!(#@ 133  X-XxX` ` X ` ` 4. Analysis of Transfer of Control of MCI's DBS License pv!(#@ 140  X-XxX` ` xC.` ` Internet Backbone Services ` p!(#C 142  X-XxX` ` X ` ` 1. Background pv!(#@ 143  X-XxX` ` X ` ` 2. Analysis of Competitive Effects p!(#C 147  Xv-XxX` ` X ` ` 3. MCI's Divestiture p!(#C 151  X_-XxX` ` X ` ` 4. International Internet Issues p!(#C 157  XH-XxX` ` xD.` ` Local Exchange and Exchange Access Services ` p!(#C 162  X1-XxX` ` X ` ` 1. Relevant Markets p!(#C 164  X -XxX` ` X ` ` 2. Market Participants pv!(#@ 169  X -XxX` ` X ` ` 3. Analysis of Competitive Effects p!(#C 183  X -XxX` ` xE.` ` Provision of Long Distance and Local Service to Residential Customers ` pv!(#@ 188 XxPV. POTENTIAL PUBLIC INTEREST BENEFITS p!(#F194 XxPVI. OTHER ISSUES p!(#F200  Xy-XxX` ` xA.` ` Other Public Interest Concerns ` p!(#F200  Xb-XxX` ` xB.` ` Procedural Motions ` p!(#F220 XxPVII. CONCLUSION p!(#F224 XxPVIII. ORDERING CLAUSES p!(#F225  X-APPENDIX` ` List of Commenters  X- &J:\POLICY\MCIWCOM\MASTER\INTRO& JI. INTRODUCTION ׃  X-  X|- x1.` ` In this Order, the Commission considers the applications filed by WorldCom, Inc. (WorldCom) and MCI Communications Corporation (MCI) pursuant to sections 214(a)  XN-and 310(d) of the Communications Act of 1934, as amended (Communications Act),SN yO-ԍx47 U.S.C.  214(a), 310(d).S for approval to transfer control of certain licenses and authorizations from MCI to WorldCom in connection with their proposed merger. In accordance with the terms of sections 214(a) and 310(d), WorldCom and MCI (collectively, Applicants) must persuade us that their proposed transaction will serve the public interest, convenience, and necessity before we can grant their"X0*%%ZZ*!"  X-applications. {Oy-ԍxSee Applications of NYNEX Corp., Transferor, and Bell Atlantic Corp., Transferee, For Consent to  {OC-Transfer Control of NYNEX Corp. and Its Subsidiaries, File No. NSDL9610, Memorandum Opinion and  {O -Order, 12 FCC Rcd 19985, 19987 at paras. 2936 (1997) (Bell Atlantic/NYNEX Order); In the Matter of the  {O-Merger of MCI Communications Corp. and British Telecommunications PLC, GN Docket No. 96245,  {O-Memorandum Opinion and Order, 12 FCC Rcd 15351, 15353 at para. 2 (1997) (BT/MCI Order). For the reasons set forth below, we conclude that WorldCom and MCI have demonstrated that the transfer of the subject licenses and authorizations will serve the public interest, convenience, and necessity. Accordingly, we grant their applications for transfer of control. In so doing, however, we condition our approval on MCI's divesture of its Internet assets to Cable & Wireless plc (C&W) prior to the close of its merger with WorldCom. Further, although this Order permits the transfer to WorldCom of MCI's direct broadcast satellite (DBS) license, such transfer is subject to whatever action the Commission may take pursuant to the pending application for review of the initial license grant to MCI. &J:\POLICY\MCIWCOM\MASTER\INTRO& (J:\POLICY\MCIWCOM\MASTER\BACKGRD(  X1-f II. BACKGROUND׃  X -xA.` ` The Applicants  X - x2.` ` MCI is one of the largest telecommunications companies in the United States  X -(U.S.), with 1997 revenues of $19.6 billion.  yO-ԍxMCI SEC Form 10K, Annual Report (filed Apr. 15, 1998) (MCI Apr. 15, 1998 10K). MCI is the second largest U.S. provider of long  X -distance and international telecommunications services.  {Oj-ԍxFCC, Trends in Telephone Service (Com. Car. Bur. July 1998) at 26, 53 (1998 Trends in Telephone  {O4-Service Report). It also provides local exchange  X-service in 62 U.S. cities through its MCImetro subsidiary.n  yO-ԍxLetter from Andrew D. Lipman, Counsel for WorldCom, Swidler & Berlin, to Magalie Roman Salas,  {Ow-Secretary, FCC at Ex. 2 (filed June 24, 1998) (WorldCom June 24 Ex Parte). At the time the instant merger application was filed, MCI was a major provider of Internet backbone and access services,  Xb-which it provided over its national fiber network.b  yO-ԍxAs discussed in section IV.C below, MCI has agreed to sell its Internet business to C&W in order to address competitive concerns raised in the review of the merger by European and U.S. antitrust authorities.  X4-x3.` ` WorldCom is also among the largest U.S. telecommunications companies, with  X-1997 revenues of $7.35 billion.  yO"-ԍxWorldCom SEC Form 10K, Annual Report (filed Mar. 27, 1998) (WorldCom Mar. 27, 1998 10K).#x6X@`7X@#Ѳ It is the fourth largest U.S. provider of long distance and"0*%%ZZ_"  X-international telecommunications servicesi {Oy-ԍx1998 Trends in Telephone Service Report at 26, 53.i and provides local exchange service in 111 U.S. cities through its subsidiaries Brooks Fiber Properties (Brooks Fiber) and Metropolitan Fiber  X-Systems (MFS).X Z {O-ԍxWorldCom June 24 Ex Parte, Ex. 2.X WorldCom is also a major provider of Internet backbone and access services, which it provides over its national fiber network.  X- xB.` ` The Merger Applications  Xv-  X_-x4.` ` The Applicants request the Commission's consent to the transfer of control of MCI's numerous Title II authorizations and cable landing licenses and Title III radio licenses  X1-to WorldCom. 1 {O -ԍxSee Applications and Request for Special Temporary Authority, Vol. III at Tab I (listing the licenses and authorizations held by MCI) (filed Oct. 1, 1997) (WorldCom Oct. 1 Application). According to the Applicants, MCI holds authorizations for international wireline facilities, and a variety of wireless facilities, including pointtopoint microwave stations, earth station licenses, private telephone maintenance radio service licenses, private business radio licenses, private aircraft station licenses, and an 800 MHZ airground radiotelephone license used to provide voice and video services as well as submarine cable landing licenses and a DBS license. Amendment to Applications of WorldCom, Inc. for Transfer of Control of MCI Communications  {OH-Corporation at 3, n.3 (filed Nov. 21, 1997) (WorldCom/MCI Nov. 21 Amended Application); see also Minor Amendment to Applications of WorldCom, Inc. and MCI Communications Corporation for Transfer of Control of MCI Communications Corporation (filed July 31, 1998) (listing additional licenses held by MCI) (WorldCom/MCI July 31 Minor Amendment). WorldCom's first application was filed on October 1, 1997, in conjunction  X -with its initial tender offer for MCI.)  P  yO-ԍxWorldCom Oct. 1 Application. This application sought Special Temporary Authority (STA) for the interim transfer of MCI's licenses and authorizations to a voting trustee pursuant to the Commission's Policy  {O-Statement on Tender Offers and Proxy Contests. See Tender Offers and Proxy Contests, Policy Statement, 59  {Ou-Rad. Reg. 2d. (P&F) 1536, 1584 (1986), appeal dismissed sub. nom. Office of Communication of the United  {O?-Church of Christ v. FCC, 826 F.2d 101 (D.C. Cir. 1987). In its Amended Application WorldCom withdrew its  {O -request for an STA and for approval to transfer MCI Shares to a voting trustee.  See WorldCom/MCI Nov. 21 Amended Application at 56.) Following WorldCom and MCI's November 9, 1997 merger agreement, the companies jointly filed an amended application for transfer of control  X -of MCI's licenses and authorizations to WorldCom on November 21, 1997.Z  yO5 -ԍxWorldCom/MCI Nov. 21 Amended Application.Z On July 31, 1998, Applicants filed a minor amendment listing additional private land mobile radio  X -licenses held by MCI, but not included in the initial application.V ( yO#-ԍxWorldCom/MCI July 31 Minor Amendment.V "  0*%%ZZ "Ԍ X-x5.` ` Under the terms of the merger agreement, MCI will become a whollyowned  X-subsidiary of WorldComa yOb-ԍxWorldCom/MCI Nov. 21 Amended Application at 12.a and the combined company will be renamed MCI WorldCom.AX {O-ԍxId. at 5. A Holders of MCI Common Stock will receive shares of WorldCom Common Stock according  X-to an agreed upon exchange ratio. {OV-ԍxId. "The actual number of shares of WorldCom stock to be exchanged for each MCI share owned by investors in MCI other than BT will be determined by dividing $51 by the 20day average of the high and low sales prices for WorldCom common stock prior to closing, but will not be less than 1.2439 shares (if WorldCom's average stock price exceeds $41) or more than 1.7586 (if WorldCom's average stock price is less than $29). In addition, under the Merger Agreement, BT will receive $51 per share in cash for each of its shares  {O@ -of MCI Class A Common Stock upon consummation of the merger." Id. at 5 n. 9. Following the merger, current holders of MCI Common  X-Stock will own approximately 45 percent of the combined company.Af  {O-ԍxId. at 5. A  Xv-x6.` ` The proposed merger was reviewed by European and U.S. Federal antitrust authorities. On July 8, 1998, the European Commission (EC) cleared the merger subject to  XH-the condition that MCI sell its entire Internet business.H  {O-ԍxSee MCI July 15 Reply Comments, Attach. 2 (European Commission Press Release, "Commission Clears WorldCom and MCI Merger Subject to Conditions," rel. July 8, 1998) (EC Press Release). The proposed merger was reviewed by the U. S. Department of Justice pursuant to the HartScottRodino amendment to the  X -Clayton Act.y R  yO-ԍxHartScottRodino Antitrust Improvements Act of 1976, 15 U.S.C.  18.y On July 15, 1998, the U.S. Department of Justice (DOJ) issued a press release concluding that the merger of WorldCom and MCI may proceed after MCI sells its Internet  X -business.X  yO-ԍxMCI July 15 Reply Comments, Attach. 1 (DOJ Press Release, "Justice Department Clears WorldCom/MCI Merger After MCI Agrees to Sell its Internet Business," rel. July 15, 1998) (DOJ Press Release). The instant Order represents the Commission's independent review of the merger based on its public interest standard.  X -x7.` ` Numerous parties filed timely comments opposing the application or petitions to deny the application. These parties assert that the transfer of control of MCI's licenses and"0*%%ZZ"  X-authorizations to WorldCom is not in the public interest.d yOy-ԍxParties filing comments are listed in the Appendix.d In addition, parties filed numerous  X-procedural and related motions.~X {O-ԍxThese motions are addressed below. See infra section VI.B.~ (J:\POLICY\MCIWCOM\MASTER\BACKGRD( *J:\POLICY\MCIWCOM\MASTER\LEGAL.FWK*  X- _III. PUBLIC INTEREST FRAMEWORK ׃  X-x A.` ` Legal Standards   X_-x8.` `  LEGAL Pursuant to sections 214(a) and 310(d) of the Communications Act, the Commission must determine whether Applicants have demonstrated that granting a transfer of control of licenses and authorizations fr_om MCI to WorldCom would serve the "public  X -interest."Y  {O-ԍx JURIS 47 U.S.C.  214(a), 303(r), 310(d) (1994).  See Teleport Communications Group Inc., Transferor, and  {O-AT&T Corp. Transferee, CC Docket No. 9824, Memorandum Opinion and Order, FCC 98169 at para. 11 (rel.  {OI-July 23, 1998) (AT&T/TCG Order); Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20000, para. 29; BT/MCI Order,  yO-12 FCC Rcd at 15364, para. 28. The Commission also shares jurisdiction with DOJ 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 . . . the effect of such acquisition may be  {Ok-substantially to lessen competition, or to tend to create a monopoly." See 15 U.S.C.  18; 15 U.S.C.  21(a) (recognizing the Commission's role as an antitrust agency with respect to acquisitions of "common carriers engaged in wire or radio communications or radio transmissions of energy"). Y More specifically, under section214(a) of the Communications Act, the Commission must find that the "present or future public convenience and necessity require or will require" WorldCom to operate the acquired telecommunications lines, and that "neither the present nor future public convenience and necessity will be adversely affected" by the  X -discontinue of service from MCI.G  yO1-ԍx47 U.S.C. 214(a).G Under section310(d) the Commission must determine that the proposed transfer of wireless licenses "serves the public interest, convenience, and  X-necessity" before it can approve the transaction.GR  yO-ԍx47 U.S.C.  310(d).G  Xb-x9.` ` The public interest standard of sections 214(a) and 310(d) is a flexible one that  XK-encompasses the "broad aims of the Communications Act."K {O!-ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 19987, para. 2 & n.2 (and cases cited therein); BT/MCI  {O"-Order, 12 FCC Rcd at 15353, para. 3. These broad aims include, among other things, the implementation of Congress' "procompetitive, deregulatory national"4>0*%%ZZ"  X-policy framework designed to . . . open[] all telecommunications markets to competition," yOy-ԍxH.R. Rep. No. 104458 at 1; Preamble to Pub. L. No. 104104, 110 Stat. 56 (1996).  X-"preserving and advancing" universal service,NX {O-ԍxSee 47 U.S.C.  254.N and "accelerat[ing] rapidly private sector  X-deployment of advanced telecommunications and information technologies and services." {Om-ԍxSee H.R. Rep. No. 104458 at 1. See also, e.g., 47 U.S.C.  259, 332(c)(7), 706. The public interest analysis may also include an assessment of whether the merger will affect the quality of telecommunications services provided to consumers or will result in the  X-provision of new or additional services to consumers.$| {O -ԍxSee, e.g., AT&T/TCG Order at para. 11; Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20063, para. 158;  {O -BT/MCI Order, 12 FCC Rcd at 15430, para. 205 (describing "lower prices, improved quality, enhanced service or new products" as examples of consumer benefits resulting from mergerspecific efficiencies that are relevant to the public interest analysis).  In evaluating whether the proposed transaction furthers the aims of the Communications Act, the Commission may consider the trends within, and needs of, the telecommunications industry, the factors that influenced Congress to enact specific provisions of the Communications Act, and the nature, complexity,  X1-and rapidity of change in the telecommunications industry.1h  {OJ-ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 20003, para. 32; BT/MCI Order, 12 FCC Rcd at 15365, para. 29. Of course, we note that this list of considerations is not exhaustive, and an assessment of other factors may be appropriate in the future.  X -x 10. BURDEN ` ` The statutory standards that the Commission must apply in this case necessarily involve a balancing process that weighs the potential public interest harms against public  X -interest benefitsw  {O-ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 20063, para. 157.w and, under both standards, Applicants bear the burden of proof.! T  {O-ԍxSee, e.g., 47 U.S.C. 309(e) (burdens of proceeding and proof rest with the applicant); American Telephone and Telegraph Co. and MCI Communications Corporation Petitions for the Waiver of the  {O>-International Settlements Policy, File No. USP89(N)086, Memorandum Opinion and Order, 5 FCC Rcd 4618, 4621, para. 19 (1990) (applicant seeking a waiver of an existing rate bears the burden of proof to establish that  {O-the public interest would be better served by the grant rather than the denial of the waiver request); LeFlore  {O -Broadcasting Co., Inc., Docket No. 20026, Initial Decision, 66 FCC 2d 734, 73637, paras. 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 burden of proof is on the licensees). Ultimately, we must determine whether the Applicants have demonstrated, by a preponderance of the evidence, that the proposed transaction, on balance, serves the public"y,!0*%%ZZ"  X-interest, considering both its competitive effects and other public interest benefits and harms." {Oy-ԍxAT&T/TCG Order at para 12; Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20001, 20007, paras. 29, 36;  {OC-BT/MCI Order,Ġ12 FCC Rcd at 15367, para. 33. Where necessary, the Commission may attach conditions to the approval of a transfer of licenses in order to ensure that the public interest is served by the transaction. Section 214(c) of the Communications Act also authorizes the Commission to attach to the certificate "such  X-terms and conditions as in its judgment the public convenience and necessity may require."#&$ {Oy-ԍx47 U.S.C.  214(c). See, e.g., MCI Communications Corp, File No. ISP93013, Declaratory Ruling  {OC -and Order, 9 FCC Rcd 3960, 3968, para. 39 (1994); Sprint Corp., File No. ISP95002, Declaratory Ruling  {O -and Order, 11 FCC Rcd 1850, 186772, paras. 10033 (1996); GTE Corp., File No. WPC2486, Memorandum Opinion and Order, 72 FCC 2d 111, 135, para. 76 (1979). Similarly, section 303(r) of the Communications Act authorizes the Commission to prescribe such restrictions or conditions, not inconsistent with law, as may be necessary to carry out the  X_-provision of the Act.$_ {O"-ԍx47 U.S.C. 303(r).  See, e.g., FCC v. Nat'l Citizens Comm. for Broadcasting, 436 U.S. 775 (1978)  {O-(Nat'l Citizens) (broadcastnewspaper crossownership rules properly adopted pursuant to section 303(r)); U.S. v.  {O-Southwestern Cable Co., 392 U.S. 157, 178 (1968) (section 303(r) powers permit Commission to order cable  {O-company not to 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 section 303(r) powers).  X1-x 11. ` ` The Commission shares concurrent antitrust jurisdiction with the DOJ with  X -respect to this merger.[%  {O-ԍxSee supra at note  JURIS23 .[ We acknowledge this shared responsibility and respect the expertise that DOJ brings to bear in analyzing the competitive effects of proposed transactions. We also acknowledge that the DOJ and the Commission's competitive effects analysis may, in certain respects, overlap. Our reliance in this Order on the analytical framework contained in  X -the 1992 Horizontal Merger Guidelines is an example. Thus, we believe it is appropriate for us to take this shared responsibility and analytical overlap into consideration in carrying out  X-our obligations under the Communications Act.& \  yO-ԍxGiven this shared responsibility, it is appropriate for the Commission to take note of the DOJ's merger investigation. For example, issuing a Commission decision denying a transfer of licenses or authorizations may prove unnecessary if the DOJ investigation ultimately leads to a divestiture, consent decree, or other changes in material facts. In such a circumstance, DOJ's actions may cause the Commission to reach a different outcome.  Xd-x 12. ` ` Because our public interest authority under the Communications Act is sufficient to address the competitive issues raised by the proposed merger, we decline to"MD&0*%%ZZI"  X-exercise our Clayton Act authority in this case. ' {Oy-ԍx See, e.g., Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20005, para. 33; BT/MCI Order, 12 FCC Rcd at  {OC-15364, para. 28; see also United States v. FCC, 652 F.2d 72, 88 (D.C. Cir. 1980) (en banc).  Pursuant to our authority under the  X-Communications Act,(d $ yO-ԍxThat the standard for reviewing mergers under the Communications Act differs somewhat from the standard under the antitrust laws is not a new development. Since the 1930s, the Commission has had the authority and responsibility to review such mergers under both the Communications Act and the antitrust laws. Until passage of the 1996 Act, however, the Commission's public interest determination under the Communications Act with respect to mergers between common carriers took precedence over any determination  {O -by DOJ pursuant to the antitrust laws. See 47 U.S.C. 221(a) (1995 ed.). Section 601 of the 1996 Act, by amending the Communications Act to remove the Commission's ability to prevent DOJ from challenging  yO8 -mergers between common carriers under the antitrust laws, contemplated that both agencies would be reviewing  {O -such mergers and, potentially, be reaching disparate results.  See 47 U.S.C.  152nt. Indeed, Congress did not eliminate the Commission's Clayton Act authority, or in any way diminish our authority -- and responsibility -- under sections 214 and 310 to determine whether a transfer of licenses and authorizations serves the public interest.  we are required to make an independent determination whether a proposed merger will serve the public interest. Moreover, our public interest evaluation is distinct from, and broader than, the competitive analyses conducted by antitrust authorities. First, although the Communications Act requires us to consider public interest benefits or harms other than the merger's competitive effects, to make an overall assessment, the Commission itself must consider the effect of the transfer on competition "there can be no  X_-doubt that competition is a relevant factor in weighing the public interest.")^_P  {O`-ԍxFCC v. RCA Communications, Inc., 346 U.S. 86, 9395 (1953) (RCA Communications); US v. FCC, 652  {O*-F.2d 72, 8182 (D.C. Cir. 1980) (en banc) (quoting Northern Natural Gas Co. v. FPC, 399 F.2d 953, 961 (D.C.  {O-Cir. 1968)); see Nat'l Citizens, 436 U.S. at 795.   X1-x 13.` ` Second, while the Commission's analysis of competitive effects is informed by  X -antitrust principles and judicial standards of evidence,\* v {OA-ԍx RCA Communications, 346 U.S. at 94; United States v. FCC, 652 F.2d at 81-82, 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.");  {O-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  {O--the merger and found the proposed transaction would not violate the antitrust laws); Equipment Distributors'  {O-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  yO!-under the same standards that the Department of Justice . . . must apply."). \ it is not governed by them. Therefore, it is possible for the Commission to arrive at a different assessment of the size or nature of the likely competitive benefits or harms of a proposed merger when assessing" N*0*%%ZZ " competitive effects under its public interest standard than the antitrust agencies arrive at based  X-on antitrust law. As the Supreme Court stated in FCC v. RCA Communications Inc.: XxTo 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 detailed  X3-forecast....+3 {O -ԍxRCA Communications, 346 U.S. at 9697 (omitting citations to and quotations from Far East  {Ov -Conference v. United States, 342 U.S. 570, 575 (1952) and NLRB v. SevenUp Bottling Co., 344 U.S. 344,  {O@ -348(1953)), cited with approval in Washington Utils. & Trans. Comm'n v. FCC, 513 F.2d 1142, 115860 (9th  {O -Cir.), cert. denied, 423 U.S. 836 (1975). See also FCC v. WNCN Listeners Guild, 450 U.S., 582, 59495 (1981)  {O -(quoting FCC v. National Citizens Committee for Broadcasting,  436 U.S. 775, 814 (1978) and FPC v.  {O-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 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)).  As we explain in greater detail in section II.B below, the need for the Commission to make expert predictions of future market conditions and the likelihood of success of individual competitors is particularly acute in the period of great change following the passage of the  X -Telecommunications Act of 1996 (1996 Act)., l  {O-ԍxTelecommunications Act of 1996, Pub. L. No. 104104, 110 Stat. 56, codified at 47 U.S.C.  151 et  {O-seq. The 1996 Act amended the Communications Act of 1934.  X - x  X-x 14.` ` A third and related reason that the Commission's merger analysis is distinct from and broader than antitrust analysis is that the Commission must implement and enforce the 1996 Act, in which Congress established a clear national policy that competition leading to deregulation, rather than continued regulation of dominant firms, shall be the preferred  X6-means for protecting consumers.v-6  yO-ԍ xJoint Statement of Managers, S. Conf. Rep. No. 104230, at 1 (1996).v The antitrust agencies, on the other hand, are required to approve mergers unless they substantially lessen competition. Depending upon how one interprets the antitrust agencies' mandate, it is possible that the antitrust agencies might well approve a merger that does not decrease the current level of competition but that does impede the development of future competition, leading the Commission to conclude that the merger does not serve the public interest. Finally, because of its regulatory and enforcement" X -0*%%ZZS" institutions and experience, the Commission in some cases may well have a comparative advantage in imposing and enforcing certain types of conditions that result in the merger  X-yielding overall positive public interest benefits.9. yOK-ԍxWe note that there are other differences between the Commission's and the DOJ's merger review activities. For example, the Commission issues a final appealable decision, while any decision the DOJ may make to challenge a merger must then be prosecuted before a federal court. In addition, the Commission is held judicially accountable for its decision to grant or deny a transaction, while a DOJ decision to not challenge a transaction is not judicially reviewable. As a result, the Commission is required in all events to explain its reasoning in an order on the merits, while a DOJ decision not to challenge a transaction is ordinarily accompanied by no publicly available explanation of its analysis. Moreover, the Commission must apply the "public interest" standard spelled out in sections 214 and 310 of the Communications Act (assuming it does not exercise its Clayton Act authority), while the DOJ may ground a decision not to challenge a transaction on resource constraints or other issues of prosecutorial discretion.9  X-x B. ` ` Analytical Framework for Assessing Competitive Effects   Xv-x15.` ` In conducting our public interest analysis of the competitive effects of the proposed merger, we generally follow the analytical framework adopted by the Commission  XH-in the Bell Atlantic/NYNEX Order and the BT/MCI Order./H`  {OY-ԍxSee Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20008, para. 37; BT/MCI Order, 12 FCC Rcd at 15367, para. 33. As the Commission noted in the  X3-BT/MCI Order, this analytical framework is based not only on prior Commission analyses of  X -market power,0  {O-ԍxSee, e.g., Regulatory Treatment of LEC Provision of Interexchange Services Originating in the LEC's  {OS-Local Exchange Area, CC Dockets No. 96149 & 9661, Second Report and Order & Third Report and Order,  {O-12 FCC Rcd 15756 (1997) (LEC Regulatory Treatment Order); Pacific Telesis Group, #W*f9 xr G;kX#Transferor, and SBC  {O-Communications, Inc., Transferee, Memorandum Opinion and Order#X\  P6G;2P#, Report No. LB9632, Memorandum  {O-Opinion and Order, 12 FCC Rcd 2624 (1997); Motion of AT&T Corp. to be Declared NonDominant for  {O{-International Service, Order, 12 FCC Rcd 17963 (1996) (AT&T International NonDominance Order) recon.  {OE-pending; Motion of AT&T Corp. to be Reclassified as a NonDominant Carrier, Order, 11 FCC Rcd 3271 (1995)  {O-(AT&T Domestic NonDominance Order); Craig O. McCaw, Transferor and AT&T Co., Transferee, File No.  {O-ENF9344, Memorandum Opinion and Order, 9 FCC Rcd 5836 (1994) (AT&T/McCaw Order), Memorandum  {O-Opinion and Order on Reconsideration, 10 FCC Rcd 11786 (1995), aff'd sub nom. SBC Communications, Inc. v.  {Om-FCC, 56 F.3d 1484 (D.C. Cir. 1995). but "is also embodied in the antitrust laws, including the DOJ and Federal  X -Trade Commission 1992 Horizontal Merger Guidelines and the April 8, 1997 revisions of  X -those guidelines."1 0 {O!-ԍxBT/MCI Order, 12 FCC Rcd at 15368, para. 34. In that order, the Commission noted that the analytical framework we apply is closely related to the "actual potential competition" doctrine applied by lower courts in  {Oe#-evaluating certain nonhorizontal mergers.  Id. at nn.5758. See United States Dept. of Justice Antitrust Div., and  {O/$-Federal Trade Comm'n, 1992 Horizontal Merger Guidelines, 57 Fed. Reg. 41552 (1992); United States Dept. of  {O$-Justice and the Federal Trade Comm'n, Revision to the Horizontal Merger Guidelines (Apr. 8, 1997) (1992"$00*%%*%"  {O-Horizontal Merger Guidelines)." Z10*%%ZZ "Ԍ X-ԙx16.` ` Consistent with the 1992 Horizontal Merger Guidelines, the Bell  X-Atlantic/NYNEX competitive effects analysis seeks to define the relevant markets and those  X-firms participating in those markets.s2Z {O-ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 2000809, para.37.s It then attempts to determine whether the proposed merger will allow firms participating in those markets to exercise increased market power  X-through either unilateral or coordinated anticompetitive behavior.:3 {OE -ԍxId.: Finally, if it appears that  X-the merger will result in increased market power (through either unilateral or coordinated activity), it attempts to determine if entry of new firms or construction of new capacity by existing firms in response to price increases will constrain any attempted exercise of market  XL- power. U4L~ {O{-ԍxId. at 20049, para. 128.U  X -x17.` ` In assessing whether a merger involving firms currently competing in a market  X -will result in anticompetitive effects, the 1992 Horizontal Merger Guidelines suggest that market shares should be assigned to each firm currently participating in the market and then the premerger and postmerger levels of concentration should be calculated, using the HerfindahlHirschman Index (HHI). The merger guidelines also explicitly recognize, however, that "recent or ongoing changes in the market may indicate that the current market share of a particular firm either understates or overstates the firm's future competitive  X-significance."|5 {O@-ԍx1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 41558,  1.521.|  XQ-x18.` ` The 1992 Horizontal Merger Guidelines focus on static markets perhaps because the most typical case is that of a market that has not undergone a recent major  X%-change which will substantially affect its subsequent structure. As a result, the 1992  X-Horizontal Merger Guidelines do not detail any specific methodology for assessing the effect of mergers in markets that have experienced significant recent, or ongoing, changes. The passage of the 1996 Act, however, has resulted in precisely such a major change in a number of telecommunications markets. Specifically, many markets, such as those for local exchange telephony services, that historically have been regulated as monopolies, are now in transition to becoming competitive as envisioned by the 1996 Act. In such markets, where competition is still in its infancy, analysis of postmerger increases in concentration based on current market shares may well provide an insufficient predictor of the likelihood of the merger's  XZ-potential effects on competition. In the Bell Atlantic/NYNEX Order, the Commission created an explicit analytic framework to assess the potential competitive effects of mergers involving"E 50*%%ZZ" carriers that had been prevented or deterred from entering the relevant market because of the  X-legal, regulatory, economic and operational barriers that the 1996 Act seeks to lower.p6 {Ob-ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 20020, para. 60.p It used the term "transitional markets" to refer to such markets and set forth an analytical framework that should be used to analyze the potential competitive effects of mergers in such markets. We believe that this framework is an appropriate analytical tool for assessing  X-potential competitive effects where the relevant market is a transitional market and at least  Xx-one of the merging firms is a precluded competitor in the relevant market.f7\xZ yO -ԍx "Precluded competitors" are those firms "that are most likely to enter but have until recently been  {OK -prevented or deterred from market participation by barriers to entry the 1996 Act seeks to lower." Bell  {O -Atlantic/NYNEX Order, 12 FCC Rcd at 20020, para. 60.f  XJ-x19.` ` Under the analysis laid out in the Bell Atlantic/NYNEX Order, the Commission  X5-seeks to determine whether either or both of the merging parties are among a small number of "most significant market participants" that could most quickly foster competition in the  X -relevant market.&8  ~ {O6-ԍxAs we stated in the AT&T/TCG Order, when analyzing a merger in a market that is rapidly changing, the best way to assess the likely effect of the merger is to isolate the effect of the merger from all other factors affecting the development of the relevant market over time. This is achieved by framing the analysis in a way that holds constant the effects of all changes in the market conditions other than those directly caused by the merger. To do this, we also identify as market participants those firms that have been effectively precluded from the market that is, those firms that are most likely to enter (or are just beginning to enter) the market but have until recently been prevented or deterred from participating in the market by the barriers that the 1996 Act seeks to eradicate. We then identify the most significant participants based on an assessment of capabilities and  {Ox-incentives to compete effectively in the relevant market. AT&T/TCG Order at para. 17.& If a firm, whether presently active in the market or currently precluded, is among a small number of "most significant market participants," then its absorption by the  X -merger will, in most cases, create a competitive harm. Of course, almost any antitrust analysis of mergers could be generally characterized as attempting to identify the most significant participants in a market and then determine if one or both of the merging parties are among them. The important distinction in transitional markets is that firms that have been precluded from entering the market by recently removed barriers to entry may potentially be considered significant participants. Furthermore, depending upon the circumstances, firms may be included as significant competitors even though they may have yet to manifest a firm  X8-intention to enter or to invest substantially in preparation for entry.%9X8R  yO;!-ԍxOf course, the case for including a firm as a significant potential competitor will generally be stronger to the extent that it can be established that the firm has made plans to enter or has already made investments in preparation for entry. % "! r90*%%ZZ"Ԍ X-x20.` ` The analytical framework set forth in the Bell Atlantic/NYNEX Order reflects the values of, and builds upon, the "actual potential competition" doctrine established in antitrust case law. Under the actual potential competition doctrine, a merger between an existing market participant and a firm that is not currently a market participant, but would have entered the market but for the merger, violates antitrust laws if the market is concentrated and entry by the nonparticipant would have resulted in deconcentration of the  Xx-market or other procompetitive effects.$:x {O-ԍ x See United States v. Marine Bancorporation, 418 U.S. 602 (1974). See also ABA Section of Antitrust  {O-Law, Antitrust Law Developments (4th ed. 1997) at 34650 (Antitrust Law Developments).$ As the case law indicates, one obstacle facing parties bringing an actual potential competition case is to demonstrate that the acquired firm would have entered the relevant market absent the merger. In particular, the fact that the firm has not entered up until the current period may be considered by some to create a  X -presumption that it would not have entered in the near future either. The Bell  X -Atlantic/NYNEX framework differs from the actual potential competition doctrine in that it is only meant to apply to situations where this presumption is inappropriate because there is a clear and strong reason to explain why a firm that has yet to enter a market may nonetheless be likely to enter in the near future. The reason is simply that the passage of the 1996 Act resulted in a lowering of entry barriers that will make entry attractive that was previously impossible. x  Xh-x21.` ` Rightly understood, then, the analytical framework set forth in the Bell  XS-Atlantic/NYNEX Order is a natural extension of the principles, contained in the merger  X>-guidelines and existing antitrust case law, to transitional markets.;>$ yO-ԍxAs explained above, however, it may be that the Commission is better able to enforce this forwardlooking standard that requires expert judgment about future events than are the antitrust agencies. That framework, which is welltailored to the Commission's unique role as an expert agency with regulatory authority over these transitional markets, explains how and why the Commission will treat as "most significant market participants" not only firms that already dominate transitional markets, but also those that are most likely to enter soon, effectively, and on a large scale once a more competitive environment is established.  X- x22.` ` In this Order, we examine the potential competitive effects of WorldCom's acquisition of MCI on the provision of domestic long distance, international long distance,  Xo-Internet backbone, and local exchange and exchange access services.< o| yO!-ԍxAlthough we have determined that these four services are the only services relevant to the instant proceeding, we expect that bundled service may, in the future, become a distinct and relevant product market.  {O,#-See Bell Atlantic/NYNEX Order, 12 FCC Rcd at 2001516, para. 52 (noting that to the extent consumer demand for bundled service packages force 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"$;0*%%$" nascent in most markets and nonexistent in many others); GTE Jan. 5 Petition at 47 (acknowledging the existence of a "nascent" market for bundled services). We note that, many carriers, including the Applicants, presently offer, to a limited extent, local exchange and exchange access service bundled with long distance service.  Because neither"o<0*%%ZZ" WorldCom nor MCI are precluded competitors in the provision of domestic long distance, international long distance, or Internet backbone services and indeed are major current participants in the provision of these types of services we need not evaluate the potential competitive effects of the merger in those areas using the "transitional markets" analytical  X-framework of the Bell Atlantic/NYNEX Order. Instead, we evaluate the merger's potential competitive effects on those services under traditional horizontal merger analysis. We conclude that it is appropriate, however, to utilize the "transitional markets" analytical  Xa-framework of the Bell Atlantic/NYNEX Order to analyze the potential competitive effects of this merger on local exchange markets because those markets are transitional markets, and WorldCom and MCI, until recently, have been, and to an extent still are, effectively precluded from competing in those markets.  X - *J:\POLICY\MCIWCOM\MASTER\LEGAL.FWK* )J:\POLICY\MCIWCOM\MASTER\LONGDIST) IV. ANALYSIS OF POTENTIAL PUBLIC INTEREST HARMS ׃  X -x A.` ` Domestic Long Distance Services   X-x23.` ` This section considers the competitive effects of the proposed merger on domestic long distance services. Although this merger, which combines the second and fourth largest long distance carriers, will increase market concentration significantly in the near term, we conclude that the merger will not likely have anticompetitive effects on domestic long distance services, because of recent and expected, significant increases in the essential input of transmission capacity. As discussed in greater detail below, we find particularly significant the fact that four firms are currently constructing new national fiber networks. We conclude that these firms and others will be able to utilize this new transmission capacity to compete with incumbent long distance carriers in retail markets, and therefore, that the merger likely will not impair competition in markets for long distance services. We also examine the primary claim of commenters opposing the application that the merger will injure competition by eliminating WorldCom as a "maverick" supplier of wholesale long distance services. We conclude that the four new firms, each with a highcapacity national fiber network, should more than replace the potential loss of WorldCom as a "maverick" supplier to resellers of long distance services. Finally, in section IV.E below, we address allegations by commenters that the merged entity will abandon its residential long distance customers. x" <0*%%ZZU#"Ԍ X-x ` ` 1.  Relevant Market  s  X-x24.` ` Product Markets. For purposes of analyzing the competitive effects of this  X-merger on domestic, interstate, interexchange services=& {O6-ԍxConsistent with the Commission's analysis in the Bell Atlantic/NYNEX Order, we will examine domestic interstate, interexchange, long distance services separately from local exchange and exchange access services,  {O-because consumers wishing to make a long distance call cannot substitute local telephone service. Bell  {O-Atlantic/NYNEX Order, 12 FCC Rcd at 20015, para. 51. we identify two distinct product markets, reflecting customers groups with different patterns of demand: (1) residential customers and small business (mass market); and (2) mediumsized and large business  Xx-customers (larger business market).>^x {O -ԍxSee AT&T/TCG Order at para. 20; WorldCom/MCI Mar. 20 Reply Comments at 25. See also Bell  {O -Atlantic/NYNEX Order, 12 FCC Rcd at 20016, para. 53. We find nothing in the record that suggests a need to  {Os -analyze mediumsized businesses as a separate product market. See AT&T/TCG Order at para. 20.  XJ-x25. SEGMENT ` ` We note that in previous orders, such as the Bell Atlantic/NYNEX Order, the Commission described mass market long distance and larger business long distance as separate market segments within the long distance relevant product market. We previously used the phrase "market segment" to distinguish between customer groups (specifically "mass market" and "larger business" customers), because the Commission used the term "markets" to distinguish broadly among long distance services, local exchange and exchange access services, and international services. We recognize that our choice of terminology may have caused some confusion. We take this opportunity, therefore, to clarify our approach. What we have termed "the long distance product market" is, in fact, comprised of a number of different relevant product markets, as discussed below. Thus the "market segments" identified  Xf-in the Bell Atlantic/NYNEX Order actually constitute, for the purposes of this Order, separate relevant product markets. We emphasize, however, that we are applying the same analytical  X:-principles here that we adopted in the LEC Regulatory Treatment Order, and applied in the  X%-Bell Atlantic/NYNEX Order, the BT/MCI Order, and the AT&T/TCG Order. We note, moreover, that changing our description of mass market long distance and larger business long distance from market segments to separate relevant product markets does not alter any of our findings concerning competitive effects either in our previous orders or here.  X-x26.` `  PROD DEF We distinguish mass market consumers from larger business consumers because the record indicates that larger business users often demand advanced long distance features (advanced features), such as frame relay, virtual private networks (VPN), and enhanced 800 services (E800 services), that differ from the services generally demanded by  XX-mass market consumers.]?X yO$-ԍxWorldCom/MCI Mar. 20 Reply Comments at 25. ] Additionally, larger business customers generally demand greater"Xl ?0*%%ZZ" volumes of minutes than mass market customers, and thus qualify for volume discounts that are unavailable, as a practical matter, to mass market customers.  X-x27.` `  GUIDEN14 We recognize that, under the 1992 Horizontal Merger Guidelines, it may be possible to identify additional and narrower relevant product markets within these two broader  X-end user markets.~@ {O-ԍx1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 4155455,  1.11.~ The record, however, contains insufficient information on crosselasticities of demand for us to make such a determination. More importantly, we find that,  Xa-with the possible exception of a few "highend" advanced business services discussed below,AaZ {Ol -ԍx See infra paras. HIGH-END172שHIGH-END276. we do not need to make such a determination because owners of transmission capacity provide all the same services, and production substitution among these services is "nearly  X -universal."gBZ  {O-ԍxCf. 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 41557,  1.32 n.14 ("If production substitution among a group of products is nearly universal among the firms selling one or more of those products, . . . the Agency may use an aggregate description of those markets as a matter of convenience.").g Accordingly, we conclude that we can analyze adequately the competitive effects of the merger by considering only the mass and larger business markets.  X -x28.` ` In analyzing the competitive effects of the instant merger on domestic long distance services, we will focus on the input of transmission capacity a distinct and  X -essential ingredient for providing long distance services to either product market.C  yOh-ԍxIn order to transport a long distance call, it is necessary to have not only fiber, but certain other facilities and equipment including, but not limited to, electronics and switching equipment. GTE, on the other hand, argues that, in order to assess adequately the potential competitive effects of  X{-this merger, we should define a separate wholesale (input) market.DH{f  {O-ԍx See GTE Jan. 5 Petition at 2528; GTE Mar. 13 Comments at 12; GTE Jan. 5 Petition at 25 (arguing  {O\-that the Commission "recognized in the Bell Atlantic/NYNEX Order [that] the competitive effects of a proposed  {O&-merger must be assessed in both wholesale (input) and retail markets") (citing Bell Atlantic/NYNEX Order, 12  yO-FCC Rcd at 2004446, paras. 11520). As an initial matter, we disagree with GTE's contention that such a  {O-distinction was made in the Bell Atlantic/NYNEX Order. We note that the Commission did not define a separate product market for inputs in the paragraphs cited by GTE, but rather simply noted that Bell Atlantic and NYNEX control inputs that are essential for interexchange providers and that should be accounted for in analyzing the effect of the merger on the bundled service market.  By suggesting that we analyze a wholesale market, GTE proposes that we examine inputs beyond the mere provision of transmission capacity. As explained below, however, we find that once a firm has overcome the barrier of deploying a national fiber network, all the other capabilities necessary"6vD0*%%ZZ*"  X-to provide wholesale services are readily attainable.zE {Oy-ԍxSee infra paras. ENTRY151שENTRY263.z We need not, therefore, for purposes of this proceeding, analyze wholesale services as a separate and distinct input market. At the same time, we note that the results of our competitive analysis would be logically equivalent were we to do so.  X-x29.` ` We find it appropriate to analyze transmission capacity in our examination of the effects on the merger on the two relevant retail markets because transmission capacity is generally fungible between both the mass and larger business markets. As we discuss below, we find that the increase in transmission capacity provided by the four new facilitiesbased firms should mitigate any increase in concentration resulting from the merger between WorldCom and MCI. In addition, we conclude that these new firms, as well as traditional resellers and those carriers purchasing fiber from these firms, will be able to use this transmission capacity to mitigate any competitive effects of the merger on either retail market.  X -x30.` ` Geographic Markets. Continuing the method of analysis we followed in the  X -LEC Regulatory Treatment Order and the Bell Atlantic/NYNEX Order, we treat the relevant  X-geographic market as a single national market.;FZ {O-ԍxSee LEC Regulatory Treatment Order, 12 FCC Rcd 15756, 1579295, paras. 6469 (1997); Bell  {Oi-Atlantic/NYNEX Order, 12 FCC Rcd at 20017, para. 54. See also AT&T/TCG Order at paras. 2122. ; The geographic market is more accurately defined as a series of pointtopoint markets. A telephone call in one pointtopoint market usually is a poor substitute for another. For example, if one wants to call a relative or business associate in Denver, it is generally inconsequential if rates to San Francisco are lower. Nevertheless, for purposes of our competitive analysis of this merger, we analyze a single national market for long distance services both mass market and advanced business services because we believe that geographic rate averaging and rate integration, price regulation of exchange access services, and the availability of interstate transport capacity cause carriers to behave similarly in each domestic pointtopoint market. Equally important, most substantial competitors in the long distance services market are national in scope, advertise nationally, and exert the same competitive effect in all regions. There is no credible evidence suggesting that there is, or could be, different competitive conditions in a particular  X-pointtopoint market, or groups of pointtopoint markets.G {O-ԍxSee LEC Regulatory Treatment Order, 12 FCC Rcd at 15749, para. 67.  XR-x31.` ` We are not persuaded by GTE's various arguments for defining more narrow  X;-geographic markets.RH;H yO4$-ԍxGTE June 11 Renewed Motion at 15.R GTE first argues that there are capacity shortages on individual routes";H0*%%ZZ" that create different market conditions among different city pairs. GTE does not, however, identify specific routes that suffer from shortages or quantify the effect of any such  X-shortages.:I {OK-ԍxId.: GTE next maintains that the geographic rate averaging requirement has no impact on the market definition for retail services, because carriers offer locationspecific discounts by lowering intrastate rates in certain states, and by spending significantly more on  X-advertising and marketing of discount plans in larger urban areas than in smaller markets.DJZ {O-ԍxId. at 1617.D We reject this argument. The Communications Act's proscription on interexchange carriers charging higher rates to rural customers than to urban customers applies to intrastate calls as well as to interstate calls, and there is no evidence in the record from which we could  X1-conclude that carriers' intrastate rates violate geographic rate averaging requirements.\K1 yO -ԍxThe Commission has previously concluded that the geographic rate averaging requirement applies to intrastate, interexchange calls, and that Congress intended the states to ensure that rates for intrastate, interexchange calls offered to rural and highcost customers are no higher than those paid by urban customers.  {O&-See Implementation of Section 254(g) of the Communications Act of 1934, Order, 11 FCC Rcd 9564, 9585, para.  {O-46 (1996) (Geographic Rate Averaging and Rate Integration Order).\ Moreover, we have no basis to conclude from the record that marketspecific advertising of discount plans available to all customers precludes the geographic rate averaging requirement from mitigating the potential exercise of market power in any particular pointtopoint  X -market.`L\  yO&-ԍxWe note that the only "geographicallyspecific" discounts that carriers may offer under Commission  {O-rules are temporary promotions lasting no more than 90 days. Geographic Rate Averaging and Rate Integration  {O-Order, 11 FCC Rcd at 95768, paras. 24, 29.` In sum, we are not persuaded that there are, or could be, materially different competitive conditions in a particular pointtopoint market, or group of pointtopoint  X -markets, and therefore, treat the geographic market as a single, national market.M. $  yO-ԍxGTE also argues that the appropriate geographic market for retail long distance service should not be larger than a local access and transport area (LATA), "because all customers within a LATA generally face the same retail longdistance market conditions." GTE June 11 Renewed Motion at 15, Harris Reply Aff. at 7. We find no reason to depart from the Commission's previous conclusion that geographic rate averaging and rate integration requirements cause carriers to behave similarly in all domestic LATAs. Under the 1996 Act, a "local access and transport area" (LATA) is "a contiguous geographic area (A) established before the date of enactment of the [1996 Act] by a [BOC] such that no exchange area includes points within more than 1 metropolitan statistical area, consolidated metropolitan statistical area, or State, except as expressly permitted under the AT&T Consent Decree; or (B) established or modified by a [BOC] after such date of enactment and approved by the Commission." 47 U.S.C.  153(25). LATAs were created as part of the Modification of Final Judgment's  {O"-(MFJ) "plan of reorganization" under which the BOCs were divested from AT&T. United States v. Western  {O#-Elec. Co., 552 F. Supp. 131 (D.D.C. 1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983);  {O$-United States v. Western Elec. Co., 569 F. Supp. 1057 (D.D.C. 1983) (Plan of Reorganization), aff'd sub nom."$L0*%%%"  {O-California v. United States, 464 U.S. 1013 (1983); see also United States v. Western Elec. Co., No. 820192 (D.D.C. Apr. 11, 1996) (vacating the MFJ). Pursuant to the MFJ, "all BOC territory in the continental United States [was] divided into LATAs, generally centering upon a city or other identifiable community of interest."  {O-United States v. Western Elec. Co., 569 F. Supp. 990, 993 (D.D.C. 1983).  " M0*%%ZZ "Ԍx  X-x ` ` 62.  Market Participants   X-x32.` ` The next step in our competitive analysis is to identify the participants in each  X-relevant market.tN {O -ԍxSee Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20019, para. 58.t For over a decad6e, the number of companies providing long distance  X-service has risen every year,rOF {O -ԍxSee 1998 Trends in Telephone Service Report at 4648.r reaching more than 600 companies by the end of 1996.AP {O-ԍxId. at 46.A Most of this increase in long distance competition has come at the expense of AT&T, whose market share, while still the largest, has fallen below 50 percent of total toll operating  XH-revenues.QHj  {Oc-ԍxFCC, Long Distance Market Shares First Quarter (Com. Car. Bur. June 1998) at 16 (1998 Long  {O--Distance Market Shares Report).  X -x 33.` ` Mass Market. WorldCom is not a significant competitor in the provision of long distance services to residential and small business customers, as demonstrated by its small retail market share and its lack of substantial brand recognition, as conceded by both  X -Applicants and commenters.yR  yON-ԍxGTE Jan. 5 Petition at 2526; WorldCom/MCI Mar. 20 Reply Comments at 26.y WorldCom states that it has chosen not to market directly to residential end users and, instead, serves these customers indirectly through its wholesale of  X -long distance services.S V  yO-ԍxLetter from Jean L. Kiddoo, Counsel for WorldCom, Swidler & Berlin, to Magalie Roman Salas,  {Ox-Secretary, FCC, Grillo Aff. at 4 (filed July 8, 1998) (WorldCom July 8 Ex Parte). Indeed, as explained below, it is in connection with WorldCom's role as a wholesale supplier to resellers that market to these consumers that allegations of  X{-competitive harm are raised.{T{ {O -ԍxSee infra paras. GROUPS67שGROUPS276.{ All parties agree that AT&T, MCI, and Sprint are the three  Xd-largest retail providers of long distance services to the mass market.UZzdB yOW#-ԍx FROST AT&T, MCI, and Sprint have a combined 82.7 percent market share of residential direct dial toll  {O$-minutes. 1998 Long Distance Market Shares Report at Table 4.3. GTE provides the following estimates of market shares based on retail long distance revenues of "residence and lowvolume business facilitiesbased"$T0*%% %" carriers": AT&T (66.8 percent); Sprint (12.7 percent); MCI (12.3 percent); Frontier (2.3 percent); LCI (2.1 percent); WorldCom (1.9 percent); Qwest (0.1 percent). GTE Mar. 13 Comments, Schmalensee and Taylor Aff.  yO -at Ex. 12, citing Frost & Sullivan. Frost & Sullivan define "lowvolume business customers" as those that spend less than $4,170 per month for long distance service. The Applicants state that they cannot comment in detail on the findings or methodologies of the Frost & Sullivan estimates, because they have been advised by Frost and Sullivan that any research conducted for GTE has been done as custom research on a proprietary basis.  {O@-WorldCom July 8 Ex Parte at 12. FROST  NonBOC{Vd  yO-ԍxWe define the term "BOC" as that term is defined in 47 U.S.C.  153(4).{ incumbent"dV0*%%ZZ" local exchange carriers (LECs), such as GTE and Southern New England Telecommunications Corp. (SNET), also are providing retail mass market long distance services, and have been  X-successful in rapidly gaining market share.W yO -ԍxGTE has added 2.2 million customers for its long distance service after just over two years of operation,  {O -representing approximately 11 percent of its domestic customer base.  See GTE Profits Flatten With New Data  {O -Investment, Competition, Communications Daily (July 21, 1998)(July 21 Comm. Daily); FCC Preliminary  {Oy-Statistics of Communications Common Carriers, 1997. GTE's long distance revenue expanded 83 percent between the second quarter 1997 and second quarter 1998. July 21 Comm. Daily. SNET has also been successful in acquiring long distance customers in its service area and is presently providing long distance  {O-service on 41 percent of its access lines.  See FCC Preliminary Statistics of Communications Common Carriers,  {O-1997; SNET First Quarter Normalized Net Income of $56.4 Million Up 12.1 percent Before OneTime Items, SNET News Release (Apr. 24, 1998). The success of these incumbent LECs suggests that, upon obtaining approval pursuant to section 271, BOCs are also likely to be successful in the mass market within their own regions. Finally, there are a number of companies reselling long distance services to this product market, and several have gained significant  Xv-market shares.~Xvt {O-ԍ xSee 1998 Long Distance Market Shares Report at 11, Table 3.1. ~  XH-x!34.` ` Larger Business Market. AT&T, MCI, and Sprint are also among the largest providers of domestic interstate long distance services to larger business consumers. WorldCom is also a substantial provider of long distance services in this market, at least for  X -some of the services these customers purchase.oY  yO-ԍxGTE provides the following estimates of market shares based on retail long distance revenues of "largevolume business facilitiesbased carriers": MCI (41.9 percent); AT&T (35.5 percent); WorldCom (13.2 percent); Sprint (6.4 percent); LCI (1.2 percent); Frontier (0.4 percent); Qwest (0.04 percent); others (1.5 percent). GTE  yO -Mar. 13 Comments, Schmalansee and Taylor Aff. at Ex. 4 (citing Frost & Sullivan). Frost & Sullivan define "high volume business customers" as those that spend more than $4,170 per month for long distance service.  {O!-But see n.  FROST85 , infra. (Applicants' complaints about Frost & Sullivan data). The Yankee Group, in a report submitted by Bell Atlantic, estimates the following business long distance market shares for 1996: AT&T (51.4 percent), MCI (23.2 percent), Sprint (11.4 percent), WorldCom (10.2 percent), others (3.9 percent). Letter from Robert H. Griffen, Antitrust Litigation Counsel, Bell Atlantic, to Magalie Roman Salas, Secretary, FCC, Attach.,  {O$-The Yankee Group, Telecommunications White Paper, Vol. 12, No. 13 (Dec. 1997), "U.S. Long Distance"$X0*%%-%"  {O-Market: Calm Before the Storm" at 3 (filed Apr. 28, 1998) (Bell Atlantic Apr. 28 Ex Parte).o WorldCom is both a retail provider of these" ZY0*%%ZZ " services and a provider of wholesale services to resellers. The Applicants acknowledge that WorldCom has served a limited number of larger customers with "plainvanilla"  X-telecommunications services.ZZ {O-ԍ xWorldCom July 8 Ex Parte, Grillo Aff. at 3. By "plainvanilla," we understand Applicants to mean transmission capacity for basic voice long distance service. They further state that MCI's product line is targeted across  X-all customer ranges, with an emphasis on highend, large business customers.[ {O -ԍxId. at 45. The Applicants state that MCI provides sophisticated service offerings designed to satisfy the needs of these consumers. We believe  X-that many other carriers, including Qwest Communications International, Inc. (Qwest),\ {Oc -ԍxWe note that LCI merged with Qwest on June 5, 1998. See Qwest Press Release, Qwest and LCI  {O- -Consummate Merger (June 5, 1998) (Qwest June 5 Press Release). IXC Communications, Inc. (IXC), C&W, and the Frontier Companies (Frontier), have the capabilities to have a significant impact on competition for larger business customers. Each of these carriers owns their own facilities and markets its ability to provide at least one  XH-advanced feature such as VPN and E800 features.]Hj  yOc-ԍxLetter from Jean L. Kiddoo, Counsel for WorldCom, Swidler & Berlin, to Magalie Roman Salas,  {O+-Secretary, FCC, at 4 (filed June 1, 1998)(WorldCom June 1 Ex Parte). We also believe that the BOCs will participate in this product market upon obtaining section 271 approval. The record indicates that, as businesses demand ever more sophisticated service offerings, the number of providers diminishes, and that only AT&T, MCI, and Sprint provide highend services on a retail  X -basis.^  {Oa-ԍxSee WorldCom/MCI Mar. 20 Reply Comments at 25; WorldCom July 8 Ex Parte, Grillo Aff. at 4. x  X -x"35. ENTRANTS ` ` Four market participants, Qwest, IXC, Williams Communications (Williams), and Level 3 Communications, Inc. (Level 3), are each building a national fiber network. Moreover, several firms, including GTE and Frontier, are purchasing fiber from these firms to use in their own national networks. We consider the operators of these new networks to be market participants, rather than potential entrants, because they committed to enter the market prior to the merger. Their entry, therefore, does not represent a reaction to any  X4-anticompetitive effects of the merger._4V  {O;!-ԍxAccording to the 1992 Horizontal Merger Guidelines, "[f]irms which have committed to entering the market prior to the merger generally will be included in the measurement of the market. Only committed entry or adjustments to preexisting entry plans that are induced by the merger will be considered as possibly deterring  {O#-or counteracting the competitive effects of concern." 1992 Horizontal Merger Guidelines, 57 Fed. Reg. 41552, 41562,  3.2 n.27. As discussed below, each company plans to complete"4 _0*%%ZZ*"  X-a national fiber network comparable in size and capacity to WorldCom's present network./`\ {Oy-ԍxSee WorldCom/MCI Jan. 26 Reply Comments at 35 (citing FCC, Fiber Deployment Update End of Year  {OC-1996 (Com. Car. Bur. Aug. 1997) at Table 1); WorldCom/MCI Jan. 26 Reply Comments, Carlton and Sider Decl. at 1718./ Because GTE and other commenters have focused much of their opposition to the merger on concerns that WorldCom would no longer provide, at favorable terms and conditions, wholesale services to resellers that compete in retail markets, the ability of these new networks to use their transmission capacity to provide wholesale services is central to our analysis of competitive effects of the merger.  X_- x` ` v3. Analysis of Competitive Effects   X1-x` `  a.Effect of Merger's Increase in Market Concentration x  X -x#36.` ` In our analysis of the competitive effects of the merger, we consider whether the merger will increasve the likelihood of unilateral anticompetitive conduct by the merged entity or coordinated anticompetitive conduct of multiple market participants. We do not believe, and no commenter has alleged, that the merger will likely result in the merged  X -entity's exercising unilateral market power.a"  yOD-ԍxGTE has alleged that "residential and small business customers will suffer because resellers will pay higher prices for wholesale capacity (an anticompetitive unilateral effect of the merger), which they will be  yO-forced to pass on through higher end user rates." GTE Jan. 5 Petition at 28. We discuss this claim at paras. GTECLAIM68ת {O-GTECLAIM271 infra. Several commenters have argued, however, that the merger will further increase concentration in this market, and will therefore increase the  Xy-likelihood of anticompetitive coordinated interaction among market participants.by yO-ԍ xBellSouth and GTE also suggest that the stock prices of AT&T, MCI, Sprint, and WorldCom relative to the S&P 500 in the period following the announcement of the merger support their theory that the proposed acquisition will result in higher prices and earnings in long distance. BellSouth Jan. 5 Petition at 18; GTE Mar.  {OX-13 Comments, Harris Long Distance Aff. at 4546; see GTE June 11 Renewed Motion, Harris Long Distance Reply Aff. at 4546. WorldCom and MCI dispute this argument noting that a stock market analysis should focus on a short period of time, at most a few days, in order to isolate the announcement effect, and that, over a several month period, many factors can affect a stock's price, so that it would be difficult to attribute the changes to one factor. WorldCom/MCI Mar. 20 Reply Comments, Carlton and Sider Decl. at 3637. We find that the information on relative changes in the value of stocks in the telecommunications industry submitted by BellSouth and GTE is speculative, does not control for numerous extraneous events, and, therefore, does not provide probative evidence of anticompetitive effects. Although there can be no dispute that the merger will increase concentration in the short run, we disagree that anticompetitive effects are likely to result. Recent market trends indicate that the long distance market has become progressively less concentrated over the past decade. Moreover, the record indicates that there will be significant increases in the amount of long"8b0*%%ZZ"  X-distance transmission capacity over the next two years .zc {Oy-ԍxSee infra paras. CAPAC143שCAPAC250.z We further conclude that, once a carrier has access to this fiber capacity, any remaining barriers to deploying this capacity in the retail long distance market are low. As discussed below, we conclude that the merger  X-will not make coordinated action more likely in the market for long distance services. 0(#(#X  X-  X-x` `  b. HHI Indices x  X_-x$37.` `  HHIBAD We begin our analysis of the competitive effects of the merger by assessing both the current market concentration and the likely increase in market concentration resulting  X1-from the merger, as measured by the HerfindahlHirschman Index (HHI).dZ 1Z {O< -ԍxSee 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 41558, 1.51 (a)(c). A market's HHI is calculated by summing the squares of the individual market shares of all the participants. Market concentration and the increase in market concentration resulting from a merger can be an indicator of the likely competitive  {O-effects of a merger. Under the 1992 Horizontal Merger Guidelines, if the postmerger HHI is below 1000, the market is considered unconcentrated and the merger requires no further analysis; if the postmerger HHI is between 1000 and 1800, the market is considered moderately concentrated and an increase in HHI of more than 100 signals potential significant competitive concerns; and if the postmerger HHI is above 1800, the market is considered highly concentrated and an increase in HHI of more than 50 signals potential significant competitive concerns. We have used HHI analysis in numerous contexts as an initial means of measuring the significance of  {OH-changes in market concentration. See, e.g., Annual Assessment of the Status of Competition in the Market for the  {O-Delivery of Video Programming, CS Docket No.96133, Third Annual Report, 12 FCC Rcd 4358, 441920,  {O-paras.12021 (1997); Amendment of Parts 20 & 24 of the Commission's Rules Broadband PCS Competitive  {O-Bidding and the Commercial Mobile Radio Service 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  {O8-and has been called "a standard measure of market concentration," Western Resources, Inc. v. Surface Trans.  {O-Board, 109 F.3d 782, 785 (D.C. Cir. 1997), and "[t]he most prominent method of measuring market  {O-concentration." FTC v. University Health, Inc., 938 F.2d 1206, 1211,n.12. As the 1992  X -Horizontal Merger Guidelines make clear, this HHI analysis provides guidance regarding the  X -potential anticompetitive effects of a merger, but is not meant to be conclusive.e& | {O4-ԍxThe 1992 Horizontal Merger Guidelines state that, "market share and concentration data provide only the starting point for analyzing the competitive impact of a merger. Before determining whether to challenge a  {O-merger, . . . other market factors" must be considered. 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at  {O-41558, 2.0. See also id. 1.521. We also note that, given the unique economic, legal, and technical circumstances that color the telecommunications industry, we will not rigidly adhere to the results of this analysis where  X -our independent expert analysis suggests a different outcome.rf j {O"-ԍ xBell Atlantic/NYNEX Order, 12 FCC Rcd at 20053, para. 136.r x" f0*%%ZZ "Ԍ X-x%38.` ` With respect to the concentration in the retail market, GTE maintains that, based on interexchange carrier operating revenues, the premerger HHI is 2,823, and the post X-merger HHI is 3,038.g {OK-ԍ xGTE Jan. 5 Petition at 16. GTE bases its calculations on the Commission's Long Distance Market  {O-Shares report using 1996 revenues. See id. at n.34 (citing FCC, Long Distance Market Shares Second Quarter 1997 (Com. Car. Bur. Oct. 1997) at Table 6). The Commission has subsequently released its report for 1997  {O-revenues. See 1998 Long Distance Market Shares Report at 13, Table 3.1. Using data from this report, the premerger HHI of 2,508 would rise to 2,766 after the merger. BellSouth and Rainbow/PUSH calculate similar estimates for the premerger HHI and the HHI increase for the long distance market including both business and residential service. BellSouth Jan. 5 Petition at 9; Rainbow/PUSH Jan. 5 Petition at 1617. GTE also estimated  {O -premerger HHI levels and HHI increases using presubscribed lines and points of presence.  See GTE Mar. 13 Comments, Harris Long Distance Aff., Ex. 13. Because the postmerger HHI appears to be greater than the premerger HHI in the short term no matter what measure is used, we do not discuss these other measures. By  {O# -choosing not to discuss these measures, however, we do not find them irrelevant. Indeed, the 1992 Horizontal  {O -Merger Guidelines suggest that adequate measures of market concentration include dollar sales, unit sales, or  {O -physical capacity. 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 41557,  1.41. Nevertheless, we note that these HHIs are not specific to either of the product markets that we define, and therefore represent at best rough approximations. Several of these measures, including the use of interexchange carrier revenues, combine revenues from both the mass and larger business markets. Because we base our analysis of competitive effects on the case of most concern, namely a postmerger HHI greater than 1800, but not over 3500, accompanied by a change in HHI greater than 100, and nevertheless find that the entry of new firms will mitigate any potential anticompetitive effects of the merger, we find it unnecessary to calculate more precise HHIs.  Commenters further assert that, under the 1992 Horizontal Merger  X-Guidelines, such an increase in the HHI as a result of the merger indicates that the merger  X-would be presumed to create or facilitate the exercise of market power.hv {O-ԍ xSee 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 41558,  1.51. These arguments overstate both the importance of the HHI calculations in this case and the assurance with which HHIs can be calculated for these products. A more complete measure of market concentration accounts for changing market conditions brought about by, among other things,  XL-new market participants that committed to enter the market before the merger.niL {O-ԍxSee supra para. ENTRANTS35.n Commenters' estimates of the increase in HHI, which neglect these competitors, therefore, likely overstate the actual increase in concentration. Indeed, calculating an HHI based on revenue should account for the projected future sales of the firms described below who have committed to enter the market, as well as the adjusted projected revenues of the existing  X -competitors.j  {O$!-ԍxCf. 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 41557,  1.41. ("Market shares will be calculated using the best indicator of firms' future competitive significance."). x  X -x&39.` ` Although Applicants do not challenge commenters' HHI calculations, they note that neither the DOJ nor the Commission has suggested that mergers falling outside of the"j0*%%ZZ"  X-1992 Horizontal Merger Guidelines' safe harbor are necessarily anticompetitive.^k yOy-ԍxWorldCom/MCI Jan. 26 Reply Comments at 3133.^ We agree that an HHI analysis alone is not determinative and does not substitute for our more detailed  X-examination of competitive concerns.qlX {O-ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 20057, para. 143.q In particular, in this case, we must examine probable future expansion by committed entrants, as well as future conditions of entry generally.  X-x` `  c. Industry Market Trends  Xa-x'40.` ` Recent market trends indicate that, overall, the markets for long distance service have become increasingly more competitive since the breakup of AT&T in 1984. In 1995, the Commission reclassified AT&T as a nondominant interexchange carrier, based on  X -its finding that AT&T lacked unilateral market power in the long distance market._m  {O-ԍxAT&T Domestic NonDominance Order._ Since that time, AT&T's market share has continued to decline as the number of carriers offering  X -long distance services has risen and as new fiber networks have been constructed.Rn | {O-ԍxAT&T/TCG Order at para. 40.R As previously noted, over 600 carriers provide long distance services. At least 20 of these carriers had annual revenues exceeding $100 million in 1997, and eight carriers had annual  X -revenues exceeding $1 billion.o  yOh-ԍ xSpecifically, these eight carriers were:  AT&T, MCI, Sprint, WorldCom, Excel, Frontier, LCI, and  {O0-C&W. 1998 Long Distance Market Shares Report at 13. Moreover, as a group, carriers other than the four largest  X-long distance carriers have demonstrated annual growth rates exceeding 40 percent.ph  {O-ԍ xWorldCom/MCI Jan. 26 Reply Comments at 30 (citing FCC, Long Distance Market Shares Third  {Ou-Quarter 1997 (Com. Car. Bur. Jan. 1997) at Table 2.3). The HHI for the long distance market has decreased since 1984 from 8,155 to 2,508 at the end  Xd-of 1997 when calculated based on long distance carrier revenues.qd  {O-ԍ x1998 Long Distance Market Shares Report at 16. This HHI is based on revenues derived from mass market and larger business market long distance service revenues combined.  X6-x(41.` ` In the AT&T Domestic NonDominance Order, the Commission considered several market trends as evidence supporting its conclusion that AT&T lacked market power in long distance services. These trends continue today. For example, the Commission concluded that competitors in long distance services had enough readily available excess"q0*%%ZZ "  X-capacity to constrain other competitors' pricing behavior.wr {Oy-ԍxAT&T Domestic NonDominance Order, 11 FCC Rcd at 3303, para. 58.w The Commission also found that both residential and business customers are highly price sensitive and will switch long  X-distance carriers to obtain price reductions and desired features.s&Z {O-ԍxAT&T Domestic NonDominance Order, 11 FCC Rcd at 330506, paras. 6365. The Commission found that business customers were more sophisticated and knowledgeable about the products they buy and routinely  {Oo-request proposals from a number of carriers and accord full consideration to these proposals. Id. (quoting  {O9-Competition in the Interstate Interexchange Marketplace, Report and Order, 6 FCC Rcd 5880, 5887 (1991)). Moreover, the Commission found that the behavior of the market between 1984 and 1994 suggested intense rivalry  X-among AT&T, MCI, and Sprint.MtH {O -ԍxId. at 3308, para. 72.M x  Xv-x)42.` ` We find no evidence in the record that these market trends will be reversed by this merger. GTE largely attributes the deconcentration of the long distance services market to the emergence of WorldCom and WorldCom's aggressive sales of wholesale services that  X1-have enabled resellers to gain market share.u1 yO-ԍ xGTE Jan. 5 Petition at 1922. We address GTE's "maverick" theory below at paras. MAVERICK67שMAVERICK276. We agree that a major reason for the increased competition in the long distance services market has been the increase in the availability of  X -transmission capacity, from WorldCom as well as other facilitiesbased providers.v j  {O-ԍ xSee AT&T Domestic NonDominance Order, 11 FCC Rcd at 330305, paras. 5762.  X - Although we believe that the time and expense needed to construct a fiber network represents a barrier to entry, the existence of the four firms that are already building national networks shows that these barriers are far from insurmountable; in addition, we find that existing and new carriers face relatively few barriers to using this transmission capacity to constrain any  X-market power possessed by incumbents.wB  yO=-ԍ xGTE argues that another barrier or deterrent to entry arises from the excess capacity possessed by AT&T, MCI, Sprint, and WorldCom. According to GTE, excess capacity can deter entry or pricecutting by signalling that retaliation will be a lowcost, rational, and credible strategy. GTE Jan. 5 Petition at 2223. We find this argument without merit. First, the construction of four national facilitiesbased networks described below belies the argument that excess capacity has deterred entry. Second, GTE's concern that carriers will have sufficient excess capacities to retaliate against costcutting firms is undermined by GTE's contrary assertion that  {O-there may be capacity constraints on many routes. See GTE Jan. 5 Petition at 23 n.50; GTE Mar. 13 Comments at 15; GTE Mar. 13 Comments, Harris Long Distance Aff. at 2425. "yw0*%%ZZ"Ԍ X-x` `   i.hhTransmission Capacity of New Networks x` `  hh@  X- x*43. CAPAC1  NEW C ` ` We conclude, based on the evidence in the record, that the supply of transmission capacity is expanding significantly with the construction of four new national fiberoptic networks by Qwest, IXC, Williams, and Level 3. This capacity will likely enable these firms, those that buy fiber capacity, and resellers to constrain any exercise of market power by any market participant or group of market participants.  XH- x+44.` ` There are two network architectures that are used to provide both wholesale and retail long distance services. The first architecture is the traditional circuit-switched voice network. This is the predominant architecture used by incumbent interexchange carriers and is also being used by some of the new entrants. The second architecture, used by some new entrants including Qwest and Level 3, is the packet-switched Internet Protocol (IP) network. The IP architecture was designed and has traditionally been used for data transmission. Recent developments are likely to allow the IP architecture to support voice services better and to interface more easily with the legacy circuit-switched network, most notably with  X-Signaling System 7 (SS7) capabilities.x\ {O -ԍ xSee The COOK Report, summary of article, Level 3 TAC [Technical Advisory Council] IP Device Control Specification Completed Result of Multiple Efforts will Permit Packet Networks to Envelop PSTN and  {O-Empower End User Driven Applications (Sept. 1998 (7.06)) .  As a result of these developments, we find that networks built with the IP architecture will compete increasingly with the traditional networks for long distance voice services. We review below the four new networks that are being built by Qwest, IXC, Williams, and Level 3, as well as other firms that are buying or leasing capacity from these networks.  X-x,45.` ` NEW NETS1Qwest. The record indicates that Qwest is providing wholesale and retail long  X-distance services on its network. Qwest began construction of its network in 1996y {O-ԍ xSee Qwest SEC Form 10Q/A First Quarter 1998 Report (filed May 7, 1998) (Qwest May 7, 1998 10 {OX-Q/A). See also WorldCom/MCI Jan. 26 Reply Comments at 3536. and plans to complete its 18,500 route mile highcapacity fiber network by the second quarter of  X-1999.zH {O-ԍ xQwest Press Release, Qwest Lights Network from New York to Washington, DC (July 6, 1998) (Qwest July 6 Press Release). Qwest's completed network will include nearly as many route miles{ yO!-ԍ xA "route mile" is a measure of the total number of miles of fiber routes on a network. Each route may contain one or more fiber cable sheaths.as" {0*%%ZZ5"  X- WorldCom's network included last year.| {Oy-ԍ xAs of 1997, WorldCom's network consisted of 19,619 route miles. 1997 Fiber Deployment Report at  {OC-Table 1.ļ Moreover, Qwest's network will include more fibers per cable than the current average national network, and will employ high capacity  X-transmission technologies such as dense wave division multiplexing (DWDM).}$$ yO-ԍ xWorldCom/MCI Jan. 26 Reply Comments, Carlton and Sider Decl. at 18. For a discussion of network  {Oo-technology, see Qwest SEC Form 10K405, Annual Report (filed Mar. 19, 1998) (Qwest Mar. 9, 1998 10K405 Annual Report). DWDM increases network capacity by allowing each fiber to carry signals on more than one  {O -wavelength of light. We discuss new network technology below. See infra para. NEW TECH64. According  X-to the Applicants, the completed Qwest network will have points of presence (POPs)~ yO| -ԍ xA POP is the location of physical interconnection between the long distance network and the network of the LEC. in  X-local access and transport areas (LATAs) that cover 78 percent of the U.S. population.cZh  yO-ԍ xWorldCom/MCI Mar. 20 Reply Comments, Carlton and Sider Decl. at 11. By comparison, WorldCom's network covers 82 percent of the U.S. population. WorldCom/MCI Mar. 20 Reply Comments, Carlton and Sider  {OM-Decl. at 11; see also GTE Mar. 13 Comments, Harris Long Distance Aff. at 13.c  X-Qwest is already carrying traffic on a wholesale basis on 8,800 miles of its network.  {O-ԍ xSee Qwest SEC Form 8K Current Report (filed July 8, 1998) (Qwest July 8, 1998 8K Current Report).Ģ In addition, through its recent acquisition of LCI, Qwest has become competitive in the retail  X_-market, and currently serves over 2 million business and residential customers.N_ yO,-ԍ xQwest June 5 Press Release.N  X1-x-46.` ` We find unpersuasive GTE's claim that construction delays will keep Qwest  X -from completing its network on schedule.~  yOw-ԍ xGTE June 11 Renewed Motion at 21, Harris Long Distance Reply Aff. at 2829. ~ Based on allegations that Qwest has experienced delays in completing nine of its fiber routes, GTE estimates that Qwest will not complete its  X -network until August 2000.h < {O-ԍ xId., Harris Long Distance Reply Aff. at 2629. h Evidence indicates, however, that Qwest has revised its original construction schedule, and currently plans to complete its network by the second  X -quarter of 1999.Y  yO=!-ԍ xQwest July 8, 1998 8K Current Report.Y We find no reason to believe that Qwest's most recent estimates are inaccurate or fail to consider previous delays. x"^0*%%ZZ"Ԍ X-x.47.` ` IXC.  The record indicates that IXC provides wholesale and retail long distance  X-services including certain advanced features on its national network. yOd-ԍ xLetter from James E. Magee, Counsel to IXC, Reboul, MacMurray, Hewitt, Maynard & Kristol, to  {O,-Magalie Roman Salas, Secretary, FCC, Mann Aff. at 2, 34 (filed July 13, 1998) (IXC July 13 Ex Parte). IXC  {O-sells wholesale service to over 120 switchless resellers.  Id. at 12. A "switchless reseller" buys long distance service in bulk from a long distance company and resells that service to smaller users; it owns no  {O-communications facilities. See Newton's Telecom Dictionary, 14th Ed. (1998) at 689 (Newton's). IXC, which began the  X-national expansion of its network in 1995,~ {O -ԍ xIXC Press Release, IXC Breaks Ground On First Phase Of Fiber Optic Network Expansion (Nov. 29, 1995) . currently has 10,500 route miles of fiber and  X-expects to have 20,000 route miles operational by the end of next year.b {OF -ԍ xIXC July 13 Ex Parte at 23. b IXC will employ  X-highcapacity transmission technologies such as DWDM,]j  {O-ԍ xSee infra para. NEW TECH64.] and according to Applicants, will  X-deploy, on average, twice as many fibers per cable as existing networks.y  yO<-ԍ xWorldCom/MCI Jan. 26 Reply Comments, Carlton and Sider Decl. at 1718.y According to Applicants, IXC has, or will have, POPs in LATAs that include 61 percent of the U.S.  Xa-population.xa  yO-ԍ xWorldCom/MCI Mar. 20 Reply Comments, Carlton and Sider Decl. at 11. x The evidence in the record also indicates that, by 1999, IXC's fiber will serve  XJ-95 of the top 100 metropolitan statistical areas (MSAs) and serve a total of 120 MSAs.YJ {O-ԍ xIXC July 13 Ex Parte at 2. Y  X -x/48.` ` Williams. Company documents and evidence in the record indicate that  X -Williams will offer wholesale long distance services on its network.  yOf-ԍ xWilliams SEC Form 10K405 Annual Report (filed Mar. 30, 1998) (Williams Mar. 30, 1998 10K405 Annual Report); WorldCom/MCI Mar. 20 Reply Comments, Carlton and Sider Decl. at 16. According to Applicants, Williams plans to have 20,000 route miles of its 32,000 mile network activated by  X -the end of 1999.  yO-ԍ xWorldCom/MCI Mar. 20 Reply Comments, Carlton and Sider Decl. at 8. GTE maintains that 11,000 miles of this network is owned by Vyvx, a Williams subsidiary, and should not be considered when assessing the capacity of the Williams network, because a noncompete agreement Williams signed with WorldCom bars Williams from using the fiber for voice or fax until July 2001. GTE June 11 Renewed Motion at 21. We find that the Williams network presently under construction will be capable of providing substantial wholesale transmission capacity even if we do not consider the fiber owned by Vyvx. Applicants claim that the Williams network will have POPs in LATAs" ~0*%%ZZ] " covering 72 percent of the U.S. population when the network is complete at the end of  X-2001.{ yOy-ԍxWorldCom/MCI Mar. 20 Reply Comments, Carlton and Sider Decl. at 8, 1011. {  X-x049.` ` Level 3. In January 1998, Level 3 announced plans to complete a 15,000 route  X-mile fiber IP network.o yO-ԍxLetter from Terrence J. Ferguson, Senior Vice President and General Counsel, Level 3, to Magalie  {O-Roman Salas, Secretary, FCC, Ex Parte Presentation at 6 (filed May 29, 1998) (Level 3 May 29 Ex Parte). Level 3, having received all necessary rights of way, began  X-construction of its network in the second quarter of 1998. {O -ԍ xSee Level 3 Press Release, Level 3 Communications Reports Second Quarter 1998 Results (Aug. 12, 1998) (Level 3 Aug. 12 Press Release). It expects to have fiber in place  Xx-connecting 25 U. S. cities by the first quarter of 2001.;x# {OL -ԍ xId.; Currently, Level 3 leases capacity  Xa-on Frontier's 13,000 mile network;a {O-ԍ xLevel 3 Press Release, Frontier and Level 3 Sign Landmark $165 Million Data Network Agreement  yO-(Mar. 24, 1998) . this leased capacity will enable Level 3 to build up a customer base for its IP voice and data services as it completes and shifts traffic to its own network. Level 3 plans to provide a full range of services - including local, long distance,  X -international and Internet services.Z   {O-ԍ xSee Level 3 Aug. 12 Press Release.Z Significantly, using the capacity it has leased from Frontier, Level 3 plans to begin offering advanced IPbased services at the end of the third  X -quarter.;  {O@-ԍ xId.; Although, as GTE points out, Level 3's national fiber network will not be  X -completed as quickly as those of the other three new facilitiesbased market participants,R 3  yO-ԍxGTE June 11 Renewed Motion at 22.R it is clear that it will soon begin offering various long distance services in competition with the incumbent long distance carriers.  X{-x150. CAPAC2  NEW C2 ` `  MISC NEW NETS2Miscellaneous Carriers. A number of firms are buying transmission capacity from these facilitiesbased companies. For example, Qwest has contracts to provide dark  XO-fiber to other carriers, such as GTE and Frontier, that compete in the retail long distance market and to provide capacity and services on a wholesale basis to other interexchange  X!-carriers.]! yO#-ԍxQwest Mar. 19, 1998 10K405 Annual Report. ] GTE plans to use the fiber it purchased from Qwest to create a "Global Network"!S0*%%ZZe"  X-Infrastructure (GNI)," eventually spanning 17,000 miles. {Oy-ԍ xSee WorldCom July 8 Ex Parte, Kolb Aff. at 1213 (quoting GTE Internetworking: 'One Big New  {OC-Mother of a Network', ISP Business News, June 29, 1998). Frontier, using fiber purchased from Qwest and Williams, plans to complete a 13,000 route mile, 24strand national fiber network in early 1999, and states that it will expand this network to 18,000 miles connecting  X-120 cities in an 11ring design by the end of 1999.$ {O-ԍ xFrontier Press Release, Frontier Extends Network Into Southeast Through Agreement With Williams (July 22, 1998) . IXC has contracts to sell capacity to  X-other carriers, including Frontier, C&W, and Excel Communications, Inc. (Excel).`~ {O -ԍ xIXC July 13 Ex Parte, Mann Aff. at 12.` Excel itself is becoming a facilitiesbased carrier and has stated that it intends to become "an  Xv-aggressive and prominent switchless resale provider."v {O7-ԍ xExcel Press Release, Excel Communications Announces Addition of Ottinger as Senior Vice President of  {O-Switchless Resale . Williams claims to have over $1 billion in longterm revenue commitments from wholesale customers for the network it is  XH-constructing.Hl  {Oe-ԍxWilliams Jan. 5 Press Release. See WorldCom/MCI Jan. 26 Reply Comments at 3637. Level 3 has recently signed a $700 million agreement to provide dark fiber  X1-on its network to Internext, LLC.1  {O-ԍ xLevel 3 Press Release, Level 3 to Provide National Fiber Network to McCaw Controlled  {O-Telecommunications Company (July 20, 1998) .  X -x` `   ii. hhBarriers to Entry and Expansion  X -x251.` `  ENTRY1 In light of the significant new transmission capacity that we believe will become available by the end of 1999, we conclude that existing market participants as well as potential market entrants will likely be capable of using the newly available capacity to constrain any attempted exercise of market power. An attempted exercise of market power can be constrained if rivals and new entrants have the capabilities and incentives to expand  Xb-output in response to any anticompetitive practices of all or a group of incumbents.bZ  {Om-ԍ xSee Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20049, para. 128, n.244 (citations omitted). x  X4-x352.` ` We reject arguments by GTE and BellSouth that development of these new national networks will not be timely, likely, or sufficient to ameliorate the alleged competitive  X-concerns raised by the merger. yO$-ԍ#X P2P#xBellSouth Mar. 13 Comments at 89; GTE June 11 Renewed Motion at 18. GTE identifies the following barriers to entry that it" |0*%%ZZ(" maintains will prevent any carrier from using this new transmission capacity to provide long distance services directly to end users: geographic coverage; economies of scale; deployment of switches and other equipment; implementation of SS7 capabilities; development of operations support systems (OSS), network management and back office (provisioning, inventory management, facility management and design, etc.) systems and software to support  X-new services; reliability; and the availability of a qualified work force.*  yO-ԍ#X P2P#xGTE Mar. 13 Comments at 2223. In its Renewed Motion, GTE also asserts that the companies deploying fiber to form new national networks lack the following inputs that are required to provide competitive long distance services: rights of way and conduit; electronic and photonic equipment to light the fiber; multiplexers and crossconnects to parse the raw capacity into usable pieces for various services and customers; switches to route calls to the proper locations; signaling systems to set up the calls along the network; network control centers to monitor and manage the network; developing or leasing of POPs; purchasing or leasing transport from the backbone to at least one POP in each of the LATAs; customized software so that the network functions as a whole; order taking systems; billing systems; access agreements and facilities to connect POPs to  {OF -the LEC network; and operator services. GTE June 11 Renewed Motion at 1920. See  GTE Mar. 13 Comments, Schmalensee and Taylor Aff. at 28; GTE Mar. 13 Comments at 22 & Harris Long Distance Aff. at  yO-78; GTE June 11 Renewed Motion, Schmalensee and Taylor Reply Aff. at 9, 1112. All of these inputs are included in the seven alleged barriers to entry that we address here, and therefore, we do not address these inputs separately. GTE also argues that a provider cannot offer attractive wholesale long distance services by assembling certain  X_-functions provided by independent vendors.5Z_  yO-ԍ xLetter from R. Michael Senkowski, Counsel for GTE, Wiley, Rein & Fielding, to Magalie Roman Salas, Secretary, FCC at 57, Harris Long Distance Rebuttal Aff. at 56, Covey Aff. at 45, 711. (filed Aug. 3, 1998)  {OZ-(GTE Aug. 3 Ex Parte).5 We are unpersuaded by this argument because empirical evidence demonstrates that other firms are, in fact, providing wholesale long distance using third party vendors. We address each of these alleged barriers to entry in turn.  X -x453.` ` Geographic Coverage. GTE asserts that a new firm hoping to provide wholesale services to nationwide resellers must develop a network that reaches the vast  X -majority of the country.x  {Od-ԍ xGTE Mar. 13 Comments at 2223.  See GTE Jan. 5 Petition at 27. x GTE argues that, in order to provide ubiquitous service to long distance customers, the new firms will have to supplement their networks by leasing capacity and POPs from other companies, which will increase their costs and decrease the quality of  X-their respective networks.n {O -ԍ#X P2P#xGTE Mar. 13 Comments at 2326, Harris Long Distance Aff. at 12; see GTE Aug. 3 Ex Parte, Harris Long Distance Rebuttal Aff. at 10. Professor Harris states that transport costs range from .6 cents per minute to connect two selfowned POPs that are both on a carrier's own network, and 2.2 cents per minute to connect two leased POPs using leased transport. GTE Mar. 13 Comments at 2326, Harris Long Distance Aff. at 12, Exh.  {O#-10. See also GTE Mar. 13 Comments at 25, Schmalensee and Taylor Aff. at 30 & Exh. 15. GTE also argues that comparing WorldCom's 82 percent population coverage with the population coverage of new competitors is misleading, because"{!"0*%%ZZi" WorldCom has built a "thicker" network containing more direct end office trunks and more highcapacity transport than the new networks, which gives it a cost advantage over the new  X-competitors.^ {OK-ԍ xGTE Aug. 3 Ex Parte, Covey Aff. at 6.^ Finally, GTE contends that it is not practical to combine the facilities of more  X-than one carrier in order to provide national long distance service.Z {O-ԍ#X P2P#xGTE June 11 Renewed Motion at 2728, Harris Long Distance Reply Aff. at 3233; GTE Aug. 3 Ex  {O-Parte at 9.  X-x554.` ` We agree with the Applicants that having a network with ubiquitous geographical coverage and POPs in virtually every LATA is not necessary for a carrier to  X_-become an effective competitor in the long distance market._ yO -ԍ#X P2P#xWorldCom/MCI Mar. 20 Reply Comments at 39. GTE's own statements demonstrate that ubiquity is not necessary for a network to be competitive. Although GTE claims that only a truly national carrier, like WorldCom, can be an effective supplier of  X -wholesale services, F yO-ԍ#X P2P#xGTE June 11 Renewed Motion at 2728 (asserting that resellers cannot practically combine the facilities of several new entrants in order to provide national service). it concedes that WorldCom's network only covers approximately 82 percent of the national population, and does not have a POP in roughly 90 of the nearly 200  X -LATAs.s  yO;-ԍ#X P2P#xGTE Mar. 13 Comments at 24.s Moreover, despite the fact that WorldCom's own network does not offer ubiquitous coverage, GTE itself is using WorldCom as a single supplier of wholesale 1+  X -services.J .  yO-ԍ#X P2P#xBBGTE June 11 Renewed Motion, Harris Long Distance Reply Aff. at 34. Similarly, Ameritech and SBC  {Oe-have entered into contracts with WorldCom for the provision of wholesale long distance service. Id. at 31. J Furthermore, GTE plans to migrate substantial traffic to the fiber it has purchased  X -on the Qwest network.6~  {O-ԍ xSee WorldCom July 8 Ex Parte, Kolb Aff. at 15 (citing presentation slide of Butch Bercher, President of GTE Communications Corporation, dated June 2, 1998.) GTE's attempt to refute the significance of Mr.  {Or-Bercher's comment at a GTE Analyst Conference is unclear. See GTE Aug. 3 Ex Parte, Covey Aff. at 1213. Although GTE states that it will need to make an additional investment ranging from $500 million to $1.5 billion to make use of the fiber acquired from Qwest, and that its schedule for using the fiber will depend on the cost involved and traffic predictions, it does not maintain that it is incapable of activating this fiber for its own use.  {O -See GTE Aug. 3 Ex Parte at 1011.6 GTE's plans for its Qwest fiber are an indication that the coverage  X-of the new networks is sufficient to provide competitive national long distance service.  Xb-x655.` ` Economies of Scale. GTE maintains that the firms building new networks will be unable to capitalize on economies of scale enjoyed by AT&T, MCI, Sprint, and"M"0*%%ZZ"  X-WorldCom,S yOy-ԍ xGTE Mar. 13 Comments at 2627. S BUTCH BERCHERand therefore will operate at substantial operational cost disadvantages against  X-the large incumbents.nX {O-ԍ xId. at 27; GTE Aug. 3 Ex Parte, Covey Aff. at 7.n GTE argues that the Applicants' claimed cost advantages from the combination of their operations support GTE's argument that there are economies of scale  X-that render smaller competitors less efficient than MCI WorldCom. yOV-ԍ#X P2P#xGTE Mar. 13 Comments, Harris Long Distance Aff. at 20. GTE June 11 Renewed Motion at 25, Harris Long Distance Reply Aff. at 51. x  X-x756.` ` We are not persuaded by GTE's argument that the carriers building new networks will face substantial operational cost disadvantages compared with large  X_-incumbents.Q_B yOR-ԍ xGTE Mar. 13 Comments at 2627.Q The Commission rejected similar arguments in the AT&T Domestic Non XJ-Dominance Order where it found that "it is not surprising that an incumbent would enjoy certain advantages, including resource advantages, scale economies, longterm relationships  X -with suppliers (including collocation agreements), and ready access to capital,"w  {O-ԍxAT&T Domestic NonDominance Order, 11 FCC Rcd at 3309, para. 73.w but that the "competitive process itself is largely about trying to develop one's own advantages, and all  X -firms need not be equal in all respects for this process to work." d  {O-ԍxId. (quoting Competition in the Interstate Interexchange Marketplace, CC Docket No. 90132, Report  {O-and Order, 6 FCC Rcd 5880, 5892 (1991) (First Interexchange Competition Order)).   X -x857.` ` We conclude that any advantages enjoyed by the long distance incumbents are  X -not "so great to preclude the effective functioning of a competitive market."  {O-ԍxAT&T Domestic NonDominance Order, 11 FCC Rcd at 3309, para. 73 (quoting First Interexchange  {O-Competition Order, 6 FCC Rcd at 589192). For example, the firms building these new networks have lowered their construction outlays by leasing or  X}-selling portions of the network in advance of construction.l} {OJ-ԍ xSee supra para.  MISC50 .l This not only lowers the cost of building a network, but enables the purchasers of the capacity to become facilitiesbased carriers in their own right without having to build a separate network. Furthermore, to spread the initial capital costs of building a national network, a new firm can sell transmission"8#0*%%ZZ" capacity to resellers. This will also obviate the need for the firm to develop a strong brand  X-name in the retail market in order to recoup costs of building its network.h {Ob-ԍxSee WorldCom/MCI Mar. 20 Reply Comments at 3738.h  X-x958.` ` Moreover, we agree with the Applicants that GTE overlooks the cost  X-advantages that newer technologies give to recentlyconstructed fiber networks.$Z {O-ԍ#X P2P#xId. at 38. GTE claims that new entrants that are facilitiesbased "do not possess any real advantages over existing carriers," because "incumbents can quickly deploy the same technology as new entrants." GTE  {OA -June 11 Renewed Motion at 30, Harris Long Distance Reply Aff. at 1819. See infra para. NEW TECH64 discussing new network technologies. GTE's own economic expert notes that the most economically rational strategy for long distance incumbents might be to use their old technology for some period of time before upgrading to  X_-new technology.s_F yOV-ԍxGTE June 11 Renewed Motion, Harris Long Distance Reply Aff. at 18.s The reason for this is that, unlike new firms that invest in equipment by weighing the full benefits of new equipment versus the cost of the equipment, the incumbent owns operational, if not leading edge, equipment, and therefore weighs only the marginal benefit the new equipment brings over the old equipment against the cost of the new equipment. Thus, the incumbent is less likely than the new firm to install this new equipment. This rationale is confirmed by GTE's expert, Dr. Harris, who, according to the Applicants, has stated that "[n]ew entrants can deploy the best available technologies without  X -the constraints of embedded technologies."  {OE-ԍ xWorldCom July 8 Ex Parte, Kolb Aff. at 1617 (quoting Harris, "The Dynamics of Competition in Telecommunications" presentation to Minnesota Public Utilities Commission, dated Oct. 8, 1997 at 49). Therefore, we find that the new national networks have cost advantages that may outweigh any cost disadvantages alleged by GTE. Moreover, GTE's admission that incumbents can quickly deploy new technologies appears to  Xy-undermine its claim that new firms cannot quickly enter the market.Xy0  yOZ-ԍ#X P2P#xHarris, for instance, argues that with respect to deploying transmission and switching equipment, as well as establishing POPs to obtain national coverage, although "it is feasible, experience shows that it could take up  yO-to a decade to establish such a presence." GTE Mar. 13 Comments, Harris Long Distance Aff. at 18.  XK-x:59.` ` Switching and Other Equipment. We find unpersuasive GTE's argument that deployment of the new networks will not be timely because the new firms will deploy switching equipment only as growth warrants, over the course of many years, in order to  X-cover the massive expense of doing so.RP  yO #-ԍ xGTE Mar. 13 Comments at 2728. R Applicants submit that, as demand for capacity grows, carriers can deploy the electronics necessary to light a dark fiber network within"$0*%%ZZ"  X-months. {Oy-ԍ xWorldCom July 8 Ex Parte, Kolb Aff. at 910. Applicants state that the typical switch can be ordered,  {OC-manufactured, installed, and made operational within 18 months. Id. at 10. We also agree with the Applicants that a company that has invested capital necessary to build a national fiber network can be expected to spend the additional amount of money needed to offer service, generate revenue, and realize a return on its investment, or  X-sell that capacity to some other firm that will.B$ {O-ԍ xId. at 9.B  X-x;60.` ` SS7SS7SS7. We disagree with GTE's claim that the new firms will be unable to  Xx-deploy signaling equipment for years.Nx yO -ԍ xGTE Mar. 13 Comments at 28.N Applicants identify several companies, including Transaction Network Services, Inc., GTE Intelligent Network Services, and SNET, that  XJ-provide wholesale SS7 signaling services.zJF {OA-ԍ xWorldCom June 1 Ex Parte, Attach. 1, Phone+ Magazine, Apr. 15, 1998, at 8085. See also Illuminet,  {M -Advantages from Illuminet, SS7 Connectivity and Billing Support to Win and Keep Customer,  yO-. We note that GTE's statements about WorldCom's capabilities undercut its own argument. Although GTE maintains that SS7 deployment is critical for building an efficient network, and that new firms' lower deployment of SS7 compromises the attractiveness of their networks for both retail and wholesale customers, GTE concedes that WorldCom has only recently made its SS7 network operational. GTE Mar. 13 Comments at 28.   X -x<61.` ` OSSOSS and Other Software. We reject GTE's claims that the firms operating these new networks will be unable to satisfy resellers and end users for several years because  X -it will take time to develop satisfactory OSS and back office systems.P  yO)-ԍ xGTE Mar. 13 Comments at 29. P Instead, we find persuasive the results of the Atlantic*ACM survey showing that these new networks satisfy resellers at least as well as AT&T, MCI, Sprint, and WorldCom. In this survey, resellers ranked AT&T, MCI, Sprint, and WorldCom below "smaller carriers" in billing, provisioning,  X-and service.* {O]-ԍ xSee WorldCom July 8 Ex Parte, Kolb Aff., Attach. 6, William West and Judy Reed Smith,  Wholesale  {O'-Report Card: Resellers Give Underlying Carriers a C+, Phone+ Magazine (May 1998) (Phone+ May 1998 Article). The authors note that "larger carriers were ranked below the mean score [for billing services], earning criticism primarily for their systems' inflexibility." In the category of provisioning, Sprint scored above the mean and competitively with smaller carriers. In the service category, the authors state that, "'Other' providers received the highest scores among  {O#-switchless resellers, indicating that small wholesalers have found a niche in providing strong service." Id. We find GTE's challenges to the reliability of the Atlantic*ACM study unconvincing given GTE's willingness to rely  {O$-on the previous year's results of the very same study. Compare GTE Mar. 13 Comments, Harris Long Distance"$0*%%$"  {O-Aff. at 40; GTE Aug. 3 Ex Parte at 7, Harris Long Distance Rebuttal Aff. at 78, & GTE Aug. 3 Ex Parte,  yOZ-Covey Aff. at 5.* This report also states that facilitiesbased carriers reselling long distance gave"%"0*%%ZZ"  X-their best rankings to Qwest." {O-ԍ xSee WorldCom July 8 Ex Parte, Kolb Aff., Attach. 6, Phone+ May 1998 Article. Moreover, the Applicants have submitted information  X-indicating that many companies offer billing systems to the wholesale market.= {ON-ԍ xId. = x  X-x=62.` ` Reliability. We reject GTE's contention that the new networks are vulnerable  X-to outages because they will initially deploy "spurs"F yO -ԍ xGTE defines "spurs" as routes without diversity, and argues that these routes could be susceptible to outages in case of a fiber break. GTE Mar. 13 Comments at 2930, Harris Long Distance Aff. at 1617. to extend the coverage of their networks. Because of this alleged vulnerability, GTE contends resellers would be "justifiably  Xx-concerned about taking capacity from a network that is not fully diverse."Nx yO-ԍ xGTE Mar. 13 Comments at 30.N We disagree. We note, for example, that Qwest has stated that its completed network is designed to allow  XJ-instantaneous rerouting in the event of a fiber cut.J.  yO)-ԍ xQwest uses bidirectional, line switching OC192 SONET (synchronous optical network) ring  {O-architecture and will offer a self-healing system that provides security and reliability. See Qwest July 6 Press Release. The SONET signaling protocol links fiber into large transmission rings and allows rapid restoration of  {O-the signal when there is a break in the network.  See J.P. Morgan Securities, Inc., Equity Research, "Telecoms in  yOM-the Age of the Internet," Apr. 24, 1998 at 1516 (J.P. Morgan Telecom Report).  IXC similarly claims that it has fully  X3-redundant routing between switches.u3 {O-ԍ xIXC, The Network, .u GTE also maintains that reliability is compromised by lack of ubiquitous geographic coverage because a carrier must lease POPs from third parties who will be responsible for maintenance, and that reliability is impaired by having to develop  X -and optimize network management tools.N t yO-ԍ xGTE Mar. 13 Comments at 30.N We find these arguments undermined by the willingness of many carriers, GTE included, to purchase transmission capacity from non X -ubiquitous networks, such as those operated by WorldCom and Qwest.  {Ou -ԍxSee supra note  BB168  (citing presentation slide of Butch Bercher, President of GTE Communications Corporation, dated June 2, 1998). x  X-x>63.` `  ENTRY2 Availability of Qualified Work Force. We are unpersuaded by GTE's claim that a shortage of qualified employees will act as a barrier to entry by new firms. GTE asserts that it will be expensive and time consuming, particularly in light of the shortage of"f&^0*%%ZZ" qualified network engineers and telecommunications software developers, to write the software needed to provide the advanced long distance features that represent a key source of  X-competitive advantage in the industry. {OK-ԍ#X P2P#xSee GTE Mar. 13 Comments at 28, 30 & Harris Long Distance Aff. at 18.į Likewise, GTE maintains that it will take substantial time to develop key elements including ordering platforms, POPs, switches, and OSS to  X-provide a wholesale offering.Z yO-ԍ#X P2P#xGTE Mar. 13 Comments, Harris Long Distance Aff. at 18. We agree with the Applicants that any increased compensation of new technical employees resulting from increased bidding by the new networks (and attracting employees from the incumbents in the process) raises the cost of  X_-technical help for all market participants, including the incumbents._ yO -ԍ#X P2P#xWorldCom/MCI Mar. 20 Reply Comments at 40. Thus, the firms' costs for qualified network engineers and telecommunications software developers should be no higher than for incumbents.  X -x` `  iii.hh Impact of New Technology on Transmission Capacity  X -x?64.` `  NEW TECH New technologies, such as DWDM and dispersion shifted fiber,  z yO-ԍ xDispersion shifted fiber is made out of a refined glass that reduces dispersion of the optical signal and allows the signal to be amplified optically. Optical amplification achieves greater transmission speed by bypassing the lightelectric conversion necessary for the electric amplification used in older networks. J.P. Morgan Telecom Report at 15. will vastly  X -increase the transmission capacity of existing and new fiber networks.| b  yO-ԍ xWorldCom/MCI Jan. 26 Reply Comments at 37, Hall Aff. at 4; WorldCom/MCI Mar. 20 Reply Comments, Carlton and Sider Decl. at 8. DWDM, for example, allows a 40fold increase in the capacity of each fiber by using individual wavelengths of light as separate transmission channels. Ciena Corporation, a manufacturer of DWDM equipment, claims that this technology has the potential to yield up to a 96fold  {O-increase over the capacity of existing optical signaling equipment. See Ciena Corporation Press Release, Ciena  {O-Introduces Multiwave 4000 System, Scaleable DWDM from 40 to 96 Channels (Mar. 16, 1998) . The four major long  X -distance carriers have indicated plans to deploy DWDM in their networks._  yO-ԍ NOTE xJ.P. Morgan Telecom Report at 11._ In addition, the new national networks of Qwest, IXC, Williams, and Level 3 will employ DWDM and  Xy-dispersion shifted fiber universally.Jy6 {O`"-ԍxId at 11, 15.J Analysts estimate that these new network technologies  Xb-will allow a 100fold increase in U.S. fiber backbone capacity between 1997 and 2000.Jb {O$-ԍxId. at 3 & Table 2.J As"b'Z0*%%ZZ" a result, existing carriers can expand capacity to constrain a unilateral exercise of market power by any other carrier, and new carriers likely will be able to constrain any coordinated exercise of market power by the incumbents.  X-x` ` d. Analysis of Certain Direct Effects on the Retail Market  Xv-x@65.` ` LARGE VOLWe here dLARGE VOLUMEiscuss two specific concerns raised by GTE resulting from the increased concentration due to the merger. GTE contends that WorldCom, along with AT&T, MCI, and Sprint, are the only providers of long distance services to high volume business  X1-customers (i.e., larger business customers). According to GTE, the merger will, therefore, make it easier for these carriers to coordinate prices for provision of long distance services to  X -larger business customers.m  yO~ -ԍ xGTE Mar. 13 Comments, Schmalansee and Taylor Aff. at 1516.m We are not persuaded by this claim, however, because we find that larger business customers are knowledgeable consumers that will have competitive alternatives to the largest three incumbents. Business customers generally are sophisticated and knowledgeable consumers of long distance services and often obtain competitive prices  X -through requests for proposals from carriers. X {O-ԍ xSee AT&T Domestic NonDominance Order, 11 FCC Rcd at 3305, para. 65 (quoting First Interexchange  {O|-Competition Order, 6 FCC Rcd at 5887). Moreover, for the reasons discussed above, we find that other firms, such as Qwest, IXC, and Frontier, with their large available transmission capacity, will have the incentive to participate aggressively for high volume business customers.  X8-xA66.` ` GTE also maintains that, as market shares in an oligopoly become more nearly equal, cooperative rather than competitive pricing is more likely to prevail, and therefore the merger would deter competitive pricing by reducing the market share gap between AT&T and  X-MCI WorldCom.M yOX-ԍ xGTE Jan. 5 Petition at 24.M As evidence for this theory, GTE quotes an economic text that argues  X-that market share variations are likely to prevent firms from collectively maximizing profits.D {O-ԍ xId. at n.52 (citing F. Scherer, Industrial Market Structure and Economic Performance (Houghton  {O-Mifflin, 2d ed. 1980) at 160 (Scherer)). We note that GTE fails to present the chosen quotation in the proper context. According to the same economic text, market share variations only prevent firms from collectively  X-maximizing profits when the firms have different marginal costs. yO"-ԍ xScherer notes that "when marginal costs are constant over the relevant range of outputs, differences in  {O#-market shares do not lead to different price preferences, ceteris paribus." Scherer at 158. GTE presents no evidence regarding any marginal cost differences among the largest firms in the industry, and"( 0*%%ZZ2" therefore we are unable to determine whether the merger would exacerbate cooperative pricing in the fashion described by GTE. More importantly, assuming the truth of GTE's argument, the presence of four new facilitiesbased carriers should increase not only the number of competitors but also the variance in market share which should make tacit coordination more difficult.  Xv- x` ` e. Alleged Loss of WorldCom as a Maverick Supplier of Wholesale  X_-Long Distance Services (# x` `  X1-xB67. MAVERICK  GROUPS ` ` We next consider the related concern raised by GTE, BellSouth, and Bell Atlantic that the merger will eliminate WorldCom as a "maverick" supplier of wholesale long distance services that is, a supplier that is willing to offer wholesale services to resellers at  X -prices that undercut the pricing structure of the three biggest interexchange carriers.\  yOe -ԍxMaverick firms are "firms that have a greater economic incentive to deviate from the terms of  {O--coordination than do most of their rivals (e.g., firms that are unusually disruptive and competitive influences in  {O-the market)." 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 4155960,  2.12. As previously indicated, our concern here is whether any alleged loss of wholesale services is likely to affect retail consumers adversely. We agree that resellers of long distance services have increased competition in the long distance market. We would thus be concerned if prices to consumers increased because, as a result of the merger, resellers could not continue to obtain wholesale services at prices that permitted them to compete against the largest facilitiesbased interexchange carriers. As explained above, in our analysis we distinguish mass market consumers from larger business customers based on their different demand  X4-patterns.Z4 yO-ԍxAs noted above, mass market consumers tend to purchase relatively small volumes of basic switched minutes based on mass marketing advertising by carriers. Larger business customers, on the other hand, tend to  {Oa-require higher volumes of long distance services and combinations of advanced features. See supra para. PROD DEF26.  X-  X-xC68. GTECLAIM ` ` Mass Market. We conclude that the merger of WorldCom and MCI will not adversely affect retail mass market consumers by thwarting the competition currently provided by resellers. As explained below, we are unpersuaded by opponents' claims that the merged entity will no longer have the incentive to offer long distance services on a wholesale basis to resellers. More importantly, even if MCI WorldCom becomes less aggressive in serving resellers after the merger, we do not believe that retail consumers will be harmed because: (1) resellers will be able to obtain wholesale long distance services from other suppliers; and (2) MCI WorldCom is likely to become less aggressive in serving resellers only if it chooses to focus directly on retail customers, and to do so, it will have to offer retail consumers more attractive service and rates to compete with resellers. x"")0*%%ZZ\"Ԍ X-xD69.` ` BellSouth and GTE maintain that WorldCom has been a maverick firm z yOy-ԍ xThe Applicants dispute that WorldCom was, in fact, a maverick firm. WorldCom/MCI Jan. 26 Reply Comments at 42. They maintain that MCI has taken the initiative on cutting retail prices to mass market  {O -customers, and that MCI provides service to resellers on a scale comparable to WorldCom. Id. Commenters' estimates of capacity provided by long distance carriers support the Applicants' claim that WorldCom and MCI are comparable suppliers of wholesale capacity. We need not decide whether WorldCom is, or has been, a maverick supplier of wholesale capacity, however, because we are not persuaded that its incentive to provide wholesale capacity to resellers will change as a result of the merger.  that has undermined attempts by the three largest long distance carriers to coordinate prices  X-charged to residential and small business consumers.  yO -ԍ xBellSouth Jan. 5 Petition at 1617; GTE Jan. 5 Petition at 20; GTE Mar. 13 Comments at 32. Commenters' argument regarding the availability of wholesale capacity for providing long distance services to residential and small business customers also applies to larger business customers to the extent that these customers demand only high volumes of transmission capacity for basic voice long distance service, and not the advanced features discussed below. More specifically, these commenters argue that resellers provide the only check on retail prices that would otherwise be subject to  X-tacit price coordination by the largest long distance carriers,q  yO-ԍ xBellSouth Jan. 5 Petition at 1617; GTE Jan. 5 Petition at 22.q and that competition for the provision of wholesale long distance services to resellers exists only because of the presence  Xv-of WorldCom.NvJ  yOq-ԍ xGTE Jan. 5 Petition at 26. N GTE further contends that, after the merger, MCI WorldCom will have a reduced incentive to provide wholesale long distance services to resellers, because it will be concerned about cannibalizing its newly acquired retail customer base from whom it allegedly  X1-earns higher profit margins.$1 {O-ԍ xId. at 28. See GTE Aug. 3 Ex Parte, Harris Long Distance Rebuttal Aff. at 3. The Applicants dispute  {O-the size of the disparity between wholesale and retail profit margins. See WorldCom July 8 Ex Parte, Kolb Aff. at 2. We need not reach this issue because we find the difference in profit margins irrelevant where, as we find here, other carriers with no retail base are capable of providing wholesale capacity to resellers. GTE claims that, without a maverick supplier of wholesale services, the remaining large long distance carriers will pursue a less vigorous strategy towards providing wholesale services to resellers, and therefore, will promote coordinated  X -pricing to retail customers. $  yOc-ԍ xGTE Jan. 5 Petition at 28. As evidence that WorldCom will be a less vigorous provider of wholesale services, GTE cites WorldCom's alleged failure to affirm to GTE's Vice President of Market Solutions that its  {O -new relationship with MCI will not harm the working relationship GTE has with WorldCom. GTE Aug. 3 Ex  {O!-Parte at 5, Covey Aff. at 2. We do not find this assertion probative of WorldCom's incentives after the merger.   X -xE70.` ` INTLWHOLEWe reject the assertion that WorldCom is solely responsible for competition in the provision of wholesale long distance services. As stated above, many other firms," *0*%%ZZ " including Qwest, IXC, and Williams, are currently providing wholesale services to resellers,  X-and several other firms, including Excel, will soon have this capability.} {Ob-ԍ xSeesupra paras. CAPAC143שCAPAC250 .} In fact, a recent survey of switched and switchless resellers ranked Qwest, not WorldCom, best in the pricing  X-category.`Z {O-ԍxWorldCom June 1 Ex Parte, Attach. 6 at 3.` To the extent that WorldCom had an incentive to market aggressively its  X-wholesale services to resellers because it had no retail brand name recognition,M yOA -ԍ xGTE Mar. 13 Comments at 32.M Qwest, IXC, and others similarly have an incentive to participate in the retail market through resellers. We also find unpersuasive commenters' claims that the merged MCI WorldCom will have reduced incentive to sell wholesale services to resellers. Because other firms appear equally capable of providing the wholesale long distance services presently provided to resellers by WorldCom and MCI, the combined firm's rational approach would be to continue supplying  X -resellers rather than to cede these revenues to other carriers. | {OG-ԍ#X P2P#xSee Letter from Larry Blosser, Senior Counsel, MCI, to Magalie Roman Salas, Secretary, FCC, Hall  {O-Aff. at 11 (filed July 8, 1998) (MCI July 8 Ex Parte). AT&T and Sprint, moreover,  X -are likely to make the same choice.H  yO-ԍxNotwithstanding GTE's contention that wholesale profit margins are relatively small, provision of wholesale capacity provides a significant source of revenue for long distance carriers. According to The Yankee Group, the provision of wholesale services has been one of the fastest growing revenue sources for long distance  {O-carriers over the last four years. Bell Atlantic Apr. 28 Ex Parte, The Yankee Group, Telecommunications White  {O-Paper, Vol. 12, No. 13 (Dec. 1997) at 8. H For example, Sprint has stated that it agreed to provide wholesale services to the BOCs, because it would rather have some wholesale business than  X -lose out on this revenue completely.$  yO-ԍxSprint Vice President and General Manager for BOC Services Leo Welsh, Jr. has stated that, "[t]he retail minute is best, but the wholesale minute is better than none. Instead of losing on residential totally, we  {O-would pick up the wholesale business." Gail Lawyer, tele.com, Bells Contemplate LongDistance  {Ol-OptionsĠ(August 1997) . We, therefore, agree with the Applicants that even a long distance carrier with a large retail customer base will have an incentive to provide wholesale services to resellers if the reseller can obtain these services on favorable terms from  X-other providers._x yO -ԍ xWorldCom/MCI Jan. 26 Reply Comments at 5253._  Xb-xF71.GTECLAIM2` ` We further find that, even if the merged entity alters its business strategy to focus more on retail than wholesale, mass market retail customers likely will not be harmed because the merged entity will have to become more effective at marketing to retail"4+0*%%ZZf" customers. As stated above, we conclude that other carriers are equally capable of providing wholesale services to resellers if the merged entity decides not to pursue this business strategy. Thus, if the merged entity made fewer wholesale services available to resellers, it would, in order to generate revenues, instead seek to provide long distance services to retail customers directly. It can only accomplish this if it is able to offer better quality or lower  X-prices to end users and thereby increase its retail market share.a {O-ԍ xMCI July 8 Ex Parte, Hall Aff. at 1112.a  Xv-x ` `    X_-xG72.` ` HIGH-END1Larger Business Market. GTE and Bell Atlantic also contend that the proposed merger will affect WorldCom's incentives to provide advanced services to resellers serving the larger business market, and thus hinder retail competition. For the reasons stated below, we disagree.  X -xH73.` ` MAVGTE advances vague and unsubstantiated allegations that WorldCom has committed to provide resellers certain advanced features, and has been "willing" to develop others, that AT&T, MCI, and Sprint have either offered at less attractive rates, or have been  X -reluctant to provide to resellers at all.&X Z yO-ԍ xGTE Jan. 5 Petition at 2628, Covey Aff. at 23. It is unclear whether GTE is arguing that AT&T, MCI, and Sprint are violating statutory requirements to make available to resellers any telecommunications service they provide on a retail basis.& GTE maintains that WorldCom is willing to provide advanced features such as VPN, frame relay, and "various" enhanced 800 services to resellers, and that it has been willing to commit to schedules to develop platforms for advance  Xd-features.ldz {O-ԍ xId., Covey Aff. at 23; GTE Mar. 13 Comments at 34. l Despite its voluminous filings in this proceeding, GTE has not specified which advanced features WorldCom has been willing to provide that other carriers are not capable  X6-of providing, or cannot develop the capability to provide.:6  yO-ԍ xThe closest GTE comes to identifying a particular feature offered by WorldCom and not by any other  {O-carrier is in an affidavit by Debra Covey responding to an affidavit filed by WorldCom. See GTE Aug. 3 Ex  {O-Parte, Covey Aff. at 34 (maintaining that WorldCom's attachment demonstrates that only AT&T, MCI, Sprint, and WorldCom offer the E800 service called "Network Control"). Even here, GTE does not state that other carriers are incapable of developing this service.: Simply identifying VPN, frame relay, or enhanced 800 services is not sufficient because the record reveals that there are varying degrees of sophistication of such services, some of which other carriers appear", 0*%%ZZ"  X-capable of providing, {Oy-ԍ xWorldCom June 1 Ex Parte at 4. For example, BTI, e.spire, Excel, Frontier, Intermedia, IXC, LCI, and  {OC-Williams appear to be offering frame relay to resellers. Id. Likewise, Frontier, Intermedia, Qwest, and Sprint  {O -are providing VPN to resellers. Id. Finally, C&W, Excel, Frontier, GTE Intelligent Network Services, IXC,  {O-LCI, Sprint, and TeleHub indicate that they offer some type of advanced 800 services to resellers. Id. See  {O-WorldCom July 8 Ex Parte, Kolb Aff. at 4 & Attach. 3, 4. Moreover, carriers can develop certain advanced features themselves using thirdparty vendors. For example, thirdparty firms, such as GeoTel, supply software for advanced features, such as intelligent callrouting, and thereby aid entrants who use their own, or wholesale,  {O-capacity to enter the retail business market. GeoTel, Product Overview  {O-; GeoTel, About GeoTel  yO -. and others of which only AT&T, MCI, and Sprint allegedly  X-provide.&n  {O -ԍ xSee WorldCom July 8 Ex Parte, Grillo Aff. at 4 (stating that WorldCom does not possess the network  {O -capabilities to address the needs of large businesses demanding certain sophisticated, advanced features); See  {O -also Bell Atlantic Jan. 5 Petition, AuBuchon Aff. at 12 ("Only AT&T, Sprint and MCI have the full range of [advanced] features necessary to compete [in the business market].").  X-xI74.` ` Bell Atlantic similarly raises unsupported claims that WorldCom "apparently was in the process of beginning to develop . . . highend business features in competition with  X-the [three largest long distance] incumbents."c\  {O-ԍxBell Atlantic Jan. 5 Petition at 14. c Steven AuBuchon, Director of Business Product Marketing for Bell Atlantic, states that "WorldCom also was beginning to develop these highend features, or so I gathered from headhunter calls for WorldCom concerning  XH-opportunities to develop and manage VPN and E800 projects."OH {O-ԍxId., AuBuchon Aff. at 2.O According to Bell Atlantic, the sophisticated features that are necessary to serve the Fortune 500 market require years to  X -develop and presently only AT&T, MCI, and Sprint are able to provide them.H  {OK-ԍ xId. at 14.H We find that Bell Atlantic's evidence, consisting of "headhunter calls" to a Bell Atlantic employee, is not probative of WorldCom's actual plans.  X -xJ75.` ` Moreover, even if we were convinced that WorldCom was currently providing advanced features on favorable terms to resellers or developing these features for use by resellers, and that the merger would alter WorldCom's plans in this regard, there is no evidence in the record that this "loss" would diminish competition for larger business customers. Significantly, none of the commenters provides evidence that the retail larger"b-0*%%ZZh"  X-business market is not competitive today" yOy-ԍxBell Atlantic's AuBuchon alleges that, because only AT&T, Sprint, and MCI have the full range of  {OA-features necessary to compete in the larger business market, competition for these customers is "not robust." Id., AuBuchon Aff. at 12. The number of firms competing in an industry does not, by itself, provide evidence of the degree to which these firms compete with one another. or that the merger will reduce competition in this  X-retail market. yOL-ԍxAs discussed above, we reject GTE's claim that the merger will harm large volume business customers.  {O-See supra para. LARGE VOL65.  X-xK76.MAVERICK2 GROUPS2 HIGH-END2` ` We note further that the merger will not change the statutory obligation on all  X-carriers to make available for resale any advanced features provided on a retail basis.^  yOa -ԍxWorldCom/MCI Jan. 26 Reply Comments at 5354.^ Accordingly, as WorldCom and MCI note, the advanced features they currently provide are  Xv-available to resellers under tariff and will remain so after the merger.Av {O-ԍxId. at 53.A We find, therefore, that the merger will not have an anticompetitive effect on the retail market for any advanced features.  X1-  X -x` ` f. Conclusion hh  X -  X -xL77.` ` Based on the above analysis, we find that the merger likely will not impair competition in the domestic, interstate, interexchange market. We therefore decline to impose  X -any of the various conditions proposed by commenters." .  {O-ԍ xSee BellSouth Jan. 5 Petition at 25 (proposing conditioning approval of the merger on broadscale BOC entry into long distance); Bell Atlantic Jan. 5 Petition at 18 (proposing a condition requiring WorldCom to resell all of its long distance network management features and services to Bell Atlantic on a timely and reasonable basis). )J:\POLICY\MCIWCOM\MASTER\LONGDIST) )J:\POLICY\MCIWCOM\MASTER\INTERNAT)  Xy-x B.` ` U.S. International Services    XK-xM78.` ` We consider in this section the competitive effects of the proposed merger in  X4-the markets for U.S. international services.SX4 yO!-ԍx"U.S. international services" consist of all U.S.billed telecommunications services, including calls that originate in the United States and terminate at a foreign point and calls that originate at a foreign point but are billed by a U.S. carrier, such as international calling card calls.S We find that the merger will increase concentration in certain relevant product and geographic markets. As a general matter,".80*%%ZZ}" however, we conclude that significant increases in international transport capacity, an essential input in the provision of international telecommunications services, should mitigate the increase in concentration and prevent any anticompetitive effects. We find that this additional capacity will be provided by a growing number of suppliers. We further find that entities that currently control a large amount of transport capacity will not have advantages in the provision of this new capacity. As a result, we find that the higher concentration ratios resulting from the merger are not likely to have anticompetitive effects in the provision of international services.  X1-xN79.` ` As in our analysis of domestic long distance services, we examine here two separate end user product markets defined by the class of customers served: mass market customers and larger business customers. For the reasons discussed below, we find that it is also appropriate to examine separately the international transport capacity market, which provides the physical transmission path carriers use to deliver services in both the mass market and larger business markets.  X-xO80.` ` The Commission has long recognized certain important differences between the markets for domestic and international long distance services. As the Commission explained  Xb-in the BT/MCI Order, input markets are a significant component of the international services  XM-market,tM {O-ԍxSee BT/MCI Order, 12 FCC Rcd at 1537879, paras. 5860.t and there is more likely to be market power with respect to particular inputs on international routes than there is on domestic long distance routes. In contrast to the domestic long distance market, for example, international transport capacity historically has been concentrated in a limited number of facilities owned by small consortia of carriers. U.S. carriers, moreover, have been further limited by the fact that they could only use their transport capacity as part of a correspondent relationship with foreign carriers that frequently have sought to limit competition on the U.S. international route. Another important difference is that different countries have different regulatory regimes which may affect the prices charged to end users on U.S. international routes. We note that prices for U.S. international calls tend to vary among countries.  XP-xP81.` ` Because of these differences, the Commission appropriately has tended to focus its analysis on particular inputs in considering competitive effects on international routes. For  X"-example, in the BT/MCI Order, the Commission examined six relevant input markets and  X -three relevant end user markets.  Z yO"-ԍxThe Commission identified six relevant input markets: (1) international transport between the United States and the United Kingdom; (2) U.K. cable landing station access; (3) U.K. backhaul; (4) U.K. intercity transport; (5) U.K. local terminating access services; and (6) U.K. local originating access services. The  yOp$-Commission also identified three relevant end user markets: (1) U.S. local exchange and exchange access"p$0*%%$"  {O-service; (2) U.S.U.K. outbound international service; and (3) global seamless services. See BT/MCI Order, 12 FCC Rcd at 15376, para. 52. Our analysis here first examines relevant input markets, in" /"0*%%ZZ" particular, international transport capacity. We then examine the possible competitive effects  X-of the merger on the relevant end user markets for international services. xx  X-x` ` 1. Input Markets   X-x` `  a. International Transport Market  X_-xQ82.` ` Product INTINPPRODMarket. We conclude that international transport is a relevant international input market for purposes of this merger analysis. Transport provides users with the international physical transmission path over which they may offer any service, such as switched voice telephony or data traffic. In particular, we find that, for purposes of this merger, submarine cable capacity is the transport medium that warrants review.  X -xR83.` ` We note that more U.S. international traffic is transmitted via submarine cable  X -facilities than any other transport medium. " {O-ԍxSee FCC, 1996 Section 43.82 Circuit Status Data Report (Int'l Bur., Dec. 1997) at 23 (1996 Circuit  {O]-Status Report). Although the Commission has identified cable  X -and satellite capacity as fungible technologies capable of providing international transport,& ~ {O-ԍxSee Comsat Corporation Petition Pursuant to Section 10(c) of the Communications Act of 1934, as amended, for Forbearance from Dominant Carrier Regulation and for Reclassification as a NonDominant  {Oj-Carrier, File No. 60SATISP97, Order and Notice of Proposed Rulemaking, FCC 9878, at para. 32 (rel. Apr.  {O4-28, 1998) (Comsat NonDominance Order). we have also recognized that the delay and echo inherent in satellite transmission, as well as the cost per circuit, appear to make submarine cable capacity the more attractive medium for  Xd-international transport of voice and data.Hdl  {O-ԍxSee id.; BT/MCI Order, 12 FCC Rcd at 15390, para. 97. GTE asserts that, in addition to our examination of voice and data, we should require the Applicants to specify whether either offers fulltime or  {O-occasional use video services. See GTE June 11 Renewed Motion at 44 n.16. According to traffic and revenue data reported by the carriers, MCI has recently reported miscellaneous services, which include video services, but  {O-WorldCom has not. See FCC, 1996 Section 43.61 International Telecommunications Data (Com. Car. Bur., Jan.  {Oo-1998) at Table C9 (1996 Section 43.61 Report). Without further substantiation that either WorldCom or MCI could be a significant provider of these services, we conclude that it is not necessary to examine the effect of the merger on the provision of these services. Parties to this proceeding support this finding.,"d| {O"-ԍxGTE directs its comments to submarine cable capacity. See GTE Jan. 5 Petition at 36 & n.69 (identifying submarine cable capacity as the relevant transport medium, noting that "due to its relatively high cost and quality constraints, satellite service is typically not a provider's first choice for pointtopoint transport"); WorldCom/MCI Jan. 26 Reply Comments at 6265 (examining submarine cable capacity in its review of the"$0*%%%" international transport market)., "d0X0*%%ZZ" Moreover, WorldCom states that it does not hold any ownership interest in satellite systems  X-or satellite transponderCOMSAT PARA capacity.X {O-ԍxSee Letter from Robert S. Koppel and Kerry E. Murray, WorldCom, to Magalie Roman Salas, Secretary,  {O-FCC, at 2 (filed Aug. 28, 1998) (WorldCom Aug. 28 Ex Parte). As a result, we find that, for purposes of this proceeding, it is appropriate to focus our transport market analysis on submarine cable capacity.  X-xS84.` ` Geographic Market. Although we recognize that the geographic market is more accurately described as a series of pointtopoint markets and that it may be necessary to examine specific country routes when considering the effects of a proposed merger on  Xa-relevant input markets,xa {O -ԍxSee, e.g., BT/MCI Order, 12 FCC Rcd at 15402408, paras. 133151.x we conclude that it is appropriate here to adopt a regional approach to analyzing the international transport market. With regard to U.S. international submarine cables, we find that, although they terminate in a select number of countries, they tend to serve entire regions. For example, the TAT12/13 cable system terminates in the United Kingdom and France, but carriers use this cable system to carry traffic destined for points throughout Europe. We find here that it is appropriate to aggregate international transport where pointtopoint markets have competitive characteristics that are sufficiently similar to  X -other pointtopoint markets. F {O-ԍxSee LEC Regulatory Treatment Order, 12 FCC Rcd at 15801, para. 80. See also BT/MCI Order, 12  {O-FCC Rcd at 15375, para. 51; Bell Atlantic/NYNEX Order, 12 FCC Rcd at 2001620017, para. 54. Generally, U.S. submarine cables serve three regions:  X -Atlantic, Pacific, and Caribbean/Latin America.U  {O-ԍxSee GTE Jan. 5 Petition at 36.U We find, moreover, that several cable systems may provide transport capacity to the same geographic region. If, for some reason, one cable route to a particular destination is foreclosed, carriers generally can route their traffic to that destination using other cables serving the same region. We therefore seek to determine whether the proposed merger would have anticompetitive effects on the transport capacity market in any of those three regions.  X-xT85.` ` We note here that 63 countries are not linked to the United States by cable and  X-are served only by satellites. These countries are sometimes referred to as "thin routes."h4  {O -ԍxSee Comsat NonDominance Order at para. 28.h As noted above, WorldCom states that it does not hold ownership interests in satellite  X-systems, which would include those that serve the thin route market countries.e  {O:$-ԍxSee supra para. COMSAT PARA83.e As a result,"1X 0*%%ZZ" we find that the merger would not increase concentration in the provision of transport capacity on these routes. We also note that, in contrast to other U.S. international routes, traffic on the U.S.Mexico and U.S.Canada routes is carried primarily via terrestrial facilities. No party has argued that the proposed merger would result in anticompetitive effects on either of these routes. Nor are we aware of any shortage of, or difficulty in obtaining capacity in, facilities for the provision of service on these routes. We therefore find that it is not necessary to review either the thin route markets or the U.S.Mexico and U.S.Canada routes as part of our transport capacity analysis in this proceeding.  X1- x` `  b.Market Participants  X -xU86.` ` Traditionally, most submarine cable capacity has been jointly owned by consortia of U.S. and foreign telecommunications carriers. These carriers generally are  X -vertically integrated (i.e., they use a large amount of the cable capacity they own to provide services to end users). Recently, noncarriers have built and own submarine cable systems to  X -operate as carriers' carriers. Our determination of market participants examines ownership of transport capacity. Nonowners of cable systems may acquire capacity by either a shortterm lease or as an indefeasible right of user IRU(IRU), which essentially is a perpetual leasehold in a  Xd-circuit of capacity.Fd yO-ԍx "An IRU interest in a communications facility is a form of acquired capital in which the holder possesses an exclusive and irrevocable right to use the facility and to include its capital contribution in its rate base, but not the right to control the facility or, depending on the particular IRU contract, any right to salvage . . . . The IRU is conveyed by a facility coowner to a carrier that did not elect to become a facility coowner or that as a facility coowner did not purchase sufficient capacity to meet its projected demand over the life of the  {O-facility." See Reevaluation of the DepreciatedOriginalCost Standard in Setting Prices for Conveyances of  {O-Capital Interests in Overseas Communications Facilities Between or Among U.S. Carriers, CC Docket No. 87 {OY-45, Report and Order, 7 FCC Rcd 4561, 4561 n.1 (1992), recon. 8 FCC Rcd 4173 (1993).  We recognize that taking into account IRU leaseholds would more fully reflect control of existing capacity, but this information is generally not available on a cablespecific basis. We believe that it is reasonable, as an initial matter, to examine ownership of transport capacity, although to some extent such a review may overstate cable owners' market presence by failing to account for IRU leaseholders' control of existing capacity.  X-xV87.` ` For purposes of this proceeding, we will examine ownership of U.S. half X-circuits (including the U.S. half of wholecircuits). yOJ -ԍxTraditionally, a U.S. carrier and a foreign carrier have jointly provided service on an international circuit in a correspondent relationship. Each circuit was divided into U.S. and foreign "halfcircuits." Increasingly, entities own international transport capacity on a wholecircuit basis. We recognize and encourage this trend because it facilitates the provision of endtoend international services (provided appropriate authorizations have been obtained on both ends).  We do so because WorldCom and MCI each predominantly own capacity on the U.S. end of cable systems. It is therefore"2 0*%%ZZ"  X-appropriate to analyze any potential anticompetitive effect on the U.S. end of the circuit.4  {Oy-ԍxSee GTE Jan. 5 Petition at 37 n.74 ("the market for U.S.side halfcircuit capacity remains the most critical input for new carrier entry . . . [and] existing whole circuits likely would be covered by halfcircuit  {O -data."). By contrast, in the BT/MCI Order, the Commission examined the wholecircuit market because MCI primarily owned halfcircuits on the U.S. end and BT primarily owned halfcircuits on the U.K. end. Our concern in that proceeding was the applicants' merged market power to the extent that the merger would have  {Oe-increased control over wholecircuits on the TAT12/13 cable system. See BT/MCI Order, 12 FCC Rcd at 15403, para. 135 & n.185. We note here that, as part of a privatization auction on July 29, 1998, MCI won the  {O-bid for Embratel, the monopoly provider of long distance and international services in Brazil. See Letter from Kenneth A. Schagrin, Associate Counsel, MCI to Troy Tanner, Chief, Policy and Facilities Branch, Telecommunications Division, International Bureau, FCC in File No. FCN98020 (filed Aug. 11, 1998) (MCI File No. FCN98020 Aug. 11 Letter). WorldCom's U.S. halfcircuit market presence in the Caribbean/Latin  {O -American region is minimal. See infra paras. WCCARIB1111שWCCARIB2114. We discuss below the impact of MCI's recent purchase  {O -of Embratel. See infra note EMBRATEL359. We also note that many carriers still own capacity on a halfcircuit basis. Our concern is whether the proposed merger could increase ownership concentration of U.S. halfcircuits to such an extent that the combined entity would have the ability to exercise market power through unilateral or coordinated action. We examine cable ownership on an E1 circuit basis, commonly referred to in cable transactions as a Minimum Investment Unit (MIU),  Xv-although capacity may be purchased or provisioned in varying bandwidths. v  yO-ԍxAn E1 circuit is a 2.048 Mbps circuit that is the equivalent of 30 64Kbps voicegrade channels. As demand for greater bandwidth capacity increases, some carriers are obtaining international transport on an STM1 basis, which is the equivalent of 63 E1 circuits or 1,890 voicegrade channels. Sixtyfour STM1s, or 4,032 E1 circuits, represent 10 Gbps of capacity.  XH-xW88.` ` We take into account future capacity in our identification of market participants and in our measurement of market concentration if plans for capacity existed prior to the  X -merger.  {Ow-ԍxSee 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 41562,  3.2 n.27.  INTLTIME To establish a reasonable level of certainty with regard to new cable systems, we take into account future cable systems for which a U.S. cable landing license has been  X -granted and a construction contract has been signed." > yO-ԍxGTE asserts that in reviewing the international transport market, the Commission should "at a  {O-minimum" only consider those projects that have obtained a Commission license. See GTE June 11 Renewed Motion at 49. We find that entering into a supply contract usually requires a significant financial downpayment and, therefore, provides reasonable certainty that the cable system will be built.  These cables are scheduled to become operational by the end of 1999.  NWINTCAP We recognize that other cable systems have been announced  X -but currently lack a Commission license or signed construction contract. We will not use these cable systems in our calculations of market concentration because cable plans may be modified, delayed, or abandoned. We nonetheless consider these cables relevant to our examination of barriers to entry in the transport market. "y3(0*%%ZZi"Ԍ X-ԙxX89.` ` Atlantic Region. The transatlantic route currently is served by a number of  X-submarine cables ( ColumbusII, TAT8, 9, 10, 11, 12/13, PTAT, CANTAT3, Gemini, and Atlantic Crossing (AC1)). The TAT12/13 submarine cable system, placed into service in 1995, was the first of the "stateoftheart" systems using a selfhealing ring configuration that  X-permits instantaneous selfrestoration.g\ {O-ԍxSee In the Matter of AT&T et. al Joint Application for a Cable Landing License to Construct and Operate a High Capacity Digital Submarine Cable Network Between the United States, the United Kingdom, and  {O-France, File No. SCL93004, Cable Landing License, 8 FCC Rcd 4808 (1993). g TAT12/13 provides 4,032 E1 circuits of capacity, which, at the time it was introduced, nearly doubled the previously existing transatlantic cable  Xx-capacity.gx {O -ԍxSee 1996 Circuit Status Report at Table 7.g More recently, two new submarine cable systems with the selfhealing ring configuration have initiated service on the transatlantic route. Both the AC1 and Gemini  XJ-cable systems were introduced into service in the first half of 1998.J~ {Oy-ԍxSee First Segment of Atlantic Crossing Ready for Service, Communications Today, June 19, 1998;  {OC-Gemini Turns Up TransAtlantic System, Communications Today, Mar. 13, 1998. AC1 presently  X3-provides capacity equivalent to 8,064 E1 circuits,3 {O-ԍxSee Atlantic Crossing, The Project: System Technology . and Gemini offers the equivalent of  X -4,032 E1 circuits on the transatlantic route." 4  yO-ԍxThe Applicants indicate that 2,016 E1 circuits went into service on Gemini as of March 31, 1998 and  {O-an additional 2,016 E1 circuits will be in service by September 30, 1998. See WorldCom/MCI Jan. 26 Reply Comments at 63 n.99. For purposes of our analysis, we consider 4,032 E1 circuits of capacity to be currently in service on Gemini. Together, these three cables presently account  X -for approximately 75 percent of the capacity in the transatlantic region.K\  {O-ԍxSee 1996 Circuit Status Report at Table 7. We rely on the cable capacity numbers in the 1996 Circuit  {O-Status Report for capacity on all the cables except for AC1 and Gemini. For AC1 and Gemini we rely on sources identified in this paragraph.K  X -xY90.` ` We do not agree with GTE that for purposes of this merger we should only  X -take into account capacity on TAT12/13, as the Commission did in the BT/MCI Order.X  B {O-ԍxSee GTE Jan. 5 Petition at 3637.X At that time, TAT12/13 represented the only advanced transatlantic cable system, offering the most costeffective, reliable means of transporting calls between the United States and the  X}-United Kingdom. } {O$-ԍxSee BT/MCI Order, 12 FCC Rcd at 15390, para. 98 & 15402, paras. 134135 (examining TAT12/13 for purposes of determining market concentration). As noted above, however, Gemini and AC1 have been placed into"}4. 0*%%ZZ" service since that time. Given that all three cables are designed to offer stateoftheart technology and account for the bulk of transatlantic transport capacity, we consider them a reasonable measure of the total capacity in the Atlantic region.  X-xZ91.` ` TRANSATLANTICAt least 59 entities currently own U.S. halfcircuits on the TAT12/13, Gemini,  X-and AC1 cables.  {O-ԍxSee TAT12/13 Construction and Maintenance Agreement Revised Schedules at Schedule C5 (effective Dec. 9, 1997) (Dec. 1997 TAT12/13 Schedules). Today, Global Crossing, the noncarrier owner of AC1, owns 50 percent of the current capacity on the U.S. end of the transatlantic route, by far the largest amount held by any entity; WorldCom is the next largest owner with 14.0 percent, followed by C&W with 12.9 percent, AT&T with 8.1 percent, MCI with 6.9 percent, Sprint with 1.7 percent, and  X1-BT with 1.6 percent. 1" {O -ԍxSee id.; Letter from Robert S. Koppel and Kerry E. Murray, WorldCom to Magalie Roman Salas,  {O -Secretary, FCC, Attach. at 1 & 3 (filed July 2, 1998) (WorldCom July 2 Ex Parte I); Atlantic Crossing, About  {O-Global Crossing Ltd. . WorldCom and C&W each hold an indirect 50 percent interest in Gemini Submarine Cable System Limited,  GEMOWN which owns and operates the  {O*-Gemini cable system. See WorldCom July 2 Ex Parte I Attach. at 1. For purposes of this proceeding, we assign ownership of 50 percent of Gemini's circuits to WorldCom and C&W each.   X -x[92.` ` TAINCREASEWe note here that the amount of capacity on these three cables is expected to increase 150 percent by the end of 1999. Both Gemini and AC1 will complete construction of their ring configurations, with each system offering 8,064 E1 circuits of capacity in  X -addition to their capacity already in service.;   yO-ԍxGemini will offer a total of 30 Gbps of customer capacity, equivalent to 12,096 E1 circuits, upon  {O-completion in 1999. See Letter from Robert S. Koppel and Kerry E. Murray, WorldCom, to Magalie Roman  {O-Salas, Secretary, FCC, at 1 (filed Aug. 21, 1998) (WorldCom Aug. 21 Ex Parte); Gemini, Solutions:  {Om-Operational Benefits . AC1 will offer a total of 40 Gbps of  {O7-service capacity, equivalent to 16,128 E1 circuits, upon completion, which is scheduled for 1999. See Prospectus of Global Crossing Ltd. at 46 (Aug. 10, 1998). Global Crossing notes that AC1 is upgradeable to 80  {O-Gbps. See id.; The capacity on TAT12/13 is scheduled to triple to 12,092 E1 circuits by the end of 1999 as a result of wave division multiplexing  X-(WDM) upgrades.Z {O--ԍxSee TAT12/13 WDM Upgrade Program Schedules at Schedule C10 (1997 TAT12/13 WDM Upgrade Schedules); TAT12/13 WDM3 Upgrade Program Schedules at Schedule C15 (Feb. 3, 1998) (1998 TAT12/13 WDM3 Upgrade Schedule). This additional capacity results in a shift in ownership shares. By the end of 1999, Global Crossing's share of transatlantic capacity will be 40 percent, followed by WorldCom with 17.2 percent, C&W with 15.9 percent, AT&T with 7.8 percent, MCI with 6.1 percent, BT with 3.7 percent, Deutsche Telekom with 1.8 percent, and Sprint with 1.6 percent."450*%%ZZ "Ԍ X-ԙx\93.` ` Pacific INTINPPACRegion. The transpacific route currently is served by a number of submarine cable systems (HAW4/TPC3, NPC, TPC4, PacRimEast, and TPC5). The TPC5 cable system is the only facility that uses the "stateoftheart" selfhealing ring configuration. TPC5 offers 4,032 E1 circuits, which is nearly 72 percent of current  X-transpacific capacity.i {O-ԍxSee 1996 Circuit Status Report at Table 7. i Given that the TPC5 cable is the only selfhealing ring system on the transpacific route and that it represents the bulk of transport capacity, we consider it a reasonable measure for current capacity on the transpacific route. At least 78 entities own  Xa-U.S. halfcircuits on TPC5.aZ {Ol -ԍxSee TPC5 Construction and Maintenance Revised Schedules (effective Nov. 1, 1997) (Nov. 1997 TPC5 Revised Schedules). AT&T owns 38.8 percent of the capacity, followed by MCI with 21.6 percent, Sprint with 8.8 percent, Kokusai Denshin Denwa Co., Ltd (KDD) with 6.5  X3-percent, and WorldCom with 4.1 percent. 3 {O-ԍx In examining ownership of TPC5, we note that the northern segment consists of a single path between Japan and the mainland United States, and the southern route consists of five separate ownership segments: mainland United StatesHawaii; mainland United StatesGuam; HawaiiGuam; HawaiiJapan; and GuamJapan.  {O-See id. For purposes of this merger, we consider as relevant ownership of U.S. halfcircuits on the following routes: the northern route (Schedule G4); the mainland United StatesGuam route (Schedule G5); and the HawaiiJapan route (Schedule G6). We did not include in our calculation the United States mainlandHawaii route (Schedule G1), because we consider this route a U.S. domestic route. We did not include the HawaiiGuam and GuamJapan routes, which account for under 5 percent of TPC5 capacity (Schedule F) and which are physically accounted for on the U.S. mainlandGuam and HawaiiJapan routes.   X -x]94.` ` INTINPPAC2We note that the amount of capacity in the transpacific region is expected to  X -increase nearly tenfold by the end of 1999. Construction on the ChinaU.S. cable system,  X -which will provide the equivalent of 32,256 E1 circuits on the transpacific route, is  X -scheduled to begin in 1998 and service is set to be offered in December 1999.L\  {O-ԍxAT&T Corp. et al., File No. SCL-98-002, Cable Landing License, DA 98-1711 (Tel. Div. Int'l Bur. rel.  {O-Aug. 28, 1998); Alcatel, Share of U.S. $950 Million TransPacific Contract for Alcatel .L In addition,  X -WDM upgrades will double capacity on the TPC5 cable .  {O-ԍxSee TPC5 Revised Schedules B Through G to the Construction and Maintenance Agreement (effective June 1, 1998). This additional capacity results in a shift in ownership shares. AT&T's share of transpacific capacity will likely be 12.1 percent, followed by MCI with 8.5 percent, KDD with 7.4 percent, Sprint with 6.7 percent,"{60*%%ZZ" and ten carriers with approximately 5.5 percent each; WorldCom will have approximately 1.1  X-percent of the U.S. halfcircuits on the transpacific route.  {Ob-ԍxSee id.; ChinaU.S. Cable Network Construction and Maintenance Agreement, Schedule G (effective Dec. 11, 1997) (ChinaU.S. C&MA). Fortyseven entities hold ownership interests in the ChinaU.S. cable, which will provide transpacific and intraAsia transport capacity. The ChinaU.S. C&MA assigned each owner a  {O-certain number of capacity "points" which may be used to obtain transpacific or intraAsia capacity. See ChinaU.S. C&MA at Schedule G & Annex 4. For purposes of identifying transpacific capacity ownership, we apply each owner's percentage of capacity points to the total capacity on the cable, and then assign the carrier that percentage of the transpacific capacity. For example, AT&T has 5,292 points, which account for 6.7 percent of the 78,757 total points on the cable. Thus, we assign AT&T 6.7 percent of the transpacific capacity on the ChinaU.S. cable.   X-x^95.` ` Caribbean/Latin American Region.X yO -ԍxWe note here that no party raised concerns regarding the Caribbean/Latin American international transport market. We nonetheless examine this market to ensure that we undertake a comprehensive analysis in this proceeding. For purposes of reaching the Caribbean/Latin American region, the primary cable routes are from the U.S. mainland to the U.S. Virgin Islands and, to a lesser extent, Puerto Rico. The U.S. Virgin Islands and Puerto Rico serve as hubs for U.S. international traffic destined for other Caribbean islands and Latin America. AmericasI and ColumbusII, which extend from the U.S. mainland to the U.S. Virgin Islands and beyond, provide the bulk of transport capacity to the Caribbean/Latin American region. Each of these cables has a capacity of 2,016 E1 circuits between the U.S.  X -mainland and the U.S. Virgin Islands.@Z  {O-ԍxSee AmericasI Construction and Maintenance Agreement Revised Schedules at Schedule D1 (effective Sept. 19, 1997) (AmericasI C&MA); ColumbusII Construction and Maintenance Agreement Revised Schedules at Schedule D2 (effective Sept. 19, 1997) (ColumbusII C&MA).@ In addition, the TCS1 cable, which offers 252 E1  X -circuits of capacity, provides service from the U.S. mainland to Puerto Rico.  {O-ԍxSee TCSI Construction and Maintenance Agreement Revised Schedules at Schedule D at 1 (effective Aug. 1, 1997) (TCSI C&MA).  X -x_96.` ` We note here that, on July 29, 1998, MCI acquired INTINPCARIB2Embratel, the Brazilian  X -long distance and international services monopoly provider.b 8 {O-ԍxSee MCI File No. FCN98020 Aug. 11 Letter.b The acquisition was subsequently consummated with MCI's first payment made in early August. For purposes of our analysis in this proceeding, we consider Embratel to be part of MCI. We therefore examine the impact of WorldCom merging with MCI and Embratel. MCI's share of the U.S. halfcircuit market thus includes capacity owned by Embratel. "M70*%%ZZI"Ԍ X-x`97.` ` TTRANSCARIBhere are at least 45 owners of U.S. halfcircuits on the U.S. mainland U.S. Virgin Islands/Puerto Rico route. AT&T is currently the largest owner of capacity on this route with a market share of 45.1 percent, followed by MCI with 17.4 percent, Sprint with 8.5 percent, Teleglobe with 3.9 percent, WorldCom with 3.7 percent, and Telefonica Large  X-Distancia de Puerto Rico, Inc. (TLDI) with 3.7 percent. {O-ԍxSee AmericasI C&MA at Schedule D1; ColumbusII C&MA at Schedule D2; TCSI C&MA at Schedule D at 1.  Xv-xa98.` ` As noted above, U.S. international traffic to this region e WCOMCRB2 xtends from the U.S. Virgin Islands/Puerto Rico to Latin American countries and Caribbean islands via several undersea cables. AmericasI currently provides 758 E1 circuits of transport capacity along the northeast coast of South America, and TCS1 provides 126 E1 circuits from Puerto Rico  X -to Colombia.q " yO -ԍxAmericasI C&MA at Schedules D2; TCSI C&MA at Schedule D at 3.q The Pan American Cable System is under construction and is scheduled to begin service from the U.S. Virgin Islands to the west coast of South America in the fall of  X -1998, initially providing an additional 2,016 E1 circuits in the region.&  {OO-ԍxSee Pan American Cable System Construction and Maintenance Agreement at 6 (effective Dec. 5, 1996)  {O-(Pan American C&MA); Americatel Corp. et al., File No. 97001, Cable Landing License, 13 FCC Rcd 850  {O-(Tel. Div. Int'l Bur. 1998); Alcatel, Submarine Network References South Atlantic . Taking into account these cables, ownership shares along the U.S. Virgin Islands/Puerto Rico Latin America route will be as follows by the end of 1999: MCI with 24.5 percent; AT&T with 21.5 percent; Sprint with 10.9 percent; Telecom Italia with 8.6 percent; Telefonica de Espana, S.A. with 5.9 percent; WorldCom with 5.2 percent; Empresa Nacional de Telecomunicaciones de Colombia with 3.1 percent; and Compania Anonima Nacional Telefones de Venezuela  Xb-(CANTV) with 3.0 percent.b {O-ԍxSee AmericasI C&MA at Schedule D1; Pan American C&MA at Schedule D1; TCSI C&MA at Schedule D at 3.  X4-xb99.` ` Other cables, including Antillas I, TCS1, and TAINOCARIB, provide transport capacity for U.S. international traffic from the U.S. Virgin Islands and Puerto Rico  X-to other Caribbean islands.BX  yO -ԍxFor purposes of our analysis, we include in this group of cables the BahamasII cable from Florida to the Bahamas and the ColumbusII segment from Florida to Mexico because, like capacity from the U.S. Virgin Islands and Puerto Rico, these cables serve the Caribbean Basin.B Combined ownership shares for these cables are: AT&T with 36.9 percent; the Bahamas Telecommunications Corp. (Batelco) with 24.2 percent; MCI with 9.7 percent; TLDI with 6.1 percent; Sprint with 5.2 percent; Compania Dominicana de"80*%%ZZ"  X-Telefonos (Codetel) with 2.6 percent; and WorldCom with 2.4 percent.z {Oy-ԍxSee ColumbusII C&MA at Schedule D1; TCS1 C&MA at Schedule D at 2 and 5; AT&T Corp. et al., Memorandum Opinion, Order and Authorization, DA 961234 (rel. Aug. 6, 1996); Ursus Telecom Corp., Modification of Cable Landing License, DA 981674 (rel. Aug. 21, 1998) (modifying the Bahamas II cable landing license); TAINOCARIB Construction and Maintenance Agreement at Schedule D at 34 (Nov. 1, 1997) (TAINOCARIB C&MA); Antillas I Construction and Maintenance Agreement at Schedule D1 (May 21, 1996). For Bahamas II, we use voting interests in making our calculation rather than information available on segment allocation, because the voting interests are more complete. On any single cable, MCI will hold no more than 17.6 percent and WorldCom will hold no more than 4.9  X-percent.  {O -ԍxSee TAINOCARIB C&MA at Schedule D at 3 (ownership on the U.S. Virgin Islands Puerto Rico route).  X- x` `  c.Analysis of Competitive Effects  Xv-xc100.` ` We find that the merger will increase concentration in each of the three international transport market regions. It likely will not result in anticompetitive effects, however, given the low barriers to entry and the substantial amount of nonMCI WorldCom  X1-transport capacity that will become operational by the end of 1999 in the Atlantic and Pacific regions. In the Caribbean/Latin American region, we find that low barriers to entry, coupled with the limited presence of WorldCom as a provider of transport capacity, makes it likely  X -that the merger will not result in anticompetitive effects.  d  yO-ԍxWe note here that submarine cable development involves substantial financing and planning. Nevertheless, in light of significant reductions in construction costs, rapid deployment rates, increases and expected increases in demand for capacity, as well as empirical evidence that new submarine cables are being planned and constructed across the globe, we find below that barriers to entry are sufficiently low to allow new entry into submarine cable capacity markets.   X -xd101.` ` As dynamic change occurs in the transport market in all three regions, we consider the competitive effects of the proposed merger by the end of 1999, when committed  X-capacity will be operational,\! {OU-ԍxSee supra para. INTLTIME88.\ and in the future. With regard to future capacity, we note that WDM upgrades, which can substantially increase transport capacity on existing cables, can be implemented in less than a year. Moreover, planning and construction of a new cable system can be implemented within two years.  X-xe102.` ` Atlantic Region. We find that, despite the rise in concentration in the cable capacity market resulting from the merger, the combined entity likely will not have the ability to exercise market power, either unilaterally or in a coordinated manner, because low entry"9!0*%%ZZ" barriers exist and a substantial amount of nonMCI WorldCom capacity is becoming operational on the transatlantic route.  X-xf103.` ` As an initial matter, the amount of capacity on this route is increasing substantially. In 1995, TAT12/13 nearly doubled the transport capacity on the transatlantic route by adding 4,032 E1 circuits of capacity. Thus far in 1998, Gemini and AC1 have added an additional 12,096 E1 circuits, a threefold increase over the TAT12/13 capacity. The record indicates that by the end of 1999, current capacity will more than double for a total capacity equivalent to 40,320 E1 circuits. All told, the selfhealing ring capacity on the transatlantic route is expected to increase tenfold between the beginning of 1998 and the end of 1999. This growth in capacity has been driven by demand for additional bandwidth, in large part due to Internet and data traffic. Capacity growth, no doubt, has also been driven by  X -anticipated demand in the future. Despite GTE's assertion,t"  {Oe -ԍxSee GTE Jan. 5 Petition at 40; GTE Mar. 13 Comments at 5960.t the record does not provide evidence that, taking into consideration the new 1998 capacity, a shortage of capacity exists presently or will develop in the near future for new entrants on the transatlantic route. Even  X -if AC1 has sold 70 percent of its capacity,X# Z {O-ԍxSee GTE Jan. 5 Petition at 3940.X the remaining capacity available on that system is the equivalent of nearly 2,500 E1 circuits. This amount of capacity represents 60 percent of today's capacity on TAT12/13.  XK-xg104.` `  HHIGHER WorldCom and MCI together would currently own 20.9 percent of the U.S.  X4-halfcircuits on TAT12/13, Gemini, and AC1.%$4 yO-ԍxMCI owns 6.9 percent of the U.S. halfcircuits and WorldCom owns 14.0 percent, for a combined  {O-ownership share of 20.9 percent of the U.S. end of transatlantic cable capacity. See supra para. TRANSATLANTIC91.% As noted above, additional capacity will soon come into service. By the end of 1999, the MCI WorldCom combined ownership would  X-increase to 23.3 percent.e%F yO-ԍxWorldCom will own 17.2 percent of the U.S. halfcircuits and MCI will own 6.1 percent, for a  {O-combined ownership share of 23.3 percent of the U.S. end of transatlantic cable capacity. See supra para. TAINCREASE92. The facts do not support GTE's claim that the combined entity will, "in large measure," control the new capacity  {OW-on the transatlantic route. See GTE Jan. 5 Petition at 40. MCI WorldCom would own less than 25 percent of the new capacity scheduled to be in service by the end of 1999. e Using ownership shares for the end of 1999, the proposed merger  X-would increase the HHI concentration by approximately 200 points, from 2,265 to 2,480.&  yO!-ԍxThe nine largest owners of capacity account for 95.2 percent of the capacity on the transatlantic route.  {Ob"-See Dec. 1997 TAT12/13 Schedules; 1997 TAT12/13 WDM Upgrade Schedules; 1998 TAT12/13 WDM3  {O,#-Upgrade Schedules; Gemini, Solutions: Operational Benefits ;  {O#-Prospectus of Global Crossing at 46; see also supra note GEMOWN268. The remaining owners, who number at least 50, account for 4.8 percent of the capacity; none of these remaining owners holds one percent or more of the"$%0*%%$" unassigned capacity. For purposes of calculating the HHI, we use the market shares of the nine largest capacity owners and do not assign a value to the remaining owners' market shares, given their minimal market presence. We note that because the remaining owners have market shares less than or equal to one percent, the HHI would be increased by, at most, an amount equal to the combined market shares of these small fringe firms. We further note the change in the HHI calculation resulting from the merger would be unaffected by the inclusion of these firms in our calculation.  ":@&0*%%ZZ" As we discussed above, however, we believe that ownership shares may overstate the market presence of cable owners, because they do not consider the control of existing capacity held  X-by IRU leaseholders.W'@ {O -ԍxSee supra para.  IRU86 .W As a result, using only ownership shares is likely to increase the level of concentration in the transport market compared to the level if IRUs were taken into account. For example, taking into account even a limited amount of information regarding IRU leaseholds in capacity on the Gemini and AC1 cable systems, we find that a reasonably conservative estimate of the premerger HHI at the end of 1999 could be 1,503 points, and  X_-that the merger could result in a HHI of 1,882 points.(,|_ yO-ԍxWe take into account the following information and assumptions in order to derive this reasonably conservative HHI calculation. With regard to Gemini, WorldCom submits that as of August 21, 1998, 17 entities  yOr-have purchased IRUs totaling a combined 82 STM1s, or 5,166 E1 circuits. WorldCom asserts that it has purchased capacity equivalent to 2,268 E1 circuits on Gemini, that C&W and one other carrier have each purchased 1,008 E1 circuits, and that the remaining 14 IRU holders have purchased a total of 14 STM1s, or  {O-882 E1 circuits. See WorldCom Aug. 21 Ex Parte at 1ĩ2. WorldCom states that MCI does not own any  {O-capacity in Gemini. See WorldCom July 2 Ex Parte I Attach. at 1 n.2. For purposes of this calculation, we assign the 1,008 E1 circuits purchased by the unknown carrier to AT&T, the carrier that owns the largest amount of capacity on the transatlantic route other than WorldCom and C&W. This will provide the most conservative calculation of market concentration. Because Gemini sells IRU leaseholds in the amount of 1 STM {O-1 or greater, see id. Attach. at 1 n.1, we assign 1 STM1, or 63 E1 circuits, to each of the 14 next largest owners of transatlantic capacity, other than WorldCom, C&W, AT&T, and MCI. One hundred and ten STM1s, or 6,930 E1 circuits, of Gemini's total capacity remain unsold. Because WorldCom and C&W each indirectly own 50 percent of Gemini, we also assign these carriers 50 percent of the remaining unsold capacity, or 3,465 E1 circuits, each. With regard to AC1, a total of 256 STM1s, or 16,128 E1 circuits, of capacity will be available by the end of 1999. AC1 owner Global Crossing Ltd. indicates that at least 22 entities have thus far purchased 97 STM1s, or 6,111 E1 circuits (stating that at least 22 entities have purchased 19 percent of a  {O0-possible 512 circuits, which is equivalent to 97 STM1s of capacity). See Prospectus of Global Crossing at 47.  {O-WorldCom states that it may purchase up to ten percent of capacity available on AC1. See WorldCom July 2  {O-Ex Parte I Attach. at 3. We therefore assign WorldCom ten percent of capacity on AC1, regardless of its  {O-current share of 16 STM1s, or 1,008 E1 circuits. See WorldCom Aug. 21 Ex Parte at 2. The largest single customer has acquired 20 STM1s, or 1,260 E1 circuits. Telephone conversation with Ian McLean, Vice  {O !-President of Global Crossing Ltd. (Aug. 20, 1998) (memorialized in Memorandum from Cathy Hsu, International Bureau, FCC to CC Docket No. 97211 (Aug. 20, 1998)). To provide for the most conservative calculation, we assign this capacity to MCI. We distribute the remaining 61 STM1s of capacity among 20 customers. We note  {Oz#-here that the record indicates that Global Crossing sells IRU leaseholds in the amount of 1 STM1 or greater, see  {OD$-Atlantic Crossing, The Project: Service Overview ; WorldCom July 2 Ex Parte I Attach. at 1 n.1. Again, to provide for the most conservative calculation, we assign 42 STM1s, or 2,646 E1 circuits, to AT&T, and 1 STM1, or 63 E1 circuits, to the 19 other customers, including incumbent carriers Sprint, BT, C&W, Deutsche Telekom, and France Telecom. We assign the balance of unsold capacity on AC1, 149 STM1 or 9,387 E1 circuits, to Global Crossing. With regard to TAT12/13, we use ownership shares available in the TAT12/13 Schedules.  {Oz-See Dec. 1997 TAT12/13 Schedules; 1997 TAT12/13 WDM Upgrade Schedules; 1998 TAT12/13 WDM3 Upgrade Schedules. Unfortunately, full IRU leasehold"_; (0*%%ZZE" information is not publicly available on a cable specific basis. Nonetheless, we recognize that  X-according to the 1992 Horizontal Merger Guidelines, the postmerger market based on available data would still be considered moderately to highly concentrated and that the merger would be presumed to raise significant concerns that it might create or facilitate the exercise  X-of market power.)  {Oc -ԍxSee 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 41558,  1.51. We note again, however, that an HHI analysis alone is not determinative  X-and does not substitute for our more detailed examination of competitive considerations.Z* {O-ԍxSee supra para. HHIBAD37.Z In the context of a market as dynamic as the transatlantic transport market, we find that the increase in concentration resulting from the merger is not likely to have anticompetitive effects.  X -xh105.` ` Contrary to GTE's contention, we conclude that the proposed merger would not make entry more difficult for competitive U.S. carriers, nor would it result in higher costs of  X -services for retail U.S. international markets.W+ 0  yO-ԍXxGTE Jan. 5 Petition at 36, 41.(#W Rather, the record suggests that entry by new carriers or investor groups in this market would be timely, likely, and sufficient to deter or  X -counteract any competitive concerns.,  {O1-ԍXxSee 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 41561,  3.(#Ƅ As the Applicants indicate, commercial and regulatory barriers to constructing and operating new cable systems are decreasing  X-significantly.e-R  {O-ԍxSee WorldCom/MCI Mar. 20 Reply Comments at 54.e A firm or group of firms can decide to construct and begin operating a new cable system in response to an exercise of market power within two years. The recent examples of Gemini and AC1 demonstrate that cable systems can begin service within two  XM-years of planning and initial construction..&M {O!-ԍxSee Gemini Turns Up TransAtlantic System, Communications Today, Mar. 13, 1998 (noting that  {O"-Gemini went from conception to carrying live traffic in 18 months); Atlantic Crossing, The Project:  {Ov#-Implementation Timetable & Schedule of Upcoming Events . In addition, the perunit cost of constructing new"M<.0*%%ZZI" capacity continues to decrease dramatically. The Applicants note that the construction costs  X-of capacity on AC1 were just onethird of the costs of capacity on TAT12/13./ {Ob-ԍxSee Letter from Andrew D. Lipman, Swidler & Berlin, Counsel for WorldCom, to Magalie Roman  yO,-Salas, Secretary, FCC at Attach. 1 at 12 (filed May 1, 1998) (stating that a 64 Kbps halfcircuit on TAT12/13  yO-costs $3,000, whereas the same capacity on AC1 costs $1,000).  Indeed, the Commission recently reported that the annual investment cost per usable circuit continues to fall as the cost of AC1 is less than 30 percent of  {O-TAT12/13. See FCC, Trends in the U.S. International Telecommunications Industry (Com. Car. Bur., Aug. 1998) at Table 12. Existing capacity owners, moreover, do not control assets required for entry, thereby allowing new entrants to respond fully to demand for additional capacity. In addition, entry has been further facilitated by World Trade Organization (WTO) Member implementation of commitments made as part of the WTO Agreement on Basic Telecommunications Services (Basic Telecom Agreement), resulting in the removal of foreign investment restrictions and licensing hurdles that previously hampered the rapid deployment of new cable systems.  X1-xi106.` ` We note that additional transatlantic cables are already in the planning stages and are scheduled to be in service between late 1999 and late 2001. We do not include these cables in our analysis of transport capacity because they do not meet our standard of reasonable certainty in examining planned capacity: grant of a U.S. cable landing license and  X -a construction contract.\0 D {O-ԍxSee supra para. NWINTCAP88.\ We nonetheless find that these cables, even at their current stage, suggest the existence of low entry barriers. ColumbusIII would add 4,032 E1 circuits on the  X -transatlantic route with capability for a fourfold capacity upgrade.1  yO.-ԍxWe STAnote here that the International Bureau has granted a special temporary authorization (STA) for the  {O-ColumbusIII cable. Special Temporary Authority for AT&T Corp. et al., File No. TAO-2627 (Mar. 6, 1998, Sept. 2, 1998) (ColumbusIII STA). An STA does not constitute a section 214 authorization or a cable landing license, and thus we do not include this cable in our analysis of concentration of cable capacity in the Atlantic  {OP-region. An application is pending before the Commission. See AT&T Corp. et al., ITC98437, at 12 (filed May 27, 1998). Pursuant to section 1.767(b) of our rules, 47 C.F.R.  1.767(b), the Cable Landing License Act,  {O-47 U.S.C.  3439 (1994), and Executive Order No. 10530, reprinted as amended in 3 U.S.C.  301 app. at  {O-45960 (1994), we have informed the Department of State of the pending application. See Letter from Diane J. Cornell, Chief, Telecommunications Division, International Bureau, FCC, to Steven W. Lett, Deputy U.S. Coordinator, Office of International Communications and Information Policy, U.S. Department of State (June 17, 1998). The Commission acts on cable landing license applications only after we receive notification whether the Department of State, on behalf of the Executive Branch, has any objection to the issuance of the cable landing license. If we consider ColumbusIII in our calculations, we find that it would provide approximately 9 percent of transatlantic capacity but would have virtually no effect on the level of concentration on the transatlantic  {O&"-route. The combined entity's ownership share, for example, would increase .7 percent to 24 percent. See supra  yO"-para. TAINCREASE92; ColumbusIII Construction and Maintenance Revised Schedule H5 (effective Apr. 17. 1998) (for transatlantic capacity ownership on ColumbusIII, we use data from subsegment S5, the relevant segment for outgoing U.S. traffic, to derive fully allocated ownership shares).  In addition, a group of" =10*%%ZZk " 50 carriers have entered into an agreement to construct TAT14, a transatlantic cable scheduled to provide 640 Gbps, or capacity equivalent to approximately 250,000 additional E X-1 circuits.2 {OK-ԍxSee A Trans-Atlantic Cable Network Deal, N.Y. Times, Sept. 3, 1998 at C2. A further system, Project OXYGEN), has announced intentions to offer an  X-additional 640 Gbps of capacity in regions all over the globe.3Z {O-ԍxSee CTR Group Ltd., CTR Accelerates OXYGEN) Rollout . CTR Group, Ltd. has  X-managed the project but carriers may purchase ownership interests.4 {O -ԍxSee CTR Group Ltd., Project OXYGEN) Network Gathers US$1.4 Billion Support from Carriers . These cable system plans further indicate that entry barriers are low and suggest that there will be ample opportunity for new entrants to obtain capacity on the transatlantic route. Thus, any temporary increase in concentration due to the merger is unlikely to have a continuing significance in the transatlantic transport market.  X -xj107.` ` Moreover, recent history indicates that, as the amount of transport capacity increases, the transatlantic route is becoming less and less concentrated. Indeed, the level of concentration is decreasing even after the impact of the merger is taken into account. Using postmerger ownership shares, a HHI calculation reveals a concentration level in today's market of approximately 3,200 points. As noted above, the postmerger HHI for the market at the end of 1999 is approximately 2,500 points, a decrease of 700 points. But for the mitigating factors we have identified, a HHI of 2,500 points ordinarily would be considered to be a troublesome level. This reduction in concentration demonstrates that the potential for the exercise of market power is rapidly declining as more entities gain ownership of transatlantic capacity. Given that transport capacity is growing substantially, barriers to entry are low, and more companies have opportunities to gain access to cable ownership and capacity, it appears unlikely that the combined entity, either unilaterally or in a coordinated manner, would have the ability to exercise market power on the transatlantic transport route.  X-xk108.` ` INTTRANSWHOLEFinally, we are not persuaded by GTE that, with regard to the wholesale market for international transport capacity, the combined entity would have changed incentives "when faced with a request for capacity from a carrier" seeking to compete with AT&T, Sprint, and MCI WorldCom, because the combined entity would now be a significant  X|-competitor in the end user market.Z5| yO;"-ԍXxGTE Mar. 13 Comments at 60.(#Z As we concluded above in relation to domestic long distance services, new providers of capacity have every incentive to provide transport to the"e>50*%%ZZ"  X-wholesale market.]6 {Oy-ԍxSee supra para. INTLWHOLE70.] In fact, AC1 owner Global Crossing, which holds a significant share of transatlantic cable capacity, identifies itself as a "carrier's carrier" that does not compete with  X-its customers in the retail market.7Z {O-ԍxAtlantic Crossing, About Global Crossing Ltd. . MCI WorldCom's rational response would be to continue supplying wholesale capacity rather than to cede those revenues to another transport provider.  Xv-xl109.` ` Pacific Region. We find that the combined entity will have no ability to exercise market power either unilaterally or in a coordinated manner because of its modest percentage of ownership in TPC5 as well as the capacity becoming available on the transpacific route. Taken together, WorldCom and MCI currently own 25.7 percent of the  X -U.S. end of transpacific capacity.8  {O-ԍxMCI owns 21.6 percent of the U.S. end and WorldCom owns 4.1 percent of the U.S. end. See supra  yOK-para. INTINPPAC93. A HHI review of the current transpacific capacity  X -indicates that the merger would increase concentration from 2,121 points to 2,295 points.T9  yO-ԍxThe nine largest owners of capacity account for 86.8 percent of the capacity on the transpacific route.  {O-See Nov. 1997 TPC5 Revised Schedules. The remaining owners, who number at least 70, account for 13.2 percent of the capacity; none of these remaining owners holds one percent or more of the unassigned capacity. For purposes of calculating the HHI, we use the market shares of the nine largest capacity owners and do not assign a value to the remaining owners' market shares, given their minimal market presence. T As noted above, the ChinaU.S. cable system and the WDM upgrade on TPC5 are scheduled to increase transpacific capacity substantially by the end of 1999. As a result, the combined entity's market share of U.S. halfcircuits will drop to 9.6 percent, a substantial decrease from  X -the combined current market share.:  {O-ԍxMCI would own 8.5 percent and WorldCom would own 1.1 percent. See supra para. INTINPPAC294. Using ownership shares for the end of 1999, a HHI review indicates that concentration on the transpacific route would increase from  X{-approximately 632 points to 650 points as a result of the merger.`;{R  yO~-ԍxThe 16 largest owners of capacity account for 92.6 percent of the capacity on the transpacific route.  {OF-See June 1998 TPC5 Revised Schedules; ChinaU.S. C&MA. The remaining owners, who number at least 75, account for 7.4 percent of the capacity; none of these remaining owners holds one percent or more of the unassigned capacity. For purposes of calculating the HHI, we use the market shares of the 16 largest capacity owners and do not assign a value to the remaining owners' market shares, given their minimal market presence. ` According to the 1992  Xf-Horizontal Merger Guidelines, a HHI figure below 1,000 is considered an unconcentrated  XQ-market which requires no further review.<Q {O%-ԍxSee 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 41558,  1.51. Given the combined entity's low market share"Q?<0*%%ZZg" and minimal increase in the HHI, we conclude that the combined entity would not have the ability to exercise market power in the transpacific transport market.  X-xm110.` ` Furthermore, we note here that other transpacific cables, such as Pacific Crossing (PC1), Southern Cross, the U.S.Japan cable system, and Project OXYGEN), are presently being planned. Again, we do not include these cables in our analysis of transport capacity because they do not meet our standard of reasonable certainty in examining planned  X_-capacity: grant of a U.S. cable landing license and a construction contract.\=_ {O-ԍxSee supra para. NWINTCAP88.\ We nonetheless find that these cables, even at their current stage, suggest the existence of low entry barriers. We find that the combined entity's planned ownership interest in these cables is not sufficient to give us concern that it will have the ability to exercise market power on the transpacific  X -route.j>Z Z yO-ԍxWorldCom will own, through an indirect, wholly owned subsidiary, a 10 percent interest in the Southern  {O-Cross cable. See WorldCom July 2 Ex Parte I Attach. at 2 (Optus Communications Pty Ltd. will own 40 percent and Telecom New Zealand Limited will own the remaining 50 percent). j  X -xn111.` ` Caribbean/Latin American Region. Despite the high level of concentration in this region, we find that, given WorldCom's limited presence WCCARIB1  and low entry barriers, the merger is not likely to give the combined entity increased market power in the Caribbean/Latin American region. As noted above, the primary route for U.S. international traffic to this region is from the U.S. mainland to the U.S. Virgin Islands/Puerto Rico. MCI holds an ownership interest in 17.4 percent of the capacity on this route. WorldCom's  XM-ownership share is 3.7 percent and, combined with its minimal IRU interests in the region,[?M| {Oz-ԍxSee WorldCom Aug. 28 Ex Parte.[ holds 3.8 percent of the capacity on this route. The proposed merger would increase the HHI  X-concentration from 2,470 points to 2,600 points.@ yO-ԍxThe 10 largest owners of capacity account for 90.8 percent of the capacity on the U.S. mainland U.S.  {O-Virgin Islands/Puerto Rico route. See AmericasI C&MA; ColumbusII C&MA; TCS1 C&MA. The remaining owners, who number at least 35, account for 9.2 percent of the capacity; none of these remaining owners holds one percent or more of the unassigned capacity. For purposes of calculating the HHI, we use the market shares of the 10 largest capacity owners and do not assign a value to the remaining owners' market shares, given their minimal market presence.  Although concentration levels are high on this route, we find that, because of low barriers to entry as described below, coupled with WorldCom's limited presence, totaling less than 4 percent, the merger is unlikely to affect competition in the market for transport capacity along the U.S. mainland U.S. Virgin Islands/Puerto Rico route. "@ @0*%%ZZR"Ԍ X-xo112.` ` On the route from the U.S. Virgin Islands/Puerto Rico to Latin American countries, MCI currently owns 17.4 percent and WorldCom owns 3.7 percent of capacity.  X-The merger would increase the HHI concentration from 1,436 to 1,564 points.vA yOK-ԍxThe 12 largest owners of capacity account for 91.8 percent of the capacity on the U.S. Virgin  {O-Islands/Puerto Rico Latin American countries route. See AmericasI C&MA; TCS1 C&MA. The remaining owners, who number at least 20, account for 8.2 percent of the capacity; none of these remaining owners holds one percent or more of the unassigned capacity. For purposes of calculating the HHI, we use the market shares of the 12 largest capacity owners and do not assign a value to the remaining owners' market shares, given their minimal market presence. v We note here that capacity on this route will increase as a result of the Pan American cable system. By the end of 1999, MCI will hold ownership interests in 24.5 percent of the capacity and WorldCom is expected to own or hold IRU interests in 5.6 percent of the overall undersea  Xv-cable capacity to these countries.BvB {Oi -ԍxSee AmericasI C&MA; TCS1 C&MA; Pan American Cable System C&MA; WorldCom Aug. 28 Ex  {O3-Parte at 1. Here the postmerger HHI concentration would increase  X_-from 1,350 points to approximately 1,600 points.C_ yO-ԍxThe 11 largest owners of capacity account for 88 percent of the capacity on the U.S. Virgin  {Ov-Islands/Puerto Rico Latin American countries route. See AmericasI C&MA; Pan American C&MA; TCS1 C&MA. The remaining owners, who number at least 30, account for 12 percent of the capacity; none of these remaining owners holds one percent or more of the unassigned capacity. For purposes of calculating the HHI, we use the market shares of the 11 largest capacity owners and do not assign a value to the remaining owners' market shares, given their minimal market presence.   X1-xp113.` ` With respect to traffic to other Caribbean destinations, we note that although transport capacity on some routes is concentrated, the proposed merger would have little or no effect on the level of concentration for most routes. On the route from Puerto Rico to the Dominican Republic, for example, the merger would increase the HHI from 1,300 to 1,350 points, an increase that is not likely to have an effect in such a moderately concentrated  X -market.VD  yO-ԍxThe 12 largest owners of capacity account for 89.7 percent of the capacity on the route between Puerto  {OO-Rico and the Dominican Republic. See TCS1 C&MA; Antillas I C&MA. The remaining owners account for 10.3 percent of the capacity, but none of these remaining owners holds one percent or more of the unassigned capacity. For purposes of calculating the HHI, we use the market shares of the 12 largest capacity owners and do not assign a value to the remaining owners' market shares, given their minimal market presence. V The merger would have its largest effect on the U.S. Virgin Islands Puerto Rico  X -route, where MCI has 12.9 percent and WorldCom has 4.9 percent of the cable capacity._E  {O""-ԍxSee TAINOCARIB C&MA at Schedule D at 3._ " A\E0*%%ZZ "  X-The merger would increase the HHI concentration from 3,050 to 3,176 points on this route.CF yOy-ԍxThe eight largest owners of capacity account for 95.8 percent of the capacity on the route between the  {OA-U.S. Virgin Islands and Puerto Rico. See id. The remaining owners account for 4.2 percent of the capacity, but none of these remaining owners holds one percent or more of the unassigned capacity. For purposes of calculating the HHI, we use the market shares of the eight largest capacity owners and do not assign a value to the remaining owners' market shares, given their minimal market presence. C We note that this HHI calculation overestimates the level of concentration because there are alternative paths available for U.S. Virgin Islands and Puerto Rico traffic. For example, traffic may be sent directly from the U.S. mainland either to the U.S. Virgin Islands or to Puerto Rico without relying on the other as a hub. In addition, traffic between these two hubs may also be routed via the U.S. mainland. As a result, we find that it is unlikely that the merger would affect competition in the market for transport capacity in the Caribbean/Latin American region because of low entry barriers and WorldCom's limited  XH-presence on these routes.GHz yOs-ԍWCOMFCIRCxBecause WorldCom's ownership share of foreign halfcircuits on any segment in the Caribbean/Latin American region is so small, the proposed merger with MCI does not in itself raise vertical concerns that could otherwise result from WorldCom ownership of foreign halfcircuits. In particular, WorldCom holds foreign halfcircuit ownership or IRU interests on the U.S. mainland U.S. Virgin Islands/Puerto Rico route amounting to 2.1  {O-percent of capacity. See AmericasI C&MA at Schedule D1; ColumbusII C&MA at Schedule D2; TCSI C&MA at Schedule D at 1. On routes between U.S. Virgin Islands/Puerto Rico and Latin American countries,  {O%-WorldCom holds only 4.8 percent of the foreign halfcircuits. See AmericasI C&MA at Schedule D1; Pan American C&MA at Schedule D1; TCSI C&MA at Schedule D at 3. Within the Caribbean region itself, WorldCom holds only 1.4 percent of the foreign halfcircuits. Moreover, on the route between the U.S. Virgin  {O-Islands and Puerto Rico, WorldCom would hold only 3.5 percent of the foreign halfcircuits. See TAINOCARIB C&MA at Schedule D at 3.  X -xq114.` ` A substantial amount of new capacity in the  WCCARIB2 Caribbean/Latin American region will become available by the end of 1999. The AmericasII cable is expected to provide capacity equivalent to 20,160 E1 circuits from the U.S. mainland to the U.S. Virgin Islands  X -and then down the eastern coast of South America. Hh  yOf-ԍxWe note here that the International Bureau has granted a special temporary authorization (STA) for the  {O.-AmericasII cable. Special Temporary Authority for AT&T Corp. et al., File No. TAO-2629, at 5 (Mar. 31,  {O-1998, Sept. 2, 1998) (AmericasII STA). As discussed above, see supra note  STA305 , an STA does not constitute a section 214 authorization or a cable landing license, and thus we do not include this cable in our analysis of concentration of cable capacity in the Caribbean/Latin American region. An application is pending before the  {OR -Commission. See Joint Application of AT&T Corp. et al., File No. SCL 98-003 (filed Apr. 30, 1998); File No. SCL 98-003(A) (amending the original application) (filed July 30, 1998). Pursuant to our rules, we have  {O!-informed the Department of State of the pending application. See Letters from Diane J. Cornell, Chief, Telecommunications Division, International Bureau, Federal Communications Commission, to Steven W. Lett, Deputy U.S. Coordinator, Office of International Communications and Information Policy, U.S. Department of State (May 12, June 17, and Aug. 20, 1998). If we consider AmericasII in our calculations, ownership shares of capacity in the region shift, but our findings remain the same: because of WorldCom's small market presence in"%G0*%%{%" this region, the effect of the merger on concentration is not significant. By the end of 1999, MCI's share of capacity from the U.S. mainland to the U.S. Virgin Islands/Puerto Rico would increase to 41.3 percent (in large part due to its acquisition of Embratel), followed by AT&T with 22 percent, Sprint with 14.7 percent, Telintar  {O-with 8.3 percent, and WorldCom with 2.3 percent (including WorldCom ownership and IRU interests). See AmericasI C&MA at Schedule D1; ColumbusII C&MA at Schedule D2; TCS1 C&MA at Schedule D at 1; AmericasII Construction and Maintenance Agreement Revised Schedules at Schedule D (Feb. 27, 1998);  {OB-WorldCom Aug. 28 Ex Parte. Despite the shift in ownership shares, the level of concentration on this route would remain nearly the same, with a postmerger HHI calculation of 2,680 points. Again, because of WorldCom's limited presence on this route, which drops from 3.8 percent to 2.3 percent when AmericasII is included, the effect of the merger is not significant despite the high level of concentration on the route. We reach the same conclusion with regard to the other routes in this region. From the U.S. Virgin Islands/Puerto Rico to Latin American countries, WorldCom's ownership and IRU interests amount to 1.9 percent, and to other Caribbean islands WorldCom's presence is 4.1 percent with no more than 5.3 percent on any individual route.  {M -See id. Ĩ As with the transatlantic route, it" B H0*%%ZZ " appears that barriers to entry are low. Recent history indicates that new cable systems can be conceived and constructed within two years. As discussed above, the costs of construction are decreasing significantly. As a result, we find that further entry of transcaribbean capacity would be timely, likely, and sufficient. Other entities have expressed interest in expanding cable capacity in this region. For example, the MidAtlantic Crossing and the PanAmerican  X-Crossing are expected to add significant capacity on U.S.Latin American routes.I  {O-ԍxSee Global Crossing, MidAtlantic Crossing ; Global Crossing, Pan  {O-American Crossing . Project OXYGEN) has announced its intention to introduce service in this region by the end of  X_-2001.J_ {O-ԍxSee Project OXYGEN), Construction Schedule . We find that these cables, even at their current stage, further suggest the existence of low entry barriers. Because entry is easy and capacity is growing, we find that the increase in concentration due to the merger is unlikely to have continuing significance in the Caribbean/Latin American transport market.  X -  X -x` `   d. Other Input Markets  X -xr115.` ` Many other inputs are essential for the provision of international services, but there is no evidence in the record to demonstrate that the proposed merger would affect competition adversely in any of these markets. For example, we conclude that the combined entity would not have the ability to exercise market power in the provision of U.S. backhaul, which is a high capacity private line used to carry traffic between a submarine cable landing station and a carrier's international switch or point of presence. GTE alleges that "it is conceivable" that the combined entity, either unilaterally or in concert with other carriers,"4C:J0*%%ZZ"  X-could exercise market power in the provision of backhaul.KK yOy-ԍxGTE Jan. 5 Petition at 41.K GTE, however, provides no evidence to support this claim. We find that the appropriate geographic market for backhaul is regional because backhaul is, in effect, the domestic extension of submarine cable systems, which we examine above on a regional basis. We therefore examine the provision of backhaul to three regions: Atlantic, Pacific, and Caribbean/Latin America. The Atlantic region is the only geographic market in which WorldCom and MCI both own backhaul  Xv-capacity.wL\vX {O -ԍxSee WorldCom/MCI Jan. 26 Reply Comments at 6465; WorldCom July Ex Parte I Attach. at 2 n.3; Letter from John M. Scorce, Senior Counsel, International Regulatory Affairs Law and Public Policy, MCI, to  {O -Magalie Roman Salas, Secretary, FCC at 1 (filed Aug. 31, 1998) (MCI Aug. 31 Ex Parte). w The record lacks any evidence to demonstrate that the combined entity, either unilaterally or in concert with others, would have the ability to exercise market power in the U.S. backhaul market. Even if the combined entity were to attempt to raise prices, however, it would lack the ability to restrict customers from obtaining new sources of backhaul.  X -WorldCom states that Gemini generally sells IRUs for "citytocity" (i.e., LondonNew York) capacity, but that "any customer that chooses to collocate at a cable station would be able to  X -provide its own backhaul."iM | {O-ԍxSee WorldCom July 2 Ex Parte I Attach. at 2.i MCI, which provides some backhaul on TAT12/13 to its own  X -network but not to other entities,[N  {O-ԍxSee MCI Aug. 31 Ex Parte at 1.[ does not control the ability of other carriers to provide backhaul on that cable. AT&T, as the TAT12/13 cable landing station owner, provides U.S.  X -parties with collocation and interconnection.FO  {O-ԍxSee id. at 12.F With regard to the AC1 cable, Global Crossing, like Gemini, states that "the customer may choose to collocate their own equipment  X{-at the cable stations and carry the traffic inland to their own network."P{2  {O^-ԍxSee Atlantic Crossing, The Project: Service Overview . We find that the combined entity, therefore, would not have the ability to prohibit or limit other carriers from providing backhaul capacity in this region.  X-xs116.` ` In addition, we do not agree with GTE's position that we should examine  X-international private line services as a separate input market.rQ$  {OE"-ԍxSee GTE Jan. 5 Petition at 35 n.68; GTE Mar. 13 Comments at 49. GTE asserts that international private lines are an input when sophisticated businesses such as banks or airlines obtain them to form their own private network. In fact, this example illustrates private lines as an end user service obtained by customers for  {O$-their own purposes. See also Telstra Jan. 5 Comments at 7 (asserting that the Commission should examine the"$P0*%%$" market for international private lines used to provide Internet access).r As discussed above, we"DXQ0*%%ZZ "  X-conclude that the relevant input product market is the broad category of international transport  X-capacity. PRODMKT ^RX {O-ԍxSee supra para. INTINPPROD82.^ Capacity is merely a physical link offering the capability to provide any service, whether it is primarily voice or data or classified as International Message Telephone Service (IMTS) or nonIMTS (primarily private line). The cable owner provides the transmission  X-path; the carrier decides the type of service that will be provided over that link.  Xv-xt117.` ` We note that other inputs, such as operating agreements to exchange traffic with foreign carriers, are essential inputs in the provision of international services. Generally, OPERAGREEU.S. carriers are able to obtain operating agreements or establish alternative arrangements to  X1-provide international services. S2 1 {O -ԍxSee AT&T International NonDominance Order, 11 FCC Rcd at 1798182, paras. 5051 (finding that multiple U.S. carriers have operating agreements to nearly all foreign countries for the provision of IMTS);  {O^-International Competitive Carrier Policies, CC Docket No. 85107, Report and Order, 102 F.C.C.2d 812, 835,  {O(-para. 56 (1985) (International Competitive Carrier) (finding that foreign carriers are likely to enter operating agreements for the provision of nonIMTS services). Furthermore, as countries implement their market access commitments made as part of the WTO Basic Telecom Agreement, U.S. carriers will be able to obtain operating agreements from new entrants as well as incumbent carriers in these countries. In addition, carriers have been successful in providing international service through alternative arrangements such as switched hubbing through a  {O-third country. See AT&T International NonDominance Order, 11 FCC Rcd at 17982, para. 51. We are not  {O-persuaded by GTE's assertion that hubbing and other forms of transit are merely a "theoretical possibility." See GTE Jan. 5 Petition at 32 n.65. Such routing, in fact, does occur. A staff review of preliminary 1997 section 43.61 traffic and revenue reports indicates that at least seven carriers have reported the provision of switched telephone service on a switched hubbing basis.  There is no evidence in the record that operating agreements or other inputs warrant review as relevant markets for purposes of this merger analysis.  X -xu118.` ` Conclusion. We conclude that the merger likely will not have an anticompetitive effect in any relevant international input market. The combination of WorldCom's and MCI's facilities, both current and planned, is unlikely to be sufficient to allow the combined entity to exercise market power given the low barriers to entry and substantial amount of nonMCI WorldCom capacity becoming available.  Xd-x` ` 2. End User Markets   X6- x` `  a.Relevant Markets  X-  X-xv119.` ` Product Market. With the development of innovative communications technologies and the benefits of increasing competition in foreign markets, carriers are finding creative ways to offer the services most desired by international customers. These offerings"ES0*%%ZZT" often transcend the historical classifications of voicebased International Message Telephone  X-Service (IMTS) and databased nonIMTS.T {Ob-ԍxSee International Competitive Carrier, 102 F.C.C.2d at 824825, paras. 2728. Given the dynamic nature of the telecommunications marketplace, we find that the IMTS/nonIMTS product market distinction is no longer the most appropriate analytical framework for purposes of our merger analysis. Instead, as we discuss below, we identify and review two international service end user product markets: mass market and larger business.  X_-xw120.` ` We recognize that in the 1985 International Competitive Carrier decision, the  XJ-Commission identified IMTS and nonIMTS as two separate product markets.bUJZ {OU -ԍxSee id. at 823, para. 25.b In that decision, the Commission relied both on demand and supply substitutability in identifying  X -relevant product markets.>V  {O-ԍxSee id.> In 1997, however, the Commission adopted an analytical  X -framework, consistent with the 1992 Horizontal Merger Guidelines, in which we rely only on  X -demand considerations to identify relevant product markets. W ~ {O-#XP\  P QcXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#C\  P Q2P#эxSee LEC Regulatory Treatment Order, 12 FCC Rcd at 1577315777, paras. 2530; Bell Atlantic/NYNEX  {O-Order, 12 FCC Rcd at 2000820009, para. 37; BT/MCI Order, 12 FCC Rcd at 1536768, para. 34.  Applying this analytical framework, in conjunction with the Applicants' comments regarding product markets, we are persuaded that the mass market and larger business market are the most appropriate end user markets for reviewing the competitive effects of the proposed merger on the U.S. international  X-services market.Xl  {O-#XP\  P QcXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#C\  P Q2P#эxWe note here that in our recent Comsat NonDominance Order, we identified four relevant product  {O-markets: switched voice telephony; private lines; fulltime video service; and occasionaluse video service. See  {O-Comsat NonDominance Order at para. 26. In that proceeding, neither the parties nor the evidence in the record  {O}-prompted us to review relevant product markets identified in the International Competitive Carrier decision. See  {OG-id. at para. 34 ("Neither Comsat nor the parties dispute [the International Competitive Carrier product markets] and nothing in the record causes us to revisit this finding."). The identification of separate switched voice and private line product markets in that order had no effect on our ultimate analysis. For both product markets, we reclassified Comsat as a nondominant common carrier for the "thick route" markets but not for the "thin route" markets. A "thick route" market is served by multiple cable and satellite carriers. As noted above, a "thin  {O1-route" market is not linked to the United States by cable and is served only by satellite providers. See id. at para. 28. Thus, our findings did not depend on whether Comsat was offering a switched voice or private line  yO -service but rather on the type of geographic route on which either service was being offered.   Xf-xx121.` ` GTE asserts that end user consumers view international private line service as offering flatrate, dedicated, or secure service to predefined points, and IMTS as offering"OFX0*%%ZZI"  X-usagecharged, asneeded service to any point.Y {Oy-ԍxSee GTE Mar. 13 Comments at 4648; GTE June 11 Renewed Motion at 44 n.117. Today, however, the distinction between IMTS and nonIMTS service is blurring. Indeed, there are IMTSbased offerings that provide customers with the functionality traditionally associated with international private line service. As an alternative to private line service, for example, carriers have installed software programs that provide virtual private networks that use the public switched network. Conversely, nonIMTS services are also being used as substitutes for IMTS service. For instance, end users are using packetswitched services to obtain voice services over nonIMTS private line networks rather than international circuitswitched paths. Given the current marketplace, we believe that the IMTS/private line distinction no longer is the most appropriate analytical framework in which to analyze the international services market. As discussed further below, for purposes of this proceeding, we nonetheless respond to GTE's claims regarding IMTS and private line service.  X -xy122.` ` As we concluded above in our analysis of domestic long distance services, we view international services as being provided in two product markets defined by the class of customers that are served: (1) the mass market which serves residential customers and small businesses; and (2) the larger business market which serves medium and largebusiness  Xy-customers.ZyZ {O-ԍxSee supra section IV.A.2. In the BT/MCI Order, we identified mass market and larger business  {ON-segments of the international services market. See BT/MCI Order, 12 FCC Rcd at 15375, para. 50. As noted above, we clarify in this Order that the mass market and larger business market constitute separate relevant  {O-product markets. See supra para. SEGMENT25. We recognize here that, under the 1992 Horizontal Merger Guidelines, it may be possible to identify additional and narrower relevant product markets within these two broader end user  {Or-markets. See 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 4155444,  1.11. We find, however, that we do not need to make such a determination because within each of the product markets identified above, international service providers generally provide all the same services, and production substitution among these  {O-services is "nearly universal." Cf. id. at 41557,  1.32 n.14. See also supra para. GUIDEN1427. Mass market consumers generally demand international services with access to all points, charged at a perminute rate, and available on an asneeded basis. By contrast, larger business customers use many different types of services, including specialized business services which may be provided via IMTS or international private lines. Larger business customers also demand greater volume of anytoany, ondemand services than mass market customers, and thus qualify for volume discounts that are unavailable, as a practical matter, to mass market customers.  X-xz123.` ` Geographic ENDGEOMKTMarket. As the Commission has concluded previously, we also find that each international route between the United States and a foreign country is a"G4 Z0*%%ZZ"  X-separate geographic market.[ {Oy-#XP\  PQcXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#C\  PQ2P#эxSee LEC Regulatory Treatment Order, 12 FCC Rcd at 15801, para. 80. See also AT&T International  {OC-NonDominance Order, 11 FCC Rcd at 1797475, paras. 3133. We conclude, however, that with the exception of the U.S. X-Brazil route,\\$ {O-ԍxSee infra note EMBRATEL359.\ we can examine aggregate information that encompasses all international pointtopoint markets. No party has submitted credible evidence that the competitive characteristics on any route are sufficiently dissimilar to other routes so as to prevent an  X-aggregate analysis.]H {O -ԍxSee LEC Regulatory Treatment Order, 12 FCC Rcd at 15801, para. 80. See also BT/MCI Order, 12  yO -FCC Rcd at 15375, para. 51. Without other information, high market shares and HHI calculations of end user  {O -revenues do not necessarily indicate the existence of market power on a particular route. See infra paras. PREALBAN137,  {Og -ALBANIA138. In the LEC Regulatory Treatment Order, the Commission concluded that myriad factors could affect a decision whether to examine a pointtopoint market separately, such as whether a U.S. international carrier was affiliated with an incumbent foreign carrier or whether a U.S. carrier controls a dominant portion of the capacity  {O-of the U.S. half of a particular international pointtopoint market. See LEC Regulatory Treatment Order, 12 FCC Rcd at 15801, para. 80. Using this framework, we therefore seek to determine whether the proposed merger will have any anticompetitive effects on any U.S.international route.  X_-x ` `  b.Market Participants  X1-x{124.` ` There are hundreds of carriers that compete with WorldCom and MCI in the market for U.S. international services, which in 1996 generated revenues of approximately  X -$18 billion.^  {Oz-#XP\  PQcXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#C\  PQ2P#эxSee 1996 Section 43.61 Report at Figure 7 (examining U.S.billed revenues for facilitiesbased and facilitiesresale services) & Table D1 (examining IMTS resale service). Overall, AT&T is the largest participant with approximately a 59 percent share of revenues. MCI is the next largest participant with approximately a 25 percent share, followed by Sprint with approximately a 10.4 percent share, and WorldCom with  X -approximately a 3 percent share.E_  {O-#XP\  PQcXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#C\  PQ2P#эxSee id. at Figure 7.E  X-x|125.` ` Mass Market. AT&T, MCI, and Sprint are the largest participants in the  X{-provision of international services to mass market customers.`{ yO -ԍxIn 1996, AT&T earned 60.1 percent of the total U.S. international telephone service revenues, followed  {O!-by MCI with 24.9 percent, and Sprint with 10.5 percent. See id. at Table E1 (examining IMTS traffic billed in  yOp"-the United States). We recognize that the IMTS data include both mass market and larger business customers, but we believe that the data serve as a reasonable approximation for carriers' market presence in the mass market.  WorldCom is also a"{Hd`0*%%ZZ"  X-participant in this market, although 1996 data reflect that it is a smaller market participant.Qa {Oy-ԍxIn 1996, WorldCom earned 2.6 percent of the total U.S. international telephone service revenues. See  {OC-id. We recognize that, in the Comsat NonDominance Order, the Commission observed that WorldCom was  {O -"among the most significant market participants in the mass market."  COMSMKT COMSFINALSee Comsat NonDominance Order at para. 56. Although WorldCom is the fourth largest carrier in this market, the 1996 data indicate that its market share is significantly below the top three carriers. We note here, moreover, that the Commission's findings in  {Og-the Comsat NonDominance Order did not depend on the identification of WorldCom as among the most significant market participants in the mass market.Q In addition, there are hundreds of other carriers, including some facilitiesbased and many resale carriers, that offer services used primarily by mass market customers. Additionally, the BOCs represent precluded competitors in the U.S. international services market, at least with  X-respect to the provision of inregion international services.jb {Oe -#XP\  PQcXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#C\  PQ2P#эxSee BT/MCI Order, 12 FCC Rcd at 1538384, paras. 7677. j  Xv-x}126.` ` Larger Business. AT&T, MCI, Sprint, and WorldCom are the largest  Xa-participants in the provision of international services to larger business customers.aca {O-ԍxSee 1996 Section 43.61 Report at Figure 7.a We also  XJ-find that several other carriers are participants in this market.d"J4  {O/-ԍxSee id. We find that several carriers provide private line services, which generally are purchased by larger business customers, and thus are a reasonable approximation of market presence in the larger business market. We note again here, however, that larger business customers demand many different types of services, some of which are classified as IMTS and others as nonIMTS (primarily private line). In addition, we find that the BOCs are also precluded competitors in the larger business market, again with respect to the provision of inregion international services. We also expect that, given our new market entry  X -rules implementing the U.S. commitments in the WTO Basic Telecom Agreement,e^  {O-ԍxSee Rules and Policies on Foreign Participation in the U.S. Telecommunications Market and Market  {O-Entry and Regulation of ForeignAffiliated Entities, IB Docket Nos. 97142 and 9522, Report and Order and  {Oh-Order on Reconsideration, 12 FCC Rcd 23891 (1997) (Foreign Participation Order), recon. pending. an increasing number of foreign carriers will also obtain section 214 authorization to provide  X -international services and are likely to offer services to larger business customers.f$ D {O-ԍxSee Public Notice, FCC Grants over 200 International Service Applications in First 90 Days of New  {O-Foreign Participation Rules (rel. May 14, 1998) (noting that in the first 90 days following implementation of the Commission's new market entry rules, 200 carriers including 26 foreign carriers received section 214 authorizations to provide international services). " I0f0*%%ZZ "Ԍ X-x` `  c.Analysis of Competitive Effects  X-x~127.` ` We examine here whether the proposed merger will reduce competition in the relevant markets, compared with the competitive conditions that would exist absent the  X-merger. We reiterate that we are concerned with potential horizontal competitive effects.>gH {O-ԍxEMMCI's  USBRAZIL recent acquisition of Embratel, the Brazilian long distance and international monopoly carrier, see  {O-supra para. INTINPCARIB296, raises concerns with regard to potentially harmful vertical effects on the U.S.Brazil route. Given  {O-WorldCom's limited transport capacity in the Caribbean region, see supra paras. TRANSCARIB97 and WCOMCRB298, and its small (7  {O{-percent) share of revenues on the U.S.Brazil route, see 1996 Section 43.61 Report at Tables A1, B1, A55, & B36, we find that the merger of WorldCom and MCI will not itself increase the risk of any anticompetitive effects already present. We expect that in the near future MCI will update its notification of affiliation to provide greater detail with regard to its purchase of Embratel, at which time we will determine whether to impose international "dominant carrier" regulation on the combined entity for the U.S.Brazil route. > EMBRATEL   Xv-x128.` ` Mass Market. We conclude that the proposed merger likely will not have anticompetitive effects in the mass market. As discussed above, both the Applicants and parties agree that WorldCom is currently not a significant competitor in the provision of long  X3-distance services to domestic mass market consumers.4h3 {O-ԍxSee supra section IV.A.2.  WorldCom, moreover, has indicated that it has not focused on the mass  {O-market. See WorldCom July 8 Ex Parte Grillo Aff. at 4. See also supra note COMSFINAL353.4 Mass market consumers currently presubscribe to a single carrier for the provision of both domestic long distance and  X -international services.i 4  {O-ԍxSee Implementation of the Local Competition Provisions of the Telecommunications Act of 1996, CC Docket No. 96-98, Second Report and Order and Memorandum Opinion and Order, 11 FCC Rcd 19392, 19417  {O|-at para. 45 (1996) (Local Competition Second Report and Order) (finding that technical limitations at that time  {OF-precluded adoption of a nationwide policy requiring a separate presubscription choice for international calling),  {O-vacated in part, People of the State of California v. FCC, 124 F.3d 934 (8th Cir. Aug. 22, 1997), cert. granted,  {O-AT&T Corp. v. Iowa Util. Bd., 118 S.Ct. 879 (Jan. 26, 1998). Thus, if WorldCom is not a major competitor for domestic long distance service it is unlikely that WorldCom is a major competitor for the provision of  X -international services to the mass market. To the extent that WorldCom provides wholesale capacity used by other carriers to offer mass market services, we find above that new capacity and additional owners will provide this service and will prompt the combined entity to  X-continue its existing practices rather than cede revenue to competing wholesale providers.bj {O-ԍxSee supra para. INTTRANSWHOLE108.b  Xd-x129.` ` Moreover, WorldCom does not possess any special retail assets or capabilities that would make it more likely than other carriers to become a major participant in the mass market. Entrants into the mass market are likely to be successful to the degree that they possess, now or in the near future, a strong mass market presence, which may include brand"JHj0*%%ZZ" name recognition, reputation, and local customer base. In the U.S. international services market, these attributes are not route specific, except in the case where an entrant is affiliated with an incumbent carrier on the foreign end of a particular route. NonBOC incumbent LECs such as GTE have capitalized on their brand name recognition, reputation, and local  X-customer base as they provide international services to the mass market. In addition, once granted section 271 authority, the BOCs are likely to become major international services providers within their respective regions, given their local customer base and their marketing  X_-and organizational capabilities. As a result, we find that the merger of WorldCom and MCI is not likely to affect adversely competition in this consumer market.  X -x130.` ` Larger Business. We find that the combined entity is unlikely to have the ability to act anticompetitively in the provision of services to the larger business market. As we concluded above, MCI WorldCom would not exercise market power over essential inputs, and barriers to entry in the provision of these services are low.  X -x131.` ` The provision of services to larger business customers depends in large part on the ability to obtain critical inputs such as international transportINTTRANSCAP capacity and operating agreements with carriers on the foreign end, as well as the technical ability to provide the services demanded by larger business customers. As discussed above, we find that the combined entity will not have the ability to exercise market power in the international transport market, and the merger, therefore, will not adversely affect the ability of other  X-carriers to obtain capacity.Pk {O-ԍxSee supra section IV.B.1.P As we noted above, U.S. carriers generally are able to obtain  X-operating agreements or use alternative arrangements to provide international services.^lZ {O-ԍxSee supra para. OPERAGREE117.^ Nor do we find it likely that the merger could result in problems in obtaining operating  X-agreements to provide international services.nm yOw-ԍxWe recognize that where a U.S. carrier is affiliated with a foreign carrier that possesses market power on the foreign end of a U.S. international route, concern may arise with regard to preferential treatment related to operating agreements or the provision of service. In such circumstances, our international "dominant carrier" safeguards, our "no special concessions" rule, and our International Settlements Policy address such concerns.  {O-See Foreign Participation Order, 12 FCC Rcd at 2395723965, 2399924022, paras. 156170, 240292.n  X-x132.` ` Moreover, we find that many carriers have the technical capability to provide  X-larger business services. The special assets and capabilities (i.e., brand recognition, reputation, and local customer base) that are important attributes in serving the mass market are not as important here. Rather, carriers need only have the ability to offer dedicated services (endtoend or virtual), bundle specialized services, and provide significant support and maintenance. Many carriers have these capabilities. Moreover, these capabilities are not";Km0*%%ZZ" routespecific, except in the case where an entrant is affiliated with an incumbent carrier on the foreign end of a particular route. For example, foreign carriers are likely market participants, particularly for services to their own countries. Once granted section 271 authority, the BOCs are also likely to be major participants for inregion international larger business services. As a result, we find that entry by new carriers would be timely, likely, and  X-sufficient to deter or counteract any competitive concerns.n {O-ԍXxSee 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 4156162,  3.(#Ƈ Accordingly, we find that the merger is unlikely to affect competition adversely in the larger business market.  X_-  XH-x` ` v3. GTE's Argument Regarding IMTS and Private Line Services (#(#X  X -x133.` ` As explained above, we do not believe that the IMTS/nonIMTS (primarily private line) distinction is the most appropriate framework for analyzing the effects of the proposed merger. Nonetheless, we take this opportunity to evaluate GTE's evidence regarding whether the comvbined entity would possess market power in IMTS and international private line service.  X-x134.` ` GTE argues that the proposed merger would result in anticompetitive effects on  Xy-65 of the routes on which WorldCom and MCI provide IMTS.IoyZ yO-#XP\  P)QcXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#C\  P*Q2P#эxGTE Mar. 13 Comments at 5455.I GTE cites HHI concentration levels to allege that on 41 routes the merger would likely create or enhance market power, and on 24 other routes the merger would raise significant competitive concerns. GTE also asserts that the combined entity would be the largest provider of U.S. international private line services, noting that in 1996 WorldCom and MCI together had a  X-44.53 percent share of U.S. international private line revenues.up {O-ԍxSee id. at 56; see also Telstra Jan. 5 Comments at 2, 7.u GTE argues that based on HHI calculations, the merger "will likely create or enhance market power" on 73 U.S.  X-international private line routes.hq| yO-#XP\  P)QcXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#C\  P*Q2P#эxGTE Mar. 13 Comments at 54; GTE June 11 Renewed Motion at 46.h Furthermore, GTE asserts that the combined entity would  X-have a 100 percent share of the private line market on nine of these routes.r  yO~-#XP\  P5QcXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#C\  P6Q2P#эxThe routes cited by GTE are: Albania, Angola, Cameroon, Congo, Hungary, Kazakhstan, Kenya,  {OF -Paraguay, and Saint Helena. See GTE Mar. 13 Comments at 54 n.136.  X-  X-x135.` ` We disagree with GTE that the existence of high HHIs for either IMTS or private line service on particular routes demonstrates that the combined entity would possess market power over each of these services on these routes. As we noted previously, a HHI analysis is intended to provide guidance regarding the potential anticompetitive effects of a"NLf r0*%%ZZ" merger, but is not meant to be conclusive. Indeed, an HHI analysis alone is not determinative and does not substitute for our more detailed examination of the competitiveness in a given market. Despite the high HHI numbers presented by GTE, we find here that the proposed merger is not likely to have anticompetitive effects in the provision of IMTS or private line service on any U.S. international route.  Xv-x136.` ` As discussed above, we do not believe that the IMTS/private line distinction is the most useful analytical tool given today's marketplace, but this finding ultimately is not relevant to our conclusion that GTE's claims are unfounded. The only way a carrier can exercise market power for a particular service on a particular route is if it controls essential inputs or has special retail assets and capabilities for the provision of service to end users. As we have shown above, the combined entity would not possess control over transport capacity in any region or on any thin route. Therefore, we must conclude that the combined entity would not be able to exercise market power over transport capacity for any particular route, including the routes for which GTE has calculated high HHIs. Also, as we have explained above, control over final service to end users depends on possession of special retail assets and capabilities with respect to the mass market or larger business markets, and such retail assets and capabilities generally are not routespecific. We have shown that the combined entity would not possess retail assets and capabilities that would allow it to exercise market power in either the mass market or larger business markets. Therefore, we must conclude that the combined entity would not be able to exercise market power for any service on any route through the possession of special retail assets and capabilities. The combined entity's lack of special retail assets and capabilities and its lack of control over inputs indicates that there are no barriers to entry that would enable the combined entity to exercise market power over the provision of any final service to end users, including IMTS or private line service, on any route.  X-x137.` ` We acknowledge that the market shares cited by GTE a PREALBAN ppear, on their face, to be a cause of concern. A high market share in itself, however, is not conclusive evidence of market power. For example, GTE asserts that the combined entity would have 100 percent of the international private line revenues to Paraguay. The merger, however, would not result in any increase in concentration in the provision of transport capacity to Paraguay, which is  X -served only by satellite.s  yO-ԍxAs noted above, the merger would not increase concentration in ownership of satellite systems or  {Oa -satellite transponder capacity. See supra para. COMSAT PARA83. Nor would the combined entity have control over any other assets or capabilities that would enable it to exclude entry by other carriers and allow it to exercise market power on the U.S.Paraguay route.  X -x138.` ` Moreover, there are many reasons other than the possession of market power that may explain why the combined entity would have such high numbers on particular IMTS"!M"s0*%%ZZ " or private line routes.  ALBANIA For example, in the case of Albania, GTE asserts that the combined entity would have a 100 percent share of private line service revenues. We note, however, that U.S. carrier private line service revenue to Albania totalled only $87,723 (consisting of  X-three 64 Kbps circuits) in 1996.t {O4-ԍxSee 1996 Section 43.61 Report at Table B1 (examining U.S.billed private line service on a route by route basis). Thus, the combined entity's 100 percent revenue share would likely result not from any market power of the combined entity but from the fact that few U.S. end users require service to Albania. With regard to the IMTS routes for which GTE asserts the merger would create or enhance market power, or otherwise raise significant competitive concerns, we note that the combined entity's 1996 revenues would account for  XH-over 50 percent of IMTS revenues on only four routes.u^H" {O -ԍxAs we recently noted in the Foreign Participation Order, "'[c]ourts virtually never find monopoly  {O -power when market share is less than about 50 percent.'" Foreign Participation Order 12 FCC Rcd at 23959 {O -23960, para. 161 (quoting Antitrust Law Developments at 235236).Ċ Three of these routes are "thin"  X1-markets served only by satellites.v1H {O*-ԍxSomalia, French Polynesia, and Azerbaijan are thin routes. See Comsat NonDominance Order at Appendix A. As discussed above, the proposed merger would not increase concentration in transport capacity on these routes, and the combined entity would not have control over any other assets or capabilities that would enable it to exclude entry or exercise market power on these routes. The fourth route, U.S.Bhutan, had 31,426 U.S.billed  X -switched telephone minutes resulting in only $65,638 of revenue in 1996.w  {O(-ԍxSee 1996 Section 43.61 Report at Table A1 (examining U.S.billed IMTS traffic on a route by route basis). As in the case of private line service to Albania, discussed above, the combined entity's high market share likely results not from any market power but from the fact that few U.S. end users make calls  X-to Bhutan. In sum, even though the combined entity may have a significant presence in the provision of IMTS or private line service on an individual route, we find no evidence in the record to substantiate that the merger would enable the combined entity to exercise market power on U.S. international routes.  X- x139.` ` As a final matter, we are not persuaded by GTE's assertion that the proposed merger would decrease competition in the provision of IMTS by removing one of the most significant competitors to AT&T and, that as a result of the proposed merger, the provision of  X-IMTS "would be fertile ground for coordinated pricing among the top players."x   yO"-ԍxGTE Mar. 13 Comments at 57. According to GTE, currently AT&T is the largest provider of IMTS with about 60.13 percent of U.S.billed revenues. MCI is the second largest with 24.94 percent U.S.billed revenues, whereas Sprint has 10.49 percent U.S.billed revenues. WorldCom, according to GTE, has about 2.55 percent of the U.S.billed revenues. We"Nx0*%%ZZ" acknowledge that the proposed merger of WorldCom and MCI will decrease the number of carriers providing IMTS. As we explained above, however, the merger is unlikely to have an anticompetitive effect in the end user market, because WorldCom and MCI do not have market power over inputs and it is likely that new entrants with retail assets and capabilities that are important for the provision of IMTS are poised to enter the market. Thus, we believe that the proposed merger is unlikely to result in any anticompetitive effects in the provision of  Xv-IMTS.  XH-x` ` 4. Analysis of Transfer of Control of MCI's DBS License (#  X -x140.` ` The Applicants have requested authority to transfer control of MCI's direct broadcast satellite (DBS) license. The International Bureau, on delegated authority, granted MCI this license following MCI's successful participation in the Commission's DBS  X -auctions.8y  {ON-#XP\  PIQcXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#C\  PJQ2P#эxSee MCI Telecommunications Corporation, Order, 11 FCC Rcd 16275 (Int'l Bur., 1996) (MCI DBS  {O-Order I); Order, 12 FCC Rcd 12538 (Int'l Bur., 1996) (MCI DBS Order II), app. for review pending.8 Parties have filed applications for review of the Bureau's grant of this license. In the present proceeding, one party filed requesting the Commission to dismiss or deny the  X -transfer of control of MCI's DBS license.Yz $ yO|-ԍxUnited Church of Christ Jan. 5 Petition.Y  Xy-x141.` ` The transfer of control of MCI's DBS license raises issues similar to those raised in the applications for review of the Bureau's order in the MCI DBS licensing proceeding. We defer consideration of these issues for resolution in connection with pending applications for review of the MCI DBS licensing orders. In the interim, MCI WorldCom will be permitted to acquire control of MCI's DBS license. That license, however, will remain subject to further review, and this approval of the transfer of control is specifically conditioned on whatever action the Commission may conclude is appropriate in connection  X-with the pending applications for review. )gJ:\POLICY\MCIWCOM\MASTER\INTERNAT) )gJ:\POLICY\MCIWCOM\MASTER\INTERNET)     X-xC.` ` Internet Backbone Services א  X|- x142.` ` We consider in this section the competitive effects of the proposed merger on Internet backbone services. Our primary intent in reviewing the potential effects of this merger on Internet backbone services is to ensure that the dynamism that has characterized the Internet will not be undermined. We seek not to regulate the Internet, but rather to ensure that Internet services, which rely on telecommunications transmission capacity, remain" Oz0*%%ZZ""  X-competitive, accessible, and devoid of entry barriers.{ yOy-ԍxWe note that no party, including the Applicants, has suggested that the Commission should not consider the competitive effects of the WorldCom and MCI merger on any Internet services. In response to the Applicants' original application, many commenters argued that, because the merger would have combined two of the largest providers of Internet backbone services, the resulting increase in concentration would impair competition. Since the filing of its original application, MCI  X-agreed to sell its entire Internet business to C&W. Although both the DOJ and the EC have  X-now approved the merger, subject to the condition that MCI sell its Internet business,_|  {O^ -ԍxSee DOJ Press Release; EC Press Release._ we must independently determine that this sale addresses the concerns raised regarding the  X_-Internet.}D_ yO -ԍxMCI and C&W contend that they do not need Commission approval to consummate their proposed transaction, because Internet services are unregulated and no transfer of any Commission licenses is involved.  {OR-See C&W June 16 Reply Comments at 35; MCI July 15 Reply Comments at 9.  Although we agree that Commission "approval" of the proposed transaction itself is not required, we nevertheless find it necessary to review this agreement insofar as MCI asserts that the divestiture addresses the anticompetitive concerns raised in  {O-the record with respect to the Internet. See MCI July 15 Reply Comments at 2 (stating that the "complete divestiture of MCI's entire Internet business removes any issues that the merger will give WorldCom market power in the provision of Internet backbone services or other Internet services at the wholesale or retail level"). As discussed below, we find that all MCI Internet assets are being divested to C&W, and therefore the merger will not have anticompetitive effects on any Internet services, as long as the proposed divestiture is in fact carried out.  X - x` ` 1. Background   X -x143.` ` The Internet is an interconnected network of packetswitched networks.~  yOD-ԍxKevin Werbach, "Digital Tornado: the Internet and Telecommunications Policy" (OPP Working Paper Series No. 29, 1997) (Digital Tornado) at 10. A packetswitched network is one that transmits information by breaking it into small packets that are independently routed through the network from source to destination according to a destination address that is included in each packet. Packet switching differs from the circuit switching used in Plain Old Telephone Service (POTS): in a circuitswitched network, a dedicated circuit  {O,-between the parties is established and reserved for the exclusive use of those parties.  See Newton's at 527.  There are three classes of participants in the Internet: end users, Internet service providers  X -(ISPs), and Internet backbone providers (IBPs)." 8 yO -ԍxDigital Tornado at 10. An Internet backbone consists of routers connected together by highspeed data lines. Routers are switching devices that direct packet traffic by examining the address contained in each packet and forwarding it according to directions stored in routing tables. Routers are connected by highspeed data lines  yO"-that typically consist of fiber optic cables running at DS3 speeds or higher. (The Digital Service or Digital Signal hierarchy refers to the transmission speed or capacity of a network; DS3 runs at a speed of 44.736 million bits per second (Mbps), which is the equivalent of 672 standard voice channels. Newton's at 241.) IBPs"x$~0*%%$"  yO-sell backbone transit services to independent ISPs. The IBP may also provide Internet Protocol (IP) addresses to the ISP. (The Internet Protocol governs addressing of the packets that are transmitted over the Internet. This protocol, together with the Transmission Control Protocol (TCP) that governs the routing and transmission of  {O-packets, forms the TCP/IP standard that characterizes the Internet. See Digital Tornado at 10, n.11.) End users send and receive information;" P0*%%ZZ " ISPs allow end users to access Internet backbone networks; and IBPs route traffic between  X-ISPs and interconnect with other IBPs. yOL-ԍxDigital Tornado at 1012. ISPs provide two different types of Internet access to end users: dialup access and dedicated access. With dialup access, an end user places a call with a computer modem over the POTS lines of a LEC to the user's ISP's modem. Dialup access is generally used by residential end users and small businesses using personal computers, who generally pay their ISP a flat monthly fee for Internet access. With dedicated access, an enduser leases a highspeed line that connects directly to an ISP. Dedicated access is generally used by larger businesses, government organizations, and universities that pay a flat monthly fee that increases with the capacity of the leased line. The ISP aggregates all dialup and dedicated traffic and routes it to the IBP via a line that is leased from a carrier for a flat monthly fee. The ISP also pays the IBP a flat fee for access to the Internet. Both of these fees increase with the capacity of the leased access line. In order to ensure  {OT-greater reliability, an ISP may connect with more than one IBP, a practice known as "multihoming." See  yO-Digital Tornado at 12. Many IBPs are vertically integrated and thus are  X-also ISPs.H yO-ԍxDigital Tornado at 12. H Prior to the divestiture of its Internet business, MCI acted both as an IBP and an ISP. WorldCom owns three IBPs UUNet, ANS, and CNS and a majority share of a  X-fourth, GridNet; yO-ԍxWorldCom acquired a minority stake in another IBP, Verio, when it purchased Brooks Fiber. it also owns a number of network access points (NAPs) where IBPs interconnect, most notably MAEEast (Washington DC), MAEWest (San Jose), MAEDallas,  Xv-MAELos Angeles, and MAEChicago.v4 {O[-ԍxSee generally Boardwatch Magazine's Directory of Internet Service Providers (Fall 1997). WorldCom  yO%-acquired these NAPs when it purchased MFS in 1996. MAE stands for Metropolitan Area Exchange.   XH-x144.` ` The essential service provided by IBPs is transmission of information between all users of the Internet. Although IBPs compete with one another for ISP customers, they must also cooperate with one another, by interconnecting, to offer their end users access to  X -the full range of content and to other end users that are connected to the Internet. As a result of this interconnection among IBP networks, the Internet is often described as a "network of networks."  X -x145.` ` IBPs interconnect with one another through either a peering arrangement or a transiting arrangement. In a peering arrangement, two IBPs agree to exchange traffic that originates from an end user connected to one IBP and terminates with an end user connected to another IBP. A peering arrangement has two main characteristics. First, in general,"bQ0*%%ZZJ"  X-peering is settlementsfree, i.e., the IBPs do not charge each other for terminating traffic.Z yOy-ԍxAt least one industry expert, Hal Varian, Dean of the School of Information Management and Systems at the University of California, Berkeley, has called for an end to settlementsfree interconnections as the  {O -industry norm. Hal Varian, How to Strengthen the Internet's Backbone, Wall St. J., June 8, 1998 at A22.ď  X- Second, one peer will not allow traffic from another peer to transit its network to a third IBP. For example, if IBP A only has a peering arrangement with IBP B, and IBP B also has a peering arrangement with IBP C, then IBP B will not allow customers of IBP A to send traffic to or receive traffic from customers of IBP C. In order to provide access to the customers of IBP C, IBP A must either peer with IBP C or enter a transit agreement, as described below, with either IBP B or IBP C.  XJ-x146.` ` The alternative to peering is a paying transit relationship. A transit  X3-arrangement differs from peering in two respects. First, in contrast to a peering arrangement in which IBPs generally exchange traffic without charge, in a transit arrangement one IBP pays the other IBP to carry its traffic. The amount of this charge depends upon the capacity of the connection. Second, in contrast to a peering arrangement in which IBPs only terminate each other's traffic, in a transit arrangement an IBP agrees to deliver all Internet traffic that originates or terminates on the paying IBP regardless of the destination or source of that traffic. In the above example, if IBP A becomes a transit customer of IBP B, then as a paying customer of IBP B, IBP A is able to send traffic to and receive traffic from IBP C via  X{-IBP B's network.  Xd-   XM- x` ` 2. Analysis of Competitive Effects (# x  X-x147.` `  ANTICOMP Commenters' allegations of any anticompetitive effects that may have resulted from the merger in its original form focused on the merged entity's provision of Internet backbone services. We first discuss the Internet backbone services that may have been affected by the merger, then describe the asserted harms raised by commenters, and finally show that the divestiture fully alleviates these harms.  X-x148.` `  ANTICOMP Because the proposed divestiture of MCI's Internet assets means that the merger of WorldCom and MCI will result in no increased concentration of assets, we need not decide which market is the relevant market for purposes of evaluating the competitive effects of the merger on any Internet services. Nevertheless, based on the record before us, we are inclined to agree with GTE and other commenters that Internet backbone services, which we define to be the transporting and routing of packets between and among ISPs and""R0*%%ZZ>"  X-regional backbone networks, constitutes a separate relevant product market. {Oy-ԍ#X\  P6G;2P#xGTE Mar. 13 Comments, Harris Internet Aff. at 7. See AFLCIO Jan. 5 Comments at 3; CUIISP Mar. 20 Reply Comments at 2, CWA Jan. 5 Comments at 57; CWA Jan. 26 Reply Comments at 4; CWA Mar. 20 Reply Comments at 1820; GTE Mar. 13 Comments at 6668; GTE June 11 Comments at 1011; ICP Jan. 5 Comments at 10; Simply Internet Jan. 5 Petition at 6; Sprint Mar. 13 Comments at 79; Letter from Michael B. Fingerhut, General Attorney, Sprint, to Magalie Roman Salas, Secretary, FCC, Attach. Charles River Assocs. Inc.  {Oc-Report at 79 (filed June 1, 1998) (Sprint June 1 Ex Parte).ĺ These Internet backbone services can ensure the delivery of information from any source to any destination  X-on the Internet. The facilities used to provide such Internet backbone services are routers and the highspeed transmission lines that connect these routers. We agree with GTE that there do not appear to be good demand substitutes for ISPs and regional backbone service providers  X-to obtain national Internet access without access to IBPs.2ZD {O -ԍxGTE Mar. 13 Comments, Harris Internet Aff. at 7. See AFLCIO Jan. 5 Comments at 3; CWA Jan. 5 Comments at 57; CWA Jan. 26 Reply Comments at 4; CWA Mar. 20 Reply Comments at 18; GTE Mar. 13 Comments at 6768; and Simply Internet Jan. 5 Petition at 6.2 We also disagree with Applicants' argument that the fact that transmission facilities are fungible between Internet services and other circuit and packetswitched services precludes finding an independent and  XH-distinct market for Internet backbone services.nHf  yO_-ԍxWorldCom/MCI Jan. 26 Reply Comments at 6970, 72.n Finally, because all parties appear to agree that the appropriate geographic market is nationwide, we will assume the market is  X -nationwide for purposes of the analysis below.H  yO-ԍxWorldCom/MCI Mar. 20 Reply Comments at 6768. Because a number of national IBPs offer interconnection in major metropolitan areas, GTE assumes that the geographic market is national; it suggests, however, without specificity, that "there are probably some geographic areas where the separate MCI/WorldCom backbones provide a much higher share of backbone service" such that its assumption of a national market is  yO-"conservative." GTE Mar. 13 Comments, Harris Internet Aff. at 89; GTE Mar. 13 Comments at 71.H  X -x149. PEERING ` ` In response to the Applicants' original application, commenters argued in general that, if WorldCom and MCI's Internet backbones were combined, the size of the resulting backbone network would outweigh any rival's network. As a result, commenters contended that the benefits the Applicants derived from interconnecting with rivals would have been far less than the benefits rivals derived from interconnecting with the Applicants. According to these commenters, therefore, the Applicants, after the merger, would have had  Xb-less incentive to interconnect on favorable terms with other IBPs and ISPs.b yO!-ԍxGTE Jan. 26 Reply Comments at 57; GTE Mar. 13 Comments at 81, Harris Internet Aff. at 26; Sprint Mar. 13 Comments at 1416. Some commenters argued that the merged entity, taking advantage of its increased size, would increase the costs of interconnection, by either charging for peering, or eliminating peering"4S0*%%ZZ*" altogether and converting peers into transit customers, which would ultimately increase end  X-users' prices.~Z yOb-ԍxCWA Mar. 20 Reply Comments at 2526; Fiber Network Solutions Mar. 20 Reply Comments at 45; GTE Jan. 26 Reply Comments at 7; Simply Internet Mar. 13 Comments at 1213; Sprint Mar. 13 Comments at  {O-13; Reply Comments of NetSet Internet Services, Inc. at 45 (filed May 26, 1998) (NetSet May 26 Ex Parte).~ In addition, commenters claimed that the Applicants would degrade the quality of interconnection with rivals in order to induce their rivals' customers to migrate to  X-the Applicants' network.ID yOV-ԍxGTE Jan. 26 Reply Comments at 7; GTE Mar. 13 Comments at 83, Harris Internet Aff. at 2627; GTE  {O -June 11 Comments at 2227, Harris Internet Reply Aff. at 6; Sprint Mar. 13 Comments at 15; Sprint June 1 Ex  {O -Parte, Charles River Assocs. Report at 1314. Some commenters also argued that the Applicants could decrease the quality of interconnection between thirdparty IBPs through WorldCom's control of several of the major NAPs, and thereby induce these IBPs' customers to shift to WorldCom's network. CWA Mar. 20 Reply Comments at 2728; GTE Mar. 13 Comments at 8384. Applicants countered that MCI does not own any NAPs, and therefore the merger will not increase the concentration among NAP owners. WorldCom/MCI Mar. 20 Reply Comments at 71. I Finally, commenters suggested that the Applicants could have exploited their ISP customers without fear of reprisal because of the difficulty of changing  X-IBPs.V@  yO4-ԍxCommenters explain that due to the scarcity of addresses, the American Registry for Internet Numbers (ARIN) assigns addresses only to the largest IBPs, and, as a result, only 10 percent of ISPs "own" their addresses while the vast majority of ISPs must obtain their IP addresses from their IBP. If such an ISP wishes to change its IBP, it must obtain new addresses from its new IBP, and then must renumber its entire network and that of its customers as well. This, according to commenters, can be an expensive and timeconsuming process for many ISPs, with attendant risks of network disruptions and customer losses. Bell Atlantic Jan. 5 Comments at 1011; Bell Atlantic Mar. 13 Comments at 23; CUIISP Mar. 20 Comments at 4; CWA Mar. 20 Reply Comments at 29; Simply Internet Mar. 13 Comments at 912.V  X_- x150.` ` ANTICOMP ENDMany commenters further contend that difficulties in obtaining settlementsfree  XH-peering from IBPs constitutes a substantial barrier to entry.H yO-ԍxBellSouth Mar. 13 Comments at 1415; CWA Jan. 26 Comments at 910; Consumer Project on Technology Jan. 26 Reply Comments at 23; GTE Jan. 26 Reply Comments at 89; GTE Mar. 13 Comments at 7778; GTE Mar. 13 Comments, Harris Internet Aff. at 9; GTE June 11 Comments at 1819; Sprint Mar. 13  {OO-Comments at 1718; Sprint June 1 Ex Parte, Charles River Assocs. Report at 2122. See Level 3 May 29 Ex  {O-Parte. IBPs that are unable to secure settlementsfree peering agreements must use transiting arrangements, which, commenters contend, increase the costs of providing Internet services to end users and may result in  X -poorer quality transport than that associated with peering.  yOf"-ԍxFiber Network Solutions Mar. 20 Reply Comments at 45; GTE Jan. 26 Reply Comments at 7; NetSet  {O.#-May 26 Ex Parte at 5; Simply Internet Mar. 13 Comments at 1213; Sprint Mar. 13 Comments at 16, n.8. Commenters argue that, for those reasons, IBPs without peering arrangements are unable to attract the large customer base they need to obtain peering. These firms claim that they are caught in a classic Catch 22 situation" T 0*%%ZZ " they need more traffic to qualify for peering, but cannot get that traffic without peering. We agree with commenters that peering may be a substantial barrier to entry to those firms that intend to provide Internet services. It was this and related concerns that led to the  X-proposed divestiture of MCI's Internet assets._ {O4-ԍxSee DOJ Press Release; EC Press Release._ As explained below, however, we find this divestiture alleviates any competitive effects that may have arisen from the merger in its original form.  X_- x` ` 3. MCI's Divestiture   X1-x151.` ` As a result of discussions with the DOJ and the EC, MCI announced, on July  X -15, 1998, that it had agreed to sell all of its Internet business to C&W for $1.75 billion.& Z {O% -ԍxSee MCI July 15 Reply Comments. Originally, on June 3, 1998, MCI informed the Commission of the  yO -proposed partial divestiture of its Internet assets whereby it agreed to sell its Internet backbone business to  {O-C&W, while retaining its Internet retail business. See Letter from Mary L. Brown, Senior Policy Counsel, MCI,  {O-to Magalie Roman Salas, Secretary, FCC (filed June 3, 1998) (MCI June 3 Ex Parte).  According to MCI, "[a]fter the divestiture, MCI WorldCom will have only those Internet assets, including the backbone network and customer relationships, that WorldCom has at the time of closing. The merger will not produce any increase in WorldCom's Internet market  X -share, capacity, or customer base." H yO-ԍxMCI July 15 Reply Comments at 9. This divestiture is subject to the condition that MCI is not obliged to proceed if WorldCom and MCI do not merge. The complete divestiture will have the following  X -components:Q4  yO-ԍxA redacted copy of the term sheet pertaining to the divestiture agreement between MCI and C&W has  {O-been placed in the record.  See Letter from Larry A. Blosser, Senior Counsel, MCI to Magalie Roman Salas,  {O-Secretary, FCC (filed Aug. 25, 1998) (MCI Aug. 25 Ex Parte I). This confidential document is available for  {OT-review pursuant to the terms and conditions of the protective order adopted in this proceeding.  We are satisfied that MCI has submitted all the relevant portions of its divestiture agreement. We therefore reject claims by commenters that more information concerning the divesture is necessary in order for the Commission to  {O-complete its public interest analysis. See Telstra June 11 Comments at 3 (arguing that the public interest requires disclosure of the contract and/or tariff terms which would govern MCI's lease of Internet backbone facilities to C&W); Letter from Gregory C. Staple, Koteen & Naftalin, Counsel to Telstra, to Chairman Kennard,  {O-FCC, at 5 (filed July 22, 1998) (Telstra July 22 Ex Parte); GTE's Motion for Expedited Consideration of GTE's Motion for Establishment of a Procedural Schedule and Production of Related Materials at 4 (filed July 22, 1998) (requesting the Commission to seek production of the sales contracts and other documents regarding the  {Ob!-proposed divestiture) (GTE July 22 Motion). See also section IV.C.4 for discussion of Telstra's tariffing claims. Q  Xy-/XxTransfer of Assets and Employees. MCI will transfer to C&W all of the physical assets that constitute its Internet backbone: 22 nodes (or hubs); over 15,000 interconnection ports; and all the routers, switches, and other equipment dedicated to"MU0*%%ZZ+"  X-the backbone.y yOy-ԍxMCI July 15 Reply Comments at 5. We do not agree with those commenters that suggest that a more  {OA-detailed description of MCI's transferred Internet assets is necessary. See CWA July 24 Ex Parte at 6; GTE July 22 Motion at 23; GTE's Reply to MCI's Opposition to GTE's July 22 Motion (filed July 28, 1998) at 4 (GTE  {O-July 28 Reply). Rather, we find it sufficient that MCI is transferring all of its Internet assets. See MCI's Opposition to GTE's July 22 Motion at 2 (filed July 24, 1998) (MCI July 24 Opposition).y MCI will lease to C&W the transmission capacity it needs to operate the network, including projected growth requirements, on "competitive commercial terms" for two years, with an option for C&W to extend the term for an additional  X-three years.| yO -ԍxC&W is free to use transmission capacity from sources other than MCI. MCI July 15 Reply Comments at 6. MCI will also provide C&W the right to use all associated dedicated software and OSS, will assign to C&W all Internet addresses used in the transferred  X-business, and will allow C&W to collocate equipment in MCI facilities.j {O-ԍxId. at 56. C&W has a right to collocate certain routers and modems purchased from MCI for two years, with the right to extend this agreement for an additional three years. C&W will have a nonexclusive, royaltyfree, perpetual license to utilize the MCIowned software necessary to run the transferred Internet business, with the ability to obtain updates for two years. C&W will also be able to use MCI's order entry  {O4-system for a short period of time to allow a normal transition of the business. MCI Aug. 25 Ex Parte II at 2.j MCI will transfer all employees necessary to operate the Internet business by allowing C&W to identify those individual employees that it wishes to be transferred from a list of  XH-approximately 1,000 MCI employees.j H  yO-ԍxMCI July 15 Reply Comments at 6. MCI elaborates that it "will transfer to C&W all engineering, sales, customer service/telemarketing, and managerial, financial, and administrative employees necessary to operate the business, alone or in combination with the personnel in C&W's existing Internet organization" and that it "has identified all of the positions and will shortly provide C&W with a list of approximately 1,000 employees, and C&W will identify those individual employees that it wishes to be transferred." MCI July 15 Reply Comments  {Oi-at 6. Although some commenters ask for a detailed list of employees being transferred, (see CWA July 24 Ex  {O3-Parte at 6; GTE July 22 Motion at 4; and GTE July 28 Reply at 5) we find the above description to be  {O-sufficient.  See MCI July 24 Opposition at 3 (stating it is "hard to imagine a role less appropriate for the Commission than to serve as a supervisory human resources department for C&W"). In response to GTE's request for more information regarding the incentives MCI plans to make available to its employees to move to  {OW-C&W, (see GTE July 22 Motion at 4; GTE July 28 Reply at 5) MCI asserts that it will contribute cash to an  {O!-employee retention fund for C&W. MCI Aug. 25 Ex Parte II at 23.Ğ In addition, MCI will transfer to C&W all of  X1-its more than 40 peering agreements.Q1 yO -ԍxMCI July 15 Reply Comments at 6.Q Finally, MCI WorldCom and C&W are  X -prohibited from terminating their peering agreement for five years.T J {O#-ԍxMCI Aug. 25 Ex Parte II at 3.T (# " V0*%%ZZ_ "Ԍ X-/XxTransfer of ISP Customers. MCI will transfer to C&W MCI's contracts with ISPs, such that C&W will replace MCI as the IBP to more than 1,300 domestic and  X-international ISP customers that now obtain Internet access from MCI.Q yOM-ԍxMCI July 15 Reply Comments at 7.Q According to the terms of the agreement, MCI WorldCom cannot contract with or solicit any of the transferred ISP customers to provide dedicated Internet access service for two years, unless the ISP customer already purchases Internet services from WorldCom at  Xx-the closing of the agreement.:xX {O -ԍxId.:(#  XJ-/XxTransfer of Retail Customers. MCI will transfer to C&W its contracts with retail customers not only for Internet service, but also for webhosting, managed firewall,  X -and Real Broadcast Network services.B  {O-ԍxId. at 78.B According to the terms of the agreement, MCI WorldCom cannot contract with or solicit transferred retail dedicated access customers to provide dedicated access services for eighteen months, and cannot solicit webhosting and managed firewall services for six months, unless the customers  X -already purchase these services from WorldCom at closing.@ | {O-ԍxId. at 8.@ MCI will also allow  X -C&W to use the MCI name for one year.  yOj-ԍxC&W is authorized, for one year, to identify the transferred Internet business as "formerly the  {O2-internetMCI backbone network" and/or "formerly the iMCI business." MCI Aug. 25 Ex Parte II at 1.(#  X}-x152.` ` We agree with MCI that its current divestiture will adequately address any potentially legitimate objections commenters raised to its original divestiture. Commenters on the original divestiture argued that, because MCI would retain its retail and webhosting customers, it would retain market power, and C&W would not be as viable a competitor as  X!-MCI. !h  yO:-ԍxAT&T June 11 Comments at 34; BellSouth June 11 Comments at 3; CWA June 11 Comments at 9; GTE June 11 Comments at 3334; Simply Internet June 11 Comments at 4; Sprint June 11 Comments at 78, 13.  yO-AT&T also argued that MCI attempted to avoid effective competition by excluding buyers such as AT&T from consideration. AT&T June 11 Comments at 5. The current divestiture, however, includes the transfer of MCI's contracts with retail and webhosting customers. In addition, commenters contended that, because MCI was transferring only about 50 employees, it would continue to have an undue concentration of Internet expertise and would not provide C&W sufficient technical support to compete"WP 0*%%ZZ"  X-successfully. yOy-ԍxAT&T June 11 Comments at 4; BellSouth June 11 Comments at 3; CWA June 11 Comments at 8; GTE June 11 Comments at 35; Simply Internet June 11 Comments at 56; Sprint June 11 Comments at 1011. We note that the current divestiture now includes the transfer of as many as 1,000 employees. Sprint contended that, because C&W is not known as a provider of Internet  X-services, it might not be able to retain the customers transferred to it, or obtain new ones.P  yO-ԍxSprint June 11 Comments at 89.P Accordingly, Sprint asserted that MCI should license C&W to use its brand name. MCI has now licensed C&W to use its brand name for one year. Finally, although Simply Internet  X-questioned the number of IP addresses MCI would retain,Y yO -ԍxSimply Internet June 11 Comments at 45.Y MCI states that ". . . the new transaction includes all Internet addresses used in the Internet business that C&W is  X_-acquiring, whether or not a current customer utilizes a particular address. . . ."Q_@ yOP-ԍxMCI July 15 Reply Comments at 6.Q  X1-x153.` ` We find that the remaining objections raised by commenters do not articulate legitimate anticompetitive harms. With respect to the noncompete clauses contained in the divestiture agreement, some commenters suggest that the time limitations (two years with  X -respect to ISP customers) render them inadequate.Z  yOm-ԍxCWA June 11 Comments at 910; Letter from Debbie Goldman, Research Economist, CWA, to Magalie  {O5-Roman Salas, Secretary, FCC at 89 (filed July 24, 1998) (CWA July 24 Ex Parte); CWA June 11 Comments at 3435. We find that C&W's newly acquired  X -retail customer base, coupled with the dynamism of the Internet marketplace,hZ  {Ox-ԍxSee, e.g., WorldCom/MCI Jan. 26 Reply Comments at 65 (noting that, based on the experience of the Applicants, the demand for Internet services more than doubles every year); GTE Jan. 26 Reply Comments at 4 (stating that the growth in Internet traffic is currently doubling approximately every six months).h offsets any concern that after two years the transferred customers might migrate to WorldCom in  X -sufficient numbers to give MCI WorldCom market power.  yOl-ԍx C&W itself states that it intends to use the assets purchased to expand its Internet business significantly "not sit and watch it wither and return to MCI." C&W June 16 Reply Comments at 6. Another commenter argues, on the other hand, that the noncompete clause, exempting certain customers from competitive  Xy-bids by MCI WorldCom, reduces competition. Zyl yO!-ԍxBell Atlantic June 11 Comments at 23. Similarly, Telstra asserts that the noncompete provision may be unlawful to the extent it bars Telstra from contracting with the merged entity for new international private line  {O&#-or backhaul facilities during the next two years. Telstra July 22 Ex Parte at 45. We conclude that it is clear from MCI's description of the divesture agreement that the provisions of the agreement, including the noncompete clause, pertain only to the provision of Internet services and do not preclude the merged entity from"$0*%%$" competing with respect to provision of common carrier services. MCI July 15 Reply Comments at 10 (stating  {OX-that C&W will be protected from competition in the "provision of dedicated Internet access service by MCI  yO"-WorldCom for the transferred customers during the specified periods after closing.") (emphasis added).  We find that the noncompete clause is"yX0*%%ZZ"  X-appropriate in that it protects against what could otherwise be a "sham" divestiture, i.e., the possibility that MCI WorldCom would immediately win back customer accounts purchased by  X-C&W.  yOo-ԍxWe note that the noncompete clause does not apply to retail dialup end user customers of Internet access services. Rather than considering this a deficiency, however, we find that it will allow the combined entity to be a stronger local competitor by enabling it to sell local, long distance, Internet access, and other services to retail end user customers in competition with other providers of these services. Some commenters also argue that the noncompete clause is inadequate, because it exempts customers that were connected to both WorldCom and MCI premerger (what the industry refers to as "multihomed"). Although there is some dispute in the record concerning  X-the percentage of MCI's ISP customers that are multihomed to UUNet,4  yO-ԍxGTE asserts that MCI should be required to reveal how many customers are connected to both  {O-WorldCom and MCI premerger. GTE July 22 Motion at 3; GTE July 28 Reply at 3. Using the Boardwatch  {O-Magazine Internet Service Provider Directory, CWA calculates that 36.8% of MCI's ISP customers also connect  {On-to UUNet's network. CWA June 11 Comments at 10; see Letter from Debbie Goldman, Research Economist, CWA, to Magalie Roman Salas, Secretary, FCC (filed Aug. 7, 1998) (submitting excerpted quote from Bernard J. Ebbers, WorldCom CEO, at investor presentation stating that the existence of multihoming between WorldCom and MCI Internet customers is "more common than not"). Although MCI claims that it does not know exactly how many of its customers are also WorldCom customers, it states that an unnamed Washington, D.C. law firm has evaluated a list of MCI's ISP customers and UUNet's thirty largest customers and determined  {O -that only several of these UUNet customers also purchase Internet access from MCI. See Letter from Larry A. Blosser, Senior Counsel, MCI, to Magalie Roman Salas, Secretary, FCC (filed July 31, 1998); Letter from Larry  {O-A. Blosser, Senior Counsel, MCI, to Magalie Roman Salas, Secretary, FCC (filed July 28, 1998). See also MCI  {O|-Aug. 25 Ex Parte II at 3. we find that the exemption of these customers from the noncompete clause poses little risk to competition. Specifically, we find that customers that choose to multihome do so for purposes of  XJ-redundancy.J {O-ԍxSee, e.g., Randy Barrett, Small ISPs Decry IP Address Shutout, Inter@ctive Week, July 14, 1997 . Thus, if a customer was multihomed to both MCI and UUNet prior to the divestiture, these customers are likely to remain multihomed for purposes of redundancy, and therefore are unlikely to switch all their business to UUNet after the divestiture.  X -x154.` ` Moreover, a few commenters contend that the divestiture will leave C&W overly dependent on MCI. For example, some commenters asserted that, unless MCI also" Y(0*%%ZZ "  X-transferred the fiber underlying its backbone, C&W would be too dependent on MCI. {Oy-ԍxGTE June 11 Comments at 34; Internet Service Provider's Consortium June 11 Comments at 23.  See BellSouth June 11 Comments at 34 (noting that MCI will retain software and OSS, and that physical assets transferred to C&W will remain in MCI facilities and connected to MCI's transmission facilities); Simply  {O-Internet June 11 Comments at 3 (noting that MCI will retain fiber, "the heart of any Internet backbone"). Cf. Sprint June 11 Comments at 11, 16 (noting that C&W will be dependent on MCI to provide systems support and postulating that MCI is not transferring enough nodes). We agree with MCI that "... to the extent C&W purchases capacity on MCI's longdistance network (at negotiated competitive rates), it is no more dependent on MCI than numerous other backbone providers are on longdistance companies from which they buy longhaul fiber  X-capacity."SD yO -ԍxMCI July 15 Reply Comments at 13. S Similarly, a few commenters assert that, given the integration of MCI's Internet and telecommunications facilities and C&W's dependence on these facilities, C&W is  Xv-unlikely to be an independent and effective IBP.nXv yO-ԍxCWA June 11 Comments at 11; GTE June 11 Comments at 2930; GTE July 22 Motion at 4 (asserting that the "more ties C&W has to the WorldCom/MCI network, the less likely it is that the divestiture will result  yO-in the creation of an effective independent competitor in Internet backbone market").n In addition, at least one commenter maintains that, because MCI will continue to provide a host of nonInternet services to the transferred retail dedicated access customers, C&W will be, in effect, "sharing" its Internet  X1-customers with MCI.O1  yO-ԍxGTE June 11 Comments at 3132.O We are not persuaded by arguments that the integration of MCI's Internet and nonInternet business and facilities will prevent C&W from becoming an  X -effective competitor.  {O8-ԍxSee GTE July 28 Reply at 4 (arguing that MCI's practice of "main streaming" Internet operations with other services makes the status of multiuse facilities unclear). MCI acknowledges that the divestiture agreement contemplates that MCI and C&W will be sharing certain facilities as well as office space pursuant to a collocation agreement, and that the two companies will be providing one another certain services and sharing  {OZ-certain systems on a "arm's length contractual basis." MCI Aug. 25 Ex Parte II at 12. We are satisfied that these arrangements will in no way diminish C&W's viability as an independent competitor.  We find, for instance, that, given the noncompete clause, MCI will have no undue influence over C&W's newly acquired customers. In addition, we find that C&W is a sophisticated player that has both the ability and the incentive to protect its  X -interests. Significantly, C&W itself rejects the claim that it will be too dependent on MCI or  X -otherwise not a viable competitor.S  yOX!-ԍxC&W June 16 Reply Comments at 58.S  SHARED  Finally, we note that the DOJ and EC approvals support  X-this conclusion._ {O#-ԍxSee DOJ Press Release; EC Press Release._ "yZ"0*%%ZZ"Ԍ X-x155.` ` AT&T, Level 3, and several other commenters suggest that any divestiture would be inadequate unless the Applicants commit to peer with eligible companies on a  X-nondiscriminatory (and impliedly settlementsfree) basis. {OK-ԍxAT&T June 11 Comments at 67; Level 3 May 29 Ex Parte at 18. See CWA July 24 Ex Parte at 7 (asserting that the Commission should also initiate a proceeding to establish a mechanism to collect statistics on Internet traffic flow, market share and other statistics on the Internet marketplace); Fiber Network Solutions Mar.  {O-19 Reply Comments at 910; NetSet May 26 Ex Parte at 10; Letter from Terrence J. Ferguson, Senior Vice President and General Counsel, Level 3, to Magalie Roman Salas, Secretary, FCC at 5 (filed Aug. 7, 1998)  {O7-(Level 3 Aug. 7 Ex Parte) (stating that the Commission should condition approval of the merger on the Applicants removing traffic volume or balance requirements from their preexisting peering guidelines). We note, however, that these parties do not appear to agree about the specific qualities that would make a competitor "eligible" for peering. As discussed above, many commenters contend that, by denying peering, the Applicants erect a barrier to the entry of IBPs such as Level 3. We find that, given MCI's complete divestiture of its Internet business, any interconnection difficulties are not exacerbated by the instant merger. Thus, although we are concerned about the interconnection difficulties that commenters such as Level 3 articulate, we agree with the Applicants that the instant merger proceeding is not the  XH-appropriate forum to address these concerns."H yO-ԍxResponse of WorldCom and MCI to Ex Parte Presentations by Level 3, and Fiber Network Solutions, and to Reply Comments by NetSet at 34 (filed June 19, 1998) (WorldCom/MCI June 19 Response); Letter from Jean L. Kiddoo, Counsel for WorldCom, Swidler & Berlin, to Magalie Roman Salas, Secretary, FCC (filed  {O-Aug. 19, 1998) (WorldCom Aug. 19 Ex Parte). Accordingly, we refuse to condition the merger by requiring MCI WorldCom to adopt nondiscriminatory peering criteria. We note, however, that the difficulties new entrants have encountered in interconnecting with IBPs, which existed prior to the merger, are likely to continue after the merger. Therefore, we conclude that peering is likely to remain an issue that warrants monitoring.  X -x156.` ` We find, after independently reviewing all relevant portions of the proposed divestiture agreement, that it will result in a full and complete divestiture of MCI's Internet assets. Moreover, we conclude that this divestiture agreement eliminates the potential anticompetitive harms that would have resulted from the merger on the provision of Internet  Xb-backbone services. We reject commenters' claims that the Commission must solicit comment on MCI's current proposal, or that MCI otherwise has not provided us with sufficient  X4-information to reach this conclusion.4  {Om -ԍxBell Atlantic June 11 Comments at 2; BellSouth June 11 Comments at 2; CWA July 24 Ex Parte at 78; GTE July 22 Motion at 12, 6. We also reject CWA's suggestion that the Commission adopt a "forwardlooking oversight and enforcement mechanism" to ensure that  X-MCI WorldCom complies with the divestiture agreement.S {O$-ԍxCWA July 24 Ex Parte at 57.S"[t0*%%ZZ"Ԍ X-ԙ )J:\POLICY\MCIWCOM\MASTER\INTERNET) ,J:\POLICY\MCIWCOM\MASTER\TELSTRA.INT, x` ` 4. International Internet Issues   X-x157.` ` Telstra asserts that foreign ISPs face restrictive pricing, and that access arrangements would be exacerbated by the merger. In particular, Telstra claims that the Commission should examine the practice of major U.S. IBPs, such as WorldCom and MCI, to require foreign ISPs to pay "bundled" rates for private line facilities with Internet services in order to access the U.S. Internet backbone. Telstra also alleges the rates charged by major U.S. IBPs, including WorldCom and MCI, are not "costbased" in that foreign ISPs are required to pay for the entire international transmission circuit needed to access the U.S. Internet backbone. According to Telstra, this pricing arrangement is discriminatory because  X -the capacity is used to carry traffic in both directions.Z  {O -#XP\  P=QcXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#C\  P>Q2P#эxSee Telstra Jan. 5 Comments at 78.Z Telstra further contends that U.S. carriers can therefore subsidize their affiliated U.S. ISPs, which do not pay for international transmission costs. Telstra claims that this requirement is unjust and unreasonable and  X -violates section 201(b) of the Communications Act.Z Z {O-#XP\  P?QcXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#C\  P@Q2P#эxSee id.; Telstra Mar. 13 Comments and Petition for Reconsideration at 6. See also Inner City Press Jan.  yO-5 Petition at 10 (noting that foreign ISPs are complaining about the high settlement fees they must pay and the requirement that such ISPs pay the price for the full circuit to the United States).  X -x158.` ` Telstra also argues that the provisions of MCI's divestiture agreement with C&W relating to the lease of international private line and domestic backhaul facilities constitute basic common carrier services subject to the tariffing provisions of Title II of the  Xb-Communications Act and related regulations.Ub| {O-ԍxTelstra July 22 Ex Parte at 2.U Accordingly, Telstra contends, MCI may not lease such facilities to C&W until it has filed a tariff and obtained Commission approval. MCI, on the other hand, asserts that its agreement to sell its Internet business, and, specifically, that portion of the agreement relating to the lease of transmission capacity to C&W, constitutes "private carriage," and thus is not subject to common carrier filing  X-obligations. yO-ԍxLetter from Larry A. Blosser, Senior Counsel, MCI, to Magalie Roman Salas, Secretary, FCC at 34  {Ov-(filed Aug. 19, 1998) (MCI Aug. 19 Ex Parte).  X-x159.` ` We conclude that Telstra's claims do not warrant action in this proceeding. First, we find that "bundling" arrangements do not restrict the options available to foreign ISPs seeking to access the U.S. Internet backbone or disadvantage alternative providers of international transport of Internet backbone services. There is no evidence in the record demonstrating that either WorldCom or MCI require foreign ISPs to pay a bundled rate for access to the U.S. Internet. In fact, UUNET materials indicate that foreign ISPs may choose"N\h 0*%%ZZ*!" either a bundled offering to access the U.S. Internet backbone or the backbone services alone. Specifically, UUNET's web site maintains that it "can provision the International leased line  X-or satellite connection, or the customer may deliver the circuit to UUNET." {OK-#XP\  PAQcXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#C\  PBQ2P#эXxSee UUNET, US Transit, .(#Ɔ Moreover, Telstra itself has entered into arrangements using its own international circuits to interconnect  X-to the U.S. Internet backbone.$Z {O-#XP\  PCQcXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#C\  PDQ2P#эxTeleglobe, Teleglobe, Telstra Launch First HighSpeed Internet Link Combining Simplex Satellite and  {Oy-Fiber Cable Facilities, ("The connection uses Telstra's existing transoceanic cable capacity for the inbound link to the United States and a 45 mbps simplex satellite link for the return link to Australia.").  In addition, the record does not demonstrate that WorldCom or MCI provides services subject to Title II regulation on rates, terms, and conditions that are  Xv-unjust or unreasonably discriminatory, in violation of the Communications Act.SvF yOm -ԍx47 U.S.C.  201(b), 202(a).S We therefore decline to condition the merger on MCI WorldCom's provision of costbased  XH-unbundled access to the Internet backbone, on tariffed terms, for U.S. and nonU.S. ISPs.\H {O-ԍxSee Telstra Jan. 5 Comments at 1213.\ Accordingly, we also deny Telstra's request that we adopt corresponding recordkeeping and  X -reporting requirements to ensure these conditions can be monitored.A h  {O3-ԍxId. at 13.A  X -x160.` ` Second, we conclude that this merger is not the appropriate forum to consider Telstra's claim regarding Internet costsharing. Telstra itself acknowledges that this matter extends beyond the Applicants to "the current pricing arrangements of U.S. carriers for  X -international Internet access."@  {OR-ԍxId. at 8.@ As such, we find that Telstra's claim is beyond of the scope of this proceeding.  Xb-x161. ` ` Third, although we find that Telstra raises serious concerns with respect to the terms and conditions under which C&W is leasing transmission facilities from MCI, we need not resolve its tariffing dispute in the instant proceeding. Notably, Telstra does not allege that MCI is currently in violation of the Communications Act or the Commission's tariffing  X-rules.DZ  {OC"-ԍxTelstra July 22 Ex Parte at 2 (stating that "prior to furnishing C&W  with a 'favorable' two year lease for [international private line] facilities, MCI would need to file appropriate tariffs and/or contracts with the [Commission] for approval") (emphasis added).D Indeed, should MCI and C&W effectuate their divestiture agreement, we assume that, to the extent any portions of the agreement involve common carrier services subject to"]0*%%ZZ " the Commission's tariffing requirements, MCI will adhere to these requirements. If, at that time, Telstra believes that MCI is not in compliance with the Communications Act or our rules, it may press that claim by filing a complaint under section 208. Likewise, should the Commission discover that MCI is not in compliance with our tariffing rules, we have the ability to initiate our own investigation. Although we condition this merger on the sale of MCI's Internet business to C&W, we decline to delay consummation of the instant merger in order to resolve this potential tariffing issue. ,J:\POLICY\MCIWCOM\MASTER\TELSTRA.INT, &J:\POLICY\MCIWCOM\MASTER\LOCAL& x  XH-x D.` ` Local Exchange and Exchange Access Services   X -x162.` ` We consider in this section the competitive effects of the proposed merger in the markets for domestic local exchange and exchange access service. As discussed below, we treat retail local exchange and exchange access service as consisting of two relevant  X -product markets: (1) the mass market; and (2) the larger business market.a  {ON-ԍxSee supra para. SEGMENT25.a We conclude that the relevant geographic market in which to measure the effects of this merger on local exchange and exchange access services consists of the local areas in which both of the merging parties provide service.  Xb-x163.` ` Applicants contend that the proposed merger can have no anticompetitive effects in local exchange and exchange access markets given the continued domination of an  X4-incumbent LEC in each geographic region.^4Z yO?-ԍxWorldCom/MCI Mar. 20 Reply Comments at 1112.^ The Applicants further claim that a primary benefit of this merger is that the merged entity will act as an "icebreaker" in the local exchange and exchange access markets, breaking the market domination of the incumbent  X-LECs and clearing a path that other competing LECs may follow.^ yO-ԍxWorldCom/MCI Jan. 26 Reply Comments at 1718.^ For the reasons described below, we conclude that the merger likely will not impair competition in the markets for local exchange and exchange access services. We evaluate Applicants' claim that the merger will benefit local exchange and exchange access customers in the potential public  X-interest benefits section of this Order below.Sz {O-ԍxSee section V infra. S We also address below commenters' allegations that MCI WorldCom will retreat from its plans to provide local service to  Xe-residential customers.Ve  {O"#-ԍxSee section IV.E infra. V x` ` "N^0*%%ZZH!"Ԍ X-x` `  1.Relevant Markets  x  X-x164.` ` Product Market. We identify local exchange and exchange access service as consisting of two distinct product markets: the mass market and the larger business market. We believe it is necessary to distinguish between these two markets because the services offered to one group may not be adequate or feasible substitutes for services offered to the  Xx-other group,sZx yO-ԍxFor example, residential customers may want local service featuring call waiting, whereas large business/government customers may not need call waiting, but may want or require multiple lines, ISDN, or an  {O -extensive voice mail system. See Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20016, para. 53.s and because firms need different assets and capabilities to target these two  Xa-markets successfully.a {O -ԍxSee AT&T/TCG Order at para. 20. Further, as the Commission recognized in the Bell Atlantic/NYNEX  {O -Order, residential and small business customers have a "different decision making process" than larger business customers. For example, residential and small businesses are served primarily through mass marketing techniques including regional advertising and telemarketing, while larger businesses tend to be served under  {O -individual contracts and marketed through direct sales contracts.  Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20016, para. 53. We also conclude that local exchange and exchange access service is distinct from long distance service. The Commission has previously identified local exchange  X3-and exchange access as a product market separate from long distance.3h  {OL-ԍxAT&T/TCG Order at para. 20; Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20015, para. 51. We reaffirm that determination and adopt it here because, in their purchasers' eyes, each of these services is a distinct product lacking good substitutes.  X -x165.` ` We agree with Applicants that, for purposes of analyzing local markets in this case, there is no need to distinguish between mediumsized business customers and large business/government customers, because both sets of customers share many relevant characteristics. For example, both sets of business customers face contracttype tariffs and typically are served by "facetoface" sales and customer service representatives. Also, both  Xd-require switched and dedicated access services.\d  yO-ԍxWorldCom/MCI Mar. 20 Reply Comments at 67.\  XM-XxX` ` (#`  X6-x166.` ` Geographic Market. In the LEC Regulatory Treatment Order, the Commission found that each pointtopoint market constituted a separate geographic market, but further concluded that groups of pointtopoint markets could be considered relevant markets where  X-consumers faced the same competitive conditions.  {O.#-ԍxLEC Regulatory Treatment Order, 12 FCC Rcd at 1579295, at para. 67 n.181. Bell Atlantic/NYNEX  {O#-Order, 12 FCC Rcd at 2001617, para. 54. In the AT&T/TCG Order, we observed that discrete local areas may constitute separate relevant geographic markets for local"_0*%%ZZ"  X-exchange and exchange access services.R {Oy-ԍxAT&T/TCG Order at para. 21.R We affirm that local areas constitute separate geographic markets, because people dissatisfied with their local exchange service cannot substitute a local exchange service from a different area. Consumers of local services in St. Louis, Missouri, for example, cannot substitute the local services offered by carriers in New York City, New York.  Xv-x167.` ` For purposes of this transaction, we need to analyze those geographic markets for local exchange and exchange access services in which one or both of the merging parties provide service. These markets are ones where both merging parties actually operate or where the potential is greatest that both will operate in the future. We focus on these markets because the merger can have anticompetitive effects only in markets where both firms actually or potentially operate. The arguments in the record, however, are not entirely clear concerning the precise contours of these local geographic markets. GTE, for example, appears to suggest examining the 26 "markets" in which it claims WorldCom and MCI have "overlapping" local facilities in order to evaluate how the merger would affect competition in  X -the local exchange and exchange access market.XZ Z {O-ԍxGTE Jan. 5 Petition at 44. See, e.g., GTE Mar. 13 Comments, Attach. 1 at 7 (summarizing petitioners' and commenters' submissions regarding local geographic markets as saying they should be defined as "[e]ach city where MCI and WorldCom have overlapping existing or planned facilities"). X Applicants contend in their initial filing, however, that WorldCom and MCI networks in the same city frequently do not traverse the same streets and do not serve the same buildings, and that in such cases there is no "overlap"  Xb-in the sense of duplicate or redundant facilities.[b| yO-ԍxWorldCom/MCI Jan. 26 Reply Comments at 16.[ In a later filing, the Applicants contend that the properly defined area on which to base geographic market definition is the  X4-metropolitan area.`4  yO-ԍxWorldCom/MCI Mar. 20 Reply Comments at 6.` We note, in contrast to the Applicants' contention, that there may be metropolitan areas where, because of the location of facilities and the cost of expansion, the geographic market unit might be a smaller area.  X-x168.` ` 6%6%Although we have concluded, in principle, that the appropriate relevant geographic market consists of the local areas where WorldCom and/or MCI have facilities, we find that, for purposes of this transaction, we need not assess each such area separately in order to determine whether there are potential anticompetitive effects. Competition is still in its infancy in the vast majority of local areas. Applicants have submitted information showing that even in the market for business customers in the New York metropolitan area, which they characterize as "probably the most competitive local exchange market in the"N`0*%%ZZ"  X-country," the incumbent LEC has lost only six percent of the market to competitors. yOy-ԍxWorldCom/MCI Jan. 26 Reply Comments at 89, 1314, Attach. A (citing an analysis of Bell Atlantic and competing LEC access lines prepared by the New York Public Service Commission). In  X-many other places, the incumbent LEC's market share is or approaches 100 percent.Z  yO-ԍxWorldCom/MCI Mar. 20 Reply Comments at 7.Z If, as Applicants suggest, incumbent LECs have lost no more than six percent of the market in any local area, then, even assuming that WorldCom and MCI were the only competing LECs, their combined market share could never exceed six percent. These market shares suggest that, even under the worst case of attributing the highest possible local market share to the combined entity, immediate anticompetitive effects are unlikely and, therefore, there is no need to assess each market separately. We now proceed to analyze whether, apart from market share considerations, there are reasons to find the merger anticompetitive in local markets generally.  X -XxX` `  2.Market Participants (#`  X -Xx` `   a.hhMass Market (#  X -x169.` ` Having defined relevant markets, we proceed to identify the participants in those markets. Because the local exchange and exchange access markets are in transition, and because both WorldCom and MCI were, until recently, precluded competitors in these market, we identify both actual participants and precluded competitors. We also seek to determine whether, out of the universe of market participants, the merger would eliminate one among a limited number of most significant participants so as to undermine the development of  X-competition as the 1996 Act is being implemented.| {O~-ԍxSee Bell Atlantic/NYNEX Order, 12 FCC Rcd at 2002223, paras. 6566. |  X-x170.` ` As we recently noted in the AT&T/TCG Order, incumbent LECs are still the sole actual providers of local exchange and exchange access services to the vast majority of  X-mass market customers in most areas of the U.S.B {O-ԍxSee AT&T/TCG Order at para. 24 & n.80 (noting that incumbent LECs earned 98.6 percent of all the local exchange and exchange access revenues generated nationwide). This fact is also borne out in the record  X-in the instant proceeding. {O!-ԍxSee WorldCom/MCI Jan. 26 Reply Comments at 13, Carlton and Sider Decl. at 5 and Table 1; WorldCom/MCI Mar. 20 Reply Comments at 78. We therefore consider incumbent LECs to be most significant market participants in the mass market for local exchange and exchange access service. "~a 0*%%ZZ2"Ԍ X-x171.` `  CAPAB As for other significant market participants, the AT&T/TCG Order reaffirmed  X-the Commission's finding in the Bell Atlantic/NYNEX Order that AT&T, MCI, and Sprint were previously precluded competitors that were among the most significant participants in  X-the mass market for local exchange and exchange access services.\ {O8-ԍxSee AT&T/TCG Order at para. 25.\ Likewise, we affirm that  X-determination here. The Commission, in the Bell Atlantic/NYNEX Order, did not identify WorldCom as among the most significant market participants in the provision of local  X|-services to the mass market.{|Z {O -ԍxSee Bell Atlantic/NYNEX Order, 12 FCC Rcd at 2003233, paras. 8788.{ Nor do we find reason now to include WorldCom among the most significant market participants in the instant merger proceeding. Although WorldCom possesses the requisite knowledge, operational infrastructure, and reputation for providing high quality reliable service, all of which are important capabilities to the successful operation  X -of a local telephone company serving residential and small business customers,W  {O-ԍxId. at 2002021, para. 62.W we find that it lacks the level of brand name recognition enjoyed by the incumbent LEC in its region and  X -the three large IXCs nationwide.$ ~ {O!-ԍxAs the Commission noted in the Bell Atlantic/NYNEX Order, brand name recognition is a "critical" asset  {O-for offering services in the mass market. Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20031, para. 84. Although a competitor can in time develop brand name recognition, the need to do so may render a competitor incapable of having an effect on competition while the 1996 Act is being implemented. Significantly, we also find that WorldCom, in contrast to AT&T, MCI, and Sprint, lacks existing customer relationships with a substantial number of  X -mass market customers." j  yO-ԍx In 1997, the top three long distance carriers had the following residential long distance market shares:  yO-AT&T had 67.2 percent, MCI had 12.6 percent, and Sprint had 5.7 percent. WorldCom's residential long distance market share is not separated from the remaining long distance carriers because WorldCom has a small  {O7-share of the residential end user market.  See 1998 Long Distance Market Shares Report at 21 n.12 & 22. Because WorldCom is not a most significant market participant in the mass market, we conclude below that its combination with MCI is unlikely to retard competition to mass market consumers in any local market. This conclusion is further  X-buttressed when we consider the number of firms, some of which are described below,zT  {O-ԍxSee infra paras.  SIGN174 שSIGN2181. z that appear to be at least as wellsituated as WorldCom to provide local exchange and exchange access services to the mass market. ":b0*%%ZZH"Ԍ X- x` `  b. hhLarger Business Market (#h  X-x172.` ` We recently noted in the AT&T/TCG Order that incumbent LECs continue to  X-dominate the market for local exchange and exchange access service to business customers.R {O6-ԍxAT&T/TCG Order at para. 26.R We observed, however, that in contrast with the relative lack of competition incumbent LECs experience in the mass market for local service, they face increasing competition from  Xx-numerous new facilitiesbased carriers in serving the larger business market.:xZ {O -ԍxId.: Nevertheless,  Xa-we affirm our finding that incumbent LECs still dominate the larger business market for local exchange and exchange access service.  X -x173.` ` Our analysis of the record in this proceeding and of publicly available information confirms our earlier conclusion that there are a large number of firms that actually compete or have the potential to compete in this market. We find that a large number of firms, including WorldCom and MCI, all have the necessary capabilities and  X -incentives to compete in the larger business market.X  yO]-ԍx#]\  PC2P#For example,#]\  PC2P# some of the capabilities important for a competing LEC's success include an experienced management team, marketing expertise, ownership of network and infrastructure, access to capital, efficient  yO-operations, an integrated product offering, and a high level of customer service. #x6X@KX@# In the following paragraphs, we briefly discuss the capabilities and incentives of certain of these firms, including WorldCom  X-and MCI. We note, however, that this list of companies is not intended to be exhaustive.x  yOO-ԍxApplicants argue that competitors, or potential competitors, for local exchange and exchange access services market include electric and gas utilities, wireless carriers, other interexchange carriers, independent telephone carriers, construction companies, cable companies, and outofregion incumbent LECs. WorldCom/MCI Jan. 26 Reply Comments at 17. We find that there are a sufficient number of market participants on our list below to allay anticompetitive concerns in the larger business market; therefore, we conclude that we need not reach the question of whether the types of companies identified by Applicants are potential competitors in this market.  Xd-x174. LARGE ` `  SIGN WorldCom. Although WorldCom's market share in the local areas in which it  XO-serves business customers is quite low, never exceeding 6 percent,mOL  {OL -ԍx See supra at para.  6%168 . m we find that WorldCom currently possesses capabilities for success in the larger business market. WorldCom's local"c0*%%ZZ*" exchange subsidiaries, Brooks Fiber and MFS, combine the advantages of extensive  X-facilities,; yOy-ԍx Applicants describe WorldCom as perhaps the furthest along among competitive LECs in constructing local access facilities, citing 13,000 buildings served in 23 states as a "far greater number than reported by any  {O -other competitive access provider." See WorldCom/MCI Jan. 26 Reply Comments, Carlton and Sider Decl. at 5 {O-7. This makes WorldCom at least comparable in size to TCG. See AT&T/TCG Order at para. 5 n.16. existing customer accounts, {Oe-ԍx WorldCom has a "diverse business base." See WorldCom/MCI Mar. 20 Reply Comments at v. substantial experience in both sales and customer care, and superior management. Both Brooks Fiber and MFS have accumulated experience in providing local exchange and exchange access services to business customers. MFS has focused on building extensive fiber networks in a number of major metropolitan areas,  X-including the New York City metropolitan area.w] {O -ԍxSee Bell Atlantic/NYNEX Order, 12 FCC Rcd at 2003233, para. 87.w Brooks Fiber, by contrast, has built a reputation for providing quality service in smaller cities and, according to one analyst's report, was the first competing LEC to achieve significant success in using unbundled local  XH-loops.H {O-ԍxBruce J. Roberts, Local Telecommunications Industry, SBC Warburg Dillon Read, Inc., Sept. 16, 1997, at 40. WorldCom also has significant capabilities for serving the business long distance market, including facilities, customer relationships, and "know how."  X -x175.` ` MCI. Like WorldCom, MCI has a relatively small share of the larger business market for local exchange and exchange access service. The record shows, however, that MCI has a widelyrecognized brand name, recognized marketing expertise, and a broad base  X -of business customers.Z I  yO-ԍxWorldCom/MCI Jan. 26 Reply Comments at 9.Z Further, MCI's local exchange services division, MCImetro, has an established network of facilities in place, including switches in 15 cities, with switches  X-planned or pending for another seven cities.\  yO-ԍx#]\  PC2P#Letter from Andrew D. Lipman, Counsel to WorldCom, Swidler & Berlin, to Magalie Roman Salas,  {O-Secretary, FCC, Exhibit 1, (filed June 24, 1998) (citing 1997 Annual Report on Local Telecommunications  {O-Competition, New Paradigm Resources Group, Inc. at 16585) (WorldCom June 24 Ex Parte).#x6X@KX@# Moreover, like WorldCom, MCI has significant capabilities for serving the business long distance market, including a vast customer base, "know how," and existing facilities.  X6-x176.` ` AT&T/TCG. AT&T/TCG presently has substantial assets, capabilities, and incentives for competition in the larger business market for local exchange and exchange  X -access services. Selfdescribed as the nation's first and largest competing LEC,   yO#-ԍxTCG 1997 Annual Report at 17 (1998).  ā TCG is a wellestablished and recognized competing LEC primarily serving the business market. TCG"d0*%%ZZ" has a large base of business customers, serving 83 markets in the United States, including 29  X-of the largest 30.t {Ob-ԍxTCG 1997 Annual Report at 5; AT&T/TCG Order at para. 5.t It has extensive facilities to serve local exchange and exchange access customers, with 50 local switches deployed and a network encompassing more than 300  X-communities coast to coast.Z {O-ԍx#]\  PC2P#AT&T Press Release, AT&T Completes TCG Merger; TCG Now Core of AT&T Local Services Network  {O-Unit (July 23, 1998) . These assets have been combined with AT&T's access to capital and existing base of business long distance customers, enhancing the combined AT&T/TCG's ability to provide integrated endtoend services for large and small business  Xv-customers.av {O -ԍx#]\  PC2P#Id.a  XH-x177.` ` NEXTLINK Communications (NEXTLINK). NEXTLINK possesses important capabilities and incentives for success in the relevant market, including experienced  X -management and financial ability.O H yO-ԍxCS First Boston Report at 114.O Regarding the latter, NEXTLINK is distinguished by the fact that it has a single controlling shareholder, Craig McCaw. According to one financial analysis group, McCaw has a longterm focus and "deep pockets," allowing NEXTLINK not to be concerned about shortterm fluctuations in the stock market so that the company may  X -focus on building fundamental growth.:  {OI-ԍxId.: Further, NEXTLINK "intends to build robust and  X -extensive networks in its markets in order to ultimately put more customers onnet."B j  {O-ԍxId. at 113.B At present, NEXTLINK operates 18 switches providing local and long distance service to  X{-business customers in 32 markets in nine states.{  {O(-ԍx#]\  PC2P#NEXTLINK Press Release, Fast Growing NEXTLINK Communications Reports Strong 2Q Revenue  {O-Growth (July 30, 1998) .  XM-x178.` ` McLeodUSA. McLeodUSA currently has 344,000 local lines in service  X8-(253,600 on its own facilities) in 10 states.8X  {OA!-ԍx#]\  PC2P#McLeodUSA Press Release, McLeodUSA Reports Continued Growth in Revenues and EBITDA for  {O "-Second Quarter 1998 (July 29, 1998) . Although it has been noted that McLeod USA's"8e0*%%ZZf"  X-resale strategy has resulted in the company limiting its initial investments in facilities,$ {Oy-ԍx#]\  PC2P#CS First Boston Report at 98. See also Ken Hoexter and Richard Klugman, Competitive Local  {OC-Exchange Carriers, Goldman Sachs U.S. Research, July 1, 1997 at 71 (stating that McLeodUSA focuses on short term customer acquisition, using a resale strategy to capture market share in second and third tier markets, prior  yO-to a competitive reaction by the incumbent LEC). #x6X@KX@# the company has strategic alliances with utility companies that will aid it in acquiring rightsof X-way and in completing future buildouts.O yO7-ԍxCS First Boston Report at 101.O In addition, McLeodUSA has been widely  X-renowned for its strong marketing capabilityD {O -ԍxFrank J. Governali, CFA and John D. Doughty, McLeodUSA Equity Research, Credit Suisse First Boston Corporation, May 26, 1998 at 2. and very low customer churn.@Z {O -ԍ#]\  PC2P#xBruce J. Roberts, Local Telecommunications Industry, SBC Warburg Dillon Read Industry Report, Sept.16, 1997, at 77 (stating that a low churn rate indicates that the incumbent LECs are not winning back McLeodUSA customers). @ These assets and capabilities, both those existing and under development, may well enable McLeodUSA to acquire a critical mass of business customers.  X_-x179.` ` e.spire Communications (e.spire, formerly ACSI). e.spire provides switched local exchange service in 37 metropolitan areas, including 32 areas where it maintains its own  X3-fiber optic rings,3  {O-ԍxMark Kastan, C.F.A., e.spire Communications, Inc. Comment, Merrill Lynch, May 12, 1998, at 2 (Merrill Lynch May 12 Report). and operates 85,633 local lines.3 {O-ԍx#]\  PC2P#e.spire Press Release, e.spire Revenue Triples For Sixth Successive Quarter (July 30, 1998) . Further, the company has highcaliber  X -management and the operational and marketing capabilities to offer a range of services.N t yOA-ԍxCS First Boston Report at 45.N e.spire's strategy of providing a fully integrated suite of both voice and data services assists e.spire in differentiating its local service offering, allowing the company to obtain more easily  X -new customers and to reduce churn.X  yO-ԍxMerrill Lynch May 12 Report at 2.X  X -x180.` ` Other Wireline Competing LECs. As noted above, the preceding list of wireline competing LECs with capabilities and incentives similar to those of WorldCom and MCI should not be taken as exhaustive. The opportunity faced by wireline competing LECs in the larger business market for local exchange and exchange access service is relatively "ff0*%%ZZ"Ԍ"generic," in the words of one market analyst, not materially favoring any one competing  X-LEC extraordinarily at this time.Z {Ob-ԍxSee CS First Boston Report at 710.Z Currently firms are adopting a variety of strategies for entering this market and meeting with initial success, suggesting that no one combination of  X-capabilities can be deemed essential to success.Z yO-ԍxFor example, Focal Communications Corporation, a competing LEC founded in 1996, focuses on providing facilitiesbased switched local services to large telecommunicationsintensive users. This contrasts Focal with other competing LECs that also serve small and mediumsized businesses and provide bundled  {O -communications services. See Focal Communications Corporation Company Profile (1998) . Although impediments to successful competition with the incumbent LEC may remain significant even after implementation of the 1996 Act, we nevertheless find that many wireline competing LECs appear to have incentives and capabilities similar to those of WorldCom and MCI.  XH-x181. LARGE2 ` `  SIGN2  WinStar Communications (WinStar) and Other Fixed Wireless Competing  X3-LECs. We find that WinStar also has the requisite capabilities and incentives to compete in this market. WinStar has used a "wireless local loop strategy;" rather than connecting customers to its switches with copper lines or fiber, WinStar employs a wireless transmission process similar to that used in cellular telephones. According to one analyst's report, WinStar's wireless strategy has helped it to obtain a more fully developed buildout than most other competing LECs, a greater number of access lines, and a higher percentage of lines on X -net.O  yOh-ԍxCS First Boston Report at 140.O This strategy also gives WinStar a speedtomarket advantage, through its ability to  X-deploy rapidly as demand increases. {O-ԍx#]\  PC2P#Ken Hoexter and Richard Klugman, Competitive Local Exchange Carriers, Goldman Sachs U.S.  yO-Research, July 1, 1997 at 5. #x6X@KX@# Further, WinStar benefits from having experienced  X}-managers, many of whom were previously at MCI.O}  yO$-ԍxCS First Boston Report at 143.O The company has increased its  Xf-nationwide sales presence to 26 markets and has installed lines surpassing 195,000.f  {O-ԍx#]\  PC2P#WinStar Press Release, WinStar Reports Second Quarter CLEC Revenues More than Quadrupled Over  {Og-1997 (Aug. 5, 1998) .  X8-x182.` ` We find that other wireless competing LECs have or will rapidly acquire sufficient assets, capabilities, and incentives so that they should be counted as equally significant as the merging parties. Teligent, to name one such company, has wellknown" g0*%%ZZ " management talent, has installed ten switches and has recently begun providing voice and data  X-services over its integrated digital wireless networks in five markets., {Ob-ԍxTeligent Press Release, Teligent Reports Second Quarter Financial Results, Raises '98 Launch Goal to  {O,-15 Markets (Aug. 11, 1998)  . ,  X- x` `  v3.` Analysis of Competitive Effects (#  X-XxX` ` X a.hhMass Market (#h  X_-x183.` ` We conclude that the proposed merger will likely have no unilateral or coordinated anticomvpetitive effects on the mass market for local exchange and exchange access service. Given the continued dominance of the incumbent LECs in each local market  X -and the limited market entry of WorldCom and MCI to date in the mass market,}Z $ {O -ԍxAs noted supra at para.  6%168 , incumbent LECs have, at minimum, a 94 percent market share of the local exchange and exchange access services in every geographic market. Thus, WorldCom's share of local mass market customers could not be higher than six percent in any region, and is likely to be substantially lower.} we find no basis to conclude that the combined firm could unilaterally increase local prices, or prevent them from falling, after the merger, even in the absence of regulation. Further, we find no reason to believe that the merger would lead to coordinated interaction with incumbent LECs or other current market participants. Indeed, we find persuasive Applicants' contention that, in entering local markets, they must strive to undercut the incumbent's price in order to grow  X-market share.ZF yO-ԍxWorldCom/MCI Jan. 26 Reply Comments at 8.Z  Xb-x184.` ` Nor do we believe that the merger will retard the development of competition in the slightly longer term, because WorldCom is not among a limited number of most  X4-significant market participants serving the mass market."4 yO-ԍxWe therefore disagree with those commenters that contend that WorldCom is a most significant  {O-participant in the mass market. See GTE Mar. 13 Comments at 89; GTE June 11 Renewed Motion at 58. As noted above, however, the Commission has previously found MCI to be a significant competitor in the mass  yO-market for local exchange and exchange access services.  Rather, as we recognized above, there are a number of firms that appear to be at least as wellsituated as WorldCom to  X-provide local exchange and exchange access services to the mass market.Z  {Ow!-ԍxSee supra para. CAPAB171.Z Thus, we disagree with commenters' claims that the merger of WorldCom and MCI will result in a"hR 0*%%ZZ"  X-reduction in the number of most significant market participants.X\ {Oy-ԍxSee GTE Jan. 5 Comments at 43; GTE June 11 Renewed Motion at iv. See also Rainbow/PUSH May 21 Renewed Motion at 8. We address commenters' concern that MCI will exit the residential market as a result  {O -of this merger in section IV.E infra.X As the Applicants point out, because "the number of significant participants does not change for local markets, no  X-'smaller' group exists that makes such [coordinated] interaction possible."[ yOo-ԍxWorldCom/MCI Mar. 20 Reply Comments at 14.[  X-XxX` ` X b.hhLarger Business Market (#h  Xv-x185.` ` We conclude that the merger of WorldCom and MCI is unlikely to result in unilateral or coordinated anticompetitive effects in the provision of local exchange and exchange access services to larger business customers. Our conclusion is based on the large number of other participants serving the larger business market, as described above, that have capabilities and incentives similar to those of WorldCom and MCI, and on the relative ease of acquisition of the assets and capabilities needed to compete successfully for business customers. We expect that, in all the relevant geographic markets, a number of competing LECs have, or will soon have, the ability to enter those markets successfully, and will do so  X -with diverse combinations of assets and capabilities.  X-x186. ` ` As the Commission noted in the Bell Atlantic/NYNEX Order, the potential competitive significance of the loss of a market participant diminishes if there are a large number of other competitors with similar capabilities and incentives remaining after the  XM-merger. Specifically, it found that "[i]f 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  X-may be unlikely to remove much individual discipline from the market."w| {OL-ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 20022, para. 65. w As we have  X-explained above,| {O-ԍxSee supra paras. LARGE174שLARGE2181. | there are a large number of competitors with the requisite capabilities and incentives for success, certainly more than the limited number of most significant participants  X-found by the Commission in the Bell Atlantic/NYNEX Order. We thus conclude that the merger will not eliminate one of a limited number of most significant market participants.  X-x187. ` ` Moreover, the merger does not appear to raise competitive concerns in the near  X-term or the slightly longer term. In the near term, we expect that, in some local areas, few competing LECs other than MCI WorldCom will have the customer accounts or extensive facilities possessed by the merged entity. In all such cases, however, the merged entity will face competition from an incumbent LEC with a dominant market share which, as Applicants";i0*%%ZZ" have noted, will substantially curb the risk of unilateral anticompetitive effects from the  X-merger. yOb-ԍxWorldCom/MCI Jan. 26 Reply Comments at 8; WorldCom/MCI Mar. 20 Reply Comments at 8. We also agree with Applicants that anticompetitive coordinated effects are unlikely to arise from the merger in the near term, because the merged entity will be sufficiently small relative to the incumbent LEC in each market that it will have a strong incentive to undercut  X-the incumbent to gain market share.`X yO-ԍxWorldCom/MCI Jan. 26 Reply Comments at 8.` In addition, we find that, because a large number of firms possess the necessary capabilities and incentives to compete in this market, they will be able to replicate relatively quickly the merged entity's facilities and customer base, thus  X_-alleviating any potential for coordinated effects in the slightly longer term._ yO -ԍxThe Commission has noted previously that having fewer firms in the market facilitates coordinated interaction for at least three reasons: (1) the relative gains from "cheating" against the other firms decrease; (2) it becomes easier to detect deviations from the coordinated conduct; and (3) other firms are better able to punish  {OP-cheating by a deviant firm through retaliation. See Bell Atlantic/NYNEX Order, 12 FCC Rcd at 2004748, para. 121. We find, conversely, that markets with large numbers of participants are less likely to experience coordinated interaction. &J:\POLICY\MCIWCOM\MASTER\LOCAL& )J:\POLICY\MCIWCOM\MASTER\RESIEXIT)  X1-x E.` ` Provision of Long Distance and Local Service to Residential Customers   X -x188.` ` In this section we address allegations that the merger is contrary to the public interest because, as a direct consequence of the merger, the merged entity will jettison some  X -or all of its residential long distance customers b  {O-ԍ xSee, e.g., BellSouth Jan. 5 Petition at 67; Rainbow/PUSH Jan. 5 Petition at 19. and retreat from what commenters identify as MCI's prior intention to provide local exchange and exchange access service to mass  X -market customers.NB  yOL-ԍxAFLCIO Jan. 5 Comments at 6; CWA Jan. 5 Comments at 2024; Rainbow/PUSH Jan. 5 Petition at 18; CWA Jan. 26 Reply Comments at 14; CWA Mar. 20 Reply Comments at 816; GTE June 11 Renewed Motion at 5557; Letter from Damon A. Silvers, Associate General Counsel, AFLCIO, to Magalie Roman Salas, Secretary, FCC, Attach. at 23 (Letter from John J. Sweeney, President, AFLCIO, Steve Protulis, Executive Director, National Council of Senior Citizens, and Rev. Dr. Joan Brown Campbell, National Council of Churches  {O4-to William E. Kennard, Chairman, FCC) (filed Aug. 7, 1998) (AFLCIO Aug. 7 Ex Parte); Letter from Gene Kimmelman, CoDirector, Washington Office, Consumers Union, to William E. Kennard, Chairman, FCC at 12  yO-(filed Aug. 10, 1998).N Several commenters contend that a merged MCI WorldCom is unlikely to serve mass market customers in the future, because the merged entity would claim that  Xy-serving these customers is unprofitable.u y yO(#-ԍxRainbow/PUSH Jan. 5 Petition at 1819; CWA Jan. 5 Comments at 1920.u For example, commenters point to an  Xb-announcement in the Washington Post, attributed to WorldCom's ViceChairman and Chief Operating Officer John Sidgmore, that the merger entity would transfer MCI's current long"Mj 0*%%ZZ" distance customers to another firm, because it is difficult to "make economic sense" out of the  X-"consumer business."  {Ob-ԍ xSee, e.g., CWA Jan. 5 Comments at 19 (citing Mike Mills, "WorldCom Would Shift MCI's Focus; Bidder Plans to Shed Residential Service," Washington Post, Oct. 3, 1997); Alliance for Public Technology Jan. 26 Reply Comments at 3. Commenters assert that MCI WorldCom's withdrawal from providing long distance service to the mass market would make it less likely that the merged entity would offer local exchange and  {O-exchange access services to this market. See Rainbow/PUSH Jan. 5 Petition at 18; AFLCIO Jan. 5 Comments  {ON-at 6; AFLCIO Aug. 7 Ex Parte at 23. In particular, CWA argues that the merged entity will be a financially weaker, company because of the premium price WorldCom paid for MCI and the  X-debt WorldCom will incur to pay for British Telecom's share of MCI.! ~F yO -ԍxLetter from Debbie Goldman, Research Economist, CWA to Magalie Roman Salas, Secretary, FCC,  {Oz -Attachment "Taking the MCI Out of Local Competition" Report at 1 (filed July 2, 1998) (CWA July 2 Ex  {OD -Parte); CWA Mar. 20 Reply Comments, Shapiro Aff. at 6 (asserting that a merger between WorldCom and MCI will create an entity that will be under extreme pressure to deliver on promised market share growth, cost  {O -reductions, and other synergies).  See CWA Jan. 5 Comments at 22 n. 51; CWA Mar. 20 Reply Comments,  yO-Shapiro Aff. at 45 (contending that the debt overhang will reduce cash flow that might otherwise have been available for infrastructure expansion). ! As a result, CWA concludes, the merged entity will be under financial pressure to pursue highmargin business  X-customers and abandon the pursuit of lowmargin residential customers.   {O-ԍxSee, e.g., CWA July 2 Ex Parte at 1; Letter from George Kohl, Senior Executive Director, CWA, to  {O-Magalie Roman Salas, Secretary, FCC at 10 (filed Aug. 5, 1998) (CWA Aug. 5 Ex Parte).   X_-x189.` ` In support of its claim that the merger will cause MCI to abandon its plans to enter the residential local market, CWA argues that the "overwhelming portion" of what CWA characterizes as $5.3 billion in "synergy" savings cited by Applicants in their filings will be realized through a withdrawal from plans to provide local service to the mass  X -market.   yO-ԍ x CWA Jan. 5 Comments at 1624 (citing WorldCom SEC Form 8K, Exhibit 99.3, "MCI and WorldCom Analysts Presentation Given on Nov. 10, 1997"); CWA Jan. 26 Reply Comments at 1214. Similarly, AFLCIO refers to the $5.3 billion figure as "reduced local spending,"  X -reflecting a "change in business strategy, not just efficiency savings."Z @ {O-ԍxAFLCIO Aug. 7 Ex Parte at 2.Z Moreover, BellSouth and Rainbow/PUSH argue that the cost of the merger will force MCI WorldCom to stop  X -serving or cease pursuing residential long distance customers.X  yOA!-ԍxBellSouth Jan. 5 Petition at 17 (contending that, in order to fund the "premium" price WorldCom has offered for MCI, it will be necessary for the merged entity to improve long distance margins, either by jettisoning residential customers or by raising residential prices); Rainbow/PUSH Jan. 5 Petition at 19 (arguing that the merged entity might jettison long distance residential customers to fund the merger premium, and suggesting that, to achieve this, a merged MCI WorldCom might slow telemarketing efforts aimed at expanding"a$0*%%$" the base of residential customers); Rainbow/PUSH May 21 Renewed Motion at 78 (stating that the merger would do little more than shrink the pool of potential competitors, creating a local phone system that would focus on serving large business customers while ignoring small business and residential customers). " k0*%%ZZ "Ԍ X-ԙx190. ` ` Applicants respond that it would not be economically rational to abandon MCI's long distance residential customers. They contend that residential long distance service has been a cornerstone of both companies' business for years, and they point out that MCI has provided such service directly, and WorldCom indirectly, through the provision of  X-capacity to resellers who serve residential consumers.[ yO= -ԍxWorldCom/MCI Jan. 26 Reply Comments at 46.[ Applicants maintain that, given the time and expense they invested in attracting residential customers, it would be illogical for  Xv-them to abandon these customers after the merger.vx {O -ԍxId. at 46, Hall Decl. at 28 (stating that "[i]t would be economically irrational for the merged entity not to capture the value of that reputational capital by failing to continue the business"). Moreover, the Applicants maintain that, to the extent MCI WorldCom seeks to provide a bundle of local with long distance and Internet services, it is advantageous to have an existing base of residential long distance  X1-customers to whom to market these bundled offerings."1 {O-ԍxId. at 4, 1920. The Applicants also note that, in a market where the ability to sell a total package of services will be a key to success, it "makes no sense to conclude that the merged company will abandon local service as one key element of that package, while expecting to expand its sale of the other elements." WorldCom/MCI Mar. 20 Reply Comments at 13. Further, they contend that residential customers utilize network capacity during offpeak hours and thus help spread  X -costs over a wider base.[  yOp-ԍxWorldCom/MCI Jan. 26 Reply Comments at 47.[  X -x191.` ` With respect to their commitment to providing local residential service, Applicants submitted two letters from WorldCom Chairman, President, and CEO Bernard J. Ebbers and MCI Chairman Bert C. Roberts. The first letter states MCI WorldCom's intention to be "the leading local service competitor for both residential and business customers of all  Xy-sizes across the country."fyL  yOv-ԍ xWorldCom/MCI Mar. 20 Reply Comments, Attach. A at 1.f The second letter cites Mr. Ebbers' testimony before the House Judiciary Committee where he stated that WorldCom and MCI "are absolutely committed to consumers and residential customers, both on a facilities basis and any other way [the companies] can do it." Messrs. Ebbers and Roberts further assert that there "is absolutely no intention by the companies to lessen their efforts in this regard or to divest any of their retail"l0*%%ZZ "  X-local services following the merger."Z yOy-ԍxLetter from Bernard J. Ebbers, Chairman, President, and CEO, WorldCom, and Bert C. Roberts, Jr., Chairman, MCI, to Magalie Roman Salas, Secretary, FCC at 1 (filed Aug. 14, 1998) (WorldCom/MCI Aug. 14  {O -Ex Parte). In fact, Messrs. Ebbers and Roberts contend they intend "to use every viable means at [their] disposal to participate in the local residential  X-market" and to offer consumers a "total package of services."B {Om-ԍxId. at 13.B Significantly, Applicants also contend that MCI WorldCom will use the fiber that it has deployed in city centers to provide  X-residential service to multiple dwelling units (MDUs).Q| {O -ԍxMCI Aug. 19 Ex Parte at 2.Q This will be done on a "targeted basis", much as other telecommunications service providers, including wireless cable operators, and cable companies providing telephone currently deploy their services to  X_-MDUs.:_ {O-ԍxId.:  X1-x192.` ` These letters from Messrs. Ebbers and Roberts represent a commitment from WorldCom and MCI not to abandon the residential long distance market, to augment their efforts in the residential local market, and to offer residential customers a total package of  X -services including local, long distance, wireless, international, and Internet. We expect parties to be forthright in their communications with the Commission, and to take seriously commitments they make in proceedings before us. Accordingly, we will be monitoring MCI WorldCom's progress as it brings its considerable assets and capabilities to bear in bringing  X-new choices to residential customers. yO-ԍxThe Commission has regularly been gathering, and will continue to gather, a wide range of information  {O-about the status of competition in telecommunications markets, including residential markets. See, e.g., 1998  {Os-Long Distance Market Shares Report; 1998 Trends in Telephone Service Report. Moreover, in this period of dynamic change and increasing competition, we will be increasing our efforts and buttressing our capability to understand fully the state of competition in these markets. These activities will allow the Commission to follow closely the progress being made by the Applicants, as well as by other firms, in telecommunications markets.  Beyond this commitment, we find that MCI WorldCom's incentive to provide local service or long distance to mass market customers will not change with the merger, and that essential assets and capabilities for serving that market will not necessarily be shed or depleted as a consequence of the merger. To put it simply, we believe that if there was a good business case for WorldCom and MCI to serve mass market customers prior to the merger, then the combined entity would ensure that sufficient assets were in place and sufficient capabilities retained to serve this market going forward. There is no reason to predict that, as a result of this merger, the conditions confronting MCI or the merged MCI WorldCom in local exchange markets will be changed or that the merged entity will have any lesser incentive to pursue rational, profitable strategic opportunities. We agree"m0*%%ZZ"  X-with the Applicants that "[n]one of the commenters has shown that there is any reason why residential service that made economic sense for either of the companies to pursue separately  X-should become uneconomic simply because the companies are combined." {OM-ԍxWorldCom/MCI Jan. 26 Reply Comments at 22, 46, & Hall Decl. at 28. Indeed, as we find below, the merged entity is likely to enter or expand local markets more quickly than  X-either could alone.XZ {O-ԍxSee infra section V. X  Xx-x193.` ` We do not find persuasive BellSouth's claim that the combined MCI WorldCom would jettison residential long distance customers to fund the premium price that WorldCom has offered for MCI. The fact that both WorldCom and MCI are currently serving these customers, suggests that they are profitable. MCI WorldCom's best strategy for funding the "premium," therefore, would be to keep their residential customers, not to drop them. Nor are we persuaded by CWA's assertion that, in order to achieve the Applicants' purported cost savings, the combined entity will be forced to forgo residential market competition. Even assuming that CWA's extensive financial analysis is correct and the merged entity will be a financially weaker company than each company separately was before the merger, it does not necessarily follow that the merged entity will abandon the residential market. We therefore reject CWA's claim as speculative. Applicants maintain instead that these savings will occur because MCI will have use of WorldCom's existing local facilities and will avoid duplicative capital and operating expenditures. As a result, according to WorldCom and MCI, planned expansion into residential markets will not be diminished, but  X6-rather can proceed more efficiently.d6 yO-ԍxWorldCom/MCI Jan. 26 Reply Comments at 11, 2021. d Finally, Applicants have clearly stated their intentions to maintain and expand their residential local and long distance service offerings. Although these statements of intent are inherently subjective and predictive, they are presumably made  X-in accordance with the Commission's requirements of candor and truthfulness.U| {O-ԍxSee 47 C.F.R.  1.17.U For this reason, we award them substantial weight given the absence of persuasive evidence to the  X-contrary. )J:\POLICY\MCIWCOM\MASTER\RESIEXIT) &J:\POLICY\MCIWCOM\MASTER\EFFIC& 9 vV. POTENTIAL PUBLIC INTEREST BENEFITS׃  Xg- x A.` ` Background  XP- x  X9-x194. ` ` In addition to examining the potential competitive harms of a proposed merger, an integral part of our public interest analysvis is considering whether the merger is likely to""n0*%%ZZ""  X-have procompetitive benefits. {Oy-ԍ x Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20063, para. 157. Č Applicants claim that the primary benefit of this merger is that it "will create a strong, aggressive nationwide competitor that is better positioned than either of the two companies would be separately to challenge successfully the monopoly  X-control presently exercised by the incumbent companies."wZ yO-Ѝ xWorldCom/MCI Jan. 26 Reply Comments at 67. w Thus, Applicants claim, the  X-merger carries the promise that local exchange markets will become more competitive.v  {O? -ԍ xId. at 6.  See Letter from Jean L. Kiddoo, Counsel to WorldCom, Swidler & Berlin, to Magalie Roman  yO -Salas, Secretary, FCC, Attach. "Presentation on Local Services" at 2, 3, 10, 11 (filed July 1, 1998) (WorldCom  {O -July 1 Ex Parte) (asserting that merged MCI WorldCom is the best opportunity for local competition because its national scale and scope, proven commitment to facilitiesbased local service, experience and commitment to competition will result in a stronger competitor in local markets). v Indeed, they contend that the resulting company will have the resources and assets to lead the way in reducing local entry barriers, which will enable other competitors to enter the local  X_-market more readily much as MCI was a pathbreaker in the long distance market.!H_ {O-ԍxWorldCom/MCI Mar. 20 Reply Comments at 101 (asserting that, as the history of competition in the long distance market demonstrates, the successful entry into the local market by MCI WorldCom will lower  {O@-entry barriers for other competitors, which will serve to benefit all customers). See #]\  PC2P#WorldCom/MCI Jan. 26 Reply Comments, Carlton and Sider Decl. at 811 (arguing that successful local entry is likely to generate information that subsequent entrants can use, such as information needed for deploying new technology and  {O-establishing interconnection agreements, and lower consumer prices) (#]\  PC2P#quoting Lehman Brothers Inc.'s 1998: The  {Od-Year of Accelerating Telecom Consolidation that the MCIWorldCom deal has clearly upped the ante and time frame for all competitors).  Applicants argue that the increased competitive strength of the combined entity will result  X1-from the combination of their complementary strengths,"\1 {O-ԍxWorldCom/MCI Mar. 20 Reply Comments at v (stating that this merger will create a more forceful local competitor by combining MCI's broadbased marketing experience and expansive residential and large business  {O"-base with WorldCom's diverse business base and strong local networks); WorldCom July 1 Ex Parte  at 3, 10. the anticipated synergies and cost  X -savings resulting from the merger,#  {O-ԍx WorldCom/MCI Mar. 20 Reply Comments at 10001; WorldCom/MCI Jan. 26 Reply Comments at 12. and the increased ability of the merged entity to provide  X -bundled services and innovative product combinations to consumers.,$X d yO -ԍxWorldcom/MCI Jan. 26 Reply Comments at 3, 19 (stating that "WorldCom and MCI have invested billions of dollars precisely so that they can capture customers from the incumbents through competitively priced packages of innovative services")., Further, Applicants assert that, as a result of the merger, the merged entity will be able to offer multilocation customers seamless doortodoor or endtoend connectivity over their own fiber transport and" o$0*%%ZZ? "  X-intelligent network facilities.%\ {Oy-ԍx Letter from Larry Blosser, Senior Counsel, MCI, to Magalie Roman Salas, Secretary, FCC at 1 (filed  {OC-July 15, 1998) (MCI July 15 Ex Parte). #]\  PC2P#Multilocation customers are those with locations in cities where either  yO -of the two companies has local facilities in place. #x6X@KX@# As a result of the merger's impact on the local exchange market, the Applicants maintain, the merger's potential for enhancing consumer benefit is  X-"enormous."b& yOo-ԍ xWorldCom/MCI Mar. 20 Reply Comments at vi, 101.b  X-x195.` ` WorldCom and MCI also claim significant cost savings as a result of the  X-merger.1'\| {O -ԍxWorldCom/MCI Jan. 26 Reply Comments at 1112. See, e.g, Letter from Jean Kiddoo, Counsel for WorldCom, Swidler & Berlin, to Magalie Roman Salas, Secretary FCC, Att. 2 at 16 (filed July 13, 1998)  {OL -(WorldCom July 13 Ex Parte) 1 They contend that there will be more than $24 billion in synergies and savings over four years, in both capital expenditures and operational costs (which include reduced domestic network costs, avoided costs in MCI's local activities, lower core sales, general and  XH-administrative expenses, and reduced cost of terminating international traffic).(H yO-ԍxWorldCom/MCI Jan. 26 Reply Comments, App. G at 4243 (WorldCom Amendment No. 3 to SEC  yOa-Form S4). Although Applicants' purported public interest benefits pertain primarily to the local market, Applicants also contend that the merger will benefit domestic long distance and international service customers  {O-as well. See id. at 26; WorldCom/MCI Mar. 20 Reply Comments at 10102 (contending that "the merged company will benefit its long distance customers by producing significant access charge savings that will result  yO-in lower long distance prices#]\  PC2P#.... #]\  PC2P#Lower costs, including lower costs of capital, mean lower prices, and increased  {OK-ability to make the investments needed for further innovation and continued growth"). See also WorldCom/MCI Mar. 20 Reply Comments at vii, 104 (maintaining that the merger will result in significant savings in the international market, including a decrease in abovecost termination rates that WorldCom and MCI must presently pay to foreign carriers and pass on to their U.S. customers).  Applicants claim that these savings will enhance the merged entity's ability to raise capital and will give  X -it greater financial strength.[) < yO-ԍxWorldCom/MCI Mar. 20 Reply Comments at 18.[ WorldCom and MCI assert that because many of these savings will reduce the cost of providing local service, they will accelerate local market entry and make it more economically feasible for the merged entity to offer local service to customers who might not be able to provide the revenue needed to support a higher cost structure. Applicants also maintain that these cost savings should allow the merged entity to build and operate additional local network facilities more quickly and expansively than the two  X-companies could do separately.s* {O #-ԍxId. at 10001; WorldCom/MCI Jan. 26 Reply Comments at 12. s "yp^*0*%%ZZ"Ԍ X-x196. ` ` Several commenters dispute these claims. CWA, GTE, and others argue that WorldCom and MCI have failed to substantiate their claim that the merged entity will be a  X-stronger competitor.+ {OK-ԍxSee CWA July 2 Ex Parte at 1;  GTE Jan. 5 Petition at 44 (arguing that the proposed merger simply combines two existing competitors or potential entrants into a single entity, with no evidence that there will be  yO-any measurable increase from competition or substantial benefits to end users); GTE Mar. 13 Comments at 85, 89 (stating that the combined entity may be a strengthened competitor, or may simply benefit from less  {Om-competitive pressure by virtue of eliminating a significant competitor); Bell Atlantic Jan. 5 Petition at 16  yO7-(disputing Applicants' claims that the merger will create a strong local competitor to incumbent LECs and stating that even Bell Atlantic cannot predict whether the merger will increase, decrease, or have no effect on the rate of  yO -competition in the local marketplace); BellSouth Mar. 13 Comments at 34 (arguing that the benefits of the  yO -merger are not quantified and thus do not meet the Commission's requirements); Rainbow/PUSH May 21 Renewed Motion at 35. CWA asserts that the merged company will be a bigger, but financially weaker, company and that, as a result of the merger, it will be a less powerful competitor in the local exchange market with fewer resources available to break into the  X-stronghold of the incumbents.,d  {O-ԍx#]\  PC2P#CWA July 2 Ex Parte at 1, 5, 11. Commenters also contend that many of the purported cost  Xv-savings result not from efficiencies, but from a reduction in investment in local facilities.-v  yO-ԍxCWA Jan. 5 Comments at 2123; CWA Jan. 26 Reply Comments at 12; CWA Mar. 20 Reply  {O-Comments at 6; CWA Aug. 5 Ex Parte at 3. As discussed supra, in section IV.E, CWA contends that in order  yO-to achieve the Applicants' claimed cost savings, the merged entity will be forced to retreat from local service.   {Ow-See also GTE Feb. 5 Comments at 1213; GTE June 11 Renewed Motion at v (claiming that any savings will  yOA-flow largely from diminished competition).#x6X@KX@# GTE alleges that the Applicants' cost savings are exaggerated because the Applicants' estimate of savings from selfprovisioning access and transport does not account for offsetting opportunity costs, and that their estimate of savings from more efficient trunking arrangements ignores the fact that the vast majority of access charges cannot be minimized  X -though more efficient trunking.^.Z  {O^-ԍxGTE Mar. 13 Comments at 95; GTE June 11 Renewed Motion at 6970.  See Rainbow/PUSH June 11 Renewed Motion at 67 (stating that Applicants overstate the positives and eliminate the negatives by ignoring the inevitable costs associated with integrating the systems and networks of two companies.) ^  X -x B.` ` Discussion  X -x197.` ` In this Order, we have found that WorldCom's acquisition of MCI is not likely to result in anticompetitive effects in any relevant market. As the Commission noted in the  Xy-Bell Atlantic/NYNEX Order, "[a]s the harms to the public interest become greater and more certain, the degree and certainty of the public interest benefits must also increase commensurately in order for us to find that the transaction on balance serves the public"Mq.0*%%ZZ+"  X-interest, convenience, and necessity."/ {Oy-ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 20063, para. 157.  ċ This sliding scale approach suggests that, where, as here, potential harms are unlikely, Applicants' demonstration of potential benefits need not be as certain.  X-x198.` ` Although we do not believe that Applicants have provided sufficient evidence to support all of their claims, we conclude that Applicants have made a sufficient showing here of potential benefits to find that, on balance, the merger is in the public interest, convenience, and necessity. Because, as described below, we find that the merger will result in a stronger competitor, we need not resolve whether the Applicants have fully substantiated all of their alleged cost savings in order to find that this merger is, on balance, in the public interest.  X -x199. ` ` More specifically, we conclude that WorldCom and MCI have made a  X -sufficient showing that, as a result of combining certain of the firms' complementary assets, the merged entity will be able to expand its operations and enter into new local markets more  X -quickly than either party alone could absent the merger.0 Z {O-ԍx#]\  PC2P#See AT&T/TCG Order at para. 48.#x6X@KX@#Ѥ For example, the Applicants claim that MCI Metro and Brooks Fiber will accelerate local city network deployment in secondary  Xy-markets by 12 years.1y yO-ԍxWorldCom, Nov. 9, 1997 SEC Form 8K, Exhibit 99.3, Slide 17 (WorldCom Nov. 9, 1997 8K) The complementary assets of the merged entity include MCI's  Xb-national brand name,2Zb| {O-ԍx#]\  PC2P# Bell Atlantic/NYNEX Order, 12 FCC Rcd 2002425, para. 70 (stating that AT&T, MCI, and Sprint distinguish themselves . . . by their strong brand reputation in the provision of telephone service to the mass  yO!-market) & para. 82 n. 179 (citing customer preference survey information). #x6X@KX@# marketing expertise and broad residential base, and WorldCom's  XK-extensive local exchange facilities,3K {O-ԍxWorldCom July 8 Ex Parte, Grillo Decl. at 3 (stating that WorldCom's competing LEC network has the largest reach of any competing LEC). WorldCom currently operates local networks in 71 metropolitan statistical areas (MSAs) nationwide. As of December 1997, the next five largest competing LECs operating local networks were TCG (54 MSAs), Intermedia (44 MSAs), MCImetro (43 MSAs), e.spire (32 MSAs) and ICG (31 MSAs).  {O-Id., Beaumont Decl. at 3 (citing the 1998 Annual Report on Local Telecommunications Competition by the New Paradigm Resources Group).  small and medium business customer base and foreign  X4-networks. n44 {O!-ԍxSee, e.g., WorldCom/MCI Mar. 20 Reply Comments at 103. n We also find persuasive Applicants' assertions that the merger will allow them to service multilocation customers over their own networks, and that this will enable such customers to receive higher quality and more reliable services than each company is currently able to offer separately. & J:\POLICY\MCIWCOM\MASTER\EFFIC& * J:\POLICY\MCIWCOM\MASTER\OTHER.ISS* "r40*%%ZZ?"Ԍ X-ԙ ?VI. OTHER ISSUES׃  X-  X-x A.` ` Other Public Interest Concerns   X-x` ` 1. Background  X-  Xv-x 200.` ` Several commenters in this proceeding allege that grant of the instant transfer of control application is inconsistent with the public interest and request that the Commission designate the proposed merger, or specific issues raised by the merger, for a trialtype evidentiary hearing before an administrative law judge to determine whether approval of the transfer of control request resulting from the proposed merger would serve the public  X -interest.&5Z  {O| -ԍxSee Inner City Press Jan. 5 Petition at 6, 1112, 17; Rainbow/PUSH Jan. 5 Petition at 5, 12; Simply Internet Jan. 5 Petition at 3, 12; TMB Jan. 5 Petition at 7; The Greenlining Institute Mar. 13 Petition at 7; GTE Mar. 13 Comments at 101.& x  X -x201.` ` The Communications Act provides that the Commission may grant a transfer of control application only when we determine that doing so would serve the "public interest,  X -convenience, and necessity."Y6  yOB-ԍx47 U.S.C.  309(a). Section 310(d) of the Communications Act requires the Commission to dispose of applications for transfer of control "as if the proposed transferee or assignee were making application under  {O-section 308 for the permit or license in question." Id.  310(d). Section 309(a) directs the Commission to make its finding whether the public interest, convenience, and necessity will be served "in the case of each application  {Od-. . . to which section 308 applies." Id.  309(a).Y If the Commission concludes, on the basis of the record before it, that there are no substantial and material questions of fact and that a grant of the application would be consistent with the public interest, we must grant the transfer of control  Xb-application and deny any petitions to deny and requests for evidentiary hearing.J7b {O-ԍxId.  309(d)(2).J  X4-x202.` ` In the alternative, the Communications Act requires the Commission to hold an evidentiary hearing on transfer of control in certain circumstances to aid in furthering its  X-mandate to promote the public interest.G80  {O-ԍxId.  309(e).G Parties challenging an application to transfer control by means of a petition to deny and seeking a hearing on the matter must satisfy a  X-twostep test established in section 309(d).G9  {OK#-ԍxId.  309(d).G As explained by the D.C. Circuit in Gencom"sT 90*%%ZZ"  X- Inc. v. FCC,: {Oy-ԍxGencom Inc. v. FCC, 832 F.2d 171, 181 (D.C. Cir. 1987) (Gencom Inc.); see Astroline Communications  {OC-Company Ltd. v. FCC, 857 F.2d 1556, 156162 (D.C. Cir. 1988) (Astroline). a protesting party seeking to compel the Commission to hold an evidentiary hearing must: (1) submit a petition to deny containing "specific allegations of fact sufficient to show that . . . a grant of the application would be prima facie inconsistent with [the public  X-interest];"J;$ yO-ԍx47 U.S.C.  309(d)(1).J and (2) present to the Commission a "substantial and material question of fact."J< {O" -ԍxId.  309(d)(2).J Should the Commission conclude that the protesting party has met both prongs of the test, or if it cannot, for any reason, find that grant of the application would be consistent with the  Xx-public interest, the Commission must conduct a hearing in accordance with section 309(e).S=xF {Oo -ԍxAstroline, 857 F.2d at 1561.S  XJ-x203.` ` To satisfy the threshold inquiry, the allegations set forth by the petitioning party must be supported by an affidavit and "be specific evidentiary facts, not 'ultimate  X -conclusionary facts or more general allegations . . . '">  {O-ԍxUnited States v. FCC, 652 F.2d at 89 (quoting Columbus Broadcasting Coalition v. FCC, 505 F.2d 320, 323324 (D.C. Cir. 1974)). The Commission must perform section 309(d)'s threshold inquiry in a manner similar to that performed by a trial judge considering a motion for summary judgment: "if all the supporting facts alleged in the affidavits were true, could a reasonable fact finder conclude that the ultimate fact in dispute  X -had been established."[? 2  {O-ԍxGencom, 832 F.2d at 181.[  X-x204.` ` If the Commission determines that a petitioner has satisfied the threshold  X{-standard of alleging a prima facie inconsistency with the public interest, it must then proceed to the second phase of the inquiry and determine whether, "on the basis of the application, the pleadings filed, or other matters which [the Commission] may officially notice," petitioners  X8-have presented a "substantial and material question of fact."+@8  {O-ԍx47 U.S.C.  309(d)(2); see Gencom Inc., 832 F.2d at 181. The evidence the Commission may consider under the second phase of this inquiry is much broader than under the first phase. The Commission may  {O?!-consider the entire record, including facts offered in rebuttal of petitioners' evidence, permitted ex parte communications with the parties and the DOJ, and any matters which the Commission may officially notice.  {O"-Astroline, 857 F.2d at 1561.+ If the Commission concludes that a "totality of the evidence arouses a sufficient doubt on the [question whether grant of"!tz@0*%%ZZ)" the application would serve the public interest], . . ." section 309(e) requires the Commission  X-to hold an evidentiary hearing. A& {Ob-ԍxSerafyn v. FCC, No. 951385, slip op. at 4 (D.C. Cir. Aug. 11, 1998) (quoting Citizens for Jazz on  {O,-WRVR, Inc. v. FCC, 775 F.2d 392, 395 (D.C. Cir. 1985). A court may disturb the Commission's decision to deny an evidentiary hearing only if, upon examination of the Commission's statement of reasons for denial, the  {O-court determines the Commission's decision to be arbitrary and capricious. Astroline, 857 F.2d at 1562.   X-x` ` 2. Discussion  X-x 205.` ` Initially, we note that a number of issues raised in the record do not reflect disputes over material facts, but rather, focus on issues concerning the competitive impact of  X_-the merger and the public interest.zBX_ yO -ԍxOnly three of the parties requesting an evidentiary hearing pursuant to section 309, Rainbow/PUSH, Simply Internet, and TMB, attach supporting affidavits to their petitions. Section 309(d)(1) requires that a petition to deny "shall contain specific allegations of fact . . . supported by affidavit." 47 U.S.C.  309(d)(1). z These types of issues "'manifestly do not require a live  XH-hearing."C^H {O-ԍxSBC Communications, Inc. v. FCC, 56 F.3d at 149697 (quoting United States v. FCC, 652 F.2d at 89 {O-90) (affirming the Commission's decision in the AT&T/McCaw Order not to hold a full evidentiary hearing  {Oc-before approving the merger).  See AT&T/McCaw Order, 9 FCC Rcd. at 592728. The voluminous record before us in this proceeding, including the numerous ex  X3-parte filings we have received and the confidential materials we have inspected, has provided us with sufficient evidence to determine, without conducting an evidentiary hearing, that the  X -Applicants' request serves the public interest, convenience, and necessity.AD  {O-ԍx47 U.S.C.  309(d)(2). See United States v. FCC, 652 F.2d at 90 (stating that section 309(e) requires an evidentiary hearing in the alternative where the Commission is unable to make a finding that the application is in  {OF-the public interest without conducting a hearing). See also SBC Communications, Inc. v. FCC, 56 F.3d at 1496 {O-97(quoting United States v. FCC, 652 F.2d at 96) (affirming the Commission's decision in the AT&T/McCaw  {O-Order not to hold a full evidentiary hearing before approving the merger based in part on the conclusion that "an evidentiary hearing would less promote reasoned decisionmaking . . . than it would delay and impede the Commission's decision").A As the D.C.  X -Circuit noted in United States v. FCC, the determination as to the adequacy of the record is, in the first instance, a decision that must by made by the Commission in light of its public  X -interest responsibility.#EZ D {O-ԍxUnited States v. FCC, 652 F.2d at 9091 (affirming the Commission's decision not to hold an evidentiary hearing on antitrust issues arising out of an application by a joint venture for a domestic satellite communications license).#  X-x206.` ` We conclude that, even where parties attempt to raise allegations of fact, no party has satisfied the twostep test set out in section 309(d). We, therefore, reject the argument that a full evidentiary hearing is necessary in order for the Commission to resolve"hufE0*%%ZZh" the various claims raised by the parties and conclude, as discussed herein, that a grant of the merger application is consistent with the public interest. We discuss these specific allegations of harm to the public interest below.  X-x` `  a.Allegations of Discriminatory Conduct  Xv-x207.DISCRIMINATION` ` Rainbow/PUSH, the Greenlining Institute, and Inner City Press argue that the Commission should deny the application or designate the proposed merger for an evidentiary hearing on the grounds that the application raises substantial and material questions of fact  X1-regarding major public interest issues such as redlining minority residential customers,F1 yO -ԍxRainbow/PUSH Jan. 5 Petition at 4, 14; The Greenlining Institute Mar. 13 Petition at 23; and Inner City Press Jan. 5 Petition at 67.  X -failing to offer innovative services and "onestopshopping" to lowincome customers,G  yO -ԍxThe Greenlining Institute Mar. 13 Petition at 4; Inner City Press Jan. 5 Petition at 3. and  X -other forms of discrimination.H  yOd-ԍxThe Greenlining Institute Mar. 13 Petition at 5; Rainbow/PUSH Jan. 5 Petition at 29, 3132. Redlining, as the term is used by Rainbow/PUSH, refers to the deployment of the local network so as to bypass lowincome and minority populations,  X -thereby excluding customer classes based on racial or economic criteria.IH @ {O-ԍxSee Rainbow/PUSH Jan. 5 Petition; Rainbow/PUSH Mar. 13 Comments at 7; Rainbow/PUSH and The  {O-Greenlining Institute "Ex Parte Presentation" at 7 (filed June 3, 1998) (Rainbow/PUSH and The Greenlining  {OZ-Institute June 3 Ex Parte). Rainbow/PUSH and the Greenlining Institute submit maps of Atlanta, New York, Los Angeles, San Francisco, and Chicago, and allege that WorldCom and MCI have engaged in redlining in the deployment of their fiber networks in these metropolitan areas. Rainbow/PUSH Mar. 13 Comments at 6, Exh. 1;  {O-Rainbow/PUSH and The Greenlining Institute June 3 Ex Parte at 79, Exh. 15. According to Rainbow/PUSH, this information casts doubt on the Applicants' public interest claims and raises the specter of discriminatory conduct after the proposed merger. Rainbow/PUSH Mar. 13 Comments at 2. In addition to raising allegations of redlining, commenters seek assurances from the combined entity that it will: (1) not target minorities disproportionately in its decisions to downsize its employees or  X-out-source functions;gJZP  yO-ԍxCWA estimates that the total mergerrelated job loss in the telecommunications industry due to reduced network investment and operating costs resulting from the proposed merger is 75,000 jobs by the year 2002.  {O!-CWA Jan. 5 Comments at 3133. See Rainbow/PUSH Jan. 5 Petition at 2627.g (2) adopt an "aggressive" affirmative action plan for women and  Xy-minorities;TKyr yO!-ԍxRainbow/PUSH Jan. 5 Petition at 35.T (3) work to foster minority entrepreneurship and deal fairly with minority  Xb-entrepreneurs;1Lb {O$-ԍCONTRACTINGxRainbow/PUSH argues that TMB's allegations against MCI, as discussed infra at para.  TMB214 , are a basis  {O$-for predicting how the combined entity would deal with minority entrepreneurs. Id. at 30.1 and (4) diversify its board of directors and principal executive officers.FMb^ {O-ԍxId. at 2832.F "bvZM0*%%ZZ" Applicants dispute Rainbow/PUSH's allegations regarding redlining in various metropolitan  X-areas,^NZ yO-ԍxWorldCom/MCI Mar. 20 Reply Comments at 9293.^ and assert that they are committed to equal employment opportunities and serving  X-consumers of all socioeconomic levels.lO {Om-ԍxId. at 93; WorldCom/MCI Jan. 26 Reply Comments at 93.l Moreover, WorldCom and MCI note that the  X-board of directors of the combined entity will reflect the diversity of the population.P"| yO -ԍxWorldCom/MCI Mar. 20 Reply Comments at 9596. On March 11, 1998, WorldCom and MCI announced that Clifford L. Alexander, Jr., of Alexander & Associates, Inc., and Dean Judith Areen of  {Ox -Georgetown University Law Center, have agreed to serve on the Board of Directors of the combined entity. Id. at 9495.  X-x208.` ` Rainbow/PUSH argues that concerns such as redlining, employment diversity, and minority representation are a necessary component of the Commission's public interest analysis in common carrier mergers. Rainbow/PUSH acknowledges, however, that traditionally the Commission has confronted such issues in the context of Title III radio  X1-broadcast licenses or other broadcast proceedings.AQ1f  {OH-ԍxSee, e.g., CV Radio Assoc., File No. BR960603C4, Memorandum Opinion and Order and Notice of Apparent Liability, 12 FCC Rcd 14016 (1997). Rainbow/PUSH argues that the fact that a particular Title III license is not used for the purposes of radio broadcasting does not detract from the Commission's Title III  {O-authority to promote diversity. Rainbow/PUSH Jan. 5 Petition at 6 & n.5 (citing Prime Cable, 4 FCC Rcd 1696  {Ol-(1989), aff'd, 5 FCC Rcd 4590 (1990)). A Although this is not the first time that commenters have requested that the Commission examine allegations of discrimination and  X -minority contracting in the context of a common carrier merger,R  {O-ԍxSee AT&T/TCG Order at paras. 4950; Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20089, para. 226. these are relatively novel issues in this context. Indeed, Rainbow/PUSH notes that it is presenting us with a question of  X -first impression.YS  yO4-ԍxRainbow/PUSH Jan. 5 Petition at 31 n.32.Y We determine that Rainbow/PUSH has alleged sufficient facts for the Commission to consider, as a factor in its public interest determination, whether the proposed merger would aggravate a situation where either of the merging parties deployed  X-telecommunications facilities in a discriminatory manner.UT> {O!-ԍxSee 47 U.S.C.  309(d)(1). U We conclude that such actions"wT0*%%ZZ"  X-would be contrary to the purpose of the Communications Act,fUZ {Oy-ԍxSee id.  151 (Section 151 of the Communications Act charges the Commission with ensuring that communications services are made available, "so far as possible, to all the people of the United States, without discrimination on the basis of race, color, religion, national origin, or sex . . .").f the obligations imposed on  X-common carriers in the Communications Act,V {O-ԍxSee id.  201 ("It shall be the duty of every common carrier . . . to furnish such communication service  {ON-upon reasonable request."); Id.  202 ("It shall be unlawful for any common carrier to make unjust or unreasonable discrimination in charges, practices, classification, regulations, facilities, or services . . . , or to make or give any undue or unreasonable preference or advantage to any particular person, class of persons, or locality, or to subject any particular person, class of persons, or locality to any undue or unreasonable prejudice or disadvantage."). and the fundamental goal of the 1996 Act to  X-bring communications services "to all Americans."{WZf  {O -ԍx Joint Managers' Statement, S. Conf. Rep. No. 104230 at 113. See 47 U.S.C.  254(b)(3) (the 1996 Act envisions that "[c]onsumers in all regions of the Nation, including low income consumers and those in rural, insular, and high cost areas, should have access to telecommunications and information services . . .").{  X-x209.` ` Before we are required to designate an issue for evidentiary hearing to examine whether the merger is not in the public interest based on such grounds, we must find that the specific claims of those parties opposing the application raise substantial and material  X_-questions of fact.JX_  yO-ԍx47 U.S.C.  309(d)(2).J In reaching this determination, the Commission may consider "the entire  XH-record, weighing the petitioner's evidence against facts offered in rebuttal."6YH {O-ԍxAstroline, 857 F.2d 1561. The ultimate burden of demonstrating, by a preponderance of the evidence,  {O-that the merger application is in the public interest lies, of course, with the Applicants. See supra para. BURDEN10.6 We are not convinced that the record evidence raises substantial and material questions of fact regarding whether Applicants either have engaged in or will engage in discriminatory conduct by avoiding minority communities in their deployment of telecommunications facilities. Rainbow/PUSH and The Greenlining Institute provide maps allegedly showing that  X -Applicants' fiber routes bypass AfricanAmerican residences and businesses.Z t yO-ԍxRainbow/PUSH Mar. 13 Comments at 6, Exh. 1; Rainbow/PUSH and The Greenlining Institute June 3  {O-Ex Parte at 79, Exh. 15. Although WorldCom and MCI note that the current networks have expanded considerably from those  X -represented on the maps that Rainbow/PUSH submits,f[  {O&"-ԍxWorldCom July 8 Ex Parte, Beaumont Aff. at 12.f the Applicants do not dispute that the  X-maps reflect the networks as originally deployed.  We are persuaded by Applicants' response that the WorldCom networks depicted on the maps were originally built by MFS as a competitive access provider (CAP) network designed to serve business customers with special"bx`[0*%%ZZ" access and private line needs. Similarly, because MCI historically did not consider fiber a viable mechanism for the delivery of telephone service to mass market customers, it deployed  X-fiber based on considerations that relate exclusively to business customers.S\ {OK-ԍxMCI Aug. 19 Ex Parte at 12.S As such, both the WorldCom and MCI networks were located near business users with high volumes of telecommunications traffic rather than near residential customers, regardless of the nature of  X-the residential neighborhood.]Z {O-ԍxWorldCom/MCI Mar. 20 Reply Comments at 93; WorldCom July 8 Ex Parte, Beaumont Aff. at 1; MCI  {Ob -Aug. 19 Ex Parte at 12.  X_-x210.` ` We conclude that the maps provided by petitioners, when viewed in light of the explanations provided by the Applicants, do not indicate redlining or the intent to engage in redlining by the combined entity, as defined by Rainbow/PUSH. Rather, we find that the existence of WorldCom fiber in certain areas appears to reflect business decisions made by MFS based on the economic and regulatory environment at the time the fiber was originally deployed. Similarly, we find the deployment of MCI's fiber in certain areas reflects MCI's historical business strategy, which deployed fiber based on the locations of its existing base of business customers and did not view fiber as a primary means of reaching residential customers. Moreover, we agree with the Applicants that the current placement of fiber networks in and around city centers means that, as the combined entity builds out its local networks, lowincome and minority communities located in and around these city centers are  Xb-wellpositioned to receive the benefits of local competition.^b {O-ԍxWorldCom/MCI Mar. 20 Reply Comments at 93 & n.125; WorldCom July 8 Ex Parte, Beaumont Aff. at 12.  X4-x211.` ` We reject arguments that, even in those areas where the Applicants have deployed fiber in lowincome and minority communities, they have failed to serve such  X-customer groups altogether._ {O-ԍxSee Rainbow/PUSH and The Greenlining Institute June 3 Ex Parte at 7. We further find no evidence to support allegations that the combined entity will discriminate against lowincome residential customers in its offering of telecommunications services in the future. To the extent petitioners assert that the Applicants have avoided serving certain customers even in those areas where fiber has been deployed, we note that petitioners do not provide any specific instances where the Applicants have discriminated in their provision of telecommunications services due to race. In addition, petitioners' allegations regarding the merged entity's intent to provide affluent customers "one stop shopping" or innovative services, to the exclusion of lowincome or minority customers, are conclusory and unsupported. The Applicants have asserted that it is not, nor will it be, their policy or practice to discriminate on the basis of race in the sales, marketing, or"7y_0*%%ZZ"  X-provisioning of telecommunications services.Q` {Oy-ԍxMCI Aug. 19 Ex Parte at 2.Q Moreover, we agree with the Applicants that there is every economic incentive for the merged entity and its sales, marketing, provisioning,  X-and other employees to execute their jobs in a racially neutral manner.:aZ {O-ԍxId.: We are also encouraged by Applicants' stated intentions to use fiber to provide telecommunications  X-services to MDUs,b {OA -ԍxSee discussion of MDUs supra at section IV.E. See also WorldCom/MCI Aug. 14 Ex Parte at 2; MCI  {O -Aug. 19 Ex Parte at 2. and we presume that the Applicants' ability to provide such service will  X-not only be advantageous for residential customers in urban areas and large cities,QcH {O -ԍxMCI Aug. 19 Ex Parte at 2.Q but will  Xv-enable Applicants to serve consumers of all socioeconomic levels.dv yO-ԍxWorldCom/MCI Jan. 26 Reply Comments at 92; WorldCom/MCI Mar. 20 Reply Comments at 93.  XH-x212.` ` Finally, we find that commenters have not made a prima facie showing that the Applicants will engage in discriminatory conduct in the selection of the board of directors of  X -the combined entity.ae j  {O7-ԍxSee Rainbow/PUSH Jan. 5 Petition at 3135.a In fact, the Applicants have submitted evidence showing that the board of directors of MCI WorldCom will include both women and minorities. We also find that commenters have not alleged or submitted specific evidence supporting allegations that WorldCom and MCI have engaged in, or intend to engage in, any discriminatory employment  X -policies.f  {Om-ԍxSee 47 U.S.C.  309(d)(1). See supra para. DISCRIMINATION207 for a description of Rainbow/PUSH's concerns regarding the combined entity's employment policies. Thus, in the absence of credible evidence of discrimination, we decline to condition approval of the instant merger on Applicants' commitments regarding minority  X-board representation or employment policies.ugZV  yO-ԍx As noted above in note CONTRACTING588, Rainbow/PUSH seeks assurances from the Applicants regarding their commitment to foster minority contracting based on allegations raised by TMB. We address the evidence  {O)-presented by TMB infra at para.  TMB214 .u  Xd-x` `  b.Allegations of Reduction in Employment Growth  X6-x213.` ` CWA estimates that, due to reduced network investment and operating costs resulting from the proposed merger, employment growth in the U.S. telecommunications"zxg0*%%ZZe"  X-industry will be reduced by a total of 75,000 jobs by the year 2002.h yOy-ԍxCWA Jan. 5 Comments at 3133. CWA bases its estimates on the combined entity's proposed cuts in capital expenditures and operating costs as reflected in WorldCom's Nov. 9, 1997 8K. In addition, noting MCI's announcement that it plans to layoff 4,500 employees and Applicants' predicted cost savings, CWA estimates that the combined entity will layoff 10,000 employees in the four  X-years immediately following the merger.i|  {O-ԍxCWA Aug. 5 Ex Parte at 6. CWA arrives at 10,000 layoffs using the following calculation: (1) dividing the savings in sales, general, and administrative (SG&A) expenses in year 2002 announced by MCI WorldCom ($1.3 billion) by a Merrill Lynch estimate of the combined entity's SG&A expenses in 2002 ($10.8 billion), resulting in an estimated 11.9 percent cut in SG&A expenses; then (2) multiplying the total number of WorldCom and MCI employees today (80,809) by the 11.9 percent cut for a total of 9,616 layoffs. CWA  {Ov -rounded this number up to 10,000 employees. CWA Aug. 5 Ex Parte at 6 n.10. See CWA Mar. 20 Reply Comments at 30. Applicants counter that employment growth must  X-occur in order for the combined entity to increase its sales and market share._jd  yO-ԍxWorldCom/MCI Mar. 20 Reply Comments at 9697. _ We conclude that CWA's predictions, based on purported cost savings, are speculative and not substantially supported by the evidence. For example, we do not find credible CWA's assertion that the entirety of the purported savings in capital expenditures, operating costs, and sales, general, and administrative expenses announced by WorldCom and MCI are attributable to personnel  X1-cuts.k"1  yO-ԍxWorldCom and MCI have stated that most of the SG&A savings resulting from the merger will come in the form of reduced growth in expenditures rather than layoffs. In fact, MCI WorldCom expects to add up to  {Of-10,000 new positions. See CWA Aug. 5 Ex Parte (citing Transcript of WorldCom MCI Analyst Conference Call, Nov. 10, 1997, at 7). We would also note that there are indications that the changing environment in the  X -telecommunications industry is not adversely affecting overall industry employment levels.vl  {O-ԍxSee Gautam Naik, English Lesson: Telecom Deregulation in Britain Delivered A Nice Surprise: Jobs,  yOs-Wall St. J.#X\  P6G;2P#, Mar. 5, 1998, at A1 (citing analysts' predictions that the level of employment in the telecommunications sector will continue to grow in the U.K., the U.S., and Europe. According to DRI/McGraw {O-Hill, in the past five years, "overall telecom and cable employment in the U.S. has risen 9%."); see also Jon  {O-Mainwaring, Jobs Line Up; Telecommunications Sector, Electronics Weekly, Jan. 14, 1998, at 1 (noting that a study conducted for the EC by a French consultancy, BIPE Conseil, shows that while traditional EC telecommunications companies may lose jobs, by the year 2005, job creation in the EC telecommunications  {O'-industry as a whole could lead to a net increase of 93,000 jobs); Patricia Horn, Most Wanted: Telecom Skills  {O-Jobs Grow with Technology, Ft. Lauderdale SunSentinel, Dec. 21, 1997, at 16 (citing a survey conducted by Management Recruiters International of Ohio regarding employment trends in the second half of 1997. The survey indicates that 73 percent of U.S. telecommunications companies planned to add staff).v Considering the evidence as a whole, therefore, including Applicants' statements regarding their actual business plans, we are not persuaded that CWA has raised a substantial and material question of fact. Accordingly, we reject the argument that the merger should be" {Hl0*%%ZZ " denied because it will reduce employment at the combined entity and in the telecommunications industry as a whole.  X- x` `  c.Allegations of Misconduct  X-x214.TMB` ` TMB. TMB, a minorityowned business and formerly an authorized agent of MCI for the resale of MCI services, contends that MCI treated it in an unfair and discriminatory manner, applied economic coercion, and terminated TMB's contract for service  XJ-unfairly and wrongfully.\mJ yO -ԍxTMB alleges that MCI, through misrepresentation, fraud, and deceit, improperly diverted customer revenue that was owed to TMB and failed to provide TMB's customers with timely service levels, discounts, and program benefits that its customers were entitled to receive. It further alleges that MCI engaged in economic coercion and set up an obstacle of procedures, rules, and requirements for engaging in alternative dispute resolution that makes it near impossible for TMB to achieve due process. TMB Jan. 5 Petition at 26; TMB Mar. 13 Comments at 34.\ TMB argues that the Commission must determine whether the merged company would continue to engage in these anticompetitive and predatory acts,  X -thereby continuing to harm small businesses and the public.Kn @ yO -ԍxTMB Mar. 13 Comments at 6.K Applicants respond that this  X -dispute, or any related problems, would not be exacerbated by the proposed merger.^o  yO-ԍxWorldCom/MCI Jan. 26 Reply Comments at 9697.^ It appears that the matters raised by TMB involve a private contractual dispute between TMB and MCI. TMB does not present evidence of any adjudicated anticompetitive or predatory  X -acts.Up `  {O-ԍxSee Policy Regarding Character Qualifications in Broadcast Licensing, 102 FCC 2d 1179, 119597,  {O-120003 (1986), aff'd on recon., 1 FCC Rcd 421 (1982), modified, 5 FCC Rcd 3252 (1990), recon. granted in  {Oe-part, 6 FCC Rcd 3448 (1991), modified in part, 7 FCC Rcd 6564, 6566 (1992) (the Commission will consider  {O/-only adjudicated nonFCC misconduct that involves violations of antitrust or other laws protecting competition).  {O-MCI Telecommunications Corp., Order and Notice of Apparent Liability, 3 FCC Rcd 509, 515 n.14 (1988) (stating that character qualifications standards adopted in the broadcast context can provide guidance in the  yO-common carrier context).U We conclude that such a private contractual dispute between carriers does not raise substantial and material questions of fact regarding Applicants' qualifications or the public interest benefits of the proposed merger, and that the public interest would not be served by  X{-our withholding action on the proposed merger.NqZ{ yO -ԍxWe are encouraged, however, that Applicants are committed to working with TMB to resolve the issues  {O!-TMB raises. See WorldCom/MCI Jan. 26 Reply Comments at 9697. We note, moreover, that TMB can seek recourse from the Commission under section 208 of the Act.N Accordingly, we deny TMB's request for an evidentiary hearing pursuant to section 309(e). "M|q0*%%ZZI"Ԍ X-x215.` ` IPSPCC. IPSPCC alleges that MCI is currently under contract with Bell Atlantic to serve as the sole presubscribed long distance carrier for Bell Atlantic payphones, and that MCI and Bell Atlantic are engaged in an illegal and anticompetitive scheme to keep  X-payphone providers from choosing other long distance carriers.Pr yO6-ԍxIPSPCC Mar. 13 Comments at 35.P MCI denies IPSPCC's allegations, and is contesting them in a lawsuit pending before the U.S. District Court for the  X-District of Columbia that IPSPCC has brought against Bell Atlantic.sX {O-ԍxWorldCom/MCI Mar. 20 Reply Comments at 89.  See Independent Payphone Service Providers for  {Ob -Consumer Choice v. Bell Atlantic Corp., Case No. 98CV0127 (D.D.C.). We agree with Applicants that these unadjudicated matters are not a sufficient basis to conclude that the merger is not in the public interest, and we decline to condition approval of the transfer of  XJ-control applications on resolution of this dispute.tJ yO -ԍxWe note that IPSPCC can seek recourse from the Commission under section 208 of the Act.  X -x216.` ` Fiber Network Solutions. On July 8, 1998, Fiber Network Solutions filed an ex  X -parte with the Commission describing a series of billing disputes with WorldCom and requesting that the Commission stay any action on the instant merger for ninety days pending  X -a "full review of the evidence" surrounding its allegations.u D yO-ԍxLetter from David J. Koch, President, Fiber Network Solutions, to Michelle M. Carey, Attorney, FCC  {O-(filed July 8, 1998) (Fiber Network Solutions July 8 Ex Parte). According to Fiber Network Solutions, WorldCom threatened to disconnect its connection to WorldCom's Internet backbone for nonpayment of certain bills. Fiber Network Solutions alleges, however, that the  X-evidence of its payment was clear.@v {O-ԍxId. at 1.@ Fiber Network Solutions suggests that WorldCom made such threats in retaliation for Fiber Network Solutions' participation in this proceeding, in  Xh-which it expressed concerns about WorldCom's peering policies.Hwh0  {OI-ԍxId. at 2. H Again, this matter involves an unresolved private contractual dispute. It is not a sufficient basis to deny the merger as contrary to the public interest, nor would the public interest be served by our withholding action on the proposed merger in order to conduct factfinding on Fiber Network  X -Solutions' allegations.   X-x` `  d.Universal Service  X-x217.` ` Commenters argue that the proposed merger fails to preserve and enhance universal service and therefore is not in the public interest. CWA and Alliance for Public"} w0*%%ZZo" Technology claim that, because the combined entity will be able to provide a bundled package of exchange access, long distance, and Internet access entirely on its own network, the merger will harm the goals of universal service by shifting business customers from the public switched network to MCI WorldCom's competing LEC network, thereby diverting revenues away from incumbent LECs that continue to have carrieroflastresort obligations and increasing pressure on the incumbent LEC to raise residential rates and reduce network  Xv-investment.xv yO-ԍxAlliance for Public Technology Jan. 26 Reply Comments at 4; CWA Jan. 5 Comments at 2631; CWA  {O-Jan. 26 Reply Comments at 1516; CWA Aug. 5 Ex Parte at 56. In addition, CWA asserts that the goals of universal service are threatened by accelerating access charge bypass, thereby prematurely reducing available funds that historically have included a component which subsidizes the high costs incurred by incumbent  X1-LECs to provide a ubiquitous local network.y1" {O -ԍxCWA Jan. 5 Comments at 2631; CWA Jan. 26 Reply Comments at 1516; CWA Aug. 5 Ex Parte at 56.  X -x218.` ` Commenters' contentions do not present a public interest basis for denying the proposed merger. As a competing LEC providing both interstate and intrastate telecommunications services, the combined entity will be required to make universal service  X -contributions based on the same contribution percentages as are applied to incumbent LECs.z | yO-ԍxEven assuming, as CWA contends, that MCI WorldCom would be operating a "private network," the combined entity will be required to make universal service contributions. Pursuant to section 254(d) of the Communications Act, the Commission has held that "private service providers that offer their services to others for a fee" are subject to the same universal service contribution obligations as common carrier providers of  {O -telecommunications services. FederalState Joint Board on Universal Service, CC Docket No. 9645, Report and  {O-Order, 12 FCC Rcd 8776, 918384, para. 795 (1997) (subsequent history omitted) (Universal Service Order). In addition, any inequity to the incumbent LEC with state imposed carrieroflastresort obligations resulting from the proposed merger is minimized by the fact that, pursuant to section 214(e)(1) of the Communications Act, only common carriers that offer and advertise the availability of the core universal services throughout a state designated service area may  XK-be designated as eligible to receive federal universal service support.J{K  yO-ԍx47 U.S.C.  214(e)(1).J Thus, incumbent LECs serving high cost areas, which may be the most difficult to serve without support, may apply for federal universal service support funded, in part, by private network operators.  X-x219.` ` Regarding CWA's second contention, that the combined entity's access charge savings will undermine universal service, we agree with Applicants that the 1996 Act, the  X-Universal Service Order, and the Access Charge Reform Order contemplate that incumbent LECs will lose customers, and the access revenue generated by those customers, to competing"~ {0*%%ZZR"  X-LECs.|( {Oy-ԍxSee Universal Service Order, 12 FCC Rcd at 884760, paras 127149; Access Charge Reform,  CC  {OC-Docket No. 96262, First Report and Order, 12 FCC Rcd 15982 (1997), aff'd sub nom.Southwestern Bell  {O -Telephone Co.v FCC, Nos. 972618 et al. (Aug. 19, 1998) (other subsequent history omitted) (Access Charge  {O-Reform Order). Under the 1996 Act, however, universal service will be maintained through explicit  X-subsidies to eligible telecommunications carriers.} {OR-ԍxSee 47 U.S.C.  254(b)(5) & (e); WorldCom/MCI Jan. 26 Reply Comments at 2425. Based on our foregoing conclusions, it is not necessary for the Commission to require the combined entity to dedicate a portion of the efficiency savings resulting from the proposed merger to supplement discounts provided to schools, libraries, and rural health care providers as part of the universal service program, as  X-CWA suggests.P~J {O -ԍxCWA Aug. 5 Ex Parte at 5.P Moreover, we decline to condition the merger, as suggested by the Alliance for Public Technology, on the combined entity's investment in telecommunications  X_-infrastructure for underserved communities. ~_ yO-ԍxAlliance for Public Technology Jan. 26 Reply Comments at 7. We note that the Commission has  {O-recently initiated proceedings to address issues regarding the deployment of advanced services. See Inquiry Concerning the Deployment of Advanced Telecommunications Capability to All Americans in a Reasonable and Timely Fashion, and Possible Steps to Accelerate Such Deployment Pursuant to Section 706 of the  {O-Telecommunications Act of 1996, CC Docket No. 98-146, Notice of Inquiry, FCC 98-187 (rel. Aug. 7, 1998);  {O-Deployment of Wireline Services Offering Advanced Telecommunications Capability, CC Docket No. 98-147, Notice of Proposed Rulemaking, FCC 98-188 (rel. Aug. 7, 1998).   X1-x B.` ` Procedural Motions   X -x220.` ` Motions to Dismiss. GTE and Rainbow/PUSH filed motions urging the Commission summarily to dismiss the applications, because Applicants have failed to provide sufficient information showing that the proposed transaction is in the public interest and will  X -not eliminate potentially significant sources of competition." " {O-ԍxSee GTE Motion to Dismiss; GTE June 11 Renewed Motion (asserting that the Applicants have failed to demonstrate that the adverse competitive effects of the merger are outweighed by the tangible public interest benefits); Rainbow/PUSH May 21 Renewed Motion (contending that Applicants have failed to satisfy their burden of proof). As our extensive analysis indicates, we find that the Applicants have presented sufficient evidence for the Commission to find that the instant merger is in the public interest. We, therefore, reject their motions to dismiss.  XM-x221.` ` Motions to Establish a Procedural Schedule. To the extent that GTE, in its motion filed July 28, 1998, seeks, in addition to expedited consideration of its original motion"8 0*%%ZZ*" to establish a procedural schedule, production of MCI and C&W's divestiture agreement, we have, as explained above, requested that agreement and it has been placed in the record. We deny, however, GTE's motion to establish a procedural schedule to permit comment on the  X-divestiture agreement. {O4-ԍxSee GTE's Motion for Establishment of Procedural Schedule (filed June 17, 1998); GTE July 22 Motion. We believe further pleading cycles are unnecessary, particularly in  X-light of the permitbutdisclose ex parte posture of this proceeding.  Xx-x222.` ` Petition for Reconsideration. We deny Telstra's petition for reconsideration of  Xc-the Common Carrier Bureau's (Bureau) order0\c" {O6 -ԍxApplication of WorldCom, Inc. and MCI Communications Corporation for Transfer of Control of MCI  {O -Communications Corporation to WorldCom, Inc., CC Docket No. 97211, Order, DA 98384 (rel. Com. Car. Bur. Feb. 27, 1998).0 that established an additional pleading cycle  XL-to permit parties to comment on WorldCom and MCI's reply comments.kLF yOC-ԍxTelstra Mar. 13 Comments and Petition for Reconsideration.k Telstra asserts that another pleading cycle, beyond the one established by the Bureau's order, is necessary to allow interested parties to comment after they have inspected "all relevant documents including the HSR documents which the [Commission] obtains in due course from the  X -DOJ."@  {Ow-ԍxId. at 2.@ Again, we find that, given the permitbutdisclose posture of this proceeding, parties have sufficient opportunity to express their views on any material that has been submitted into the record by the Applicants.  X-x223.` ` Motion and Request for Immediate Review of NonPublic Materials. We dismiss as moot Simply Internet's motion and Inner City Press' request for immediate review  Xh-of all nonpublic materials that the Commission has in its possession.hh  {O-ԍxSee Simply Internet's Motion for Immediate Review of NonPublic Material (filed Feb. 10, 1998); Inner City Press' Comments/Reply Request for Review of "NonPublic" Materials (filed Mar. 20, 1998). All nonpublic information received by the Commission has been placed in the record in this proceeding and is available for inspection by interested parties under the terms and conditions of the  X#-protective order adopted in this proceeding.>\#  {O -ԍxApplication of WorldCom, Inc. and MCI Communications Corporation for Transfer of Control of MCI  {O`!-Communications Corporation to WorldCom, Inc., CC Docket No. 97211, Order Adopting Protective Order, DA 981072 (rel. Com. Car. Bur. June 5, 1998).> *J:\POLICY\MCIWCOM\MASTER\OTHER.ISS* )J:\POLICY\MCIWCOM\MASTER\ORDERING) T "0*%%ZZ?"Ԍ X-U VII. CONCLUSION ׃  X-x224.` `  CONCL For all the foregoing reasons, we conclude that Applicants have carried their burden of showing that the proposed merger will serve the public interest, convenience, and necessity, if, and only if, MCI first sells it Internet business to C&W prior to the close of its merger with WorldCom. Accordingly, we hereby grant their merger application, subject to the divestiture of MCI's Internet assets. Further, we condition the transfer to WorldCom of MCI's DBS license on whatever action the Commission may take pursuant to the pending application for review of the initial license grant to MCI.  X -x VIII. ORDERING CLAUSES ׃  X -x225.` `  ORDERING 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 WorldCom, Inc. (WorldCom) and MCI Communications Corp. (MCI) in the above-captioned proceeding ARE GRANTED subject to the conditions stated below.  XK-x226.` ` 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 WorldCom to acquire control of  X-Xxa)X` ` any authorization issued to WorldCom'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;(#`  X|-Xxb)X` ` construction 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 (#`  X -Xxc)X` ` applications that will have been filed by such licensees and that are pending at  X -the time of consummation of the proposed transfer of control.a  {O -ԍxAT&T/McCaw Order, 9 FCC Rcd at 5909 n.300.a(#`  X-x227.` ` IT IS FURTHER ORDERED that this grant IS CONDITIONED on MCI's divestiture of its Internet assets to Cable & Wireless prior to the close of its merger with WorldCom."!Z0*%%ZZ "Ԍ X-ԙx228.` ` IT IS FURTHER ORDERED that the transfer to WorldCom of MCI's DBS license IS CONDITIONED on whatever action the Commission may take pursuant to the pending application for review of the initial license grant to MCI.  X-x229.` ` IT IS FURTHER ORDERED that all references to WorldCom and MCI 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.  XH-x230.` ` 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 GTE's Motion to Dismiss, filed on January 5, 1998, GTE's Renewed Motion to Dismiss, filed on June 11, 1998, and Rainbow/PUSH Coalition's Renewed Motion to Dismiss, filed on May 21, 1998, ARE DENIED.  X -x231.` ` 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 GTE's Motion for Establishment of a Procedural Schedule, filed on June 17, 1998, IS DENIED and GTE's Motion for Expedited Consideration of GTE's Motion for Establishment of a Procedural Schedule and Production of Related Materials, filed on July 22, 1998, IS DENIED IN PART AND GRANTED IN PART.  X-x232.` ` IT IS FURTHER ORDERED, pursuant to section 309(d)(2) of the Communications Act of 1934, as amended, 47 U.S.C.  309(d)(2), that the requests for evidentiary hearing filed by Inner City Press, Rainbow/PUSH, Simply Internet, and TMB on January 5, 1998, and the requests for evidentiary hearing filed by the Greenlining Institute and GTE on March 13, 1998, ARE DENIED.  X-x233.` ` 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 Petitions to Deny filed by Bell Atlantic, GTE, Inner City Press, Rainbow/PUSH Coalition, Simply Internet, TMB, and the United Church of Christ on January 5, 1998, the Petition for Conditional Approval filed by BellSouth on January 5, 1998, and the Petition to Deny filed by the Greenlining Institute on March 13, 1998, ARE DENIED.  X-x234.` ` IT IS FURTHER ORDERED that Telstra's Petition for Reconsideration of the Common Carrier Bureau's order establishing an additional pleading cycle filed on March 13, 1998, IS DENIED. ""0*%%ZZf!"Ԍ X-x235.` ` IT IS FURTHER ORDERED that Simply Internet's Motion for Immediate Review of NonPublic Material filed on February 10, 1998, and Inner City Press' Request for Review of NonPublic Materials filed on March 20, 1998, ARE DISMISSED as MOOT.  X-x236.` ` 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` `  hhFEDERAL COMMUNICATIONS COMMISSION x` `  hhMagalie Roman Salas  X -x` `  hhSecretary )VJ:\POLICY\MCIWCOM\MASTER\ORDERING) )VJ:\POLICY\MCIWCOM\MASTER\APPENDIX)   T Ã" 0*%%ZZ"  X-  0APPENDIX ă  X-x` `  Comments Filed in Response to Pleading Cycles  X- WorldCom and MCI Merger ă  X-  CC Docket No. 97211 ă T  Xv-Petitions to Deny/Comments on Nov. 21 Amended Application January 5, 1998 American Federation of Labor and Congress of Industrial Organizations (AFLCIO) Bell Atlantic BellSouth Corporation (BellSouth) Communications Workers of America (CWA) GTE Service Corporation (GTE) Inner City Press/Community on the Move (Inner City Press) Office of Communication of the United Church of Christ, Consumers Union and the National Association for Better Broadcasting (United Church of Christ) Rainbow/PUSH Coalition (Rainbow/PUSH) Simply Internet, Inc. (Simply Internet) Telstra Corporation Limited (Telstra) TMB Communications, Inc. (TMB)  X4-  X-Reply Comments on Nov. 21 Amended Application January 26, 1998 Alliance for Public Technology Coalition of Utah Independent Internet Service Providers (CUIISP) CWA Consumer Project on Technology GTE Simply Internet United States Internet Providers Association (subsequently withdrawn)  XN-WorldCom and MCI   X7-  X -Comments on GTE's Motion to Dismiss January 27, 1998 CWA Rainbow/PUSH WorldCom and MCI  X!-  X"-Reply Comments on GTE's Motion to Dismiss February 5, 1998 BellSouth GTE WorldCom and MCI":&0*''ZZ$"Ԍ X-ԙPetitions to Deny/Comments on WorldCom/MCI Joint Reply March 13, 1998 Bell Atlantic BellSouth The Greenlining Institute GTE Independent Payphone Service Providers for Consumer Choice (IPSPCC) Rainbow/PUSH Simply Internet Sprint Corporation (Sprint) Telstra TMB  X -Reply Comments on WorldCom/MCI's Joint Reply March 20, 1998 CUIISP CWA Fiber Network Solutions, Inc. (Fiber Network Solutions) David Holub Inner City Press Texas Internet Service Providers Association WorldCom and MCI  X-  X-Comments on MCI's June 3, 1998 Ex Parte June 11, 1998 AT&T Bell Atlantic BellSouth CWA GTE Internet Service Provider's Consortium Simply Internet Sprint Telstra  X- )J:\POLICY\MCIWCOM\MASTER\APPENDIX) (J:\POLICY\MCIWCOM\MASTER\HFR.SMT( #Xw PE37cXP#"0*%%ZZ6$"    x` `  hh@hpp  September 14, 1998  А X-T vSEPARATE STATEMENT OF TP COMMISSIONER HAROLD FURCHTGOTTROTH TP  Vv- Re:XxApplication of WorldCom, Inc. and MCI Communications Corporation For Transfer of Control of MCI Communications Corporation to WorldCom, Inc.; CC Docket No. 97211. (#  X1- xI support today's decision approving the proposed merger between WorldCom, Inc. and MCI Communications Corporation. I concur in that result, but write separately to express my concern with several aspects of the underlying reasoning and to disapprove explicitly of the conditions imposed on this merger. I am also unwilling to adopt in its entirety the proposed framework for analyzing mergers presented here as I believe that it is (i) essentially duplicative of the merger analysis already conducted by the Department of Justice, (ii) excessively timeconsuming since this agency waits until after DOJ clearance has been granted before proceeding, and (iii) too speculative in its analysis of who may be potential competitors.  V4-Cumbersome Review Process  X- xWe have before us today the merger of two nimble and aggressive firms: WorldCom and MCI. They, and many other firms, operate in many markets, some domestic and some distinctly international. They serve many consumers in the United States and around the world. xMany regulatory authorities, both in the United States at the state and federal level, and in other countries, have already approved the merger with various qualifications. The FCC is the final among countless agencies to offer an opinion. I concur in the decision of this Commission to approve the merger. I concur, however, with deep reservations about the process that these companies have had to endure and about the process that has led to decisions directly affecting American consumers but without recourse to American consumers or American voters. xIn part, I am troubled that this agency has taken as long as it has to review this merger, for which we received our first petition for review on October 1, 1997, and which was approved by the Justice Department on July 15, 1998. Surely, future mergers will be  X"-handled more expeditiously.H" X%-ԍ#Xw PE37cXP#xIndeed, I am deeply troubled that other mergers appear to be taking longer to review once they clear Department of Justice. For example, the merger application for SBC"%0*''%" Communications Inc. and Southern New England Telephone ("SNET") a smaller transfer and one that appears to raise fewer legal issues was filed on February 20, 1998 and cleared the Department of Justice without condition on February 21, 1998. But, the Commission does not yet have an item before it. I fear that the Commission's internal procedures that typically limit Commissioners' input until after an item has been fully drafted and presented is not only precluding full consideration of important issues by the entire Commission in a timely manner, but ultimately delaying the decisionmaking process. I look forward to working with  X-my colleagues to attempt to rectify this situation. #x6X@`7X@# ""0*''ZZf!"ԌxOur staff has invested substantial talent and resources in the review of this merger, as is evident by the accompanying Order. But our staff is hard working and has many demands placed on their time. Another agency of the federal government, one with specific statutory authority to review mergers and with substantially more staff that specialize in nothing other than merger analysis, has already examined this merger in all market contexts in great detail and has found it acceptable. The heroic efforts of our staff notwithstanding, we have little to add or to subtract from the market analyses or the judgment of this other federal agency but a more detailed public record. xFor this reason, I would prefer a more thorough consideration of ways to eliminate the duplicative nature of this dual analysis of proposed mergers. Surely there is a more efficient and less timeconsuming process that could be followed. For example, it is the obligation of  X -this agency to find the transfer of licenses is in the "public interest."A  Xu-ԍ#Xw PE37cXP#xI emphasize that it is the obligation of this agency to find only the transfer of licenses  X^-is in the public interest, not the merger or acquisition of the underlying firms. #x6X@`7X@#A A finding by this agency that the transfer of licenses involves merging parties that have in the past and are currently complying with existing Commission rules, and that no extraordinary reason to oppose the transfer of licenses is articulated by the public, would seem the proper basis for this agency to exercise its responsibility. xBut instead, the Commission has undertaken a wideranging analysis of the merger that exceeds even DOJ's principles and that examines broader social issues beyond this agency's expertise or authority. For example, under the precluded competitor framework used in part here, our analysis of potential competitors is too speculative, as we do not require the same type of evidence that the Department of Justice's merger guidelines require of intent to enter the market. Even with our expertise in telecommunications, I question whether we can make such assumptions and whether they are even relevant to a narrow public interest analysis. In addition, I am not convinced that a review of applications to transfer licenses as part of a merger analysis is an appropriate forum in which to assess or craft commitments for broader social policy questions. Is there any limit on the additional benefits that the"r 0*%%ZZ" Commission could examine or requirements it could impose in determining whether a transfer of licenses is in the public interest?  V-Conditional Approval xEven if this Commission had stayed narrowly to its statutory authority, however, I would still be troubled by the process outside of this agency that these merging firms have had to endure. I have no reason to doubt that this transfer of licenses falls squarely within  XH-any reasonable definition of the "public interest."vH X -ԍ#Xw PE37cXP#xThe Commission has some limited shared Clayton Act jurisdiction, but that jurisdiction does not involve a "public interest" standard. The standard there is quite specific: "substantially to lessen competition, or tend to create a monopoly," 15 U.S.C. Section 18, and does not require that a proposed merger be demonstrably "procompetitive." The Commission makes no specific findings with respect to this standard. Moreover, another  XN-federal agency, with substantially more expertise, has already applied that standard. #x6X@`7X@#ў But I have substantial reason to doubt that the entire process of merger review in which this agency is rightly only a small appendix is within any reasonable definition of the "public interest." xI fear that the cumbersome nature of this process, and the opportunities for an agency in one country to demand compliance with rules outside of its territorial jurisdiction, pose a threat to international commerce, to firms such as WorldCom and MCI that engage in international commerce, and to American consumers. xI do not have a specific solution to propose to this problem. This agency, by itself, can do little to affect the overall merger process around the world. This agency can, however, voice its concerns. We can state forthrightly that interference in international commerce generally, and international telecommunications in particular, will not be sanctioned by the United States. Enterprises that wish to engage in international commerce need not fear that one nation can dictate the terms and conditions under which that enterprise does business in any other country.  X-xThis Commission conditions approval of the merger on MCI's divestiture of Internet assets within the United States. I am not convinced that this divestiture is either economically or legally necessary. Entry and exit in various segments of the Internet business do not appear to have substantial barriers. Indeed, the market structure changes rapidly with countless entities vying in different segments. Were ours a truly independent review, I would emphatically oppose conditioning the merger on divestiture, even if I believed that this Commission can properly consider market structure in the review of the transfer of licenses." 0*%%ZZ>"ԌxBut this agency cannot make any pretense of conducting a truly independent review of the newly constituted MCI and WorldCom. The EU has effectively required divestiture of MCI Internet assets in the United States. We, at the FCC, have at best rationalized a decision already made by others.  V-The Importance of Open Markets to America  Xv- xI was privileged soon after joining the Commission to have an opportunity to vote for rules that would implement the World Trade Organization's (WTO's) agreement to open telecommunications markets in all nations, including the United States, to carriers from any nation. It was a proud moment. Open markets are good for consumers, particularly American consumers. Open markets are good for businesses, particularly the many competitive American businesses that seek to compete around the world. xMore fundamentally, however, open markets are important for the fulfillment of American ideals. In America, the government serves the individual, and not visa versa. Whether in individual or business conduct, freedom from excessive regulation has long been important to Americans. It was, indeed, the efforts of a distant government to restrict commerce within America, and international commerce with America, that ignited the American revolution. xThe importance of free international commerce has waxed and waned in American history, but in every generation, the United States has taken principled positions to preserve open international commerce. Even as a young and relatively powerless nation, the United States stood for open international commerce. It negotiated treaties with European powers to secure access to commerce in the Mississippi Valley. Restrictions on American commerce on the high seas led to hostilities with England and France. It was the weak and distant United States, not the nearby and powerful European nations, that refused to pay tribute to the Barbary pirates. The federal government of the United States two hundred years ago was, by contemporary standards, extraordinarily weak. It was small, had few assets other than land, regulated little, and taxed perhaps even less. There was little of a standing army or navy. But that government lacked nothing of determination in protecting the young nation's sovereignty. It would not tolerate threats to its sovereignty on the high seas, much less at home.  V-The Importance of Jurisdictional Boundaries to International Commerce  X - xOpen international commerce does not mean that businesses are immune from national or local laws in areas of appropriate jurisdiction or treaty obligations. Those laws, and regulations under them, to the extent they do not obstruct commerce, actually enhance"#0*%%ZZG"" international commerce by providing a clear and predictable legal framework for commercial activities. xJurisdictional boundaries, however, must be respected for international commerce to be truly open. A nation may reasonably regulate the business activities of a firm within its borders as a condition of operating within that country, but a nation may not reasonably restrict business activities in a third country. Nations do coordinate, harmonize and even reciprocate regulatory treatment of businesses, but only through duly authorized agreements or treaties. xIf every one of the nearly two hundred countries in the world sought to require international firms to abide by its regulations not merely within its national boundaries, but in other countries as well, international businesses and international commerce would cease to exist as we know them. Indeed, if even one country sought to compel businesses to conform to its regulations, international commerce would cease to be open. x  X-MCI, the EU, and Duress xTo secure approval for its merger with WorldCom from EU regulatory authorities, MCI was forced to make concessions on its assets not merely in countries under EU jurisdiction but in the United States as well. In particular, MCI was required to divest itself of much of its internet business activities in the United States, including retail household services. xSome will say that MCI, a private party, agreed to these conditions, and thus there is no reason for government concern. These concessions, however, were made under duress, concessions that MCI would not willingly have made to another private party, or even to many governmental entities.  Vg-Which Merger is the FCC Reviewing? xThe matter before this Commission is ostensibly the transfer of licenses between  X"-WorldCom and MCI based on a petition filed on October 1, 1997. " X-ԍ#Xw PE37cXP#xFollowing WorldCom and MCI's November 9, 1997 merger agreement, the companies jointly filed an amended application for transfer of control of MCI's licenses and authorizations to WorldCom on November 21, 1997. On July 31, 1998, Applicants filed a minor amendment listing additional private land mobile radio licenses held by MCI, but not  X?#-included in the initial application. #x6X@`7X@#  That petition was made before the EU review and demands. What is before this Commission today is the transfer of" 0*%%ZZ" licenses between substantially altered entities in large part as the result of requirements on U.S. assets imposed by the EU. The option to review the transfer of licenses between the originally proposed parties is today largely an academic exercise. Even if this Commission were to approve the transfer of licenses between the original unaltered entities, the future of those entities has been irretrievably altered by the EU decision. xIn this Order today, we go through the motions of that academic review of the merger of two firms one of which today cannot be sustained in the future. We reach the fortuitous conclusion that all is well if the EU prescription of divestiture is followed. It is a fortuitous conclusion because what would the practical effect have been had the Commission reached the opposite conclusion such as the following: the public interest would be served in the transfer of licenses if MCI does not divest itself of its internet assets but instead WorldCom should divest itself of its assets? Or what would the result have been if the public interest would best be served if neither company divested anything? Indeed, the FCC has been urging that companies like MCI provide advanced services to the retail consumer markets. What if the Commission had concluded that by forcing the merged company to divest the largest piece of their internet backbone, the Commission only hinders the possibility that residential costumers will indeed see the benefits of such advanced services? xThe simple answer to these questions is that the Commission analysis can do little more than rubber stamp those decisions already made by the EU unless we should find that further forms of divestiture, forfeiture, or regulatory punishment are warranted. As I have indicated above, I am troubled that the Commission engages in extensive market analysis and the development of conclusions about market structure and performance and remedies for the illegal use of market power that duplicate work done by other federal agencies. I am even more troubled that we should make these analyses when they can do little more than rubber stamp decisions made by foreign regulatory entities.  V|-Timing and Jurisdiction xIn a world of competing jurisdictions over mergers among various international, national, state, and local authorities, agencies that review the merger first and impose conditions first may have disproportionate effects on the final structure of the multiple reviews. The first judgments can be modified but not fully overturned. In a world of competing jurisdictions, this review process may create incentives for some agencies to attempt to move first to the disadvantage of agencies that move subsequently. The race to review first, however, would largely evaporate if agencies agreed on jurisdictional responsibilities such that there were little if any overlapping jurisdiction.  V#-EU as Close Friends of the United States "h$0*%%ZZ(#"ԌxThe EU consists of some of the United States closest allies and best friends in the world. It is difficult to imagine that the EU would have required MCI divestiture within the United States had there been the slightest likelihood of dissatisfaction from the United States. To exercise jurisdiction where it is tacitly allowed is not a hostile or unwelcome act. The EU should not be blamed for acting where it is allowed. Had the United States simply signalled that we can apply our own laws to assets in the United States, this problem would not have developed. xAs I noted upon passage of the WTO implementation rules, in international commerce the United States must lead by example. We must have the most open and freest market in the world. We must champion the cause of consumers and businesses, both in this country and around the world, who seek better lives and more technological advances through competition and free markets. And we must find better and more expeditious ways to review international mergers.  X -#Xw PE37cXP#T #Xj\  P6G;cXP# P (J:\POLICY\MCIWCOM\MASTER\HFR.SMT( (J:\POLICY\MCIWCOM\MASTER\POW.SMT( " 0*%%ZZ"  X- X   #Xj\  P6G;cXP#September 14, 1998  А X-X(#PT T vSEPARATE STATEMENT OF TPQ COMMISSIONER MICHAEL K. POWELL TP  Vv- Re:XxMemorandum Opinion and Order, Application of WorldCom, Inc. and MCI Telecommunications Corporation for Transfer of Control of MCI Communications  XH-Corporation to WorldCom, Inc. (CC Docket No. 97211).(# xI am pleased the Commission is able to conclude its obligations in this matter by allowing MCI and WorldCom to do what they have been so eager to do for so many months: join forces to bring more of the benefits of competition to themselves and to the American consumer.  X -xThis Order is the culmination of an enormous amount of work by our dedicated and talented staff. I applaud the staff for their efforts to bring this highly complex proceeding to closure. I sincerely hope, moreover, that the framework we have erected here will serve as a useful template to help expedite future merger review proceedings. We must strive constantly to make the review process more efficient and thereby better keep pace with market developments. xOf course, as a proponent of vigorous antitrust enforcement, I would not celebrate the prospect of the union of MCI and WorldCom were I not confident (as much as our predictive tools allow) that the merger will not aggravate the potential for anti-competitive conduct. As  X-the Order thoroughly documents, however, the likelihood that the proposed merger will result  X-in such aggravation is minimal. I take particular solace in the fact that, with this Order, the Commission joins the ranks of several state, federal and international regulatory bodies, all of which have seen fit to approve this transaction.  XV-xIn this statement, I explain the bases upon which I support this Order. Specifically, I  XA-believe this Order appropriately: (1) declines to give significant weight to considerations that fall outside our core function of setting telecommunications policy and the unique expertise deriving from that function; (2) expresses some willingness not to "reinvent the wheel" with respect to competitive analysis of mergers already reviewed by the Department of Justice; and (3) does not impose additional, unnecessary conditions on the merger.  X!- Disciplining the Public Interest Standard  X#-xThe primary reason I support adoption of this Order is that much of the analysis is  Xv$-consistent (or at least not inconsistent) with my views regarding the considerations that should discipline our pursuit of "the public interest." On several occasions in the broadcast context, I"a%,))ZZ $"  X-have expressed my discomfort with the "penumbral bounds" of the public interest standard.DqC {Oy-#X\  P6G;2P#эxSee, e.g., FCC Commissioner Michael K. Powell, " The Public Interest Standard: A New Regulator's Search for Enlightenment," Speech Before the American Bar Association 17th Annual Legal Forum on Communications Law (April 5, 1998); FCC Commissioner Michael K. Powell, "Willful Denial and First Amendment Jurisprudence," Remarks Before the Media Institute (April 22, 1998). Justice Felix Frankfurter said that the "vagueish penumbral bounds expressed by the standard of the public interest" "[leave] wide discretion  {Oc-and [call] for imaginative interpretation." FCC v. RCA Communications, Inc., 346 U.S. 86, 90, 91 (1953). My effort to develop principles for exercising our public interest discretion is an effort to ensure that this discretion is bounded by more than the Commission's collective imagination. I consequently have tried to develop basic principles that I believe should guide our exercise of  X-this wide discretion.~qC yOW -#X\  P6G;2P#эxMy decisional schematic for broadcast poses five basic questions: Xx(1) does the Commission have the authority to do what is asked?;  Xx(2) if we have the authority, is it nonetheless better to leave the matter to Congress or await more specific instruction from Congress;  Xx(3) is the issue better addressed by a state or another federal agency;  Xx(4) if the Commission has authority and is the arm of the government best suited to act, should we?; and,  Xx(5) would any action we take be Constitutional?  FCC Commissioner Michael K. Powell, " The Public Interest Standard: A New Regulator's Search for Enlightenment," Speech Before the American Bar Association 17th Annual Legal Forum on Communications Law (April 5, 1998).~ I believe it may prove useful for the Commission to outline such principles in applying the public interest standard for purposes of telecommunications mergers, adjudication and regulation. Only by looking to such principles can the Commission, in my view, reach conclusions that are relatively predictable, reasoned applications of the public interest standard and not just the result of the most effective lobbying or political pressure, or our unguided subjective judgment. In this statement, I begin to sketch the principles I believe should apply in the telecommunications merger context. I  X1-also explain how this Order comports with these principles. xFundamentally, I believe that the Commission's public interest authority to review transfers of authorization is not a license to sweep into the review every possible goal that one could argue is supported by or consistent with the statute. Nor should we allow our public interest authority to degenerate in reality or impression into serving as a "back door" to achieve results the Commission is unable (or unwilling) to accomplish more directly, through traditional rulemaking. Rather, I believe our public interest authority to review transfers of authorizations evidences Congress' recognition that it could not foresee every possible set of facts that might so endanger the procompetitive, deregulatory framework of the statute that such facts warrant denial of the transfer. Congress gave this broad authority to an expert agency, the Commission, so it could use that expertise to take into consideration facts that Congress could not concretely anticipate. "4,-(-(ZZ"ԌxBased on this fundamental belief, I submit that the decision whether to attribute significant (or any) weight to a particular factor in our public interest merger review should turn on whether:  X-Xx(1) the Commission has authority even to consider that factor;  Xx(2) the action the Commission would take with respect to that factor is part of  Xx-our core function of setting telecommunications policy; and   Xc-Xx(3) the action relies on our unique expertise in setting such policy and is not more readily handled by other processes or other institutions vested with Congressional authority.  Let me elaborate on these three principles. xMost obviously, the Commission should not be taking any action that Congress did not  X -delegate it authority to take. Conversely, the Commission should not take action that would violate any statute or the Constitution. But given the breadth of the public interest standard itself, answering the authority question may provide clear guidance only in those extreme circumstances in which consideration of the factor would contravene the letter or spirit of some statutory or constitutional provision. xThe Commission also should not place significant weight on considerations that do not  X%-fall within our core function of setting telecommunications policy. Does consideration of a particular factor center on the manner in which firms provide services to end users or to other service providers? Does consideration of the factor involve communications rateor standardsetting or involve laying the ground rules for competition? Does the factor implicate areas of private conduct that the Commission consistently regulates in the context of telecommunications? If the answer to these and similar questions is "no," I would strongly favor attaching little, if any, weight to that factor in our merger analysis. xPerhaps most important in disciplining our public interest merger analysis is deciding  XX-whether consideration of a particular factor relies on our unique expertise. Telecommunications affects our lives in countless ways. Thus, it is no surprise that telecommunications may play some part in a wide variety of social issues. Simply because we regulate the provision of telecommunications, however, does not mean that we are experts on all of these issues. Thus, we should be hesitant to give issues with which we have no special talent a prominent place in our merger analysis, even though there may be strong moral and political motivations for doing so. xInstead, I firmly believe the Commission should work to focus its public interest merger analysis on considerations that leverage our unique expertise. We should constantly ask ourselves whether some other agency has roughly equivalent or even superior expertise and authority to address any given factor, either in reviewing the merger at issue or in some other context. In my view, moreover, where another agency has specific statutory jurisdiction"F&,-(-(ZZ$" to address a particular factor, we should seriously consider the propriety of exercising our broad public interest discretion. xThe Commission's credibility and thus its influence in Congress, the courts and elsewhere in our federal system depends in large measure on the extent to which we act within our jurisdiction and do not stray from the confines of our unique, core expertise. The Supreme Court has in principle supported this idea in stating that "reviewing courts do not owe deference to an agency's interpretation of statutes outside its particular expertise and  XH-special charge to administer.":|HqC {O -#X\  P6G;2P#эxArdestani v. Immigration and Naturalization Service, 502 U.S. 129, 148 (1991) (citing Adams Fruit Co.  {O -v. Barrett, 494 U.S. 638, 64950 (1990)). See also Syracuse Peace Council v. FCC, 867 F.2d 654, 658 ("In making a public interest judgment under the Communications Act, the Commission is exercising both its congressionallydelegated power and its expertise; it clearly enjoys broad deference on issues of both fact and  yO -policy."). (D.C. Cir. 1989). The courts' statements appear to acknowledge that, in deciding what degree of deference should be given an agency action, judges will not find it irrelevant that the action does not fall within the agency's core expertise.: Simply put, we cannot command respect as an "expert agency" if our pronouncements turn on subjects in which we are not expert or which do not rely on our unique capabilities. Likewise, the soundness and clarity of our analysis will suffer if we try to fold into our merger analysis every possible regulatory goal that strikes our fancy or that might be inferred from provisions of the statute. Thus, I am particularly pleased  X -that this Order does not weigh too heavily considerations that are inherently speculative and that bear at best a tenuous relationship to the underlying motives and direct consequences of the proposed merger.  X{-xI would apply the three guiding principles I have articulated authority, core function  Xd-and unique expertise to the types of considerations in this Order as follows: xWith respect to allegations of intentional discrimination, I believe there may be a plausible argument that the Commission's consideration of some discrimination concerns falls within our core function of setting telecommunications policy and the unique expertise that derives from that function. In particular, I believe there may be merit in attaching some weight to discrimination concerns in our merger review when such discrimination contravenes carriers' universal service obligations or the traditional duty of common carriers to treat all  X-customers equally. Section 201 of the statute, for example, mandates that "[i]t shall be the duty of every common carrier engaged in interstate or foreign communication by wire or  X-radio to furnish such communication service upon reasonable request therefor."n qC yO="-#X\  P6G;2P#эx47 U.S.C.  201(a).n To the extent allegations of racial and other forms of discrimination amount to violations of that duty, there may be an argument that such alleged violations should be given weight in our merger analysis. I would be open to considering this and other such arguments that focus on the Commission's core function and unique expertise in setting communications policy. " ,-(-(ZZ="ԌxOther discrimination and disparate treatment concerns, such as employment diversity and minority representation however sympathetic or onerous to the republic generally fall neither within the Commission's core function of setting telecommunications policy, nor within the Commission's unique expertise in setting such policy. Thus, I believe the Commission should leave these latter concerns primarily to the courts and other agencies  X-(e.g., the Department of Justice, Equal Employment Opportunity Commission). qC yO-#X\  P6G;2P#эxI express no opinion here regarding equal employment opportunity concerns in the broadcast context, which may present unique circumstances that I do not address in this statement.  In those limited circumstances in which these concerns might fall within our core function and unique  Xa-expertise, the Commission should not address these concerns in an ad hoc way, pursuant to its obligation to ensure that transfers of certain types of authorizations are consistent with the public interest. Instead, the Commission should pursue such goals in the context of a  X -rulemaking.$ qC yO -#X\  P6G;2P#эxFor example, if one can demonstrate a history of intentional racial discrimination, remedies for which fall within our core function and the unique expertise deriving from that function, it may be appropriate for the  {O-Commission to conduct a rulemaking to put in place remedial policies, consistent with the law. See generally  {OI-City of Richmond v. J.A. Croson Co., 488 U.S. 469 (1989). This approach would at least make it more likely that all of the parties interested in the topic participate in the proceeding. Parties that might be concerned about how the Commission will police discriminatory conduct may not think to comment on a particular merger, whereas they may take notice of a general rulemaking on discrimination. xWith respect to some of the laborrelated concerns raised on the record, I would submit that allegations that employment levels will be adversely affected by a given merger should be afforded little, if any, weight in the Commission's merger analysis. Even if we believe we have jurisdiction to consider this factor as part of our merger review, it lies outside our core function of setting communications policy and the unique expertise deriving from that function. Indeed, I believe employment levels are more directly an issue for collective bargaining and the wellestablished body of labor law. Furthermore, parties who wish to obtain relief regarding employment levels may seek such relief in the courts and before other government entities like the National Labor Relations Board. xI fully recognize that the federal government may play an important role in pursuing some of the social or other goals raised by the commenters that fall outside the rubric of traditional competitive analysis. For example, I firmly believe that the federal government, viewed as a whole, must be vigilant to prevent intentional racial discrimination to the extent the Constitution allows. I also believe the government may play a useful role in devising incentives consistent with market principles that enhance minority participation in the  X;-communications sector (e.g., minority tax certificates in the broadcast context).  X-xBut just because it may be appropriate for some part of the federal government to  X-pursue particular social goals does not mean that the Federal Communications Commission must apply the balm for all that ails us; that would be like playing doctor without a license or" ,-(-(ZZ"  X-adequate training. Congress has seen fit to give primary responsibility for overseeing such areas as labor relations and antidiscrimination efforts to other agencies. At best, duplicating such oversight at the Commission may strain precious resources and encourage parties to "forum shop" among various agencies in attempt to obtain desired outcomes.  X-xI support this Order, in part, because it does not afford significant weight to considerations such as employment levels and job discrimination that I believe should not  Xa-figure prominently in our telecommunications merger analysis. As such, I believe the Order evidences at least some reluctance by the Commission to let the scope of our merger analysis sweep too broadly.  X - Avoiding Reinventing the Wheel  X -xI also support this Order because the analysis leaves open the possibility that the Commission may take into consideration actions taken (or not taken) by the Department of Justice with respect to a proposed merger. This position derives, in part, from my belief that the Commission should focus its public interest merger analysis on factors relating to its unique expertise. xIn my view, there is potential in the future for the Commission to devise ways formal or informal to take into consideration how the Department deals with a particular merger in our own merger analysis. I believe this potential exists even where the Commission performs an independent analysis or the method and scope of our analysis differ from that employed by the Department. As our reliance on the Department's horizontal merger guidelines demonstrates, there may at times be significant overlap between the analytical frameworks employed by the Commission and the Department. To suggest otherwise would strain credulity. Based on my acknowledgment of this analytical overlap, and my deep respect for the diligence and considerable expertise of the Department, I am hopeful that the Commission will, in the future, be able to minimize duplications of effort in the area of competitive analysis and thereby use our regulatory resources most efficiently.  X=- Declining to Impose Unnecessary Conditions  X-xFinally, I support the result here because it evidences at least some reluctance to impose additional, unnecessary conditions on mergers. I believe the Commission must be extremely circumspect about imposing conditions or extracting commitments from the  X -applicants to do things that fall well outside their legal obligations under the statute . New entrants into the local exchange market, for example, are not obligated under the statute to serve every type of customer, no matter how desirable that result might be. Thus, I would seriously question imposing such a requirement on new entrants through the merger review process. xMoreover, just as I believe the Commission should not let its public interest analysis sweep too broadly, I firmly believe that if we begin to impose merger conditions too easily or")',-(-(ZZ%" make those conditions too excessive, we will injure the Commission's credibility and influence. We also may thereby substitute regulators' judgments about how communications resources should be allocated for the judgments of consumers and competitors in the marketplace.  X-xIn my view, this Order is consistent with these beliefs. I would point out that, other than with respect to the divestiture of Internet assets prompted by the Justice Department and  Xa-European Commission, we have imposed no significant conditions on this merger.8aqC yO-#X\  P6G;2P#эxNote, however, that the transfer of MCI's direct broadcast satellite (DBS) license to WorldCom is  yO -subject to the outcome of pending applications for review of the initial license grant to MCI. 8 Rather,  XJ-the Order merely evidences expectations that MCI and WorldCom have honestly represented  X5-their intentions to conduct their activities in the manner they have stated on the record (e.g., their representations regarding the types of customers they will serve). As such, I believe the  X -"mere expectations" expressed in the Order amount primarily to reminders that parties should not lie or misrepresent their intentions to the Commission. xIn conclusion, I should note that I would be especially reluctant to try to punish former applicants if, as they begin to carry out their stated intentions, they find they must divert from their commitments in merger applications for business reasons or legitimate concerns regarding the regulatory environment. Moreover, I would vigorously oppose any efforts by the Commission, formally or informally, to require applicants to submit commitments regarding how the merged entity will conduct its business. Again, the Commission will work harm to its credibility and, I believe, the public interest if it is perceived to be attempting to achieve aims through such "voluntary" commitments that the Commission is unable or unwilling to achieve through more direct means. xFor the foregoing reasons, I am pleased to support approval of the proposed merger. I commend the Commission staff for its hard work in this proceeding, and I look forward to working together with everyone at the Commission as we review future proposed transactions. ()"J:\POLICY\MCIWCOM\MASTER\POW.SMT( ')"J:\POLICY\MCIWCOM\MASTER\GT.SMT' " ,-(-(ZZL"   x` `  hh@hppSeptember 14, 1998  a<a#|\  P6G; P# Separate Statement of  a< Commissioner Gloria Tristani, Dissenting in Part # Xj\  P6G;cXP#ѐTP  V-Re:XxApplication of WorldCom, Inc. and MCI Communications Corporation for Transfer of Control of MCI Communication Corporation to WorldCom, Inc., CC Docket No. 97 Vs-211.(# xI write separately and dissent in part from the majority's decision not to impose some type of reporting requirement to monitor the merged company's progress in the local residential market. xThe Commission's framework for evaluating mergers is simply that a merger should be approved if its positive effects outweigh its negative effects. One significant negative consequence that was alleged was that the merged company would abandon the possibility of competing for residential customers in the local market. The Order ultimately does not weigh this possibility against that application, in large part because of a commitment by WorldCom and MCI to compete in the local residential market. I place great importance not only on the ability of the merged company to compete, but the likelihood of that it will do so. xAfter expressing its reliance on the commitment by WorldCom and MCI, the majority notes that it will monitor the merged company's progress in the local residential market. I applaud and fully support their willingness to monitor the company's actions following the merger. However, I respectfully disagree with their decision not to impose some type of reporting requirement on the merged company that would facilitate such monitoring. A minimal reporting requirement seems to me an eminently reasonable way of seeing whether the company follows through on its commitment to compete for residential customers for local service. If the company intends to keep its commitment, what's the harm in keeping us apprised of its progress? xWhile I recognize, as the majority does, that the Commission has gathered some information about the status of competition in the telecommunications markets, the process is not regularized or particularly useful in providing information about the progress of local competition generally or local residential competition in particular. My preoccupation with getting these facts is based on this Commission's obligation to gauge the progress of competition as we implement the Communications Act's procompetitive provisions. xIt is my hope that at some future date, the Commission will create a meaningful mechanism for measuring the progress of local competition that would obviate the need for a reporting requirement here. At this point, however, I am unwilling to rely on a future mechanism for gathering such information when such mechanism's very existence and"N(,))ZZ$'" suitability for the purposes at hand are uncertain. Additionally, it cannot be reasonably argued that a reporting requirement consisting of a onepage letter every six months is overly burdensome. It is also worth noting that at least two state commissions (Missouri and Georgia) require all local carriers to report regularly on the number of residential lines they serve simply as a condition of providing service in those states. Thus I would think it quite sensible for this Commission to direct the merged company to keep us apprised of its compliance with a commitment that, judging from paragraphs 192193, was clearly critical to our approval of this merger. xI would underscore my expectation that WorldComMCI live up to its commitment to compete for local residential customers, the vast majority of whom continue to have exactly one choice for local telephone service today. And I take this opportunity to make clear that I will take a great interest in seeing that the company adhere to this commitment. xFinally, I take this opportunity to address one issue in Commissioner Powell's separate statement accompanying this Order. I do not share his hesitation to explore, in the context of a merger, allegations that one or both of the applicants has declined to serve customers on the basis of the customers' race. Such allegations were made in this proceeding against the applicants. My colleagues and I ultimately determined that those claims were not actionable because: (1) the applicants sufficiently explained how their networks came to be laid out in this fashion; and (2) the parties seeking to halt the merger on these grounds provided no other evidence of the merged company's intent to discriminate on the basis of race. Nonetheless, I would underscore that I will always be concerned with allegations of racial discrimination in determining whether proposed telecommunications mergers serve the public interest. x x` `  hh@# # # 'UJ:\POLICY\MCIWCOM\MASTER\GT.SMT'