April 9, 1999

The Honorable William E. Kennard
Chairman
Federal Communications Commission
445 12th Street, S.W.
Washington, DC 20554

Re: Proposed GTE-Bell Atlantic Merger, CC Docket No. 98-184

Dear Chairman Kennard:

On February 24, 1999, Bell Atlantic and GTE requested that the Commission grant "interim relief" that would allow Bell Atlantic to provide in-region Internet backbone services that cross LATA lines. Such relief would enable GTE to transfer ownership of the assets of the former BBN Company - which GTE acquired in 1997 and operates under the name GTE Internetworking - to Bell Atlantic. The carriers ask the Commission to provide this relief by creating "a single LATA for Internetworking's existing businesses." The carrier's request for relief would be granted once Bell Atlantic obtains FCC authorization, pursuant to Section 271 of the Communications Act, to enter the in-region inter-LATA market in States that account for 25 percent of the access lines in its service region. Because nearly thirty percent of Bell Atlantic's access lines are in New York, once the carrier obtains Section 271 authorization in that State, it would be permitted to provide inter-LATA service in every State in its service region. Bell Atlantic proposes to operate the Internet backbone and provide related services through a separate affiliate that complies with Section 272 of the Communications Act.

In support of their request for relief, the carriers assert that: (1) the prohibition on Bell Operating Company ("BOC") provision of inter-LATA services contained in Section 271 of the Communications Act does not apply to information services; (2) the Commission can use its legal authority to "modify" LATA lines in order to allow Bell Atlantic to provide an inter-LATA service; and (3) grant of this relief would be consistent with the Commission's established public interest standards.

The Information Technology Association of America ("ITAA") respectfully requests that the Commission deny the requested relief. As explained below, Section 271 of the Act bars Bell Atlantic from providing in-region, inter-LATA information services. The Commission, moreover, lacks authority to grant what is, in effect, a request to forbear from enforcing this restriction. In any case, grant of the requested relief would not serve the public interest: the requested relief is not necessary to preserve Internetworking's role in the Internet backbone market; it would facilitate anticompetitive conduct by Bell Atlantic; and it would reduce Bell Atlantic's incentive to open its market to competition in States other than New York.

Bell Atlantic and GTE make a remarkable assertion. The prohibition on BOC provision of inter-LATA services contained in Section 271 of the Communications Act, the carriers assert, was designed for "traditional long distance services" and, therefore, a BOC that provides an information service is not "subject to the restrictions contained in Section 271."

This is nonsense. The origin of Section 271 of the Act is the "Line of Business" restrictions contained in the Modification of Final Judgement ("MFJ"). As originally adopted, the MFJ barred the BOCs from any business other than the provision of intra-LATA telecommunications service. Following the Triennial Review, the Decree Court lifted the blanket prohibition on BOC provision of information services, but retained the inter-LATA ban. As a result, the BOCs were permitted to provide only those information services that did not cross LATA lines. Consistent with the Decree Court's decision, the BOCs generally confined their information services operations to offerings, such as voicemessaging, that can be provided on an intra-LATA basis.

Section 271 of the Communications Act codified the Decree's prohibition on BOC provision of inter-LATA information services. This general prohibition is subject to two carefully crafted exceptions, which allow the BOCs to provide out-of-region and "incidental" information services on an inter-LATA basis. These exceptions would have been unnecessary if Congress had not codified the basic prohibition against BOC provision of inter-LATA information services. Accordingly, as the Commission has recognized, Bell Atlantic "may not provide in-region inter-LATA information services until it obtains Section 271 authorization."

Implicitly conceding that Section 271 of the Communications Act precludes Bell Atlantic from providing inter-LATA information services, the carriers next ask the Commission to forbear from requiring Bell Atlantic to comply with this restriction. The carriers, however, are met by an immovable obstacle: Section 10 of the Communications Act precludes the Commission from forbearing from the restrictions contained in Section 271 until such time, if ever, as the BOCs fulfil their obligation to open up their local markets to competition.

Bell Atlantic and GTE seek to avoid this express statutory restriction by "dressing up" their petition for forbearance as a request that the Commission "modify" the existing LATA boundaries and "establish" a world-wide LATA for GTE's Internet backbone network. In support of this request, the carriers first assert that, acting pursuant to the MFJ, the Decree Court altered LATA lines in a similar manner. The carriers further claim that, pursuant to the Telecommunications Act of 1996, the Commission has unfettered authority to modify LATA boundaries - so long as any new LATA is within a "contiguous geographic area." The creation of a world-wide LATA, the carriers insist, would not violate this restriction. These contentions cannot withstand scrutiny.

The Decree Court's administration of the MFJ does not provide precedent for the requested relief. Under the MFJ, the Decree Court had broad authority to alter or lift restrictions that the Court determined were no longer in the public interest. In some cases, the Decree Court modified geographic restrictions contained in the Decree; in other cases, the court eliminated them outright. In no case, however, did the Decree Court create a world-wide LATA.

While Congress transferred the administration of the inter-LATA restrictions to the Commission, it only empowered the agency to make limited modifications to the LATA lines adopted in the MFJ. Congress expressly deprived the Commission of the authority to forbear from enforcing the inter-LATA prohibition. As the Commission has recognized, the creation of a "large-scale" LATA "would effectively eliminate LATA boundaries." Such relief, the agency has further recognized, is "functionally no different" than a request that the Commission forbear from the requirements of Section 271. The Commission, therefore, cannot grant the relief requested by Bell Atlantic and GTE.

Even if the Commission had the power to grant the requested relief, it should not do so. Under the Commission's existing standards, the agency determines the merits of a request to "modify" existing LATA lines by weighing three factors: the need for the modification; the potential risk that the modification would facilitate anticompetitive conduct by the BOC; and the impact that the modification would have on the BOC's incentive to open its local market to competition. The Bell Atlantic-GTE proposal fails all three parts of the test.

Grant of the request relief is not necessary. Bell Atlantic and GTE place heavy reliance on the need to preserve Internetworking as a participant in the Internet backbone market in order to prevent the "Big Three" participants (AT&T, MCI WorldCom, and Cable & Wireless) from obtaining an "oligopoly." ITAA recognizes the important role that Internetworking plays in the Internet backbone market. Any decision that the Commission makes should allow Internetworking to continue to operate and, in particular, should not disturb existing customer relationships. Grant of the requested relief, however, is not necessary to achieve these goals. For example, GTE could sell its Internet backbone network and customer relationships to a third party - just as WorldCom did in connection with the MCI merger. Or GTE could spin Internetworking's assets off into a separate business and merge all of its remaining assets into Bell Atlantic. According to GTE, these Internet assets enabled BBN to become "one of the nation's leading providers of Internet access and value added services" prior to its acquisition. There is no reason why they could not provide the foundation for a similarly viable business now.

Grant of the requested relief would promote anticompetitive conduct. Contrary to Bell Atlantic and GTE's assertion, requiring them to provide Internet backbone service through a Section 272 separate affiliate would not cause the "risk of anti-competitive conduct to [be] effectively non-existent." While structural separation is the most effective means to deter and detect BOC anti-competitive conduct, experience under the Commission's Computer II regime demonstrates that it is far from fail-safe. Were it otherwise, Congress would have allowed immediate BOC entry into all markets, subject to structural separation. Congress, however, declined to do so. Rather, the legislature recognized that the BOCs must first open their markets to competition, thereby dissipating a portion of their market power, before being allowed to enter competitive markets through a structurally separate affiliate.

Grant of the requested relief would decrease Bell Atlantic's incentives to open its market to competition. In adopting the Telecommunication Act, Congress determined that the most effective means to create an incentive for the BOCs to open their markets to competition is to require them to do so before being allowed into the inter-LATA market. As the Commission has recognized, large-scale LATA relief of the type requested by Bell Atlantic and GTE "could effectively eviscerate Section 271 and circumvent the pro-competitive incentives for opening the local market to competition that Congress sought to achieve."

The fact that the proposal would not go into effect until Bell Atlantic obtains FCC authorization to enter the in-region inter-LATA market in States that account for 25 percent of the access lines in its service region does not provide a sufficient incentive for Bell Atlantic to open its entire market to competition. Bell Atlantic has made clear that it will continue to seek approval to enter the inter-LATA market in New York State - which accounts for nearly thirty percent of the access lines in the Bell Atlantic region. If Bell Atlantic demonstrates that it has fully opened its market to competition in New York, the Commission should allow it to provide inter-LATA services in that State. Under Bell Atlantic's proposal, however, if the carrier makes the required showing in New York State, it will be permitted to provide inter-LATA service anywhere in its region. This is unacceptable. The Commission cannot grant a region-wide waiver on the basis of the quintessentially New York assumption - made famous by Frank Sinatra and apparently embraced by Bell Atlantic - that "If I can make it there, I can make it anywhere."

Nor is the two-year limit likely to provide any real compliance incentive. There is little doubt that, if Bell Atlantic has not obtained inter-LATA authority in every State in its service region within two years, the carrier will seek an extension - in which it will argue that it will be disruptive and inefficient to remove its authority to provide Internet backbone services. The Commission would be hard-pressed to reject this argument.

Promoting the continued growth of the Internet, and fostering the introduction of local competition, are critical goals for the Commission. ITAA is grateful for the numerous pro-competitive actions taken on both fronts by the Commission. ITAA urges the Commission to "stay the course" by denying the request to allow Bell Atlantic to provide Internet backbone service before it has opened its local market to competition.

Please feel free to contact either of us if you have any questions.

Sincerely,

Jonathan Jacob Nadler
Brian J. McHugh

Counsel for the Information Technology Association of America

JJN:wp

cc: Hon. Susan Ness
Hon. Harold Furchtgott-Roth
Hon. Michael Powell
Hon. Gloria Tristani
Kathy Brown
Lawrence Strickling
Carol Mattey
Thomas Krattenmaker
Magalie Roman Salas