Posted: 02/1998

FCC Denies Ameritech’s Long Distance Application, Establishes
Road Map for Future Requests

By Danny E. Adams

On Tuesday, August 19, the Federal Communications Commission
(FCC) denied Ameritech’s application for in-region interLATA
services authority in Michigan. In doing so, the Commission
commended both Ameritech and the Michigan for being at the
forefront in opening local exchange markets to competition.
However, despite Ameritech’s efforts thus far, the FCC determined
that Ameritech had not demonstrated compliance with all the
requirements of the 1996 Act.

The FCC made three key findings. First, Ameritech had met its
section 271(c)(1)(A) burden of demonstrating it is providing
access and interconnection to an unaffiliated, facilities-based
provider of telephone exchange service to residential and
business subscribers in Michigan.

Second, Ameritech had not yet demonstrated it has fully
implemented the section 271(c)(2)(B) competitive checklist. In
particular, Ameritech failed to demonstrate checklist compliance
with respect to access to operations support systems (OSS),
interconnection and access to 911 and E911 services.

Third, Ameritech had not demonstrated its requested in-region,
interLATA authorization will be carried out in accordance with
the structural and transactional separations requirements of
sections 272(b)(3) and 272(b)(5).

Key items left undecided by the FCC are whether Ameritech has
demonstrated compliance with respect to checklist items other
than OSS, interconnection and 911/E911, and whether granting
Ameritech’s application would be consistent with the public
interest, convenience and necessity. Nevertheless, to give
interested parties guidance, the agency did attempt to set forth
its views on the meaning and scope of certain aspects of the
public interest inquiry it intends to use in evaluating future
section 271 applications.

Turning the tables on the state commissions and, perhaps,
licking the wounds it incurred at the hands of the Eighth Circuit
Court of Appeals in the recent Iowa Utilities Board decision, the
FCC underscored that only it may determine whether the factual
record supports a conclusion that particular requirements of
section 271 have been met. However, the agency noted that the
Michigan Public Service Commission’s (PSC’s) assessment was
extremely helpful with regard to the analysis of Ameritech’s
compliance with the competitive checklist.

Rejecting arguments by the Bell operating companies (BOCs),
the FCC also found it is "required to give substantial
weight not only to the Department of Justice’s evaluation of the
effect of BOC entry on long distance competition, but also to its
evaluation of each of the criteria for BOC entry under section
271(d)(3) if addressed by the Department of Justice." Thus,
the commission noted that the Department of Justice’s (DOJ)
conclusion that Ameritech has not implemented several elements of
the competitive checklist fully (including unbundled local
switching, unbundled transport, interconnection equal in quality
to that provided itself and access to OSS) was helpful in the
FCC’s analysis. Although the agency did not reach its own public
interest assessment, it also acknowledged that DOJ’s public
interest analysis (in this case, DOJ concluded that granting
Ameritech’s application would not be consistent with the public
interest because Michigan’s local exchange markets are not
irreversibly open to competition) will be useful in its own
analysis of future applications.

Noting that the ultimate burden of proof with respect to
factual issues at all times remains with the BOCs, the commission
emphasized that a BOC "must present a prima facie case in
its application that all of the requirements of section 271 have
been satisfied." Accordingly, the FCC clarified certain
procedural matters for future applicants. Specifically, the
"preponderance of the evidence" standard will be used
for evaluating section 271 applications and greater weight will
be attached to comments and pleadings supported by an affidavit
or sworn statement.

The FCC also emphasized its "requirement that a BOC’s
section 271 application must be complete on the day it is
filed." The Commission stressed that "an applicant may
not, at any time during the pendency of its application,
supplement its application by submitting new factual evidence
that is not directly responsive to arguments raised by parties
commenting on the application."

The Commission agreed with Ameritech on an important
interpretation of Section 271(c)(1)(A) when it concluded that
because Ameritech has entered into binding and approved
interconnection agreements with several competing providers that
collectively offer exchange service to residential and business
subscribers, and because at least one of those providers (Brooks
Fiber) provides service exclusively over its own telephone
exchange service facilities, Ameritech satisfies the requirements
of section 271(c)(1)(A) through its interconnection agreement
with Brooks Fiber. In reaching this conclusion, the commission
made the following findings:

The commission concluded that Ameritech failed to demonstrate
it has fully implemented the competitive checklist. In
particular, the FCC found that Ameritech had not met its burden
of showing it is providing access to OSS, interconnection and
911/E911 in accordance with the requirement of section
271(c)(2)(B). Given this, the commission deemed it unnecessary to
decide whether Ameritech was providing other checklist items in
compliance with the Act.

Addressing the parties’ divergent views on what it means to
provide a checklist item, the Commission concluded that "a
BOC ‘provides’ a checklist item if it actually furnishes the item
at rates and on terms and conditions that comply with the Act or,
where no competitor is actually using the item, if the BOC makes
the checklist item available as both a legal and a practical
matter." Agreeing with DOJ, the commission emphasized that
the mere fact that a BOC has "offered" to provide a
checklist item will not suffice to establish checklist
compliance.

The FCC concluded that Ameritech failed to demonstrate it
provides nondiscriminatory access to all of the OSS functions
provided to competing carriers, as required by the competitive
checklist. For the purposes of guiding future applicants, the
agency emphasized its expectation that a BOC must adequately
document it is able to provide OSS functions to support the
provision of network elements, including combinations of network
elements. The commission specifically limited its decision to a
determination that "Ameritech has not demonstrated that the
access to OSS functions that it provides to competitive carriers
for the ordering and provisions of resale services is equivalent
to the access it provides to itself."

As a guiding principle for its evaluation of a BOC’s
provisioning of OSS, the FCC noted it "must determine
whether the access to OSS functions provided by the BOC to
competing carriers sufficiently supports each of the three modes
of competitive entry strategies established by the Act:
interconnection, unbundled network elements and services offered
for resale." Moreover, the agency determined that the OSS
functionalities to which Ameritech provides access, as part of
its OSS obligations, must not favor one entry strategy over
another.

One aspect of the FCC’s decision took on special meaning in
light of the Eighth Circuit’s reversal of FCC-mandated TELRIC
pricing. Although the commission did not reach the question of
whether Ameritech’s pricing of checklist items complies with the
requirements of section 271, it emphasized that it is the
commission’s responsibility to "assess whether a BOC has
priced interconnection, unbundled network elements, transport and
termination and resale in accordance with the pricing
requirements set forth in section 252(d) and, therefore, whether
the BOC has fully implemented the competitive checklist."

In light of the foregoing, the FCC concluded that "a BOC
cannot be deemed in compliance with sections 271(c)(2)(B)(i),
(ii) and (xiii) of the competitive checklist unless the BOC
demonstrates that prices for interconnection required by section
251, unbundled network elements and transport and termination are
based on forward-looking economic costs." Indeed, the
commission declared that "[w]e have previously set forth our
view that the requirement for the use of forward-looking economic
costs is to be implemented through a method based on total
element long-run incremental cost or TELRIC" and concluded
that "for purposes of checklist compliance, prices for
interconnection and unbundled network elements must be based on
TELRIC principles."

In addition to resurrecting its TELRIC pricing standard, the
agency mandated geographic deaveraging as a prerequisite for
checklist compliance. Specifically, the FCC declared that
"[i]n order for us to conclude that sections 271(c)(2)(B)(i)
and (ii) are met, rates based on TELRIC principles for
interconnection and unbundled network elements must also be
geographically deaveraged to account for the different costs of
building and maintaining networks in different geographic areas
of varying population density."

Finally, the commission concluded that checklist compliance
also requires "the rates not only must be based on TELRIC
principles, but new entrants and BOCs must also each be
compensated for use of the other’s network for transport and
termination."

For the purpose of guiding future applicants, the FCC began to
set forth the parameters of its public interest review, noting
that "such an inquiry should focus on the status of
market-opening measures in the relevant local exchange
market" and may not "limit or extend the terms used in
the competitive checklist."

Providing further guidance, the commission explicitly rejected
the view that its "responsibility to evaluate public
interest concerns is limited narrowly to assessing whether BOC
entry would enhance competition in the long distance
market." Rather, the commission asserted that its inquiry
"must include an assessment of whether all procompetitive
entry strategies are available to new entrants."

Summarizing its view, the commission stated that "our
public interest inquiry requires us to examine carefully a number
of factors, including the nature and extent of competition in the
applicant’s local market, in order to determine whether that
market is and will remain open to competition." Explaining
further, the commission noted that the "more vigorous the
competition is in the BOC’s local market, the greater is the
assurance that the BOC is cooperating in opening its market to
competition and that entry through the various methods set forth
in section 251(c) of the 1996 Act is possible." Finally, the
FCC noted that "[i]n the absence of broad-based competition,
however, we will carefully examine the record and weigh the
evidence before us to determine whether the lack of such
competition is the result of continuing barriers to entry, the
BOC’s lack of cooperation, the business decisions of new
entrants, or some other reason."