Joel I. Klein                       Lawrence J. Fullerton
        Acting Assistant Attorney General         Deputy Assistant Attorney General
        Antitrust Division                       Antitrust Division

        Andrew S. Joskow                    Philip J. Weiser
        Deputy Assistant Attorney General         Senior Counsel
        Antitrust Division                     Antitrust Division

        May 16, 1997

Page ii .       

        Table of Contents ......................................................................................................... ii

        Summary of Evaluation ........................................................................................................ v

        Introduction ........................................................................................................................... 1

        I.  The Requirements of Section 271 and the Competitive Objectives
             of the Telecommunications Act ................................................................................ 3

        II.  SBC's Application Does Not Satisfy the Preconditions of
             Section 271(c)(1)(A) or (B) ...................................................................................... 8

             A.The Standards of Track A Govern SBC's Application ................................. 9

             B.SBC's Application Does Not Meet the Requirements of Track A
                Because No Operational Facilities-Based Provider Serves
                Residential Customers ............................................................................. 20
        III.  SBC Has Failed to Show that It Has Satisfied the Competitive
             Checklist Requirements .......................................................................................... 21

             A.  SBC Must Provide Each of the Checklist Items in a Manner
                that Will Enable Its Competitors to Operate Effectively ............................ 21

             B.   The Oklahoma Corporation Commission's Opinion that SBC
                Satisfies the Checklist Reflects Its Erroneous Legal Interpretations ......... 24

             C.   SBC Has Failed to Provide Several Checklist Items .................................. 26

                1.  SBC Has Failed to Show that Competitors Can Effectively
                     Obtain and Maintain Resale Services and Unbundled
                     Elements .......................................................................................... 26

                     a.Checklist Compliance Requires Automated Support
                          Systems ............................................................................... 28

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                     b.A BOC Must Demonstrate that Its Wholesale
                          Support Processes Work Effectively ................................... 29

                     c.  SBC's Provision of Resale Services and Access to
                          Unbundled Elements Fails The Statutory Checklist
                          Standard ............................................................................. 31
                2.  Interconnection: SBC Has Failed to Provide Requested
                     Physical Collocation ....................................................................... 30
                3.  Interim Number Portability: Experience Has Shown that
                     SBC Is Not Yet Able to Provide this Checklist Item
                     Adequately and at Parity with Its Own Retail Services .................. 34

        IV.  SBC Has Failed to Meet the Public Interest Standard as Its Local Markets
             in Oklahoma Are Not Open to Competition ........................................................... 36

             A.  The Public Interest Requirement and the Department of Justice's
                Competitive Assessment ............................................................................. 37

             B.   Issues that Should Be Considered in Determining whether
                Markets Are Open ..................................................................................... 42

                1.  Each of the Three Entry Paths Created by Congress
                          Must Be Available to Competitors ..................................... 42

                2.  The Existence or Lack of Actual Competition ................................ 43

                     a.   Significant Competitive Entry Suggests that the
                          Market Is Open ................................................................... 43

                     b.  Competitive Entry Is Important to Setting
                          Basic Performance Standards .............................................. 45

                     c.  The Department's Inquiry In the Absence of
                          Significant Competitive Entry ............................................ 48

             C.   SBC Has a De Facto Monopoly in Local Exchange
                Telecommunications in Oklahoma and Dominates Exchange
                Access and IntraLATA Toll ........................................................................ 51

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             D.  The Absence of Local Competition in Oklahoma Can in Large
                Part Be Attributed to SBC's Failure to Provide What Competitors
                Need to Enter the Market ............................................................................ 54

                1.  Potential Competitors Are Seeking to Enter Local Markets in
                     Oklahoma But Have Not Yet Been Able to Do So.......................... 54

                2.  Reasons Why Significant Entry Has Not Taken Place
                     in Oklahoma .................................................................................... 55

        Conclusion .......................................................................................................................... 67

        Appendix A: SBC's Wholesale Support Processes ............................................................ 68

        Appendix B: Local Competitors and Potential Competitors in Oklahoma ......................... 90

Page v .

Page vi      

        to its assessment of the BOC's application for in-region interLATA entry.
             SBC's application for interLATA authority in Oklahoma falls short on several grounds, a
        point underscored by the lack of competitive entry into that state, despite the interest of potential
        competitors in entering the local telephone markets. As a threshold matter, SBC fails to meet the
        prerequisites of Section 271(c)(1) so as to be able to satisfy either of the two alternative statutory
        entry tracks. Having received requests for access and interconnection by qualifying potential
        facilities-based competitors, SBC cannot proceed under Track B. Although these requests
        require that SBC's application be evaluated under the standards of Track A, SBC cannot
        presently satisfy Track A because SBC is not "providing access and interconnection" to any
        facilities-based carrier competing with it for both business and residential customers.
             Even if SBC were entitled to proceed under either Track A or Track B, it still could not
        obtain approval under Section 271 because it also has not fully satisfied the competitive
        checklist. Specifically, SBC has failed to: (1) provide adequate wholesale support processes,
        which enable a competitor to obtain and maintain required checklist items such as resale services
        and access to unbundled elements; and (2) provide (a) physical collocation, and (b) adequate
        interim number portability.
             Finally, granting SBC's entry would not be consistent with the public interest. In
        evaluating an application in this regard, the Department seeks to determine whether the BOC's
        local markets have been irreversibly opened to competition. The Department believes that the
        most probative indicator of whether a local market is open to competition is the history of actual

Page vii      

        commercial entry. This does not mean that BOC interLATA entry must be delayed until local
        competition is sufficiently vigorous to discipline the BOC's market power. Actual local entry
        with successful commercial usage of the BOC's wholesale support systems may be sufficient to
        demonstrate that the inputs competitors need are commercially available. Such entry also
        permits the formulation of performance benchmarks that will enable regulators and competitors
        to detect and constrain potential BOC backsliding and competitive misconduct after long
        distance entry. As of yet, however, there is no sufficient history of such entry in Oklahoma and
        our inquiry suggests that several significant obstacles to such competitive entry remain in place.
             Based on our assessment of the market conditions in Oklahoma, we conclude that the
        current lack of entry does not reflect an absence of demand for new entrants or a lack of interest
        on the part of those planning to enter into the local markets in Oklahoma; numerous potential
        competitors -- facilities-based and otherwise -- have sought access and interconnection
        agreements with SBC. Rather, our assessment of market conditions reveals that competitors are
        being denied the opportunities for entry required and contemplated by the 1996 Act, in large part
        due to SBC's failure to provide what potential competitors have requested and need for effective
        entry. Accordingly, granting SBC's application for interLATA authority at this time -- before
        SBC has done its part to remove remaining obstacles to local competition and the necessary steps
        are taken to ensure that competition has the opportunity to develop -- would not be in the public
        interest.

Page 2      

        responsible for protecting competition, ³ a significant statutory role in overseeing the BOC
        interLATA entry process under the Telecommunications Act and helping to ensure that the
        timing of BOC interLATA entry furthers, and does not impede, the competition in all
        telecommunications markets that the 1996 Act seeks to promote.
             SBC's application fails to satisfy the requirements of Section 271. Stated simply, SBC's
        application for interLATA authority in Oklahoma does not satisfy the statutory criteria and the
        Act's underlying objective of ensuring that local markets are open to competition. SBC's
        application, therefore, is premature.
             In Part I of this evaluation, the Department describes the statutory framework of the 1996
        Act. In Part II, the Department explains why SBC has failed to comply with either of the two
        entry tracks established in Section 271(c)(1). Part III then discusses several areas in which SBC
        has failed to satisfy the competitive checklist. Finally, Part IV reviews SBC's application under
        the public interest standard, focusing on the competitive environment in local
        telecommunications in Oklahoma and the reasons why competition has not yet developed there. ⁴

Page 3 .       

        I.  The Requirements of Section 271 and the Competitive Objectives
             of the Telecommunications Act

             Congress' objective in the 1996 Act was to truly and fully open all telecommunications
        markets to competition. Through Sections 251, 252, and 253, among others, Congress sought to
        remove the legal and economic barriers to competition in local exchange and access markets. In
        Section 271, Congress set forth the conditions under which the Bell Operating Companies
        ("BOCs") would be permitted to provide in-region interLATA services.
             Section 271 reflects a Congressional judgment that competition in interLATA markets
        could be enhanced by allowing the BOCs to enter those markets. The significant growth in long
        distance competition since the breakup of the integrated Bell system has produced greater service
        innovation, improvements in quality, and downward pressure on prices. ⁵ InterLATA markets

Page 4      

        remain highly concentrated and imperfectly competitive, however, and it is reasonable to
        conclude that additional entry, particularly by firms with the competitive assets of the BOCs, is
        likely to provide additional competitive benefits. ⁶ See Affidavit of Dr. Marius Schwartz
        ("Schwartz Aff.") 7, 35, 90-98, Exhibit C to this Evaluation.
             But Section 271 reflects Congressional judgments about the importance of opening local
        telecommunications markets competition as well. The incumbent local exchange carriers
        ("LECs"), broadly viewed, still have virtual monopolies in local exchange services and switched
        access, and dominate other local markets as well. ⁷ Taken together, the BOCs have some three-

Page 5      

        quarters of all local revenues nationwide, and their revenues in their local markets are twice as
        large as the net interLATA market revenues in their service areas. ⁸ . Federal
        Communications Commission, Statistics of Communications Common Carriers, Tables 1.4 and
        2.9 (1996). Total access revenues of the reporting local carriers were $29.61 billion, according to
        the common carrier statistics, but this included $7.06 billion in end user charges not billed to the
        interexchange carriers. Other statistics published by the Commission give total access charge
        revenues of the BOCs and independent local carriers as $33.39 billion, including end user
        charges. Federal Communications Commission,         Fund Worksheet Data, Tables 18 and 19 (Dec. 1996). ⁹ Accordingly, more considerable

Page 6      

        benefits could be realized by fully opening these local markets to competition. See Schwartz
        Aff. 38-39. Moreover, we anticipate that there will be significant benefits from enabling not
        only the BOCs, but also interexchange carriers and other firms all to be able to realize the full
        advantages of vertical integration into all markets, as the Commission also has recognized, and
        the 1996 Act is designed to make such integration possible. ¹⁰ See Schwartz Aff. 7, 82-88.
             Section 271 reflects Congress' recognition that the BOCs' cooperation would be
        necessary, at least in the short run, to the development of meaningful local exchange competition,
        and that so long as a BOC continued to control local exchange markets, it would have the natural
        economic incentive to withhold such cooperation and to discriminate against its competitors.

Page 7      

        Accordingly, Congress conditioned BOC entry on completion of a variety of steps designed to
        facilitate entry and foster competition in local markets. These statutory prerequisites to
        interLATA entry ensure that the BOCs have appropriate incentives to take the steps needed to
        open their monopoly markets, while reducing their incentives and opportunities to abuse their
        position in the market, i.e., disadvantaging competitors who are dependent on non-discriminatory
        access to the local exchange network, both for local services and for integrated local and long
        distance services. In particular, Congress carefully structured the four, inter-related prerequisites
        for BOC entry to ensure both (1) that the BOCs would have appropriate incentives to cooperate
        with competitors who wished to enter local markets, and (2) that BOC entry into interLATA
        markets would not be held hostage indefinitely to the business decisions of the BOCs'
        competitors. Thus, rather than allowing for immediate entry or entry at a date certain, Congress
        chose to accept some delay in achieving the benefits of BOC interLATA entry in order to achieve
        the more important opening of local markets to competition.
             Section 271 establishes four basic requirements for long distance entry. ¹¹ The first three

Page 8 .       

        such requirements -- satisfaction of the requirements of Section 271(c)(1)(A) ("Track A") or
        Section 271(c)(1)(B) ("Track B"), the competitive checklist, and Section 272 -- establish specific,
        minimum criteria that a BOC must satisfy in all cases before an application may be granted. In
        addition, Congress imposed a fourth requirement, calling for the exercise of discretion by the
        Department of Justice and the Commission. The Department is to perform a competitive
        evaluation of the application, "using any standard the Attorney General considers appropriate."
        47 U.S.C. 271(d)(2)(A)(1997) (emphasis added). And, in order to approve the application, the
        Commission must find that "the requested authorization is consistent with the public interest,
        convenience, and necessity." 47 U.S.C. 271(d)(3)(C)(1997). In reaching its conclusion on a
        particular application, the Commission is required to give "substantial weight to the Attorney
        General's evaluation." 47 U.S.C. 271(d)(2)(A)(1997).
        II. SBC's Application Does Not Satisfy the Preconditions of Section 271(c)(1)(A) or (B)
             Section 271(c)(1) of the 1996 Act requires the BOC seeking authority to provide in-
        region interLATA services to meet the requirements of subparagraph (A) ("Track A") or
        subparagraph (B) ("Track B"). SBC contends that it meets the standards of both tracks. It
        claims to have satisfied Track A based on an approved interconnection agreement with a
        facilities-based operational provider, Brooks Fiber. At the same time, SBC claims that it has

Page 9 .       

        satisfied Track B on the basis of its Statement of Generally Available Terms ("SGAT"), which
        the Oklahoma Corporation Commission ("OCC") allowed to take effect by lapse of time for
        review under the 1996 Act, without approving it. In our view, based on the facts presented,
        SBC's application can qualify only for Track A consideration, not Track B. ¹² Further, as SBC
        has failed to satisfy Track A's entry requirements, SBC's application should be denied.
             A.The Standards of Track A Govern SBC's Application

             Track A reflects Congress' judgment that, in most circumstances, a BOC should not be
        permitted to provide in-region interLATA service until it "is providing access and
        interconnection," pursuant to binding agreements approved under Section 252, to "one or more
        unaffiliated competing providers of telephone exchange service ... to residential and business
        subscribers." ¹³ Section 271(c)(1)(A). As the Conference Report makes clear, the access and
        interconnection agreements must have been implemented, and the competing provider(s) must be
        "operational." H.R. Conf. Rep. No. 104-458, at 148 (1996). Both residential and business

Page 10      

        customers must be served by one or more facilities-based providers ¹⁴ in order for the BOC to
        satisfy Track A's entry requirements. While each qualifying facilities-based provider need not be
        serving both types of customers if the BOC is relying on multiple providers, it necessarily
        follows that if the BOC is relying on a single provider it would have to be competing to serve
        both business and residential customers.
             Congress understood that requiring operational facilities-based competition pursuant to
        binding agreements approved under Section 252 would impose some delay on BOC entry into in-
        region interLATA services. But a fundamental premise of the 1996 Act is that the development
        of local exchange competition will require opening up the possibilities for access and
        interconnection to the BOC's local network. See S. Rep. No. 104-23, at 5 (1995). The approach
        of Track A, making the BOCs' ability to provide interLATA services dependent on the presence
        of an implemented agreement with an operational competitor, serves Congress' purpose of
        fostering local exchange competition by providing a strong incentive for the BOC to work with
        potential competitors to facilitate their entry. And, as the Conference Report notes, the presence
        of an operational competitor actually using the checklist elements is important in assisting the
        state commission and the FCC in determining, for purposes of Section 271(d)(2)(B), that the
        BOC has fully implemented the checklist elements set out in the Section 271(c)(2) checklist.

Page 11      

        H.R. Conf. Rep. No. 104-458, at 148 (1996). ¹⁵
             The approach that is now embodied in Track A was the only path to approval of in-region
        interLATA services for the BOCs in the Senate bill. ¹⁶ The House Committee's Report confirms
        its concurrence in this approach, emphasizing that "[t]he Committee expects the Commission to
        determine that a competitive alternative is operational and offering a competitive service
        somewhere in the State prior to granting a BOC's petition for entry into long distance." H.R.
        Rep. No. 104-204, pt. 1, at 77 (1995).
             The House, however, added a new provision, which ultimately became Track B. ¹⁷ The
        Conference Report explains that this provision was designed "to ensure that a BOC is not
        effectively prevented from seeking entry into the interLATA services market simply because no
        facilities-based competitor that meets the criteria set out in [Track A] has sought to enter the
        market." H.R. Conf. Rep. No. 104-458, at 148 (1996). For, if Track A were the only entry path
        available, a BOC could find itself permanently barred from providing in-region interLATA
        services simply because no competitor wished to provide the kind of facilities-based business and

Page 12      

        residential competition that would satisfy Track A.
             In short, Track B provides a limited exception to the Track A requirement of operational
        competition under an approved and implemented agreement "if, after 10 months after enactment
        of the Act no such provider has requested the access and interconnection described in
        subparagraph (A) before the date which is three months before the date [of the BOC
        application]." Section 271(c)(1)(B). A BOC may also proceed under Track B if the State
        commission certifies that the only such providers requesting access and interconnection have
        unreasonably delayed the process by failing to negotiate in good faith as required by Section 252,
        or by failing to comply, "within a reasonable period of time," with the implementation schedule
        contained in an agreement approved under Section 252. Id. To satisfy Track B's entry
        requirements, the BOC must provide "a statement of terms and conditions that [the BOC]
        generally offers to provide such access and interconnection" (the "SGAT"), which must be
        "approved or permitted to take effect by the State commission under section 252(f)" in lieu of the
        binding and implemented agreements required by Track A.
             Because Track B was added to deal with the possibility that a BOC, through no fault of
        its own, could find itself barred indefinitely from satisfying Track A, the term "such provider" in
        Track B should be interpreted with reference to the type of facilities-based competition that
        would satisfy Track A. Accordingly, we do not agree with the suggestion by the

Page 13      

        Telecommunications Resellers Association ¹⁸ that a BOC is foreclosed from proceeding under
        Track B if it has received requests for access and interconnection but only from firms seeking to
        provide services that would not satisfy Track A, such as a carrier that does not plan to provide
        service either exclusively or predominantly over its own facilities. See H.R. Rep. No. 104-204,
        pt. 1, at 77 (1995). ¹⁹
             But, contrary to SBC's contention, a BOC is not entitled to proceed under Track B simply
        because firms requesting interconnection and access for the purpose of providing services that
        would satisfy the requirements of Track A are not already providing those services at the time of
        the request. Such an interpretation of Section 271 would radically alter Congress' scheme,
        expanding Track B far beyond its purpose and, for all practical purposes, reading the carefully
        crafted requirements of Track A out of the statute. Similarly, as discussed below, a requesting
        potential facilities-based carrier need not even have fulfilled all of Track A's requirements at the
        time of the BOC's Section 271 application to foreclose the BOC from proceeding under Track B,
        as Congress understood that some time would be necessary before an agreement would be fully

Page 14      

        implemented and a provider would become operational.
             If SBC's interpretation of Track B were correct, Track B would no longer be a limited
        exception applicable where a BOC would otherwise be foreclosed indefinitely from entry into in-
        region interLATA markets. Rather, Track B would become the standard path, allowing BOCs to
        seek authorization to provide in-region interLATA services even if no Section 252 agreement to
        provide access and interconnection to the local network had been successfully implemented,
        despite would-be facilities-based competitors' timely efforts. To accept SBC's position, one
        would have to assume that Congress enacted Track A solely to deal with two situations of
        narrowly limited significance: (1) where a BOC application is filed less than ten months after
        enactment; or (2) where a competitor has managed to begin providing facilities-based local
        exchange services to residential and business customers more than three months before the BOC
        applies under Track B, which the BOC may do as early as ten months after enactment of the
        statute. There is no basis for the assumption that Congress intended Track A, the only track
        included in the bill as originally passed by the Senate, to play such an insignificant role.
             On the contrary, Congress well understood that few, if any, would-be facilities-based
        competitors to the BOCs would be likely to negotiate, obtain state approval, and fully implement
        agreements providing for access and interconnection, and begin offering services satisfying Track
        A, all in the seven months (ten months less the three-month window) immediately following
        enactment of the statute. Indeed, Congress expected that many potential competitors would not
        even make their requests until the FCC's implementing rules were promulgated, within six

Page 15      

        months of enactment. See H.R. Conf. Rep. No. 104-458, at 148-49 (1996). Congress allowed
        state commissions 90 days to review and approve negotiated agreements, while allotting nine
        months for completion of arbitrations, and a further 30 days for review and approval of an
        arbitrated agreement. For a potential competitor merely to have an approved agreement in hand
        would have taken at least the full ten months after passage of the 1996 Act if arbitration were
        necessary, even if the potential competitor had made its request promptly after the 1996 Act
        became law. Moreover, implementation of such an agreement is far from automatic; even if the
        BOC and competing provider cooperate fully, technical issues will inevitably impose some delay
        to full implementation. ²⁰
             Nor is there reason to believe that Congress expected that any significant number of
        facilities-based competitors would be providing service to residential and business customers
        without an implemented agreement for interconnection and access. To the contrary, the 1996 Act
        was premised on Congress' understanding that, at least in the short run, such agreements will

Page 16      

        normally be an essential prerequisite to effective local exchange service competition. ²¹ Or, as the
        Wisconsin Public Utilities Commission aptly put it, "[i]t is not logical to expect facilities-based
        competition prior to interconnection being available." Findings of Fact, Conclusions of Law and
        Order, Matters Relating to Satisfaction of Conditions for Offering InterLATA Service
        (Wisconsin Bell Inc. d/b/a Ameritech Wisconsin), Wisconsin Public Service Commission,
        Docket No. 6720-TI-120 at 15 (Dec. 12, 1996). In sum, reading the phrase "such provider" in
        Track B to require not only that the firm be seeking to provide services that would satisfy Track
        A, but also that it already be providing them, would essentially read Track A out of the statute.
             The legislative history confirms that Congress intended no such result. To the contrary,
        Congress assumed that firms would not yet be operational competitors when they requested the
        interconnection and access arrangements necessary to enable them to compete. Thus, for
        example, the Conference Committee described Track B as ensuring that a BOC is not foreclosed
        from seeking entry "simply because no facilities-based provider that meets the criteria set out in
        new section 271(c)(1)(A) has sought to enter..." H.R. Conf. Rep. No. 104-458, at 148 (1996)
        (emphasis added). It emphasized the importance of the FCC promulgating rules implementing
        Section 251 within six months of the statute's enactment precisely so that "potential competitors

Page 17      

        will have the benefit of being informed of the commission rules in requesting access and
        interconnection before the statutory window in new section 271(c)(1)(B) shuts." Id. at 148-49
        (emphasis added). Accord, H.R. Rep. No. 104-204, pt. 1, at 77-78 (1995) (The bill would "not
        create an unreasonable burden on a would-be competitor to step forward and request access and
        interconnection" (emphasis added)). ²²
             Congress fully appreciated the procompetitive potential of permitting the BOCs to
        provide in-region interLATA services, and it was sensitive to the BOCs' concerns that such entry
        not be unreasonably delayed. But Congress was also concerned with fostering local exchange
        competition. Under SBC's interpretation, Section 271(c)(1)(B) would reward the BOC that
        failed to cooperate in implementing an agreement for access and interconnection and thereby
        prevented its competitor from becoming operational. Properly construed, however, the statute
        serves Congress' procompetitive purposes by affording the BOC a strong incentive to cooperate
        as would-be facilities-based competitors attempt to negotiate agreements and become
        operational.
             Track B appropriately safeguards the BOCs' interests where there is no prospect of
        facilities-based competition that satisfies Track A, either because no competitor desires to
        provide it or because competitors cannot or will not move toward full implementation of a

Page 18      

        Section 252 agreement in a timely fashion. But Track B does not represent congressional
        abandonment of the fundamental principle, carefully set forth in Track A, that a BOC may not
        begin providing in-region interLATA services before there are operational facilities-based
        competitors in the local exchange market, if there are firms moving toward that goal in a timely
        fashion.
             Given the sensible relationship between Track A and B set out above, SBC is clearly not
        entitled to proceed under Track B because it has received requests for interconnection and access
        from at least two qualifying providers, and the state commission has not certified that either
        delayed the negotiation or implementation process. Brooks Fiber ("Brooks") made its initial
        request for access and interconnection with SWBT in March 1996, and Cox Communications
        ("Cox") made its request on October 23, 1996, substantially more than three months before
        SBC's application was filed. ²³
             Both Brooks and Cox have manifested their intent to be facilities-based competitors and
        are working toward that goal. ²⁴ Both have substantial telecommunications facilities in place in
        one or both of the major metropolitan areas in Oklahoma, including switches and installed fiber,

Page 19      

        that they could use to provide service to business and residential consumers. Brooks is already
        providing facilities-based service to business customers in Oklahoma City and Tulsa, and its
        intent to enter the residential market is reflected by its tariff and ongoing internal test of
        residential resale. As SBC itself has noted, Brooks has already invested substantial resources,
        and it plans to invest substantially more to become a facilities-based provider in Oklahoma. ²⁵
        And Cox, with an existing cable television system in Oklahoma City, is precisely the type of
        provider that Congress envisioned as providing meaningful facilities-based competition. See
        H.R. Conf. Rep. No. 104-458, at 148 (1996). ²⁶
             There is no reason to believe that Brooks or Cox would wish to delay becoming
        operational as facilities-based competitors. Neither stands to benefit from delaying SBC's entry
        into in-region interexchange markets because neither has significant interexchange business in
        Oklahoma, and Brooks' substantial investments will yield no return until it begins to serve
        customers. Moreover, SBC's complaints that waiting for Brooks and/or Cox to become
        operational would unduly delay its entry into in-region interLATA service ignore the evidence

Page 20 .       

        that SBC has failed to cooperate fully in that process. ²⁷ And, in any event, if SBC can establish
        that both Brooks and Cox have "violated the terms of an agreement approved under Section 252"
        by failing "to comply, within a reasonable period of time, with the implementation schedule
        contained in such agreement," it has a remedy under Section 271(c)(1)(B).
             Because SBC has received timely requests for interconnection and access from potential
        facilities-based carriers triggering the requirements of Track A (and has not obtained a
        certification that the requesting carriers have failed to negotiate in good faith or have failed to
        implement their agreements within a reasonable period of time), it is not eligible to proceed
        under Track B.
             B.SBC's Application Does Not Meet the Requirements of Track A Because No
                Operational Facilities-Based Provider Serves Residential Customers

             SBC's claim that it has satisfied Track A rests on its provision of interconnection and
        access to Brooks Fiber, the only new operational local exchange provider in Oklahoma with
        whom SBC has an approved access and interconnection agreement. Although Brooks plans to
        offer service to residential subscribers in Oklahoma (and is doing so in other states), and has a
        tariff on file in Oklahoma under which it could at some point serve residential customers, it is not

Page 21 . .       

        presently a "competing provider of telephone exchange services ... to residential ... subscribers,"
        as required by Section 271(c)(1)(A). It is undisputed that Brooks' only residential services are
        provided by resale of SBC services to four Brooks employees who are participating in a very
        limited trial, in order to test whether such resale would work well enough to be offered
        commercially. ²⁸ The provision of service on a test basis does not make Brooks a "competing
        provider" of service to residential "subscribers," in the absence of any effort on Brooks' part to
        provide service on a commercial basis. Therefore, SBC does not satisfy the requirements of
        Track A.
        III.  SBC Has Failed to Show that It Has Satisfied the Competitive Checklist Requirements
             A.SBC Must Provide Each of the Checklist Items in a Manner that Will Enable Its

Page 22      

                Competitors to Operate Effectively

             Section 271(c)(2)(A) requires that a BOC proceeding under Track A provide access and
        interconnection that meets the requirements of the fourteen-point "competitive checklist" set
        forth in Section 271(c)(2)(B), pursuant to "one or more agreements." ²⁹ The competitive checklist
        specifies a minimum set of facilities, services, and capabilities that must always be made
        available to competitors, thereby ensuring that a wide range of entry strategies will be
        available. ³⁰
             Because the statute allows the BOC to provide access and interconnection pursuant to
        "one or more agreements," it does not matter whether any single competitor requests or uses all
        fourteen checklist items, so long as the BOC is providing each element to at least one facilities-
        based competitor. Moreover, that requirement may be satisfied, at least in some instances,
        through the use of "most favored nation" clauses which readily allow provisions of other
        approved interconnection agreements to be imported into agreements with qualifying Track A
        competitors. Since different competitors may need different checklist items, depending on their
        individual business plans, such flexibility furthers the Congressional purpose of maximizing the

Page 23      

        options available to new entrants, without foreclosing BOC long distance entry simply because
        its competitors choose not to use all of the options.
             For the same reason, we believe that, under some circumstances, a BOC may be
        "providing" a checklist item under an agreement even though competitors are not actually using
        that item, at least where no competitor is actually requesting and experiencing difficulty
        obtaining that item. A BOC is providing an item, for purposes of checklist compliance, if the
        item is available both as a legal and practical matter, whether or not any competitors have chosen
        to use it. If a BOC has approved agreements that set forth complete prices and other terms and
        conditions for a checklist item, and if it demonstrates that it is willing and able promptly to
        satisfy requests for such quantities of the item as may reasonably be demanded by providers, at
        acceptable levels of quality, it still can satisfy the checklist requirement with respect to an item
        for which there is no present demand.
             By the same token, however, an agreement that does not set forth complete rates and
        terms for a checklist item, but merely invites further negotiation at some later time, falls short of
        "providing" the item as required by Section 271, as does a mere "paper commitment" to provide a
        checklist item, i.e., one unaccompanied by any showing of the actual ability to provide the item
        on demand. ³¹ Nor does an offer to provide a checklist item at some time in the future constitute

Page 24 .       

        "providing" it, if the item is not presently available. In sum, a BOC is "providing" a checklist
        item only if it has a concrete and specific legal obligation to provide it, is presently ready to
        furnish it, and makes it available as a practical, as well as formal, matter. ³²
             The 1996 Act provides an opportunity for state commissions to evaluate a BOC's
        compliance with the checklist but, as the 1996 Act makes plain, the final determination of
        compliance rests with the FCC. Section 271(d)(3) requires the Commission to deny BOC
        applications unless "it" finds that the statutory requirements have been satisfied. Similarly,
        Section 271(d)(2)(B) requires the FCC to "consult with the State commission . . . in order to
        verify the compliance" of an applicant with the checklist requirements, language which clearly
        indicates that verification is ultimately the FCC's responsibility.
             B.The Oklahoma Corporation Commission's Opinion that SBC Satisfies the
                Checklist Reflects Its Erroneous Legal Interpretations

             SBC has failed to demonstrate compliance with the competitive checklist requirements in
        Oklahoma. ³³ We reach this conclusion, and believe the Commission should as well, despite the

Page 25      

        contrary conclusion of the majority in the Oklahoma Corporation Commission's split 2-1
        decision.
             We assume that the FCC will carefully weigh the views of state commissions, as the
        Department does. In this case, however, the OCC majority did not adopt detailed factual findings
        concerning checklist compliance issues, and their conclusions appear to rest, in large part, on
        what we believe to be an incorrect legal interpretation of the checklist. The OCC majority
        determined that all of the requisite checklist items "are either provided to or generally offered to"
        competitors by SBC, and also noted the absence of any filed complaint regarding provision of
        service, asserting that lack of entry was "not due to SWBT's failure to make available" checklist
        items. ³⁴ The OCC majority, however, made no findings concerning the practical availability of
        checklist items.
             In contrast to the OCC's limited view of what the checklist requires, the Administrative
        Law Judge, who presided over the OCC's Section 271 proceeding, understood Section 271 to
        mean that "all checklist items must be easily and equally accessible, on commercially operational
        terms and on equal terms as to all." He concluded that this standard had not been satisfied with
        respect to several checklist items, including OSS, interim number portability, collocation, and
        directory assistance, finding that "the evidence in this case is that SWBT does not currently
        provide all checklist items in such a manner." Accordingly, the ALJ determined that "[t]he

Page 26 . .       

        evidence in this case indicates that there are currently impediments and blockades to local
        competition in Oklahoma." ³⁵ The dissenting OCC Commissioner, as well as the Oklahoma
        Attorney General and the OCC staff, agreed with the ALJ's finding that the checklist had not
        been satisfied. ³⁶ The Department concurs with their conclusions on this issue.
             C.   SBC Has Failed to Provide Several Checklist Items
                1.  SBC Has Failed to Show that Competitors Can Effectively
                     Obtain and Maintain Resale Services and Unbundled Elements

             The competitive checklist of Section 271(c)(2)(B) requires a BOC proceeding under
        Track A to "provide" resale services and access to unbundled elements, among other items,
        pursuant to Section 251. A CLEC using these items will have to engage in multiple transactions
        with the BOC for each customer or access line the CLEC wins in competition with the BOC.
        Because each BOC has millions of access lines, meaningful compliance with the requirement that
        the BOC make available resale services and access to unbundled elements demands that the BOC
        put in place efficient processes, both electronic and human, by which a CLEC can obtain and
        maintain these items in competitively-significant numbers. The checklist requirements of
        providing resale services and access to unbundled elements would be hollow indeed if the
        efficiency of -- or deficiencies in -- these "wholesale support processes," rather than the dictates
        of the marketplace, determined the number or quality of such items available to competing

Page 27      

        carriers. ³⁷
             A key component of the wholesale support processes necessary to provide adequate resale
        service and unbundled elements is the electronic access to the operations support system (OSS)
        functions that BOCs must provide under the Commission's rules. In its         Order, the Commission required BOCs to provide access to their OSSs systems originally
        designed to facilitate practicable provision of retail services as an independent network element
        under Section 251(c)(3) that the BOCs must provide under item (ii) of the checklist, ³⁸ as well as a
        term or condition of providing access to other network elements under the checklist. In
        evaluating checklist compliance with regard to a BOC's OSS systems, the Department will
        evaluate (1) the functions BOCs make available; and (2) the likelihood that such systems will fail
        under significant commercial usage. Overall, the Department will consider whether a BOC has
        made resale services and unbundled elements, as well as other checklist items, practicably
        available by providing them via wholesale support processes that (1) provide needed
        functionality; and (2) operate in a reliable, nondiscriminatory manner that provides entrants a

Page 28 .       

        meaningful opportunity to compete. ³⁹
                     a.Checklist Compliance Requires Automated Support Systems
             Under Section 271, an applicant must demonstrate that it can practicably provide
        checklist items by means of efficient wholesale support processes, including access to OSS
        functions. These processes must allow CLECs to perform ordering, maintenance, billing, and
        other functions at parity with the BOC's retail operations. Further, a BOC's wholesale support
        processes must offer a level of functionality sufficient to provide CLECs with a meaningful
        opportunity to compete using resale services and unbundled elements. Thus, in general, to
        satisfy the checklist wholesale support processes must be automated if the volume of transactions
        would, in the absence of such automation, cause considerable inefficiencies and significantly

Page 29 .       

        impede competitive entry. Appendix A describes in more detail the types of automated systems
        that, in the Department's experience, are likely to be necessary to provide adequate wholesale
        support processes.

                     b.A BOC Must Demonstrate that Its Wholesale Support Processes
                          Work Effectively

             A BOC's paper promise to provide the necessary (e.g., automated) wholesale support
        processes is a first step. A BOC must also, however, demonstrate that the process works in
        practice. Specifically, a BOC must demonstrate that its electronic interfaces and processes, when
        combined with any necessary manual processing, allow competitors to serve customers
        throughout a state and in reasonably foreseeable quantities, or that its wholesale support
        processes are scalable to such quantities as demand increases. By "reasonably foreseeable," we
        mean those quantities that competitors collectively would ultimately demand in a competitive
        market where the level of competition was not constrained by any limitations of the BOC's
        interfaces or processes, or by other factors the BOC may influence. ⁴⁰

Page 30 .       

             In determining whether a BOC's wholesale support processes can provide the necessary
        functionality, the Department will view internal testing by a BOC as substantially less persuasive
        evidence of operability than testing with other carriers, and testing in either manner as less
        persuasive evidence than commercial operation. In general, the Department will consider testing
        evidence alone only if the more compelling evidence that can be derived from commercial
        operation is not available. Where such commercial operation is limited (e.g., below reasonably
        foreseeable levels, limited to certain geographic regions, or limited to certain functions) or not
        expected, the Department will carefully examine the circumstances to determine whether factors
        under the BOC's control are responsible for the absence of significant commercial use. This
        approach is based on the findings and comments of states, industry organizations, experts,
        CLECs, and BOCs, alike, all of which reflect specific experiences in the local
        telecommunications industry to date, in addition to general experience in this and other
        industries.
                     c.  SBC's Provision of Resale Services and Access to Unbundled
                          Elements Fails The Statutory Checklist Standard

             As Appendix A describes in detail, SBC has not demonstrated that its wholesale support
        processes are sufficient to make resale services and unbundled elements practicably available
        when requested by a competitor, as required by the checklist. Indeed, there is evidence in the
        record to suggest that SBC has thwarted CLEC attempts to test and commercially use the
        wholesale support processes SBC claims to provide, as discussed in Part IV. Most critically,
        however, the Department finds that SBC has failed to demonstrate even through internal testing

Page 31 .       

        the operation of its automated processes for making resale services and unbundled elements
        meaningfully available.

                2.  Interconnection: SBC Has Failed to Provide Requested Physical
                     Collocation

             "Interconnection in accordance with the requirements of sections 251(c)(2) and
        252(d)(1)" is part of the statutory competitive checklist in Section 271(c)(2)(B)(i). Section
        251(c)(6) of the 1996 Act imposes a specific duty to provide physical collocation unless the
        incumbent LEC demonstrates to the state commission that this is not practical due to technical
        limitations or lack of space on the LEC's premises. Applying this requirement, the Commission
        has ruled that a requesting carrier may choose any technically feasible means of obtaining
        interconnection, including physical collocation. ⁴¹ 47 C.F.R. 51.321(b)(1), 51.323 (1997).
        Accordingly, the failure to provide physical collocation upon request constitutes a failure to
        provide interconnection as required by the checklist, unless the BOC has demonstrated that one
        of the exemptions applies. The availability of physical collocation is critical to a competing local
        providers' ability to interconnect and to serve local exchange customers through the use of
        unbundled elements.
             Although SBC has provisions in its SGAT and some of its agreements relating to
        collocation, and claims to generally offer physical collocation as an interconnection alternative, it

Page 32      

        has failed to provide adequately the physical collocation requested by Brooks, among others. ⁴² In
        June, 1996, Brooks Fiber requested collocation in SWBT's central offices in Tulsa and
        Oklahoma, but, as of the date of SBC's application, Brooks still had not received collocation.
        Brooks OCC Comments at 3-4. SWBT's failure to provide physical collocation, which would
        enable CLECs to use unbundled elements and to test the OSS interfaces which support these
        elements, appears to be a region-wide problem.
             SBC's Opposition to ALTS' Motion to Dismiss asserts, through the affidavit of William
        Deere, that Brooks' current virtual collocation arrangements provide access to all functions
        requested in the interconnection agreement, including the ability to use unbundled loops.
        Affidavit of William Deere ("Deere Aff."), 2, attached to SBC Opposition to ALTS' Motion.

Page 33      

        SBC, however, does not effectively respond to Brooks' position in its OCC Comments that its
        current virtual collocation arrangements do not give Brooks the same technically and
        economically feasible access to unbundled elements that its negotiated physical collocation
        arrangements would provide. Brooks explains that, "[w]ith tariffed virtual collocation, the point
        of interconnection normally is outside of the central office, deployment of remote switching
        equipment is not permitted, and the interconnector designates but does not own the transmission
        equipment . . . This type of virtual collocation is not usable by Brooks for unbundled loop access
        due to both network and economic feasibility considerations." Brooks OCC Comments at 3 n.6.
        In its comments in this docket, Brooks continues to assert that its current tariffed virtual
        collocation arrangements do not technically or economically support the use of unbundled loops
        and, as a result, they have had to use less effective alternatives than the use of unbundled loops.
        Opposition of Brooks Fiber Properties, Inc., to Application of SBC Communications Inc., CC
        Docket No. 97-121 ("Brooks FCC Comments"), at 10 n. 6 (May 1, 1997).
             In any event, regardless of the adequacy of virtual collocation, CLECs are entitled to
        physical collocation under the 1996 Act, and SBC must provide it when requested. The fact that
        potential facilities based competitors other than Brooks have requested physical collocation in
        Oklahoma and have yet to receive it from SWBT strongly suggests that the problems experienced
        are attributable to SBC rather than to any particular competitor. Cox Communications made its
        initial request for physical collocation in October of 1996 and it does not expect even to be able

Page 34 .       

        to begin placing equipment until July of 1997. ⁴³ Dobson Wireless ("Dobson"), in its Comments
        in Support of Motion to Dismiss, filed in this docket on April 28, also cites the difficulty of
        obtaining physical collocation from SWBT as an impediment to timely entry in Oklahoma.
        Dobson, despite having initially requested interconnection negotiations on December 13, 1996, is
        still in "negotiations" with SWBT over terms for physical collocation in SWBT's tandem central
        office in Oklahoma City. See Comments of Dobson Wireless, Inc., In Support of Motion to
        Dismiss, CC Docket No. 97-121 ("Dobson ALTS' Motion Comments") at 1-3 (Apr. 28, 1997).
        Thus, on the present record, it cannot be said that SWBT is either providing physical collocation
        or making it generally available in Oklahoma. ⁴⁴
                3.  Interim Number Portability: Experience Has Shown that SBC Is Not
                     Yet Able to Provide this Checklist Item Adequately and at
                     Parity with Its Own Retail Services

             SBC has failed to provide adequate interim number portability as required by the
        competitive checklist. Section 271(c)(2)(B)(xi) requires that the BOC's access and

Page 35      

        interconnection agreements or statement of terms include "[u]ntil the date by which the
        Commission issues regulations pursuant to section 251 to require number portability, interim
        telecommunications number portability through remote call forwarding, direct inward dialing
        trunks, or other comparable arrangements, with as little impairment of functioning, quality,
        reliability and convenience as possible. After that date, full compliance with such regulations."
         Lack of number portability or inferior quality of number portability when switching from the
        BOC to a competitor would constitute a major disincentive for customers to change their local
        exchange provider. Thus, SBC's failure to provide adequate, non-discriminatory number
        portability constitutes a significant barrier to the development of local competition in Oklahoma.
             SBC has provisions in its SGAT and a number of its agreements with competitors
        purporting to provide interim number portability. This is, in fact, one of the few provisions of
        SBC's agreements that any competitor has had the opportunity to use in market conditions in
        Oklahoma, and the experience is not encouraging. Brooks, the only operational local competitor
        in Oklahoma, has sought to port some numbers from SWBT, but Brooks' experience in
        Oklahoma refutes SBC's assertion that it is providing interim number portability on a
        nondiscriminatory basis in accordance with the requirements of the 1996 Act.
             At the time of SBC's application with the Commission, Brooks' customers had
        experienced delays of up to several hours between the disconnection (for billing purposes) and
        the reconnection of the customer's line with remote call forwarding. See Brooks Response to
        AT&T Request for Information, OCC Cause No. PUD 97-64, at 2 (Apr. 9, 1997). Moreover,

Page 36 .       

        SBC has not clearly demonstrated the ability to provision interim number portability ("INP") in a
        "non-discriminatory" manner such that a competitor using INP would be able to provide the same
        level of service to its customers that SWBT provides its own retail customers. Failures of this
        sort can be very disruptive to users, especially business customers, and may discourage them
        from switching providers. SWBT has asserted, and Brooks acknowledges, that some recent INP
        conversions have been implemented without any major service disruptions, but there continue to
        be implementation problems for many Brooks customers. See Brooks FCC Comments at 23-24.
        Even if SBC were able to improve its provisioning of INP to satisfactory levels given Brooks'
        current level of demand, the information before the Commission would not yet justify the
        conclusion that SWBT has the processes or resources in place to handle a commercial quantity of
        INP orders in an efficient manner, once Brooks or others actually have access to unbundled
        elements and their demand for INP becomes significantly greater.
        IV.  SBC Has Failed to Meet the Public Interest Standard as its Local Markets
             in Oklahoma are Not Open to Competition

             The public interest in opening local telecommunications markets to competition also
        requires that the Commission deny SBC's interLATA entry application. SBC does not presently
        face any substantial local competition in Oklahoma, despite the potential for such competition
        and the expressed desire of numerous providers, including some with their own facilities, to enter
        the local markets. The evidence discussed in Part III (and in Appendix A) indicates that SBC's
        failure to provide adequate facilities, services and capabilities for local competition is in large

Page 37 .       

        part responsible for the absence of substantial competitive entry. If SBC were to be permitted
        interLATA entry at this time, its incentives to cooperate in removing the remaining obstacles to
        entry would be sharply diminished, thereby undermining the objectives of the 1996 Act. Finally,
        without observing commercial use or testing of SBC's wholesale support processes to ensure
        their adequacy and ability to meet specified performance measures, the Department cannot
        conclude that regulation can safeguard against any future abuse or neglect by SBC, i.e., to
        prevent it from taking advantage of its dominant position in the market. Accordingly, as the
        local market in Oklahoma has not been irreversibly opened to competition, it would not be in the
        public interest to grant SBC's application for interLATA authority.
             A.The Public Interest Requirement and the Department of Justice's
                Competitive Assessment

              Congress supplemented the threshold requirements of Section 271, discussed in Parts II
        and III above, with a further requirement of pragmatic, real world assessments of the competitive
        circumstances by the Department of Justice and the Commission. Section 271 contemplates a
        substantial competitive analysis by the Department, "using any standard the Attorney General
        considers appropriate," 47 U.S.C. 271(d)(2)(A)(1997). The Commission, in turn, must find
        before approving an application that "the requested authorization is consistent with the public
        interest, convenience, and necessity," 47 U.S.C. 271(d)(3)(C)(1997), and, in so doing, must
        "give substantial weight to the Attorney General's evaluation." 47 U.S.C. 271(d)(2)(A)(1997).
        The Commission's "public interest" inquiry and the Department's evaluation thus serve to

Page 38      

        complement the other statutory minimum requirements, but are not limited by them. ⁴⁵ As we
        explain below, the requirement of a DOJ evaluation under "any standard" and a "public interest"
        finding by the Commission both reflect a Congressional judgment that Section 271 applications
        should be granted only if the BOC's entry at the time it is sought is consistent with Congress'
        goal of opening local telecommunications markets to competition.
             In vesting the Department and the Commission with additional discretionary authority,
        Congress addressed the significant concern that the statutory entry tracks and competitive
        checklist could prove inadequate to open fully the local telephone markets. Although some had
        suggested that Congress adopt additional fixed criteria -- which could have needlessly blocked
        procompetitive BOC entry -- to accomplish this objective, Congress instead chose to rely on the
        Commission's and the Department's expertise and discretion. To underscore this decision,

Page 39      

        Congress made satisfaction of the "public interest" criterion a minimum statutory precondition
        for relief under Section 271. ⁴⁶ Consequently, it is the Department's responsibility to provide a
        practical evaluation of the degree to which the local telephone markets in a particular state have
        been opened to competition, ⁴⁷ and it is the Commission's responsibility to give that evaluation
        substantial weight in applying the statutory public interest standard.
             As the Supreme Court has made clear, the use of the words public interest' in a
        regulatory statute is not a broad license to promote the general public welfare, but "the words
        take meaning from the purposes of the regulatory legislation." NAACP v. Fed. Power Comm'n,
        425 U.S. 662, 669 (1976). The term "public interest" in Section 271(d)(3) of the 1996 Act must
        derive its "content and meaning" from "the purposes" for which it was "adopted." Id. The
        "public interest" standard under the Communications Act is well understood as giving the
        Commission the authority to consider a broad range of factors, ⁴⁸ and the courts have repeatedly

Page 40      

        recognized that competition is an important aspect of that standard under federal
        telecommunications law. ⁴⁹ The 1996 Act reinforces the central importance of competitive
        analysis, for its core purpose, as explicitly stated in the House Conference Report, is "opening all
        telecommunications markets to competition." ⁵⁰ Highlighting its focus on promoting competition
        in telecommunications, Congress as well as the President envisioned a substantial role for the

Page 41      

        Department's expert evaluations, based on the competitive consequences of granting or denying
        a BOC's application. ⁵¹
             In performing its competitive analysis, the Department seeks to determine whether the
        BOC has demonstrated that the local market has been irreversibly opened to competition. To
        satisfy this standard, a BOC must establish that the local markets in the relevant state are fully
        and irreversibly open to the various types of competition contemplated by the 1996 Act -- the

Page 42 . .       

        construction of new networks, the use of unbundled elements of the BOC's network, and resale
        of the BOC's services. If this standard is satisfied, local entry will be constrained only by
        technological limits and the inherent capabilities and resources of the potential competitors, and
        not by artificial barriers. In applying this standard, the Department will look first to the extent to
        which competitors are entering the market. The presence of commercial competition, at a
        nontrivial level, both (1) suggests that the market is open; and (2) provides an opportunity to
        benchmark the BOC's performance so that regulation will be more effective. See Schwartz Aff.
         20, 170-178. If such commercial entry has not occurred, the Department will then consider
        whether the lack of entry reflects the continued existence of significant barriers to competition, or
        results from the independent business decisions of competitors not to enter the market.
             B.   Issues that Should be Considered in Determining whether Markets Are Open
                1.  Each of the Three Entry Paths Created by Congress
                     Must be Available to Competitors

             As the Commission has recognized, the 1996 Act is designed to facilitate entry into local
        exchange and exchange access markets -- along the entry paths of facilities-based services, the
        use of unbundled elements, and resale services -- by mandating that the most significant
        economic, as well as legal, impediments to efficient entry into the monopolized local market be
        removed. ⁵² Since the three entry paths serve distinct and complementary purposes, local markets

Page 43 . .       

        should not be considered to be practicably open to competition unless each of these paths is fully
        available to local entrants.
                2.  The Existence or Lack of Actual Competition
                     a.  Significant Competitive Entry Suggests that the Market Is Open

             In evaluating whether the necessary market-opening steps have been accomplished, the
        Department will look, first and foremost, to the nature and extent of actual local competition. If
        actual, broad-based entry through each of the entry paths contemplated by Congress is occurring
        in a state, this will provide invaluable evidence supporting a strong presumption that the BOC's
        markets have been opened. See Schwartz Aff. 24, 170-182. The lack of competitive entry
        into local markets, however, suggests that local markets are not yet fully open, and it will be
        necessary to ask why entry is not occurring. If practical opportunities are available for resale, the
        use of unbundled elements, and full facilities-based competition, the decisions of competitors not
        to adopt particular strategies in a state for certain areas or groups of customers should not
        preclude long distance entry by a BOC in that state, provided that all of the minimum

Page 44      

        requirements of Section 271 have been satisfied. ⁵³ But if the BOC's failure to provide what is
        needed, or other artificial and significant barriers to entry, are wholly or partly responsible for the
        lack of entry, the Department would view a BOC's interLATA entry as contrary to the public
        interest.
             Actual evidence of competition is much more persuasive and informative than theoretical
        claims that markets are open to entry, for there have been erroneous predictions of the imminence
        of local competition ever since the AT&T divestiture. Important legal issues affecting how
        competition will develop remain unsettled, while local exchange and switched access
        competition today remains in a nascent stage. On a nationwide basis, most customers still lack
        any alternative to the incumbent LEC for local exchange or switched access services. Most
        potential new local entrants are still in the process of preparing to compete on a significant scale,
        rather than actually doing so, and many of the arbitrated agreements under Section 252 of the
        1996 Act have not yet been implemented. This does not mean that it is necessary for BOC
        interLATA entry to wait until local competition has become fully effective. ⁵⁴ As Dr. Schwartz

Page 45 .       

        explains in his affidavit, the economic balance of benefits and harms from BOC interLATA entry
        strongly favors withholding such entry until the BOC's local markets are "irreversibly opened to
        local competition," but not postponing BOC entry into interLATA markets until local
        competition has become fully effective. Schwartz Aff. 19, 149-169.
                     b.  Competitive Entry Is Important to Setting
                          Basic Performance Standards

             Conversely, initial entry efforts may reveal that in spite of paper assurances, the BOC is
        unable or unwilling to provide the inputs needed by competitors in a timely and reliable manner,
        in the quantities needed to permit effective competition. In such a case, the Department would
        oppose a BOC's long distance entry. If entry were permitted under those circumstances, the
        BOC would have significantly diminished incentive thereafter to further improve or more fully
        implement access for competitors to their wholesale support processes, and indeed could have
        substantial incentives to discriminate, for example by delaying the full development and
        implementation of support system functions. ⁵⁵ See Schwartz Aff. 149-197. In such a case, it
        would surely be difficult for the Commission, or state regulators, to compel adequate wholesale
        support processes to be developed on an efficient and nondiscriminatory basis through regulation

Page 46      

        alone. ⁵⁶ Regulatory and judicial proceedings over claims of discrimination and failure to provide
        access can be drawn out for years by BOCs unwilling to cooperate with competitive entry into
        their local markets. The difficulty of effectively regulating against discrimination in this context
        is well documented in practice, ⁵⁷ and in economic literature. ⁵⁸ In contrast, regulation has better

Page 47      

        prospects of providing effective constraints on competitive misconduct and backsliding by the
        incumbent LEC where stable arrangements with competitors are already in place and
        performance measures have been established based on competitive experience. See Schwartz
        Aff. 77, 127-136, 175.
             The establishment of such performance measures will ensure the continued availability of
        functional and operable wholesale support processes and signal to competitors and regulators that
        the market has been irreversibly opened to competition. With clear performance benchmarks in
        place, both competitors and regulators will be better able to detect and remedy any shortcomings
        in the BOC's delivery of wholesale support services to its competitors. Although checklist
        compliance only requires a demonstration that a BOC's wholesale support processes provide
        adequate functionality and operability, ⁵⁹ a record of performance benchmarks measured in an

Page 48 .       

        objective fashion -- and, if possible, commitments to maintain such standards -- is key to
        preventing the BOC from backsliding relative to its pre-entry performance. Without such
        benchmarks in place, competitors and regulators will have considerable difficulty in detecting
        deterioration of wholesale support processes after the incentive of long distance entry is
        removed. ⁶⁰ As Dr. Schwartz explains in his affidavit, it is difficult for competitors and regulators
        to detect BOC discrimination against competitors in developing new processes, such as
        automated wholesale support processes, because the development of the necessary processes is
        entirely within the BOCs' control and there is little precedent to indicate what is appropriate.
        Schwartz Aff. 134-136, 155-156, 180-182. In contrast, competitors and regulators are better
        able to detect active BOC discrimination against competitors in the operation of such processes
        by reference to established performance benchmarks. Thus, the Department will pay close
        attention to the adequacy of a BOC's established performance measures. ⁶¹
                     c.  The Department's Inquiry In the Absence of Significant
                          Competitive Entry

             Where a BOC seeks to provide interLATA service despite the absence of successful
        entry, it will be necessary to take a much harder look at the record to determine whether it has

Page 49      

        cooperated fully and done everything needed to make entry possible, or whether any barriers to
        entry still exist. Section 271 does not foreclose the possibility of BOC interLATA entry, even if
        the BOC faces no significant local competition in a state. That possibility, however, is properly
        limited to situations in which the lack of entry is not attributable in any significant part to the
        BOC's failures to provision needed facilities, services and capabilities as the 1996 Act requires,
        or to other legal or artificial economic barriers. From the Department's observations, the
        enactment of the 1996 Act has spurred efforts by a large number of firms to enter a large number
        and wide variety of local markets. In light of those efforts, the absence of successful entry in a
        state reasonably gives rise to the inference that the state's local markets are not yet open to
        competition, just as successful entry of all types would give rise to the inference that the markets
        have been successfully opened.
             In many situations, there may be some local entry occurring in a state at the time the BOC
        applies for interLATA entry authority, but not enough actual entry to suggest that the markets are
        fully open to competition. Although the Department looks for evidence that significant
        commercial entry has occurred, we do not mean to suggest that such competition must be
        ubiquitous, involve any particular number or type of entrants or result in any particular market
        share. Rather, we ask only that such competition have some real value in demonstrating that the
        "pipeline can carry gas," without, of course, experiencing significant leakage. Under some
        circumstances, even entry on a small scale may be sufficient to demonstrate that entrants will be
        able to obtain the cooperation needed from the BOC in order to compete successfully.

Page 50      

             A key component of the demonstration that markets are open, particularly where actual
        competition is still limited, will be proof that the complex systems needed to support the
        provisioning and maintenance of resale services and unbundled elements are sufficiently
        functional and operable, as those concepts are described in Section III and Appendix A of this
        evaluation, and that appropriate performance measures have been established. If so (depending
        on the facts in a given case, of course), the Department may well conclude that these systems will
        permit competitors to expand their operations in response to foreseeable demand levels, and that
        there are sufficient benchmarks to enable regulators and competitors to protect against
        "backsliding" by the BOC after long distance entry is obtained, when the BOC's incentives to
        cooperate with local competitors will be diminished.
             To the extent that any facilities based, resale, or unbundled element competition is
        lacking in a state, the Department will attempt in its evaluation to determine why such entry is
        not occurring. We will seek to determine if the BOC's wholesale support processes are
        sufficiently functional and operable, and measurable in performance, to support competitive
        entry. We will also seek to determine whether the prices for relevant facilities and services that
        entrants must obtain from the BOC have been established and will remain available at
        appropriate cost-based levels, so as to provide the opportunity for economically efficient entry.
        And we will ask whether other entry barriers have been created by anticompetitive BOC behavior
        or by state laws or regulatory policies that may be inconsistent with the 1996 Act's requirements.
         On the other hand, if the absence or limited nature of local entry appears to result from potential

Page 51 .       

        competitors' choices not to enter -- either for strategic reasons relating to the Section 271
        process, or simply because of decisions to invest elsewhere that do not arise from the BOC's
        compliance failures or barriers to entry in the state -- this should not defeat long distance entry by
        a BOC which has done its part to open the market.
             This Department's approach to evaluating Section 271 applications has been reviewed by
        Dr. Schwartz, who has concluded that "[b]y far the best test of whether the local market has been
        opened to competition is whether meaningful local competition emerges," and that where such
        competitive evidence is lacking, "insist[ing] on offsetting evidence that the market indeed has
        been irreversibly opened" would be necessary and greater caution would be called for in
        approving any BOC entry. Dr. Schwartz also has concluded based on his economic analysis that
        the Department's standard "strikes a good balance between properly addressing the competitive
        concerns raised by BOC entry, and realizing the benefits from such entry as rapidly as can be
        justified in light of those concerns," and "serves the public interest in competition." Schwartz
        Aff. 20, 24, 192.
             C.   SBC Has a De Facto Monopoly in Local Exchange
                Telecommunications in Oklahoma and Dominates
                Exchange Access and IntraLATA Toll

             Although the Oklahoma Corporation Commission took steps to establish a legal
        framework for local competition in Oklahoma in March 1996, shortly after the passage of the

Page 52      

        1996 Act, ⁶² SBC still faces no real competition in local exchange services in Oklahoma today,
        more than a year later. Its local exchange market share in Oklahoma is so near 100% as to be
        practically indistinguishable from a complete monopoly. Indeed, SBC's revenues are continuing
        to increase and have not been significantly affected by competition in any of its major regulated
        service categories in Oklahoma, including exchange access and intraLATA toll. ⁶³ SWBT is the

Page 53      

        principal provider of local exchange and access services in Oklahoma, serving approximately
        92% of the access lines in the state, 1,421,357 million (389,005 business, 1,032,353 residential)
        out of the total of 1,543,696 switched access lines as of 1995, and 1,470,000 as of 1996. ⁶⁴ The
        remaining customers are served by independent LECs in separate geographic areas, such as GTE.
             Only one local exchange competitor, Brooks Fiber, is operational in Oklahoma. Brooks
        is serving a very small number of business customers over its facilities, 20 as of the most recent
        information available when SBC filed this application. All of these customers are located in the
        two metropolitan areas in Oklahoma, Tulsa and Oklahoma City. While SBC claims that Brooks
        also serves residential customers, those "customers" are merely four employees of Brooks using
        resold SBC local service on a trial basis. No CLEC is actively competing for local residential
        customers in Oklahoma today, using either facilities or resale. SBC has so far provided no
        unbundled loops to any entrant, in sharp contrast with most of the other BOCs including

Page 54 . .       

        Ameritech, PacTel, NYNEX, BellSouth and Bell Atlantic. SBC had 253 local switches installed
        throughout the state in 1996, ⁶⁵ while local competitors in total have only three local switches
        based on the most current information. Brooks has one switch each in Oklahoma City and Tulsa,
        and Cox has one switch in Oklahoma City that is not yet operational. See Appendix B.
             In sum, none of the three entry paths specified by the 1996 Act are receiving any
        significant use for local competitive entry in Oklahoma today. Important categories of customers
--         residential subscribers statewide, and all users outside the two major metropolitan areas -- have
        no real competitive choices. These circumstances give rise to the inference that the local
        markets served by SBC are not yet fully open to competition in Oklahoma.
             D.  The Absence of Local Competition in Oklahoma Can in Large Part
                Be Attributed to SBC's Failure to Provide What Competitors Need
                to Enter the Market

                1.  Potential Competitors Are Seeking to Enter Local Markets in
                     Oklahoma But Have Not Yet Been Able to Do So

             SWBT states in its application that it has approved, negotiated interconnection
        agreements with Brooks Fiber, Dobson Wireless, IntelCom Group (ICG), Sprint, U.S. Long
        Distance, and Western Oklahoma Long Distance. In addition, 10 other agreements have been
        signed but are not yet approved. In total, so far SBC has 17 agreements, including its most recent
        one with Cox (which was reached after SBC prepared this application), of which 6 are

Page 55 .       

        interconnection and 11 are purely resale agreements. Zamora Aff. 24 ; Phillip Decl. 3. The
        experiences and business decisions of these potential competitors illuminate the prospects for
        local competition in Oklahoma. In summary, of its 16 agreements as of the time SBC prepared
        its filing, SBC has 4 OCC approved interconnection agreements, and 2 OCC approved "resale"
        agreements. SBC Brief at 4; Zamora Aff. 24. SBC has filed three other interconnection
        agreements, with ACSI, Intermedia Communications and Cox Communications, that are
        awaiting approval from the OCC. Other carriers have made requests but have not yet been able
        to reach interconnection agreements with SWBT, which states that requests for negotiations to
        date in Oklahoma have the potential to produce 44 agreements. Zamora Aff. 22. Of all the
        providers who have sought or received agreements, only one, Brooks Fiber, is operational and
        serving any local customers. AT&T is the only provider that has completed an arbitration, but
        this has not yet led to a signed agreement, so it is unclear when AT&T will be in a position to
        compete with SWBT. The five providers apart from Brooks who have approved interconnection
        agreements with SWBT in Oklahoma are either not ready to begin operations in the state and so
        do not know whether SWBT can actually provision services and elements, or are involved in
        disputes with SWBT on the application of certain charges and provisions of their agreements.
        See Appendix B.
                2.  Reasons Why Significant Entry Has Not Taken Place in Oklahoma
             The present lack of competition in Oklahoma does not mean that the demographics of the
        state make efficient facilities-based local competition implausible. The places most likely to

Page 56      

        attract facilities based entry in Oklahoma are the state's two metropolitan areas, Tulsa and
        Oklahoma City, both of which are in SWBT's service area, and each of which is the core of one
        of the two separate LATAs SBC serves. ⁶⁶ 67.7% of Oklahoma's population of 3.2 million lives
        in metropolitan areas, based on U.S. census data. SWBT has said that 55% of its Oklahoma local
        exchange service revenues come from Oklahoma City and Tulsa. ⁶⁷ Since about 68% of the
        access lines in SWBT's service area in Oklahoma are in the metropolitan areas, some two-thirds
        of customers in the SWBT service area could potentially be served by facilities-based local
        telephone competitors even if facilities-based competition were only to prove feasible in
        metropolitan areas. ⁶⁸
             There appear to be two reasons that local competition has not yet developed in Oklahoma.
         One is the time needed to secure an agreement with SBC, and then to fully implement it and         become an operational provider. Notwithstanding SBC's suggestions that the competitors have
        only themselves to blame, the Oklahoma Corporation Commission has not found, and SBC has

Page 57      

        not even tried to prove, that any particular competitor has negotiated in bad faith or unreasonably
        delayed in implementing its agreement. The other reason is that, as the Department's analysis in
        Part III and Appendix A of this evaluation and the comments of other parties demonstrate,
        SWBT has failed to provide adequate, nondiscriminatory access to essential checklist items that
        potential competitors have requested. If competitors cannot even get over the first hurdles with
        SBC, it is not surprising that they are not ordering the remaining services and facilities that they
        would need to compete effectively.
             SBC evidently agrees that facilities-based competition could happen in Oklahoma, and its
        own evidence refutes any claim that if it were not allowed in now, its interLATA entry would be
        deferred indefinitely for want of facilities-based competition. SBC affiant Michael L.
        Montgomery asserts that large numbers of SWBT business and residential customers are at risk
        to competitive providers, based on his estimates of the numbers of customers within 500 and
        1000 feet of "competitive" providers' facilities in Oklahoma City and Tulsa. Using just
        information on Brooks, Montgomery asserts that 40% of SWBT's business lines are within 500
        feet of Brooks' fiber facilities and that 56% of SWBT's Tulsa business lines are within 1000 feet
        of Brooks' facilities in Tulsa. Similar analysis was done for residential customers in Tulsa and
        both business and residential customers in Oklahoma City. ⁶⁹ SBC also notes the large amount of

Page 58      

        resources that Brooks has already invested and plans to invest in Oklahoma as a facilities based
        local provider. ⁷⁰ Yet it is uncontroverted that Brooks has only a handful of local exchange
        customers, raising the obvious question of why local competition has not yet begun to develop.
             Brooks' very limited entry into business markets to date, and its lack of entry into
        residential markets, can be attributed to SBC's lack of full implementation of its interconnection
        agreement with Brooks. Brooks' witness Ed Cadieux cogently explained at the OCC's Section
        271 hearing why, in spite of having facilities in such close proximity to substantial numbers of
        residential customers, Brooks is serving no residential customers on a facilities basis:
             . . . Brooks has never intended to be in the resale business on any pervasive, broad
             sense. As a result of that, our primary methods of accessing customers are either
             connecting customers directly to our fiber or connecting customers through the
             use of unbundled loops. We are not serving customers currently through use of
             unbundled loops for reasons that I described in my testimony because we have not
             completed the collocations as yet.

        Transcript of Proceedings, OCC Cause No. PUC 97-64 ("OCC Transcripts, Apr. 14, 1997"), at
        66 (Apr. 14, 1997). For both Tulsa and Oklahoma City, Brooks facilities do appear to pass near
        a large number of customers, but that does not mean that Brooks could actually serve all of those
        customers directly without key unbundled elements from SWBT, such as local loops to connect
        the fiber rings to customer premises. It is not the desire of CLECs to refuse to use their own

Page 59      

        facilities that has lead to SBC's current inability to demonstrate checklist compliance on many
        items. ⁷¹
             The suggestion, arising from the absence of local competition, that SBC's local markets
        are not fully open to competition in Oklahoma, is confirmed by the experiences of the potential
        local competitors in dealing with SBC. SBC has failed to overcome the substantial evidence,
        introduced in comments in the Oklahoma Section 271 proceeding and before the Commission,
        that its own failure to provide adequate physical collocation, interim number portability, and
        wholesale support systems are, in large part, responsible for the current lack of local competition
        in Oklahoma. Moreover, there is significant evidence in the record to suggest that SBC has
        actively thwarted competitor attempts to develop and test interfaces to SBC's OSSs. SBC has
        refused to allow MCI to submit test orders to SBC interfaces until MCI both signed
        interconnection agreements and was certified in SBC states. ⁷² MCI, AT&T, and Sprint, the last
        being the one carrier with whom SBC is currently testing an application-to-application interface

Page 60      

        (DataGate), have complained of significant delays in SBC's provision of information needed to
        begin development of CLEC interfaces to SBC. ⁷³ Sprint contends that SBC has failed to provide
        adequate documentation on operational interfaces and service availability in each of SBC's local
        switches, information Sprint will need to build an interface to SBC and market to consumers. ⁷⁴
        Further, according to AT&T, with whom SBC is scheduled to begin testing of its EDI interface,
        SBC "is still in the process of clarifying and supplementing its own interface specifications." ⁷⁵
        Finally, one small carrier has stated that it was not even apprised of the availability of SBC's
        systems despite repeated requests over the course of a five month negotiation. ⁷⁶
             Related to SBC's resistance to conducting carrier-to-carrier testing is its resistance to
        adopting a set of performance measures to ensure the continued, reliable performance of its
        wholesale support processes. Because none of SBC's automated wholesale support processes are
        operational -- commercially or otherwise -- SBC cannot make a demonstration of reliable
        performance and establish performance measures to ensure reliable support services post-entry
        behavior. More importantly, even if SBC's processes were operating at some level, SBC has not
        established a sufficiently comprehensive set of performance standards, nor supplied its own retail

Page 61      

        performance information, to permit such a comparison.
             As discussed more fully in Michael Friduss' affidavit, SBC has not agreed to report its
        performance in several areas critical to CLEC competitive entry. Mr. Friduss finds, for example,
        that SBC has not included critical performance standards with which to compare SBC's retail
        and wholesale installation intervals, repair frequency and intervals, and the percentage of orders
        flowing through SBC OSSs without human intervention. Mr. Friduss' affidavit reveals serious
        deficiencies in SBC's proposed standards that would substantially undermine competitors' and
        regulators' ability to determine performance parity and adequacy either before or after
        interLATA entry.
             Even if the issue related to SBC's support processes were adequately addressed, there
        could still be other obstacles to competitive entry in Oklahoma, which competitors would have to
        confront if they are ever able to cross the initial thresholds. For example, SBC has failed to show
        that its rates for unbundled elements, as established in the AT&T arbitration and used in its
        SGAT, are consistent with its underlying costs. ⁷⁷ The Oklahoma Corporation Commission has
        never found SBC's SGAT rates for unbundled elements and interconnection, or the interim
        arbitrated rates from which they were derived, to be cost-based. The OCC arbitrator's decision

Page 62      

        on the AT&T application did not recommend "any particular methodology or cost study be
        adopted at this time," and the OCC did not even review cost studies in the arbitration to
        determine the interim rates. Rather, the arbitrator simply decided to "adopt SWBT's proposed
        rates on the basis that if a true-up is needed in the future it would be easier to explain to
        customers rather than trying to explain a lower price being trued-up to a higher price." ⁷⁸ The
        OCC's proceeding to examine SBC's costs and set final prices will not even commence until
        later this summer, and it is not clear when this proceeding will be completed. Since it is not yet
        known what the final Oklahoma prices will be or how they will be determined, the provision for
        a true-up is hardly sufficient assurance that competitors will in fact be charged cost-based prices
        now or later.
             There are serious disputes between SBC and some potential competitors in Oklahoma, as
        in other states throughout the SBC region, as to what would constitute cost-based wholesale
        rates. ⁷⁹ There is also some reason to suspect that SBC's SGAT prices in Oklahoma exceed its
        true costs, given the history of how loop prices were negotiated and the interim rates

Page 63      

        determined. ⁸⁰ These interim rates also are higher than loop rates set so far in the few states that
        have completed cost proceedings. ⁸¹ Though no state in the SBC region has yet completed its
        final pricing proceedings to determine cost-based rates, there is substantial variation between the
        interim rates adopted in Missouri and Texas for unbundled elements, which were more in line
        with what competitors proposed or were an average of SBC's and competitors' proposals, and
        those in the SGATs in Oklahoma and Kansas, which simply followed SBC's proposals. ⁸² SBC

Page 64      

        has not presented an adequate evidentiary record here from which the Commission could
        determine if the interim arbitrated and SGAT rates in Oklahoma are cost-based, even assuming
        that the Commission were willing to engage in that inquiry now rather than awaiting the results
        of the final Oklahoma pricing proceeding. ⁸³
             There are also serious concerns about SBC's limitations on the availability of unbundled
        elements in its SGAT, which requires parties interested in taking unbundled elements to provide
        indemnification for any infringement of intellectual property rights that may result from
        combining or using services or equipment provided by SWBT. SGAT, XV, A. 7, at 19. In
        order to assure SWBT that it has no liability for intellectual property claims, users of unbundled
        elements will have to obtain licenses from approximately 40 equipment vendors, resulting in
        delay and additional expense. Id. A. 6, at 18. SWBT has told AT&T that it will not provide
        any unbundled element for which it believes a license is required, until AT&T obtains such a
        license or a certification that a license is not required from the third party owner. Affidavit of

Page 65      

        Thomas C. Pelto ("Pelto Aff.") 3, attached to AT&T FCC Comments. Additionally, if SBC's
        competitor is sued by a third party over the use of this intellectual property, the SGAT provides
        that "SWBT shall undertake and control the defense and settlement of any such claim or suit and
        LSP [Local Service Provider] shall cooperate fully with SWBT in connection herewith." SGAT,
         A. 7.
             It is far from clear that there are legitimate third party intellectual property rights that
        would be affected by the sale of an unbundled network element functionality. ⁸⁴ But whether
        there are such rights or not, SBC's use of the claim of such rights to place burdens on parties
        seeking access to unbundled elements has unreasonable consequences, potentially delaying and
        increasing the expense of entry. The Commission has already articulated procedures, in its Order

Page 66      

        implementing the infrastructure sharing obligations imposed by Section 259 of the Act, ⁸⁵ by
        which an ILEC, CLEC, and third party vendor could work together, in the case of legitimate
        third-party claims of intellectual property rights, to assure that the vendor's rights are protected
        and that the CLEC gets the non-discriminatory access required under the Act. The Commission
        has stated, "[i]n the ordinary course . . . . we fully anticipate that such licensing will not be
        necessary," Infrastructure Sharing Order 69, but that in any event, the providing incumbent LEC
        must not impose "inappropriate burdens on qualifying carriers," and if a license is required, "the
        providing incumbent LEC will be required to secure such licensing by negotiating with the
        relevant third party directly." Id. 70. SBC's handling of this issue, in contrast, puts the burdens
        and the risk on the CLEC seeking to use its unbundled elements. Pelto Aff., 8-12.
             At this time, given the lack of competition in Oklahoma and the various obstacles SBC
        has placed in the path of competitive entry, SBC's in-region interLATA entry in Oklahoma
        would not be consistent with the public interest.

.

Page 67 .       

                                 Conclusion
             Based on the foregoing evaluation, the application of SBC Communications Inc. et al. to
        provide in-region interLATA service in the state of Oklahoma should be denied. This
        application fails to comply with the requirements of Section 271 of the Act. It does not satisfy
        either of the two entry tracks set forth in Section 271(c)(1)(A) or (B), fails to comply with the
        statutory competitive checklist, and would not be consistent with the public interest in
        competition.
                                      Respectfully submitted,
                                      ___________________________
        Joel I. Klein                      Donald Russell
        Acting Assistant Attorney General         Chief
        Antitrust Division
                                      Carl Willner
        Andrew S. Joskow                 Jonathan D. Lee
        Deputy Assistant Attorney General         Stuart H. Kupinsky
        Antitrust Division                 Attorneys
                                      Telecommunications Task Force

        Lawrence J. Fullerton                     Gerald B. Lumer
        Deputy Assistant Attorney General         Economist
        Antitrust Division                 Competition Policy Section

        Philip J. Weiser                    Antitrust Division
        Senior Counsel                    U.S. Department of Justice
        Antitrust Division                 555 4th Street, N.W.
                                      Room 8104
                                      Washington, D.C. 20001
                                      (202) 514-5621

                                      May 16, 1997

Page 68 .       

                                APPENDIX A

                        SBC's Wholesale Support Processes

             The Department has prepared this Appendix in order to provide the Commission with a
        detailed review of why SBC's wholesale support processes fail to make checklist items
        meaningfully available. In this Appendix, we examine SBC's wholesale support processes by
        reference to the two criteria outlined in Part III of the Department's comments: (A) functionality
        and (B) operability.
             As noted in Part III, recent experience provides strong evidence that attempts at local
        market entry, even with the benefit of partially automated mechanisms, may flounder without
        automated processes to support rapid and large-scale entry. In Pacific Bell's region, for example,
        the ordering and provisioning of resale services by CLECs has been handled manually or is only
        partially automated by Pacific Bell. After an initial effort to attract customers, both AT&T and
        MCI were forced to suspend marketing programs because of the growing backlog of orders
        placed with Pacific Bell for resale services. ⁸⁶ Reflecting this experience and others like it,
        both BOCs and CLECs have underscored the importance of automation, pointing out
        that it leads to cost-savings for BOCs in processing orders electronically and serves as

Page 69      

        an efficient entry vehicle for CLECs. ⁸⁷
             Experience also suggests that automation is needed in two primary areas to
        provide access to OSS functions and facilitate the processing of transactions for resale
        services and unbundled elements. First, carriers must develop electronic transaction
        interfaces that will permit them to exchange information in agreed-upon formats. The
        BOC must build its part of an interface and provide CLECs with information and
        cooperation sufficient to allow the CLECs to construct their part of the interface to the
        BOC. ⁸⁸ Automation in this regard will be needed where the volume of transactions
        expected for a particular function would, in the absence of such automation, cause
        significant barriers to competitive entry. ⁸⁹ As an indication of which particular

Page 70      

        functions meet this criteria, the Department will examine market experiences to date,
        forecasts by CLECs and BOCs of future volumes, and industry standards for electronic
        transactions established by organizations such as the Alliance for Telecommunications
        Industry Solutions (ATIS), which is made up of both CLECs and BOCs. ⁹⁰
             Second, the BOC must automate the interaction of many of its internal
        operations with the transactions flowing over such interfaces. In effect, the BOC must
        build systems to translate the agreed-upon format of the electronic interface into a
        format recognizable by its internal OSSs and in certain instances recognizable by
        human technicians. ⁹¹ Since the BOCs' internal electronic and manual processes were
        not originally designed to transact with competitors in a wholesale-like capacity, it may

Page 71      

        be necessary for a BOC to develop entirely new systems and methods for efficiently
        processing CLEC transactions for resale services and unbundled elements in order to
        make them practicably available. ⁹² Consistent with the Commission's         Competition Order, ⁹³ at a minimum the Department expects BOC automation of
        processing steps in instances where a BOC electronically processes substantially
        analogous steps for its own retail operations. For example, the provisioning of an end-
        to-end combination of loop, switching, and transport elements is, in some cases,
        analogous to a BOC's retail POTS line. In such cases, the Department would normally
        expect a BOC to process an order in the same automated fashion that it processes retail
        POTS lines.
             Automation in both of these areas information exchanged between BOC and
        CLEC, and the translation and communication of this information to and from BOC
        OSSs will minimize or eliminate human intervention in the transmission and
        processing of BOC-CLEC transactions. This electronic "flow-through" of information

Page 72      

        from CLEC OSSs ⁹⁴ to the BOC's OSSs can dramatically improve transaction speeds
        and reduce errors and costs associated with wholesale support processes.
             A.  Functionality
             The most critical wholesale support process SBC must put in place is the
        process for receiving CLEC orders for resale services and unbundled elements and
        provisioning such services and elements. It is this fundamental process that enables
        CLECs to enter the local market and serve new customers. For purposes of discussing
        the practicable availability of SBC's resale services and unbundled elements, the
        Department will focus on this process, but the Department believes the analysis below
        in most instances applies equally to the other functions SBC provides to CLECs. ⁹⁵
             SBC claims to offer CLECs two automated interfaces to transact orders for
        resale services: (1) EASE, a terminal emulation interface offering direct access to
        some of SBC's OSSs; and (2) Electronic Data Interchange (EDI), an industry-standard
        ordering interface that requires SBC to translate transacted information into a form

Page 73      

        recognized by SBC's OSSs. For unbundled elements, SBC offers only EDI. ⁹⁶
             SBC has begun to implement the industry-standard EDI ordering interface for
        resale services and unbundled elements even in advance of final standards from ATIS.
        To date, ATIS committees have defined guidelines for the information and forms
        required to order and provision resale local services (i.e. basic exchange service),
        unbundled loops, number portability, loops with number portability, switch ports, and
        directory services. ⁹⁷ ATIS committees have also designated EDI as the preferred
        electronic format for computer-to-computer communication of such forms. ⁹⁸ ATIS
        committees are near finalizing their translation of these forms into EDI format, and the
        formal release of this translation, known as "Issue 7," is expected in June, with updates
        to follow. ⁹⁹
             SBC has also committed to implement new industry standards within 120 days

Page 74      

        of their becoming final. ¹⁰⁰ The Department views as critical a BOC's meaningful
        commitment to comply with emerging industry standards for BOC-CLEC interfaces
        and to begin development of interfaces in anticipation of such standards. ¹⁰¹ If all BOCs
        adhere to the same standard it will ultimately reduce the need for competitors to build
        completely separate interfaces for each BOC, lowering competitor costs and facilitating
        faster development of such interfaces. ¹⁰²
             SBC claims to offer multiple interfaces through which CLECs eventually will be
        able to perform most functions, including resale ordering functions. This approach,

Page 75      

        when operational, may fulfill the needs of both large and small competitors and comply
        with the Commission's complementary "nondiscrimination" and "meaningful
        opportunity" requirements, which may apply differently depending on the
        characteristics of the competitor in question. For example, SBC's EASE interface,
        which provides access via terminal emulation, may provide a small competitor, with no
        OSSs of its own, with appropriate access to SBC's own retail ordering functions,
        satisfying the nondiscrimination requirements for such small carriers with respect to
        certain resale services. That is, such a small competitor may be able to perform the
        identical service ordering functions as SBC's retail units and may be afforded a
        meaningful opportunity to compete with respect to these functions.
             This same access, however, would place a larger competitor, with its own robust
        operations support systems, at a significant competitive disadvantage, denying the
        competitor a meaningful opportunity to compete and limiting the practicable
        availability of services or elements. SBC's EASE interface (or for that matter its
        Verigate and Toolbar interfaces) severely limits the ability of competing carriers to
        electronically transfer information transacted over these interfaces to the CLEC's
        OSSs, impeding the efficient flow-through of information from SBC OSSs to CLEC
        OSSs and the concomitant benefits of full automation, discussed above. Thus, unlike

Page 76      

        SBC's retail operations, a competing carrier with its own separate OSSs is forced to
        manually enter information twice once into the SBC interface and a second time into
        its own OSSs. For high volumes of orders, such double entry would place a
        competitor at a significant disadvantage by introducing additional costs, delays, and
        significant human error. ¹⁰³ Under Section 251(c) and the Commission's rules, such a
        functional difference may amount to unreasonable and discriminatory conditions for
        carriers possessing their own OSSs.
             Current industry standards clearly recognize the shortcomings of such interfaces.
         ATIS committees, for example, have focused almost exclusively on "application-to-
        application" interfaces, such as EDI, which allow CLECs with their own OSSs to

        create flow-through automation to their own systems when transacting with BOCs via
        these interfaces, avoiding the need for re-keying. ¹⁰⁴ ATIS committee guidelines
        suggest that such interfaces avoid the "input errors [which] are inevitable" with manual
        re-keying, and avoid the "result[ing] lost time and money in the effort to discover and

Page 77      

        correct them." ¹⁰⁵ Application-to-application interfaces allow a competitor to design its
        own systems based on standardized sets of inter-carrier transactions. Leveraging these
        standard interfaces, a competitor may then present its customer service representatives
        with its own set of customized screens and information, and automatically populate its
        own databases with information at the same time it interacts with a BOC's systems.
        CLECs need only train their representatives to use this one customized system to
        interact with all BOCs, regardless of the interface provided, rather than having to incur
        the cost of training them on many different systems depending on the BOC. ¹⁰⁶ Thus, as
        a practical matter, SBC's ability to receive orders for resale services and unbundled
        elements from carriers with their own OSSs rests exclusively on its EDI interface. ¹⁰⁷

Page 78      

        This is certainly true with regard to unbundled elements because SBC provides only
        the EDI interface to order such elements.
             As a legal matter, however, SBC asserts that providing EASE satisfies its
        obligations under Sections 251 and 271. SBC argues that "[i]t is quite clear from the
        [Local Competition Order] that the concept of non-discriminatory' access was
        intended to mean simply that ILECs need only offer to CLECs the same type of OSS
        functionality that they themselves utilize today." ¹⁰⁸ Further, by agreeing to develop
        "forms of access to its OSS functions that are not available today," SBC argues that it
        "has collectively exceeded its obligations." ¹⁰⁹ Thus, under SBC's analysis, it meets its
        legal obligations under Section 251 by providing its EASE interface, which SBC
        claims will provide CLECs with identical access to SBC's OSS ordering functions. By
        developing an EDI interface, however, SBC believes it exceeds its obligations. This is
        particularly true, under SBC's analysis, with regard to unbundled elements, because

Page 79      

        "[p]rior to February 8, 1996, SWBT did not offer unbundled network elements on a
        retail basis," and therefore "no operations support systems functions for . . . unbundled
        network elements existed." ¹¹⁰
             SBC's reading of the Commission's "nondiscrimination" requirement with
        regard to OSS access is incorrect. BOCs have access to many OSS functions, such as
        switch control functions and work force administration systems, that would facilitate
        the ordering and provisioning of unbundled elements. The Commission's
        nondiscrimination rules require parity of access to specific OSS "functions," ¹¹¹
        recognize that providing such access "may require some modifications to existing
        systems," ¹¹² and are nowhere limited by the role such functions play with respect to the
        BOC's retail offerings. SBC's interpretation ignores the Commission's requirement
        that "[i]n all cases" incumbent LECs must provide "nondiscriminatory access to
        operations support systems functions for pre-ordering, ordering, provisioning,
        maintenance and repair, and billing of unbundled network elements under section

Page 80      

        251(c)(3)." ¹¹³
             Even assuming SBC's analysis of this issue was correct that it has met the
        Commission's OSS access requirements by providing the EASE ordering
        interface SBC nevertheless has failed to make resale services and unbundled
        elements practicably available because of a lack of adequate automation. For example,
        SBC's argument amounts to the contention that SBC could satisfy Sections 251 and
        271 by providing only manual ordering of unbundled loops even in the face of
        substantial demand. As discussed above, such manual interfaces have been shown to
        be impractical for all but the lowest volumes of orders, and would preclude meaningful
        local competition via unbundled loops altogether. ¹¹⁴ SBC simply mistakes its
        interpretation of the Commission's OSS access rules as the only requirement for
        automating (i.e. meaningfully providing in many cases) the ordering and provisioning
        of resale services and unbundled elements. Such automation is not only critical to the
        practical availability of these services and elements, but because CLECs pay the cost of

Page 81      

        providing resale services and unbundled elements, the additional costs of inefficient
        manual processing are passed on to competitors.
             Thus, as both a practical and legal matter, SBC's ability to receive orders for
        resale services and unbundled elements rests exclusively on its EDI interface. As
        discussed above, however, the interface between carriers is only the first of two areas
        of needed automation to render resale services and unbundled elements meaningfully
        available. SBC must also automate the interaction of this interface and its own OSSs
        to provide appropriate access, allowing the electronic processing of transactions
        received via the interface. While the Department finds, as an operational issue below,
        that SBC has failed to prove that any such automated interaction is operable, as a
        functional issue SBC has failed even to claim at least one important capability, that of
        supporting the electronic ordering and provisioning of an end-to-end combination of
        elements in compliance with the Commission's rules.
             As previously discussed, the Department would expect SBC to automate
        processing steps at least in instances where a BOC electronically processes
        substantially analogous steps for its retail operations. Thus, the Department believes
        that the processing of an order for an end-to-end combination of loop, switching, and
        transport elements, the provisioning of which can, in many cases, be automated in a

Page 82      

        fashion analogous to that of a BOC retail POTS line, should be performed in those
        cases in the same automated fashion. As an example, Ameritech claims to process
        orders for such end-to-end combinations, or "platform"-based subscriber lines, without
        human intervention where existing facilities are in place to serve the customer. ¹¹⁵ SBC
        fails to provide any documentation supporting an order for such a combination or
        evidence that it could process it in an automated fashion. ¹¹⁶
             B.  Operability
             As SBC plainly states, "To date, no CLECs are using . . . any of the electronic
        interfaces SWBT makes available." ¹¹⁷ This fact should place a heavy burden on SBC
        to prove the operation of its electronic interfaces and processes because industry
        experience demonstrates that, even after significant testing between BOCs and CLECs,
        wholesale support processes, both automated and human, rarely function as advertised
        and almost never practicably provide resale services and unbundled elements prior to
        enduring the rigors of commercial trials. SBC does not meet this burden, however,

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        because it has failed to present sufficient evidence, in Oklahoma or elsewhere, that it
        has performed internal testing of its ability to receive and process orders for resale
        services and unbundled elements via its EDI interface. CLECs have expressed interest
        in joint testing this interface, but SBC has yet to initiate any such tests of its EDI
        ordering interface. ¹¹⁸ Further, with regard to all of SBC's wholesale support processes,
        including its EDI interface, SBC has failed to demonstrate that it could, if requested,
        comply with the Commission's Local Competition Order and provide resale services or
        unbundled elements in a nondiscriminatory manner, offering CLECs a meaningful
        opportunity to compete.
                1.  Internal Testing
             SBC fails to present any evidence that it offers the real ability to provide resale
        services and unbundled elements via EDI, rather than a paper promise. ¹¹⁹ SBC plainly
        states that it has not completed internal testing of the interaction of its EDI interface
        and internal processes. "SWBT has performed successful integrated tests between

Page 84      

        SWBT's EDI Ordering Gateway and certain back office systems then from these back
        office systems to the SWBT EDI Ordering Gateway. Internal integrated testing
        continues today to include all involved systems and to test the multitude of ordering
        scenarios . . . ." ¹²⁰ In addition, with regard to unbundled element ordering in particular,
        SBC reports that "SWBT internal testing [is] in progress" rather than "completed." ¹²¹
        Thus, even if a CLEC could successfully transact with SBC's EDI interface today,
        SBC itself has not completed testing of its ability to process those transactions with its
        internal OSSs.
             Even assuming SBC has completed internal testing of its wholesale support
        processes for offering resale services and unbundled elements, SBC fails to show that
        these wholesale support processes will offer nondiscriminatory access to such services
        and elements, provide competitors with a meaningful opportunity to compete, or
        operate at foreseeable levels of demand. SBC presents no internal functional or
        capacity test results, in Oklahoma or elsewhere, and no retail performance data with
        which to compare such test results. Indeed, Sprint, the one carrier with which SBC

Page 85      

        claims to be testing an electronic interface (DataGate), alleges that SBC's EDI
        capabilities for receiving orders for unbundled elements do not exist. ¹²²
             SBC points out that "the EDI ordering processes are a new development to
        support an extremely complex task. Implementation of this interface depends on the
        mutual efforts of CLECs and SWBT." ¹²³ Yet, as discussed above, SBC has made no
        showing of SBC's efforts with regard to the interface itself or the automation that must
        take place between the interface and SBC's OSSs. SBC's lack of evidence lies in
        sharp contrast to Ameritech's efforts in its region, where it has submitted voluminous
        documentary and testimonial evidence of internal and third-party testing of its EDI
        interface and automated processes. ¹²⁴ For example, Ameritech has hired at least two
        outside experts, Anderson Consulting and Telesphere Solutions, to test, exercise, and
        objectively evaluate its EDI interface and that interface's interaction with internal
        OSSs, providing valuable evidence of whether the interface is operational, performing

Page 86      

        in a nondiscriminatory manner with respect to Ameritech's internal OSSs, and
        providing competitors with a meaningful opportunity to compete. ¹²⁵ In addition to
        these third-party efforts, Ameritech itself has provided a veritable barrage of detailed,
        ongoing internal testing evidence to demonstrate, sometimes successfully, sometimes
        not, that its interfaces and processes are operational and meaningfully available. These
        internal and third-party tests have revealed competitively-significant problems,
        allowing Ameritech to fix such problems now, before they substantially affect a
        competitor in the marketplace. ¹²⁶
             This type of thorough internal testing is essential to ensuring that complex
        interfaces, such as EDI, and their interaction with internal processes are operational.
        Certainly in the absence of inter-carrier testing or commercial operation, without actual

Page 87      

        evidence of such thorough internal testing, SBC does not even approach its burden of
        proving the nondiscriminatory operation of its EDI interface (or any others) and its
        electronic processes for providing resale services and unbundled elements. The
        Georgia Public Service Commission's reasoning, when it recently rejected a BellSouth
        SGAT, is equally applicable to SBC. The Georgia Commission held that "BellSouth
        has not yet shown that it can reliably provide unbundled loops and other unbundled
        elements in the controlled environment of pilot tests," and as a result "unbundled
        elements are not yet available as promised in the Statement and as required by Section
        251." ¹²⁷
                2.  Inter-carrier Testing
             Even if SBC had performed robust internal testing, industry experience, national
        standards with which SBC allegedly adheres, and experts in software engineering
        suggest that internal testing alone, without inter-carrier testing, often fails to expose
        competitively-significant faults in the new and complex software used to create

Page 88      

        electronic interfaces and their interaction with OSSs. ¹²⁸ SBC has yet to initiate any
        inter-carrier testing of its EDI interface for ordering resale services and unbundled
        elements. Moreover, SBC alleges that it has only recently begun testing its DataGate
        preordering interface with Sprint, and has not provided any test results from this test,
        or tests of any other of its interfaces.
             To place SBC's state of readiness in perspective, Ameritech began inter-carrier
        testing of its EDI electronic ordering interfaces and processes in February 1996 with
        US Networks. ¹²⁹ Notwithstanding Ameritech's early and intensive testing, its
        interfaces and processes were recently found deficient by the Wisconsin Public Service
        Commission and an Illinois hearing examiner. ¹³⁰
             The Wisconsin Commission's decision, decided April 3, 1997, was made at a
        time when Ameritech had processed several thousand orders for resale services and

Page 89      

        unbundled loops region-wide. The Wisconsin Commission found, however, that
        Ameritech's systems still had "major problems" and that they did not meet the
        requirements of the checklist because they were not yet fully tested and operational. ¹³¹
        Among other things, the record in the Wisconsin proceeding revealed significant
        problems with Ameritech's EDI resale ordering interface an interface Ameritech had
        claimed was tested and commercially operated with U.S. Networks since
        February 1996, over a year prior to the Wisconsin Commission's decision. Ameritech
        has since taken steps to correct many of these problems. In comparison, as discussed
        above SBC has not yet even begun such testing of its EDI interface, ¹³² much less
        identified and corrected the "bugs" that such testing inevitably will reveal.
             These experiences underscore the near certainty of encountering problems in
        complex interfaces, and the need for extensive testing of such interfaces, which SBC
        has not demonstrated, before they can be considered operationally ready. In addition
        to experiences in the industry to date, the need for such testing is also clearly reflected

Page 90 .       

        in current ATIS committee guidelines for Issue 6 guidelines with which SBC
        purports to adhere. ¹³³ That Issue includes a recommendation that, in addition to
        internal testing, carriers consider performing system testing "with trading partners
        using a test data file and/or testing with live data." ¹³⁴ The guidelines conclude that
        "[o]nce these tests have been completed, you are ready for live processing to be run in
        parallel [with manual processes]." ¹³⁵ This suggests that even after testing with a
        trading partner, problems may be encountered and testing must continue in parallel
        with manual processes.
             Industry participants also acknowledge the complexity of interfaces, the need for
        thorough inter-carrier testing, and the likelihood of competitively-significant problems
        arising even after commercial operation. For example, MCI's OSS affiant states:
             After each carrier's systems are developed and deployed, it is necessary
             to conduct "integration" testing -- full end-to-end trials designed to make
             sure that the systems can communicate properly with each other to
             accomplish the intended results in the designed manner. After integration
             testing has been successfully completed, it is time to put the systems into
             actual competitive use, supporting "live" customer transactions. Even

Page 91      

             once this stage of actual implementation is reached, however, testing is
             not completed. To the contrary, it is almost inevitable that the early
             stages of actual competitive use will reveal design and operating flaws
             that had escaped detection up through integration testing, thus requiring
             further trouble-shooting and system modification. ¹³⁶

             Finally, software development experts widely agree that testing software
        typically consists of numerous different phases, including beta testing with live data in
        commercial operation. As highly-complex software applications, electronic
        communications interfaces and the OSSs they are interacting with must certainly
        undergo all of the generally agreed-upon tests for quality software development to be
        considered practically operational. Ian Sommerville, in his textbook         Engineering, explains, "The most widely used [software] testing process consists of
        five stages," including "acceptance testing." ¹³⁷ This last stage, acceptance testing, is
        "the final stage in the testing process before the system is accepted for operational use.
        The system is tested with data supplied by the system procurer rather than simulated
        test data. Acceptance testing may reveal errors and omissions in the system
        requirements definition because               from the test data." ¹³⁸ Sommerville goes on to describe how system testing is
        commonly referred to as "beta testing," and claims that beta testing is the norm when
        rolling out complex systems.
             Substantial research has also demonstrated that fixing defects becomes vastly
        more expensive and time consuming as bugs are diagnosed progressively later in the
        development and roll-out process. As one expert has found, "[a]ssume that an error
        uncovered during design will cost 1.0 monetary unit to correct. Relative to this cost,
        the same error uncovered just before testing commences will cost 6.5 units; during
        testing 15 units; and after release, between 60 and 100 units." ¹³⁹ These statistics
        suggest that defects not identified and corrected in the testing of electronic interfaces
        and processes (e.g., prior to BOC entry into the in-region long distance market) will
        cost several times the amount to correct in the commercial environment, causing
        increased costs and delays when CLECs are trying to compete with BOCs. ¹⁴⁰
             Accordingly, SBC has failed not only to offer adequate functionality, it has

Page 93      

        fallen far short of carrying its burden to show that its wholesale support processes are
        operational to even a limited extent.
                              APPENDIX B
               Local Competitors and Potential Competitors in Oklahoma

        Potential Competitors with Approved Interconnection Agreements with SWBT
             Brooks Fiber. Brooks, with an approved negotiated interconnection agreement,
        is the only operational local exchange competitor in Oklahoma, and Brooks is one of
        only a handful of providers in Oklahoma that already has substantial local facilities of
        its own in place. Brooks has one switch each in Tulsa and Oklahoma City, along with
        CAP-style SONET rings containing 221 miles of fiber in Tulsa and 44 miles of fiber in
        Oklahoma City, enabling it to act as a facilities-based provider. However, the number
        of customers now served by Brooks is minuscule. Brooks has a total of 20 business
        customers in Tulsa and Oklahoma City according to its own evidence in the Oklahoma
        Section 271 proceeding. Of these 20 customers, Brooks serves 8 entirely over Brooks'
        own facilities, 11 with a combination of leased dedicated T-1 facilities and Brooks'
        own facilities, and 1 through the resale of SWBT ISDN service. Brooks OCC
        Comments at 2. Brooks also has four of its own employees using residential service

Page 94      

        in Tulsa and Oklahoma City on a trial basis through total service resale of SWBT's
        local services. While Brooks has a residential tariff according to SBC, as Brooks
        witness Ed Cadieux explained to SWBT during the OCC Section 271 hearings, it is not
        actually taking on any outside residential customers. ¹⁴¹ Brooks has testified in the
        Oklahoma Section 271 hearings that it is only evaluating SBC's resold service and has
        not yet reached any conclusions on whether to use it. OCC Transcript, Apr, 14, 1997
        at 63-64. Brooks plans to serve its customers primarily through the use of unbundled
        SWBT loops and the use of its own switching and transport facilities. Brooks OCC
        Comments at 2. Brooks' use of SWBT loops, however, is premised on its ability to
        gain physical collocation in SWBT central offices (COs), 6 in Oklahoma City and 5
        COs in Tulsa. Id. at 3. As of SBC's filing date, none of these collocations had been
        completed, even though the initial applications were filed in June of 1996. Id. at 4.
        Brooks has experienced problems both with SBC's substantial delays in providing
        collocation and SBC's prices for collocation. Transcript of Proceedings, OCC Cause

Page 95      

        No. PUD 97-64 ("OCC Transcript, Apr. 23, 1997") at 111-115 (April 23, 1997).
        Because of these problems in getting essential collocation, and because Brooks has so
        few customers, Brooks has not begun to seriously discuss OSS and unbundled loop
        provisioning issues with SBC.
             U.S. Long Distance ("USLD"). Though USLD has an approved negotiated
        interconnection agreement with SWBT it is not yet operational. USLD has no facilities
        installed in Oklahoma and plans to enter Oklahoma initially as a reseller, transitioning
        to a partial facilities basis over time (its agreement provides for interconnection using a
        switch in Oklahoma City). One of the reasons that USLD has not yet entered
        Oklahoma is that USLD is still in dispute with SBC over the interpretation of
        provisions of its agreement regarding its operations in Texas, including what prices
        and terms USLD will actually have for various services including resale, customer
        conversion, trunk provisioning intervals, OSS, and order processing, so that the
        Oklahoma agreement is inactive until the parties can reach a meeting of the minds in
        their negotiations. Affidavit of Richard Burk ("Burk Aff."), 4-6, 9-10, attached to
        Opposition of USLD, CC Docket No. 97-121 (May 1, 1997). USLD is also
        concerned about whether SWBT has adequate OSS to handle orders electronically. So
        far, USLD has not been allowed access to SWBT's OSS due to the unavailability of

Page 96      

        OSS training courses. Id. 7.
             Intelcom Group. ICG has an approved negotiated interconnection agreement
        with SWBT but it is not yet operational and is not ready to enter, as the agreement was
        only approved on April 3. ICG would likely enter on a facilities basis, but it is unclear
        how much network construction will be necessary before ICG is ready to begin
        offering service in Oklahoma.
             Sprint. Sprint has an interconnection agreement with SWBT which incorporates
        many of the terms from the AT&T arbitration award. This agreement is incomplete
        because it is contingent on the results of certain negotiations between AT&T and
        SWBT. Sprint did not seek arbitration separately but stipulated with SWBT to take the
        terms of the AT&T arbitration award. It is not yet ready to begin operations and does
        not plan to enter Oklahoma until 1998. OCC Transcript, Apr. 23, 1997, at 91. Sprint
        has experienced problems with SWBT trying to reach an agreement on OSS interfaces.
         Sprint would likely enter initially as a reseller though it also has PCS wireless
        networks being installed in Oklahoma City and Tulsa, so that it could become
        facilities-based.
             Dobson Wireless. Dobson has an approved negotiated resale agreement with
        SWBT, and plans to enter initially as a reseller. It expects to begin offering service as
        a reseller within the next month and is currently awaiting tariff approval. Dobson is

Page 97      

        also in the process of negotiating an interconnection agreement with SWBT. It is still
        negotiating physical collocation terms. Dobson ALTS' Motion Comments at 3.
        Dobson would like to serve business customers on at least a partial facilities basis, id.
        at 1, but it presently has no plans to offer facilities-based residential local service in
        competition with SBC. Dobson does own two independent rural LECs in other
        geographic areas of Oklahoma as well as cellular systems. It is not yet operational as a
        local exchange service provider in SBC's service area in Oklahoma, though it is
        already doing business in other areas such as long distance, fiber backhaul and Internet
        access and derives substantial local exchange revenues from its independent LECs in
        service areas separate from SWBT's.
             Western Oklahoma Long Distance ("WOLD"). WOLD has an approved
        negotiated resale agreement with SWBT and would enter as a reseller, having no
        facilities at present. It is not yet operational and is still in dispute with SBC over
        provisions of its agreement, primarily ancillary charges for the use of certain OSS
        systems charges that were not listed in the agreement. WOLD could potentially begin
        reselling SWBT service within the next month.

Page 98      

        Some Other Significant Potential Competitors
             AT&T. AT&T, which concluded an arbitration proceeding with SWBT in
        November 1996, is still negotiating with SWBT over terms which were not addressed
        in the arbitration award and so currently has only a partial agreement that has not been
        filed with the OCC for approval. The AT&T - SWBT post-arbitration negotiations
        will likely lead to mediation or further arbitration before a complete agreement can be
        reached. SBC Brief at 6. n.8. AT&T, as it has normally done across the nation,
        requested all of the checklist elements from SWBT, so as to enable it to provide its
        planned service platform using a combination of unbundled network elements.
        Because it does not yet have an agreement, AT&T is not yet operational as a local
        service provider in Oklahoma. AT&T would likely enter initially as a reseller, or using
        an unbundled elements platform if available, though it has longer-term plans to
        develop facilities using its PCS licenses to develop a wireless local loop.
             Cox Communications. Cox Communications, which is a potential facilities-
        based provider, reached a negotiated interconnection agreement with SWBT for
        Oklahoma on April 10, 1997, one day before this application was filed, and this
        agreement was submitted to the OCC on April 28, 1997. Phillip Decl. 3. Cox and
        SWBT have agreed to use the AT&T arbitrated prices on an interim basis pending final

Page 99      

        pricing proceedings in Oklahoma, though they may still have some disputes about
        pricing. Id. 4. Cox, like Brooks, has had problems with SWBT in obtaining physical
        collocation on a timely and reasonable cost basis. Storey Aff. 6-8.; Similarly to
        USLD, Cox has had trouble in obtaining timely installation of interconnection trunks.
        Id. 9. Cox has the potential to be a formidable facilities-based competitor to SWBT
        in Oklahoma City, where it has facilities, based on its cable system, which pass 95% of
        the residential customers. ¹⁴² Its fiber has been upgraded to handle two-way
        communications, and it has a switch in Oklahoma City as well. It has already been
        providing exchange access services for three years through Cox Fibernet in Oklahoma
        City. Cox would serve both residential and business customers in Oklahoma City,
        beginning downtown and expanding to the suburbs. Before it filed for arbitration, Cox
        indicated that it planned to deploy facilities-based service to residential customers in
        the fall of 1997. Based on the agreement it has reached with SWBT, Cox has said that
        it believes it could be operational in Oklahoma City in June or July of 1997.
             ACSI. ACSI is a competitive access provider ("CAP") in Tulsa, currently
        operating as a special access provider but not a local exchange service provider. ACSI
        is currently constructing a 50 fiber mile network, which is expected to be completed by

Page 100      

        mid-1998. Wheeler Aff. 17. At present, based on a diagram in one of SBC's
        affidavits, ACSI's network appears to cover a 10 square block area in downtown Tulsa.
        Wheeler Aff. Schedule 1. ACSI does not have a local switch installed. Recently ACSI
        entered into an interconnection agreement with SWBT, which was filed with the OCC
        on May 5, 1997 but has not yet been approved. It is unclear whether ACSI would
        enter first on a resale or partial facilities basis, but it could be a facilities based provider
        with respect to some customers.

FOOTNOTES

¹ Pub. L. No. 104-104, 110 Stat. 56 (1996)(codified at 47 U.S.C. 151 et seq.).

² Section 271(d)(2)(A) requires the Commission to consult the Attorney General on any Bell Operating Company ("BOC") application to provide in-region interLATA services under Section 271(c)(1) of the Telecommunications Act and also requires that the Commission give any written evaluation by the Attorney General "substantial weight" in its decision.

³ The submission of this evaluation does not affect the independent enforcement responsibilities of the Department under the antitrust laws. See, e.g., United States v. R.C.A., 358 U.S. 334, 350 n.18 (1959). See also Section 601(b) of the 1996 Act, 110 Stat. 143.

⁴ The Department's discussion of particular areas of noncompliance in this evaluation does not necessarily mean that we believe that those requirements not discussed have been satisfied.

⁵ The Commission has found that interLATA markets are sufficiently competitive to permit substantial deregulation. The Commission concluded in 1995 that "most major segments of the interexchange market are subject to substantial competition today, and the vast majority of interexchange services and transactions are subject to substantial competition." Motion of AT&T Corp. to be Reclassified as a Non-Dominant Carrier, Order, 11 FCC Rcd 3271, 3288, at 26 (rel. Oct. 23, 1995). It has repeated the conclusion that the market for interLATA telecommunications services is "substantially competitive" in decisions subsequent to the passage of the Telecommunications Act. Implementation of the Non-Accounting Safeguards of Sections 271 and 272 of the Communications Act of 1934, as amended, First Report and Order, CC Docket No. 96-149, FCC 96-489 ("Non-Accounting Safeguards Order"), at 62 (rel. Dec. 24, 1996); Policy and Rules Concerning the Interstate, Interexchange Marketplace, Implementation of Section 254(g) of the Communications Act of 1934, as amended, Second Report and Order, CC Docket No. 96-61, FCC 96-424, at 21-22 (rel. Oct. 31, 1996). The Commission has found that "market forces will generally ensure that the rates, practices and classifications [of interexchange carriers] are just and reasonable and not unjustly and unreasonably discriminatory." Policy and Rules Concerning the Interstate, Interexchange Market, Implementation of Section 254(g) of the Communications Act of 1934, as amended, Second Report and Order, CC Docket No. 96-61, FCC 96-424, at 21 (rel. Oct. 31, 1996). The Commission has also rejected arguments that "current levels of competition are inadequate to constrain AT&T's prices," finding that "AT&T cannot unilaterally exercise market power." Id. at 12. See also Motion of AT&T Corp. to be Reclassified as a Non-Dominant Carrier, Order, 11 FCC Rcd 3271 (1995).

⁶ In 1995, according to the Commission's long distance market share statistics, AT&T had a market share of 53%, MCI 17.8%, Sprint 10%, LDDS 5%, and all other long distance carriers 14% (each individually about 1% or less) based on revenues. Federal Communications Commission, Statistics of Communications Common Carriers ("FCC 1996 Common Carriers Statistics"), at Table 1.4 (1996). Based on these shares, the Herfindahl-Herschman Index (HHI) for aggregated interLATA services nationwide was approximately 3272 in 1995, placing it well within the concentrated range. See U.S. Department of Justice and Federal Trade Commission, Horizontal Merger Guidelines, 1.5 (1992). The HHI has dropped very substantially from its level of 8130 at the time of divestiture of the Bell System in 1984.

⁷ The Commission's most recent analysis for 1995 estimates that LECs nationwide have 99.6% of local exchange services, 97% of local private line, and 97.5% of other local services, as well as 98.5% of interstate and intrastate access services. Federal Communications Commission, Telecommunications Industry Revenue: TRS Fund Worksheet Data ("FCC 1996 TRS Data"), at Table 2 (Dec. 1996). The Commission noted in its Notice of Proposed Rulemaking in Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, 11 FCC Rcd 14171, 6, n.13 (rel. Apr. 19, 1996), that the competitive access provider revenues of $1.15 billion in 1995 still represented "a de minimis portion of the market." While the evidence available to the Department indicates that there has been more competitive entry and growth of existing competitors at the local level in 1996, thanks largely to the Telecommunications Act, it also indicates that the overall local market share of the BOCs and other incumbent LECs has not changed over the past year to any competitively significant extent. Total revenues of competitive local exchange carriers (CLECs) and competitive access providers (CAPs) in 1996 have been estimated at only $2.2 billion, about 2% of the total revenues of the BOCs and other LECs. Competitors in local exchange services and switched access still have nationwide revenue shares of well under 1%. In dedicated access services, competitors' nationwide revenue share has been estimated at about 10%, though this is concentrated heavily in urban areas. In intraLATA toll, the LECs have lost about 25% of total revenues nationwide to competitors, primarily interexchange carriers. This competition has been stimulated by the introduction of 1+ dialing parity in sixteen states, but is very uneven on a state-by-state basis. See Schwartz Aff. 30-34, 38-39, 89 and Table 1.

⁸ According to the Commission's common carrier statistics, in 1995 gross long distance revenues were $72.45 billion, but long distance revenues net of the $22.55 billion in access charges paid to reporting local carriers were $49.9 billion.

⁹ In contrast, according to the same statistics, in 1995 all reporting incumbent local exchange carriers ("LECs), including the BOCs, had a total of (1) $46 billion in local exchange service revenues, including basic switched and private line revenues and some vertical services (of which over $37 billion was accounted for by BOCs), (2) $29 billion in exchange access revenues (of which over $22 billion was accounted for by the BOCs), (3) $10.7 billion in intraLATA toll and miscellaneous long distance revenues (of which over $8.1 billion was accounted for by the BOCs), and (4) $10.2 billion in miscellaneous revenues ($7.2 billion for the BOCs), most of which came from directory services, carrier billing and collection and nonregulated activities. The reporting LECs had $95.6 billion in gross revenues, of which $86 billion came from the three most important broad categories of local services they provide. The BOCs' gross revenues were over $74.8 billion, of which the great majority, over $67 billion, came from local exchange services, access and intraLATA toll. FCC 1996 Common Carrier Statistics at Table 2.9. The Commission's estimates of the LECs' revenues are slightly higher in another analysis, which includes the smaller LECs and puts total LEC revenues in excess of $100 billion. FCC 1996 TRS Data at Tables 18 and 19. For an analysis of local and long distance revenues in 1995, see Schwartz Aff. Table 1.

¹⁰ Non-Accounting Safeguards Order at 7; Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, First Report and Order, CC Docket Nos. 96-98 and 95-185, FCC 96-325, at 4 (rel. Aug. 8, 1996) ("Local Competition Order")("under the 1996 Act, the opening of one of the last monopoly bottleneck strongholds in telecommunications -- the local exchange and exchange access markets -- to competition is intended to pave the way for enhanced competition in all telecommunications markets, by allowing all providers to enter all markets").

¹¹ Specifically, Congress required a BOC to show that: (A) the petitioning Bell operating company has met the requirements of subsection (c)(1) of this section and - (i) with respect to access and interconnection provided pursuant to subsection (c)(1)(A) of this section, has fully implemented the competitive checklist in subsection (c)(2)(B)of this section; or (ii) with respect to access and interconnection generally offered pursuant to a statement under subsection (c)(1)(B) of this section, such statement offers all of the items included in the competitive checklist in subsection (c)(2)(B) of this section; (B) the requested authorization will be carried out in accordance with the requirements of section 272 of this title; and (C) the requested authorization is consistent with the public interest, convenience, and necessity. 47 U.S.C. 271 (d)(3)(1997).

¹² Or, as OCC Administrative Law Judge Goldfield put it, even though Brooks Fiber, the one provider relied on by SBC under Track A, was not yet furnishing facilities-based residential service in Oklahoma, it was a "qualifying, facilities-based carrier under subsection (c)(1)(A) for the purpose of foreclosing a Track B application." Report and Recommendations of the Administrative Law Judge, OCC Cause No. PUD 97-64, at 35 (Apr. 21, 1997) ("ALJ Report") (emphasis added). Similarly, the Oklahoma Attorney General concluded that Track B has been foreclosed. See Comments of the Oklahoma Attorney General Regarding the Issues raised in ALTS' Motion to Dismiss, CC Docket No. 97-121, at 6-8 (Apr. 23, 1997). One OCC Commissioner reached the same conclusion, while the other two refrained from deciding the issue.

¹³ An exchange access provider, exchange service reseller, or cellular carrier does not satisfy Track A. H.R. Conf. Rep. No. 104-458, at 148 (1996).

¹⁴ "For the purpose of this subparagraph [Track A], such telephone exchange service may be offered by such competing providers either exclusively over their own telephone exchange service facilities or predominantly over their own telephone exchange service facilities in combination with the resale of the telecommunications services of another carrier." Section 271(c)(1)(A).

¹⁵ As SBC notes in its Opposition to ALTS' Motion to Dismiss, Congress rejected proposals to require the BOCs to wait until various "metric" tests of the substantiality of the competition were satisfied. Opposition of Southwestern Bell to ALTS' Motion to Dismiss and Request for Sanctions, CC Docket No. 97-121 ("SBC Opposition to ALTS' Motion"), at 5-7 (Apr. 28, 1997). But Congress was clear that there must be some operational facilities-based competition for business and residential subscribers under Track A.

¹⁶ See Sections 255(b)(1) and (c)(2)(B) of S. 652, reproduced at S. Rep. 104-23, at 97-99 (1995).

¹⁷ See Section 245(a)(2) of H.R. 1555, reproduced at H.R. Rep. No. 104-204, pt. 1, at 7 (1995).

¹⁸ In its Comments on ALTS' motion to dismiss SBC's application, the Telecommunications Resellers Association stated that a request by a competing carrier can preclude entry under Track B even if that carrier does not intend "to provide services `either exclusively . . . or predominantly over . . . [its] own telephone exchange facilities." Comments of the Telecommunications Resellers Association, CC Docket No. 97-121, at 7 (Apr. 28, 1997).

¹⁹ Since Track A, contrary to ALTS' suggestion, does not require each separate facilities-based competitor to be providing both residential and business service as long as both residential and business subscribers are being served by some facilities-based provider, it also follows that Track B can be foreclosed even if each separate provider requesting access and interconnection does not intend to provide both residential and business services, if the requesting providers as a group satisfy that requirement.

²⁰ SBC argues that a facilities-based competitor might have negotiated an interconnection agreement with the incumbent BOC and become operational prior to enactment of the 1996 Act. Such a competitor could request interconnection under the 1996 Act, "thereby allowing immediate' interLATA entry by the Bell company under the A Track." SBC Opposition to ALTS' Motion at 16. SBC provides no reason to believe that Congress expected such situations to be common, however. Based on the Department's experience with the implementation of the Telecommunications Act nationwide, only a small minority of states had any local exchange competition before the 1996 Act was passed, and very few providers had become operational. Indeed, the Conference Report cites only one facilities-based provider that had obtained an interconnection agreement to provide local services before the 1996 Act was passed, Cablevision in New York. H.R. Conf. Rep. No. 104-458, at 148 (1996).

²¹ SBC suggests that a facilities-based competitor might have provided "limited types of local service to business and residential customers completely over its own network" before requesting interconnection. SBC Opposition to ALTS' Motion at 17. Once again, it suggests no reason to believe that Congress thought that this would often be the case. The Department is not aware of any provider other than the ILECs that had a significant facilities-based telephone local exchange network of its own in the United States, sufficiently ubiquitous to dispense with interconnection with the BOCs, before the 1996 Act was passed.

²² The legislative history that SBC cites in its Opposition to ALTS' Motion to Dismiss, at 14-15, is most reasonably understood as relating to the question whether the provider or providers requesting interconnection and access must be seeking to provide services that would qualify under Track A or whether, as ALTS argues, "such provider" may include firms seeking to provide pure resale or other services that could not ever be used to satisfy Track A.

²³ Comments of Brooks Fiber Properties, Inc., in Support of Motion to Dismiss and Request for Sanctions by the Association for Local Telecommunications Services, CC Docket No. 97-121 ("Brooks ALTS' Motion Comments"), at 4-5 (Apr. 28, 1997); Comments of Cox Communications, Inc., CC Docket No. 97-121 ("Cox FCC Comments"), at 1 (May 1, 1997) and Declaration of Carrington Phillip ("Phillip Decl.") 3, attached to Cox FCC Comments.

²⁴ Brooks ALTS' Motion Comments at 4 n.7; Comments of Cox Communications, Inc. on Motion to Dismiss, CC Docket No. 97-121 ("Cox ALTS' Motion Comments"), at 1-2 (Apr. 28, 1997).

²⁵ See Affidavit of Gregory J. Wheeler ("Wheeler Aff.") 7, attached to Brief in Support of Application by SBC Communications Inc., Southwestern Bell Telephone Company, and Southwestern Bell Long Distance for Provision of In-Region InterLATA Services in Oklahoma, CC Docket No. 97-121 ("SBC Brief") (Apr. 11, 1997).

²⁶ There are also other potential competitors in Oklahoma that have installed or are constructing facilities, and have entered into agreements with SWBT; they also may provide a basis for a Track A application once they have fully implemented agreements and they have become operational. For example, SBC's application notes that the competitive access provider ACSI already has facilities in Tulsa, and that Sprint, which has an approved agreement, is constructing PCS facilities in Tulsa. SBC Brief at 93-94.

²⁷ In particular, to the Department's knowledge, SBC has provided no working physical collocation in Oklahoma. Brooks Fiber requested collocation in SWBT's central offices in Tulsa in June, 1996, but, as of the date of SBC's application, still had not received collocation. Initial Comments of Brooks Fiber Communications of Oklahoma Inc. and Brooks Fiber Communications of Tulsa Inc., OCC Cause No. PUD 97-64 ("Brooks OCC Comments"), at 3-4 (Mar. 11, 1997). Brooks has also complained that it cannot order unbundled loops because it has no working interconnection arrangements with SWBT. See infra Part III.C.2.

²⁸ See Brooks OCC Comments at 2. Administrative Law Judge Goldfield determined in the OCC's Section 271 proceeding, on the basis of the uncontroverted evidence, that "all four of the [Brooks] residential customers are provided through resale of SWBT service and on a test-basis." ALJ Report at 14, 35. In addition, the affidavit of John C. Shapleigh, Brooks' Executive Vice President-Regulatory and Corporate Development, submitted to the Commission with ALTS' motion to dismiss this application, plainly states that "Brooks is not now offering residential service in Oklahoma, nor has it ever offered residential service in Oklahoma." Mr. Shapleigh explains that Brooks' local exchange service tariffs in Oklahoma are subject to the "availability on a continuing basis of all the necessary facilities," and because "necessary facilities are not yet available, Brooks is not accepting any request in Oklahoma for residential service." Brooks' four employees testing the resold SWBT service, Mr. Shapleigh states, do not pay for the service, and the test is "in no way a general offering of residential service." Brooks, according to Mr. Shapleigh, "has made no decision yet as to the timing of an offering of residential service in Oklahoma," and has not yet gained enough experience with SWBT's resale systems "to determine whether Brooks can effectively use them on even an ancillary basis" to its planned use of SWBT's unbundled loops when those become available. Affidavit of John C. Shapleigh ("Shapleigh Aff.") 3-6, attached to Motion to Dismiss and Request for Sanctions by the Association for Local Telecommunications Services, CC Docket No. 97-121 ("ALTS' Motion") (Apr. 21, 1997).

²⁹ A BOC proceeding under Track B must be "generally offering" such access and interconnection.

³⁰ Many of the checklist items expressly require "nondiscriminatory" provision, and in addition the "nondiscriminatory" terms and conditions required by Section 251 apply both to the LECs' treatment of other competitors and to the LECs' treatment of their own affiliates, so that the LECs must provide unbundled elements at the same level of quality as they do for themselves, to the extent technically feasible. Local Competition Order at 217-18 (footnotes omitted).

³¹ In arguing that it is "providing" checklist items even though competitors are not actually using such items, SBC analogizes the provision of items under the checklist to a dinner party, contending that the host has "provided" hors d'oeuvres even if no one chooses to partake. SBC Brief at 16 n.17. We agree with SBC that it may "provide" checklist items in this sense, but only if the provided food is edible, available in adequate quantities, and if the guests are allowed access to it.

³² Several state commissions and state officials have followed a similar approach to dealing with SGAT approval and checklist compliance in their Section 271 compliance proceedings. See, e.g., Hearing Examiner's Proposed Order, Investigation concerning Illinois Bell Telephone Company's Compliance with Section 271(c) of the Telecommunications Act of 1996, Illinois Commerce Commission, Docket No. 96-0404 ("ICC HEPO"), at 6-8 (Mar. 6, 1997); Order Regarding Statement, BellSouth Telecommunications, Inc.'s Statement of Generally Available Terms and Conditions Under Section 252(f) of the Telecommunications Act of 1996, Georgia Public Service Commission, Docket No. 7253-U ("GA PSC Order"), at 6-7 (Mar. 20, 1997).

³³ In light of the other clear deficiencies, this evaluation address only some of the substantial checklist issues raised by SBC's application.

³⁴ Final Order, OCC Cause No. PUD 97-64, Order No. 411817 ("OCC Final Order"), at 2-3 (Apr. 30, 1997).

³⁵ ALJ Report at 35-36.

³⁶ Dissenting Opinion of Commissioner Bob Anthony, OCC Cause No. PUD 97-64 ("Anthony Dissenting Op."), at 1-3 (Apr. 30, 1997).

³⁷ AT&T alone has provided SBC with forecasts of over one hundred thousand resale orders per month in SBC's region. Attachment 21 to the affidavit of Nancy Dalton ("Dalton Aff."), attached to Comments of AT&T in Opposition to SBC's Section 271 Application for Oklahoma, CC Docket No. 97-121 ("AT&T FCC Comments") (May 1, 1997). Automated ordering interfaces can take many months to develop, and several BOCs have encountered problems that extended such development over a year. Allegedly "providing" such resale services without the current capability to furnish competitively-significant numbers of such services falls short of satisfying a BOC's obligations under Section 271(c).

³⁸ Local Competition Order at 517. Because the Commission interpreted access to OSS as a term or condition of providing resale services and access to other elements in general, this requirement is also embodied in, among other items, checklist items (iv), (v), (vi), and (xiv).

³⁹ Section 251(c)(3), referenced in item (ii) of the checklist and implicated in many others, obligates an incumbent LEC to provide access to unbundled elements (OSS functions and other elements), upon request, that is "nondiscriminatory," and on rates, terms, and conditions that are "just, reasonable, and nondiscriminatory." Finding that "just [and] reasonable . . . terms and conditions" are those that "should serve to promote fair and efficient competition," the Commission properly has required BOCs to provide unbundled elements and resale services under "terms and conditions that would provide an efficient competitor with a meaningful opportunity to compete." Local Competition Order at 315; Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Second Order on Reconsideration, CC Docket Nos. 96-98 and 95-185 ("2nd Recon Order"), at 9 (specifically discussing access to operations support systems). Separately, the Commission interpreted Congress' use of the term "nondiscriminatory" in Section 251, and in particular with regard to "nondiscriminatory access" to unbundled elements, as requiring a comparison between a BOC's access to elements and the access provided CLECs (in addition to a comparison between the access afforded different CLECs). This interpretation establishes a parity requirement where a meaningful comparison can be made between a BOC's and a CLEC's access to the BOC's network elements. The Commission required such a comparison "where applicable." 2nd Recon Order at 9; Local Competition Order at 315.

⁴⁰ See, e.g. , Comments of the Wisconsin Department of Justice Telecommunications Advocate in Response to Second Notice and Request for Comments, Wisconsin Public Service Commission, Docket No. 6720-TI-120, at 7 (Jan. 27, 1997): In order for the systems to be considered operational, they must satisfy at least two tests. First, Ameritech must demonstrate that the systems incorporate sufficient capacity to be able to handle the volumes of service anticipated when local competition has reached a reasonably mature state. . . . In addition, the systems must have been proven adequate in fact to handle the burdens placed upon them as local competition first takes root.

⁴¹ Local Competition Order at 549-551.

⁴² The Department is aware of no working physical collocation arrangement in any SWBT central office in Oklahoma, and very few in other SBC states. In SBC's Opposition to the ALTS' Motion to Dismiss in this docket, SBC asserts, in the affidavit of Deanna Sheffield, that it had completed and turned over four collocation cages to Brooks, as of April 25, 1997. SBC acknowledges, however, that these arrangements are not working, because Brooks has not yet had an opportunity to place and test equipment. Affidavit of Deanna Sheffield ("Sheffield Aff."), 2-3, attached to SBC Opposition to ALTS' Motion. Similarly, in the Public Utility Commission of Texas' investigation into SWBT's entry into the interLATA market, SWBT's response to a Request for Information on April 24, 1997, indicated that it had delivered only four working physical collocations out of 59 requests in Texas. Two of the offices were delivered to Metro Access Networks, which is currently in arbitration with SWBT on the physical collocation pricing issue, and, thus, does not have an interconnection agreement with SWBT. Response of SWBT to Request for Information, Investigation of Southwestern Bell Telephone Company's Entry Into the Texas InterLATA Telecommunications Market, Public Utility Commission of Texas, Docket No. 16251 ("Texas RFI Response"), Request No. 18-JE (Attachment E to this Evaluation. Some parts of the Texas RFI Response were submitted under claim of confidentiality by SWBT. The Department has not had access to the confidential portions of SWBT's responses and the responses offered in this attachment were not submitted under claim of confidentiality).

⁴³ See Affidavit of Jeff Storey ("Storey Aff."), 6, attached to Cox FCC Comments.

⁴⁴ SBC's efforts to comply with this checklist item have not been expeditious. In Oklahoma, there is no statewide tariff for physical collocation and no prices for physical collocation are listed in the SGAT. In Texas, SWBT was ordered to file a physical collocation tariff as part of implementing an arbitration award involving AT&T, MCI, TCG, MFS, and ACSI. The tariff that was filed listed many central offices as not suitable for tariffing, meaning that they would have to be negotiated on an individual case basis, and the "tariff" was only available to those three parties who specifically requested physical collocation in the arbitration proceeding. See Letter from Metropolitan Access Networks (MAN) to Donald Russell of 3/5/97 at 9 (Attachment F to this Evaluation). The problem with making physical collocation "available" on an individual case basis, as SWBT does in its Oklahoma SGAT and the Brooks agreement, is that all SBC is really providing is an invitation to do more negotiating on price and terms. This can cause further delay and may lead to more arbitration. Id. at 3-4.

⁴⁵ Congress' desire not to limit the Department's and the Commission's review to a mechanical approval process is consistent with the proviso in Section 271(d)(4) of the 1996 Act, which states that "The Commission may not, by rule or otherwise, limit or extend the terms used in the competitive checklist set forth in subsection (c)(2)(B)." This provision by its express terms limits the Commission's actions only with regard to the competitive checklist. It does not limit the Commission's authority or responsibility to carry out its other responsibility under Section 271, i.e., to consider whether Section 272 requirements have been satisfied and to conduct its public interest inquiry, giving substantial weight to the evaluation of the Attorney General. Section 271(d)(4), in other words, prohibits the Commission from promulgating additional inflexible and mandatory access and interconnection requirements as prerequisites for approval of applications under Section 271, or from ignoring noncompliance with any of the requirements of the checklist. The Commission is not restricted, however, in determining whether particular access and interconnection arrangements are consistent with the requirements of Section 272, or in weighing public interest factors or the Attorney General's recommendations. Section 271(d)(4) encourages the exercise of such discretionary judgments by limiting the Commission's authority to impose or reduce the non-discretionary requirements of Section 271.

⁴⁶ It is a basic rule of statutory construction that every provision is to be given meaning. See e.g., Dep't of Revenue of Oregon v. ACF Industries, 510 U.S. 332, 340-341 (1994). Thus, while the Commission may have greater discretion to interpret the public interest requirement than the other statutory minimums, it may not fail to apply it.

⁴⁷ The legislative history of the Telecommunications Act clearly indicates that Congress contemplated that the Department would be undertaking a substantial competition-oriented analysis of Section 271 applications, not limited to compliance with checklist requirements, for which the Commission is separately required to consult with the state regulatory authorities. The illustrative examples of possible standards mentioned by Congress all were drawn from the antitrust laws and antitrust consent decrees, under which such a competition analysis would be performed by the Department drawing upon its special expertise. H.R. Conf. Rep. No. 104-458, at 149 (1996).

⁴⁸ See, e.g., FCC v. WNCN Listeners Guild, 450 U.S. 582 (1982).

⁴⁹ FCC v. RCA Communications, Inc., 346 U.S. 86, 94 (1953) ("there can be no doubt that competition is a relevant factor in weighing the public interest"); United States v. FCC, 652 F.2d 72, 81-82 (D.C. Cir. 1980) (en banc) ("competitive considerations are an important element of the public interest standard"). Where a term has been authoritatively construed in a parallel statute before enactment of legislation, as with the previously existing "public interest" standard in the Communications Act, it is ordinarily presumed that Congress knew of the prior construction and intended for the term to have the same meaning in the new legislation. See Cannon v. University of Chicago, 441 U.S. 677, 696-98 (1979). In fact, Congress explicitly intended to preserve the preexisting public interest standard, as explained in the Committee report on the Senate bill, from which the public interest standard in Section 271 of the 1996 Act was taken. S. Rep. 104-23, at 43-44 (1995). The Commission has specifically considered the openness of related vertical foreign telecommunications markets in determining whether it would be in the public interest to permit entry by the vertically integrated provider into U.S. long distance telecommunications markets. Sprint Corporation Petition for Declaratory Ruling Concerning Section 310(b)(4) and (d) and the Public Interest Requirements of the Communications Act of 1934, as amended, Declaratory Ruling and Order, 11 FCC Rcd 1850 (1996) (FCC found "critical component" of granting approval under the public interest standard was commitment of French and German governments to open their telecommunications markets to full competition, and that additional conditions would be necessary to prevent anticompetitive conduct and protect against risk that liberalization would not occur on schedule); MCI Communications Corporation British Telecommunications plc Joint Petition for Declaratory Ruling Concerning Section 310(b)(4) and (d) of the Communications Act of 1934, as amended, Declaratory Ruling and Order, 9 FCC Rcd 3960 (1994) (considering liberalization of United Kingdom telecommunications market and balance of anticompetitive risks and competitive benefits from transaction, without the specific comparable market openness criteria later adopted in the Sprint decision).

⁵⁰ H.R. Conf. Rep. No. 104-458, at 1 (1996). This purpose to "promote competition" is also acknowledged in the caption of the statute itself. 110 Stat. 56.

⁵¹ See, e.g., 142 Cong. Rec. H.1152 (daily ed. Feb. 1, 1996) (statement of Congressman Hastert) ("the FCC must give substantial weight to comments from the Department of Justice about possible competitive concerns when BOCs provide long-distance service"); 142 Cong. Rec. H.1165 (daily ed. Feb. 1, 1996) (statement of Rep. Berman) ("requirement designed to ensure that the FCC gives proper regard to the Justice Department's special expertise in competition matters and in making judgments regarding the likely marketplace effects of RBOC entry into the competitive long distance markets . . . acknowledging the importance of the antitrust concerns raised by such entry and to check any possible abuses of RBOC market power, the bill specifically provides that the FCC accord substantial weight to the DOJ's views on these issues "); 141 Cong. Rec. S.7970 (daily ed. June 8, 1995) (statement of Sen. Kerrey) ("I have one final test [the public interest test] that, by the way, has been litigated many, many times over the course of time. The Supreme Court has spoken many times on this issue. ... This is an effort to make certain that in fact we do get competition at the local level.); 141 Cong. Rec. S.8224 (daily ed. of June 13, 1995) (statement of Sen. Thurmond) ("FCC consideration of the public interest includes antitrust analysis, as indicated by the courts and reiterated by FCC Chairman Hundt in testimony last month before the Congress"). The President also recognized in his statement issued upon signing the Telecommunications Act that "the FCC must evaluate any application for entry into the long distance business in light of the public interest test, which gives the FCC discretion to consider a broad range of issues, such as the adequacy of interconnection agreements to permit vigorous competition . . . the FCC must accord "substantial weight" to the views of the Attorney General. This special legal standard, which I consider essential, ensures that the FCC and the courts will accord full weight to the special competition expertise of the Justice Department's Antitrust Division -- especially its expertise in making predictive judgments about the effect that entry by a Bell company into long distance may have on competition in local and long distance markets." Statement at 2 (Feb. 8, 1996).

⁵² "The incumbent LECs have economies of density, connectivity, and scale . . . The local competition provisions of the Act require that these economies be shared with entrants . . . in a way that permits the incumbent LECs to maintain operating efficiency to further fair competition, and to enable the entrants to share the economic benefits of that efficiency in the form of cost-based prices. . . . The Act contemplates three paths of entry into the local market -- the construction of new networks, the use of unbundled elements of the incumbent's network, and resale. The 1996 Act requires us to implement rules that eliminate statutory and regulatory barriers and remove economic impediments to each . . .Section 251 neither explicitly nor implicitly expresses a preference for one particular entry strategy. Moreover, given the likelihood that entrants will combine or alter entry strategies over time, an attempt to indicate such a preference . . . may have unintended and undesirable results. Rather, our obligation . . . is to establish rules that will ensure that all pro-competitive entry strategies may be explored." Local Competition Order at 11, 12.

⁵³ Entry under Section 271(c)(1)(A), for example, requires the presence of one or more competitors serving both business and residential customers which "exclusively . . . or predominantly" use "their own" facilities.

⁵⁴ Although Congress required that local markets be open to competition before BOC long distance entry, some of the provisions of the 1996 Act indicate that Congress envisioned a transitional period after entry before local competition became fully effective. The protections of Section 272, which must be retained for at least three years after long distance entry, would have been unnecessary if Congress had wished to require fully competitive local markets as a precondition to long distance entry.

⁵⁵ The Telecommunications Act requires incumbent LECs to provide facilities and services to their competitors at prices lower than the monopoly price of those facilities and services. Competitors can use these inputs to compete against the incumbent LECs in providing services (e.g., interLATA toll, intraLATA toll, and bundles of local and long distance service) that are much less stringently regulated than are these inputs. By discriminating in the quality of the inputs provided to competitors, e.g., by providing inferior operations support systems, the LECs can better protect supracompetitive pricing in the retail markets in which they face competition. See Schwartz Aff. 101-103, 115-117, 119-120.

⁵⁶ In this context, "non-discriminatory" provision of access will be dependent on the BOC's development and implementation of complex technology that differs in important respects from anything done before, and does not merely involve the provision of simple, well-established services that have been operating for some time. The BOCs have already experienced substantial problems making access to wholesale support systems available and have repeatedly had to delay their entry plans due to these difficulties. After a BOC enters the interLATA market, however, the burden will shift in practice to the competitors and regulators, who will find it very problematic to prove whether a BOC's failure to develop and implement such technology is due to the inherent difficulty of the project or to a failure of the BOC legitimately to use its best efforts to do so. And if regulators conclude that the latter has occurred, their ability to provide effective remedies against such discrimination, i.e., effectively to require best efforts, will be limited if adequate benchmarks have not already been established before BOC interLATA entry.

⁵⁷ For example, BOCs and other LECs were able to delay significantly or prevent the option of 1+ dialing parity for intraLATA toll services in most states before the passage of the 1996 Act, thereby preserving a discriminatory advantage and a dominant market position for their own intraLATA toll services. See Schwartz Aff. 141-144. The difficulty of opening networks to competition through the regulatory process alone is well illustrated by the Commission's efforts over several years to achieve network unbundling through "Open Network Architecture" (ONA) for enhanced services, which fell well short of the original objective. See Schwartz Aff. 145-148. Beginning in the mid-1980s, the Commission sought to require the BOCs to provide unbundled service building blocks' for competitors, including a wide range of capabilities. See Amendment of Sections 64.702 of the Commission's Rules and Regulations (Third Computer Inquiry), Report and Order, 104 FCC 2d 958 (1986), on reconsideration, 2 FCC Rcd 3072 (1987), vacated, 905 F.2d 1217 (9th Cir. 1990). But the BOC's ONA plans, even after being amended, only offered part (60%, according to the Commission's estimate) of the interconnection arrangements and transmission facilities that competitors had requested, and the Commission accepted the BOCs' claims that it was not feasible to provide the requested unbundling and declined to require "fundamental unbundling" prior to eliminating structural separation, instead treating ONA as a "long-term" goal. Filing and Review of Open Network Architecture Plans, 4 FCC Rcd 1, at 42, 200 (1988); Filing and Review of Open Network Architecture Plans, 5 FCC Rcd 3103, at 3116, 3122 (1990), aff'd California v. FCC, 4 F.3d 1505 (9th Cir. 1993). Ten years after ONA was first ordered, it has still not been fully implemented, as made clear by the appellate decisions finding that the Commission's lifting of structural separation requirements to have been arbitrary and capricious due in part to the failure of the BOCs to unbundle their networks. See California v. FCC, 905 F. 2d 1217, 1232-38 (9th Cir. 1990) (FCC decision to abandon structural separation in favor of accounting safeguards was arbitrary and capricious); California v. FCC, 4 F.3d 1505, 1509-10 (9th Cir. 1993); California v. FCC, 39 F.3d 919, 929 (9th Cir. 1994). In addition, the Department understands from prior investigations and interviews that cellular telephone companies experienced years of problems obtaining satisfactory interconnection with the BOCs. These problems were only resolved by the early 1990s.

⁵⁸ See, e.g., Jean Jacques Laffont and Jean Tirole, A Theory of Incentives in Procurement and Regulation (The MIT Press 1993).

⁵⁹ Even if the Commission were to interpret the checklist as requiring a showing less than the "meaningfully available" inquiry set forth in Part III, supra, we believe that, for the same reasons outlined above with respect to the establishment of basic performance standards, such an inquiry would still be a necessary part of a competitive assessment and public interest determination.

⁶⁰ See generally Affidavit of Michael J. Friduss ("Friduss Aff."), Exhibit D to this Evaluation.

⁶¹ Another factor that is relevant to this showing is whether the BOC has entered into, or is subject to, clear penalties for failing to meet basic performance benchmarks, e.g., a time interval for provisioning unbundled loops.

⁶² OCC, Telephone Rules, Okla. Admin. Code Section 165:55-17 (1996). Oklahoma's rules dealing with interconnection, unbundled elements and resale, OAC 165:55-17-5, substantially parallel Section 251 of the 1996 Act. All incumbent local telecommunications carriers in Oklahoma, including SWBT, still have their retail rates set by rate of return regulation, but this could change as a result of a pending Oklahoma Corporation Commission rulemaking proceeding on alternative price cap, regulation. Pending legislation, Okla. H.B. 1815, could eliminate the regulation of prices for SWBT and other LECs for all products (except basic local, which is capped for 2 years), in any exchange where a competitive local exchange carrier is certificated, regardless of whether any actual competition exists. Id. at Section 7D. This could give SBC relative freedom in pricing intrastate access to interexchange carrier competitors. For possible competitive consequences, see Schwartz Aff. 100, 103, 123.

⁶³ SBC's total revenues in Oklahoma were $852,387,000 in 1995 and $1,074,510,000 in 1996, about 10% of SBC's total revenues in its region. FCC Report 43-01, ARMIS Annual Report for Southwestern Bell Telephone Co., 1995 and 1996. SWBT's basic local revenues in Oklahoma were $447,604,000 in 1995 and $480,375,000 in 1996. Id. This continued growth, according to SBC's 1996 annual report, comes from a combination of increases in access lines and sales of vertical services. SWBT's Oklahoma access revenues were $254,528,000 in 1995 and $264,573,000 in 1996, 8% of the total for the SBC region. Id. Oklahoma is the third most significant SWBT state in interLATA traffic, after Texas and Missouri (and not counting SBC's recently acquired PacTel states). In 1995 5,356,983,000 interLATA long distance access minutes originated and terminated in Oklahoma, .97% of such minutes in the U.S. and 8.7% of such minutes in the SWBT region. FCC 1996 Common Carriers Statistics at Table 2.6. SBC's average interstate access charge per minute (originating or terminating) was 2.6 cents in 1995 (around the national average), declining to 2.5 cents in 1996 under price caps. In Oklahoma, SBC's intrastate interLATA charges mirror the federal ones, for a total of 5 cents per minute (originating and terminating). This contrasts with the situation in all of SWBT's other states, where SWBT's intrastate interLATA access charges are higher than the interstate ones, and indeed SBC has the highest average intrastate interLATA access charges of any of the BOCs other than US West. Id. SWBT's intraLATA access charge in Oklahoma is higher than the interLATA one, at 7 cents per minute (combining both ends). See Statement of Steven E. Turner on Behalf of AT&T Communications of the Southwest, OCC Cause No. PUD 97-64, at 16 (Mar. 6, 1997). SWBT's intraLATA toll revenues in Oklahoma were $77,021,000 in 1995 and $173,641,000 in 1996. FCC Report 43-01, ARMIS Annual Report for Southwestern Bell Telephone Co., 1995 and 1996. This large increase was mainly attributable to a one-time adjustment, but unlike several of the other BOCs, SBC's regionwide intraLATA toll revenues actually grew between 1995 and 1996, by 7.4% according to its 1996 annual report. SBC states that intraLATA revenues regionwide would have "decreased slightly" between 1995 and 1996 due to intraLATA competition were it not for special revenue adjustments in Oklahoma and elsewhere. 1996 10-K Annual Report for Southwestern Bell Telephone Company. Oklahoma does not yet have intraLATA toll dialing parity and could not require it before SBC provides interLATA services due to the Telecommunications Act's restriction in Section 271(e)(2).

⁶⁴ FCC 1996 Common Carriers Statistics at Table 2.4; ARMIS 4305, Annual Service Quality Report, Southwestern Bell Telephone Company, 1995 and 1996.

⁶⁵ ARMIS 4305, Annual Service Quality Report, Southwestern Bell Telephone Co., 1996.

⁶⁶ The third LATA in Oklahoma, in the panhandle, overlaps the state border and is mostly in Texas. SWBT has no local service territories in the Oklahoma part of this LATA.

⁶⁷ Wheeler Aff. 6.

⁶⁸ SBC had 1,047,000 residential and 423,000 business access lines in Oklahoma as of 1996, of which 699,000 residential lines and 303,000 business lines were in metropolitan areas (MSAs), a total of 1,002,000 metropolitan access lines. ARMIS 4305, Annual Service Quality Report, Southwestern Bell Telephone Co., 1996. In 1995, there were 407,000 residence and 154,000 business lines in Oklahoma City, and 284,000 residence and 126,000 business lines in Tulsa, giving these two cities in combination 971,000 access lines. "Southwestern Bell Territory Local Competition Review," AT&T Presentation to the Department of Justice (Aug. 13, 1996) (based on ARMIS data).

⁶⁹ Affidavit of Michael L. Montgomery on Behalf of Southwestern Bell Telephone Company ("Montgomery Aff.") 4-5, 8, attached to SBC Brief. Two of the "competitive" providers Montgomery cites as having facilities near current SWBT customers (Cox and ACSI) do not currently have approved interconnection agreements.

⁷⁰ Wheeler Aff. 7, citing The Sunday Oklahoman (3/20/95), notes that Brooks plans to spend an additional $20 million over the next 10 years to upgrade its Oklahoma network from 50 fiber optic route miles to 88. This is in addition to the unknown amount already invested in a 200 fiber optic route mile network in Tulsa. Wheeler 14, citing Tulsa World (8/29/96).

⁷¹ During the Oklahoma 271 hearings, SWBT attorney Roger Toppin questioned Cadieux as to why Brooks was not offering local service to residential retail customers, in spite of the tariff Brooks had filed. Cadieux explained, "We have indicated all along that we do not intend to provide service on a resale basis to any significant extent. If we were to try to get into residential service on any broad scale immediately, we would have to do it on a resale basis because we don't have the availability of what is our preferred method of operation, the unbundled loop availability." OCC Transcript, Apr. 14, 1997, at 69. The affidavit of Liz Ham, SBC's OSS affiant, makes no mention made of Brooks' use of any SBC OSS interface. This is not surprising, given the unavailability of Brooks' preferred entry vehicle--unbundled loops.

⁷² Affidavit of Samuel L. King ("King Aff."), 35, attached to Comments of MCI Telecommunications Corporation, CC Docket No. 97-121 ("MCI FCC Comments") (May 1, 1997).

⁷³ Id. at 36; Dalton Aff. 8; Affidavit of Cynthia Meyer ("Meyer Aff."), 32, attached to Sprint Communications Company Petition to Deny, CC Docket No. 97-121 (May 1, 1997).

⁷⁴ Meyer Aff. 32.

⁷⁵ Dalton Aff. 8.

⁷⁶ Letter from Valu-Line of Kansas President Rick Tidwell to the Department of Justice of 5/8/97 at 1, Attachment G to this Evaluation.

⁷⁷ If SBC relies on the rates for unbundled elements in its agreement with Brooks, which are lower than those in the AT&T arbitration or the SGAT, as its basis for showing checklist compliance, it must demonstrate that those rates are available on a nondiscriminatory basis to satisfy Section 271(d)(2)(B)(ii). It is hard to see how SBC could do so, having put forward the SGAT rates as its generally available terms. Other providers that have entered into agreements since the AT&T arbitration, such as Sprint, have had to take the higher arbitrated interim rates rather than the Brooks prices.

⁷⁸ Report and Recommendations of the Arbitrator, Application of AT&T Communications of the Southwest, Inc. for a Compulsory Arbitration of Unresolved Issues with Southwestern Bell Telephone Company Pursuant to Section 252 of the Telecommunications Act of 1996, OCC Cause No. PUD 96-218 ("OCC Arbitration Decision"), at 19-20 (Nov. 13, 1996).

⁷⁹ See, e.g., Affidavits of Daniel P. Rhinehart and Steven E. Turner, attached to AT&T FCC Comments.

⁸⁰ Brooks states in its comments that it had reached closure with SBC on a loop price lower than the Commission's Oklahoma loop proxy of $17.63 before the Commission's decision was issued. Following the Commission's decision, SBC increased its price offer in the final Brooks agreement to the full proxy "ceiling" level, before executing the agreement. Brooks OCC Comments at 7 n.7. After reaching its agreement with Brooks, and after the pricing provisions of the Commission's August 8 Local Competition Order were stayed, SBC then pressed for still higher loop prices beyond the proxy "ceiling" in its arbitration with AT&T. These rates, which were uniformly higher than the geographically averaged recurring loop price in the Brooks agreement submitted for OCC approval, and were 17% above the averaged proxy level for even the cheapest deaveraged urban loop at $20.70, were set on an interim basis in the arbitration award, and used in SBC's SGAT.

⁸¹ For example, New York, which used two density zones for loop prices, has set the prices at $12.49 and $19.24.

⁸² To illustrate, the three deaveraged zone rates for a two-wire analog loop in the Oklahoma SGAT are $20.70, $27.75, and $49.30. The lowest of these rates is above the FCC's averaged proxy price of $17.63. In SBC's Kansas SGAT, the three deaveraged zone rates for the same loop are $19.65, $26.55, and $70.30, putting the lowest of these rates slightly below the FCC's averaged proxy price of $19.85, while the others are above it. In contrast, in Missouri, the three deaveraged zone rates for the same loop set in arbitration by the state commission (and challenged by SBC on appeal) are $9.99, $16.41, and $27.12, putting two of the three zones below the FCC's averaged proxy rate of $18.32. In Texas, the deaveraged rates for the same loop in the ICG agreement are $15.50, $17.30, and $23.10, compared with the FCC averaged proxy of $15.49, about the same as the lowest zone. These rates only reflect recurring monthly charges, and not the additional interim nonrecurring charges that also apply in each SBC state, and vary substantially among the states as well.

⁸³ In the AT&T arbitration in Oklahoma, SBC presented supplemental testimony through one witness, Eugene Springfield, but SBC has not made the cost study underlying his testimony part of its filing in this proceeding. Some of SBC's proposed interim rates were not even claimed to be based on a cost study, but were derived from previous tariffs or contracts. OCC Arbitration Decision at 20. SBC has not presented any affidavit by Mr. Springfield in this proceeding, and it offered no witnesses for cross-examination in the state Section 271 proceeding in Oklahoma. With this application, SBC has presented only a summary affidavit by J. Michael Moore, purporting to describe in general terms some parameters and assumptions of SBC's cost studies, but not actually disclosing the underlying studies themselves, and simply asserting the conclusion that "the costs provided by SWBT meet the requirements of the Act" and the Commission's regulation and "provide a suitable basis for rates." See Affidavit of J. Michael Moore, attached to SBC Brief. AT&T has an alternative cost study which concludes that SBC's prices significantly exceed costs.

⁸⁴ Pelto Aff. 30-34. AT&T presents arguments which support the view that, because most intellectual property rights are extinguished with the first sale of the product containing the intellectual property, and given that, in providing the unbundled elements the ILEC never relinquishes control of the element, it is unlikely that any real violations of a third party's intellectual property rights are at issue. AT&T and MCI have both challenged the legality of SBC's position requiring interconnectors to secure intellectual property licences from third party vendors under the Act. AT&T has challenged this requirement in federal district court in Texas. AT&T Communications of the Southwest, Inc. v. Southwestern Bell Telephone Co. and the Commissioners of the Public Utility Commission of Texas, Civ. Action No. A 97CA 029 (W.D. Tex. filed Jan. 10, 1997). MCI has filed a Petition for a Declaratory Ruling at the Commission. In the Matter of Petition of MCI for Declaratory Ruling, CCBPol 97-4, (filed Mar. 11, 1997). Various vendors have raised doubts about the applicability of third-party licensing rights to unbundled elements in most situations where the CLEC is not using the unbundled elements in a different manner than the ILEC . See, e.g., Comments of Northern Telecom Inc., In the Matter of Petition of MCI for Declaratory Ruling, CC Docket No. 96-98, CCBPol 97-4, at 5-6 (filed Apr. 15, 1997); Comments of Lucent Technologies Inc., CCB Pol 97-4, at 2 (Apr. 15, 1997).

⁸⁵ Report and Order, Implementation of Infrastructure Sharing Provisions in the Telecommunications Act of 1996, ("Infrastructure Sharing Order"), CC Docket 96-237 (rel. Feb. 7, 1997).

⁸⁶ See, e.g., Testimony of Stephen Huels, AT&T v. Pacific Bell, Cal. PUC Case No. 96-12-044, at 5. In addition, a study by the staff of the Public Service Commission of Wisconsin found that manually-processed orders were more likely to miss due dates than those Ameritech processed electronically. See Testimony of Anne Wiecki (OSS), Wis. PSC Docket No. 6270-TI-120 (Mar. 19, 1997).

⁸⁷ Ameritech noted early on in the Commission's local competition docket that "[o]perational interfaces are essential to promote viable competitive entry." Local Competition Order at 516. "Our team recognized very early that it would be of enormous benefit to both SWBT and CLECs if we were able to transact business between us electronically, in order to save human resources." Affidavit of Elizabeth Ham ("Ham Aff."), 6, attached to SBC Brief.

⁸⁸ "For example, if an incumbent LEC adopted the Electronic Data Interchange (EDI) standard to provide access to some or all of its OSS functions, it would need to provide sufficiently detailed information regarding its use of this standard so that requesting carriers would be able to develop and maintain their own systems and procedures to make effective use of this standard." FCC 2nd Recon at 8 (footnote omitted). EDI is discussed more fully below.

⁸⁹ The expected volume would of course have to justify the incremental cost of creating such a capability or adding it to an existing electronic facility. Stated differently, the cost of automating a particular function, which may be passed on to CLECs, should not itself create a barrier to entry.

⁹⁰ ATIS committees are close to finalizing standards for electronic ordering of resale services, unbundled loops, unbundled switch ports, and interim number portability, among others. ATIS promotes resolution of national and international telecommunications standards issues through eight open industry committees and forums which develop operational guidelines.

⁹¹ While many permutations of resale services and unbundled elements could be ordered electronically, we do not mean to suggest that all such orders must be processed electronically (e.g., provisioned without human intervention). For example, a CLEC could order an unbundled loop via an electronic interface. The electronic interface could then deliver the order to an OSS that scheduled manual processing of the unbundled loop. Even under this partially manual procedure, though, the CLEC would be able to automatically place the order directly from its own OSSs over a common interface without the need for manual ordering, and receive electronic status reports as scheduling information in the OSS was updated. Similar transaction-based interfaces between IXCs and BOCs were created because of the breakup of the original Bell System. As is discussed more fully below, the same must now happen for BOC-CLEC interactions, and national standards-setting bodies have begun to establish standards for such interfaces.

⁹² As the Commission has pointed out, "nondiscriminatory access to operations support systems functions may require some modifications to existing systems necessary to accommodate such access by competing providers." FCC 2nd Recon at 6; Local Competition Order at 524. Under the Commission's rules BOCs are entitled to compensation for the costs of such development. See generally , Local Competition Order at Section VII.

⁹³ The Commission and the 1996 Act created nondiscrimination and other requirements, see supra Part III.

⁹⁴ A CLEC may also automate its interaction with the interface if the CLEC has its own OSSs.

⁹⁵ Other functions identified by the Commission include providing CLECs with customer and available facilities information prior to ordering services or elements (preordering), initiating tests or repairs of such services or elements (repair and maintenance), and providing CLECs with information sufficient for them to bill customers (billing).

⁹⁶ By its own admission, SBC has apparently not yet made its LEX ordering interface available. See Ham Aff. 32.

⁹⁷ ATIS OBF Local Service Ordering Guidelines Issue 2.

⁹⁸ ATIS OBF O&P Issue 1122, Meeting Records, April 23, 1996.

⁹⁹ ATIS committees have previously performed translations or "mappings" of telecommunications ordering forms to be used between large business customers and their telecommunications carriers. These previous mappings, known as Issue 5 and Issue 6, were used by some carriers to implement partially standardized electronic transactions between BOCs and CLECs prior to the stabilization of the Issue 7 draft. Any changes made to Issue 7 before its final release will have to be implemented by carriers using prerelease drafts.

¹⁰⁰ Ham Aff. 31, 47 . Significant cooperation between carriers is required even when industry standards such as Issue 7 are in place.

¹⁰¹ Of course adherence to industry standards is more a floor than a ceiling. As part of the Section 271 checklist, BOCs must make resale services and unbundled elements practicably available, and in many instances, as discussed above, automated processes are necessary to such practicable availability. Checklist compliance, however, cannot be conditioned upon the action of independent standards-setting bodies, and the Commission expressly rejected petitions requesting delay of the OSS access requirements until national standards have been fully developed. FCC 2nd Recon at 13. The Commission concluded, and the Department agrees, that "such a requirement would significantly and needlessly delay competitive entry," and that "it is apparent . . . that access to OSS functions can be provided without national standards." Id .

¹⁰² As the Commission stated in its Local Competition Order, "[i]deally, each incumbent LEC would provide access to support systems through a nationally standardized gateway." Local Competition Order at 527. Standardized interfaces also reduce development costs for new entrants because third-party software developers can leverage the cost of building standards-based software solutions across multiple carriers. In addition, the industry-wide implementation of standards decreases the likelihood that any BOC could hold CLECs hostage to its ever-changing proprietary interface.

¹⁰³ See e.g. , King Aff. 41 ("Such dual data entry not only creates delay while the customer waits on the line, it also inevitably results in order entry errors that impact customers' requested services."). In addition to the type of interface provided, its speed of operation also plays an important role in ensuring that competitors are provided with a nondiscriminatory, meaningful opportunity to compete.

¹⁰⁴ See, e.g. ,ECIC Mission Statement,.

¹⁰⁵ ATIS TCIF Implementation Guideline for Electronic Data Interchange, Issue 6, 2.1.4.

¹⁰⁶ SBC also recognizes the shortcomings of interfaces such as EASE and Verigate. SBC notes that both its EDI and DataGate application-to-application interfaces enable CLECs to use "their own user interface" or "graphical user interface." Ham Aff. 24, 29. SBC "has more than 12 representatives working on national standards development specifically related to . . . EDI data formats at the [ATIS] OBF/TCIF committees." Id. 47.

¹⁰⁷ As an indication of how even SBC's terminal emulation and GUI interfaces may operate, the Department has included as Attachment G a letter from a small carrier that recently attempted to obtain access to SBC's consumer and business EASE interfaces and the Toolbar interface. Southwestern Bell Operational Support Systems (OSS) have proven to be a major challenge to understand [and] implement. . . . [T]he screens and information we were accessing were not the same ones we had been trained on. . . . While some of the systems do function, it is obvious that we do not have the same access to information and systems that SWB provides to their own people. . . . Both systems are slow and go down several times a week . . . and require us to enter a disconnect order and a new service order to convert a customer. This causes several problems. . . . SWB has a form letter that is generated each time there is a disconnect. These letters are going out to our customers and the customer is confused as they are led to believe that they will lose their dialtone (of course in some cases they have!). Letter from Valu-Line of Kansas President Rick Tidwell to the Department of Justice of 5/8/97, at 1-3.

¹⁰⁸ Ex Parte Letter from SBC to William F. Caton of 4/22/97, CC Docket No. 96-98, at 2 (emphasis in original).

¹⁰⁹ Ham Aff. 3.

¹¹⁰ SBC Presentation to the Department of Justice, January 23, 1997, Attachment H to this Evaluation, at 3 (emphasis in original).

¹¹¹ Local Competition Order at 525.

¹¹² Id. at 524.

¹¹³ Id. at 525

¹¹⁴ Indeed, under this approach, SBC could conceivably meet the Commission's requirements and those of Section 251 by providing ordering and provisioning functionality sufficient to provision only one unbundled loop per month since this would indeed exceed SBC's own (nonexistent) access to unbundled elements as of the Commission's August 8, 1996, Local Competition Order. Note that ATIS committees in which SBC participates have identified the need for automated ordering interfaces for unbundled loops, among other elements.

¹¹⁵ See generally Supplemental Direct Testimony of Daniel J. Kocher on Behalf of Ameritech Illinois ("Kocher Testimony"), at 11-13; The Commission's rules preclude the separation of elements ordered in combination 47 C.F.R. 51.315 (b) (1997).

¹¹⁶ "SWBT thus far has not even reached the stage of offering any interface specifications that would make it feasible for AT&T to offer local service by means of . . . the combination of all network elements required to provide local service to customers." Dalton Aff. 7.

¹¹⁷ Ham Aff. 45.

¹¹⁸ There is evidence in the record that SBC has thwarted some CLEC attempts to use SBC's automated interfaces. See discussion in Part IV.

¹¹⁹ SBC states that the EDI interface "is now available to CLECs for testing with SWBT the ordering and provisioning of unbundled network elements," Ham Aff. 29, and that "SWBT is ready to make its EDI Gateway for Unbundled Network Elements available to CLECs to begin implementation and end-to-end testing efforts," Id. 31. Further, with regard to the capacity of the interface, SBC states that it "built" the interface to support "100,000 resale service requests per quarter" and "300,000 service requests" for elements during 1997. Id. 51.

¹²⁰ SBC Submission to the Department of Justice, April 29, 1997, included as Attachment I to this Evaluation.

¹²¹ SWBT April 15, 1997 OSS Status Report to the Texas PUC, Docket Nos. 16189, 16196, 16226, 16285, and 16290. SBC does not indicate that its systems in Texas present technical difficulties different than those in Oklahoma.

¹²² "Sprint recently met with SWBT to discuss OSS interfaces and was provided current information on the status of SWBT's operations support systems and interfaces for CLECs. . . . For unbundled network element . . . orders, SWBT offers facsimile processes with manual intervention and plans to build automated EDI interfaces. . . . SWBT does not have any automated systems for OSS interface for unbundled network element services." Meyer Aff. 19, 21, 29.

¹²³ Ham Aff. 29.

¹²⁴ See, e.g., April 4, 1997 submissions to Illinois Commerce Commission, Docket No. 96-0404.

¹²⁵ It is instructive to note that Ameritech asked Telesphere Solutions (a developer of interfaces and gateways) to create a "dummy" CLEC interface to communicate with its EDI interface for purposes of testing. Ameritech used this opportunity to provide evidence of both a CLEC's ability to build its side of the interface based on Ameritech documentation and ultimately the operation of the interface after test transactions were performed. Obviously, none of these tests were dependent upon the plans or cooperation of Ameritech competitors. Third-party testing will, however, have to be examined carefully to verify the comprehensiveness and objectivity of the tester.

¹²⁶ One critical area Ameritech is improving in response to third-party evaluations is the documentation it provides to CLECs enabling them to build their side of the interface. There is substantial evidence that SBC's competitors are having significant problems in this regard. For example, "SWBT has not provided Sprint any process flow diagrams or documentation on operational interface processes and has provided very limited OSS interface specifications." Meyer Aff. 32.

¹²⁷ GA PSC Order at 30-31. The Oklahoma Commission's factual finding that "it is logical to assume that SWBT has provided these companies . . . with the services and unbundled network elements necessary to provide local exchange service" falls somewhat short of this standard. Comments of the Oklahoma Corporation Commission on the Application of SBC Communications Inc., Southwestern Bell Telephone Co, and Southwestern Bell Long Distance for Provision of In-Region InterLATA Services in Oklahoma, CC Docket No. 97-121 ("OCC Comments"), at 8 (Apr. 30, 1997).

¹²⁸ The standard enunciated by the Illinois hearing examiner in his proposed order for the Illinois Commission is particularly illustrative: We are not convinced that the internal testing performed by Ameritech can solve all of the problems that will arise. Without actual testing with other carriers, this checklist item cannot be available. We agree with staff that we must be provided with empirical evidence that Ameritech's OSS are operational and functional. ICC HEPO at 28.

¹²⁹ Id. at 26.

¹³⁰ Ameritech began testing its EDI resale interface and processes with AT&T in September 1996. Letter from AT&T to the Department of Justice of 4/23/97, Attachment J to this Evaluation, at 2.

¹³¹ Wisconsin PSC Open Meeting, Utility Regulation Report, at 5 (Apr.3, 1997).

¹³² The Michigan Commission had earlier found that "[i]t appears that Ameritech Michigan is providing OSS functions that have enabled at least two competitors to provide local exchange telecommunications service in Michigan." In re Application of Ameritech Michigan, CC Docket No. 97-1, at 25 (Feb. 5, 1997). This determination, however, was couched in terms of the Michigan Commission's uncertainty as to whether "good faith effort [by Ameritech] will suffice for checklist compliance," Id. , and the Michigan Commission did not appear to make any factual findings contrary to those of the Wisconsin Commission and Illinois examiner.

¹³³ SBC states that its EDI gateway conforms to the Ordering and Billing Forum/Telecommunications Industry Forum national standard guidelines. Issue 6 is the current TCIF national standard for EDI.

¹³⁴ ATIS TCIF EDI Guidelines, Customer Service, Issue 6, 2.2.6.

¹³⁵ Id.

¹³⁶ King Aff. 28.

¹³⁷ Ian Sommerville, Software Engineering 448-449 (Addison-Wesley 5th ed. 1996).

¹³⁸ Id. at 449.

¹³⁹ Roger S. Pressman, Software Engineering: A Practioner's Approach 189 (McGraw-Hill 4th ed. 1997).

¹⁴⁰ According to Pressman, "[s]oftware testing accounts for the largest percentage of technical effort in the software process," and "[i]t is not unusual for a software development organization to expend between 30 and 40 percent of total project effort on testing." Id. at 448.

¹⁴¹ Q (by SWBT atty. Toppins) You may then reject a customer's request for local service? A (by Brook's Cadieux) We will not process applications for residential service at this point. Q Even on a resale basis? A Even on a resale basis; that is correct. OCC Transcript, Apr. 14, 1997, at 70.

¹⁴² Reply Comments of Cox Communications Oklahoma City, Inc., OCC Cause No. PUD 97-64, at 1 (Mar. 25, 1997).