Evaluation Of The United States Department Of Justice

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Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554

 

  _________________________________    
    )  
  In the Matter of )  
    )    
  Application by BellSouth Corporation, )    
  BellSouth Telecommunications, Inc., and )    
  BellSouth Long Distance, Inc., for ) CC Docket No. 97-231
  Provision of In-Region, InterLATA )    
  Services in Louisiana )    
  _________________________________ )  

 

 

EVALUATION OF THE
UNITED STATES DEPARTMENT OF JUSTICE

 


 

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

 

Thomas G. Krattenmaker               Philip J. Weiser
Special Counsel for Policy and Regulatory Affairs Senior Counsel
Antitrust Division                    Antitrust Division

 

        Communications with respect to this document should be addressed to:
 


                            Donald J. Russell
                            Chief

 

                            Carl Willner
W. Robert Majure                    Luin Fitch
Assistant Chief                     Frank G. Lamancusa
Economic Regulatory Section             Attorneys
                            Telecommunications Task Force
December 10, 1997

 


Page ii .       

                     Table of Contents

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

 

Summary of Evaluation............................................................................................................. iii
 

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

I.  BellSouth Can Satisfy Section 271(c)(1) If the Commission Concludes That PCS
   Providers Are "Competing Providers of Telephone Exchange Service" Within the
   Meaning of Section 271(c)(1)(A)........................................................................................ 4

 

II.   BellSouth Has Failed to Demonstrate That It Is Offering Access and Interconnection
   That Satisfy the Checklist Requirements............................................................................. 9

 

   A.  BellSouth Has Not Demonstrated That It Is Providing Access to Network
        Elements in a Manner That Allows Requesting Carriers to Combine Them......... 10

 

   B.   BellSouth's Wholesale Support Processes Are Deficient...................................... 16
 

III.   The Louisiana Market Is Not Fully and Irreversibly Open to Competition....................... 20
 

   A.  BellSouth Has Not Demonstrated That All of Its Current or Future Prices for
        Unbundled Elements and Resale of Certain Retail Services Will Permit Efficient
        Entry or Effective Competition.............................................................................. 21

 

        1.   Pricing of Unbundled Elements................................................................. 21
 

        2.   Pricing of Resold Services at Wholesale .................................................. 29
 

   B.  BellSouth Has Failed to Institute Performance Measurements Needed to Ensure
        Consistent Wholesale Performance....................................................................... 31

 

   C.  BellSouth's "Public Interest" Arguments Do Not Justify Approval of This
        Application............................................................................................................. 33

 

IV.  Conclusion......................................................................................................................... 36
 


Page iii .       

                    Summary of Evaluation
 

   BellSouth's application to provide in-region interLATA service in Louisiana should be
denied.
   Applications under section 271 should be granted only when the local markets in a state
have been fully and irreversibly opened to competition. This standard seeks to ensure that the
barriers to competition that Congress sought to eliminate in the 1996 Act have in fact been fully
eliminated and that there are objective criteria to ensure that competing carriers will continue to
have nondiscriminatory access to the facilities and services they will need from the incumbent
BOC.
   At this time, BellSouth faces no significant competition in local exchange services in
Louisiana. Lacking this best evidence that the local market has been opened to competition, the
Department cannot conclude that its competition standard is satisfied unless BellSouth shows
that significant barriers are not impeding the growth of competition in Louisiana. BellSouth has
not done so in this application.
   BellSouth has failed to demonstrate that it offers access to unbundled network elements
in a manner that allows requesting carriers to combine such elements in order to provide
telecommunications service, as required by the 1996 Act. Furthermore, BellSouth has failed to
demonstrate its ability to provide adequate, nondiscriminatory access to the operations support
systems that will be critical to competitors' ability to obtain and use unbundled elements and
resold services.

   With respect to pricing of BellSouth's interconnection, unbundled network elements and
resold services, the Louisiana Public Service Commission has now established permanent prices,
and has, at least for the most part, done so in a manner consistent with the Department's
competitive standard. However, in a few specific but significant areas, including geographic
deaveraging and the pricing of collocation, BellSouth has failed to demonstrate that it offers
prices for unbundled network elements in a manner that permits entry and effective competition
by efficient competitors.
   BellSouth also has failed to measure and report all of the indicators of wholesale
performance that are needed to demonstrate that it is currently providing adequate access and
interconnection and to ensure that acceptable levels of performance will continue after section
271 authority is granted.
   Finally, in light of our determination that BellSouth's local markets have not been fully
and irreversibly opened to competition, we conclude that the likely competitive benefits in
markets for interLATA services do not justify approving this application. BellSouth's estimates
of the magnitude of those benefits rest on unconvincing analytical and empirical assumptions,
but more importantly, its analysis fails to give adequate consideration to the more substantial
benefits from increased competition in local markets that will be gained by requiring that local
markets be opened before allowing interLATA entry.

 


.       

Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554

 

  _________________________________    
    )  
  In the Matter of )  
    )    
  Application by BellSouth Corporation, )    
  BellSouth Telecommunications, Inc., and )    
  BellSouth Long Distance, Inc., for ) CC Docket No. 97-231
  Provision of In-Region, InterLATA )    
  Services in Louisiana )    
  _________________________________ )  
 

EVALUATION OF THE
UNITED STATES DEPARTMENT OF JUSTICE

 

Introduction

   The United States Department of Justice ("the Department"), pursuant to section
271(d)(2)(A) of the Telecommunications Act of 1996 ("1996 Act" or "Telecommunications
Act"), 1 submits this evaluation of the application filed by BellSouth Corporation, BellSouth
Telecommunications, Inc., and BellSouth Long Distance, Inc. (collectively "BellSouth") on
November 6, 1997, to provide in-region, interLATA telecommunications services in the state of
Louisiana.

   As the Department has previously explained, in-region interLATA entry by a Bell
Operating Company ("BOC") should be permitted only when the local markets in a state have


Page 2      

been fully and irreversibly opened to competition. 2 This standard seeks to ensure that the barriers
to competition that Congress sought to eliminate in the 1996 Act have in fact been fully
eliminated and that there are objective criteria to ensure that competing carriers will continue to
have nondiscriminatory access to the facilities and services that they will need from the BOC.

   In applying this standard, the Department will consider whether all three entry paths
contemplated by the 1996 Act -- facilities-based entry involving construction of new networks,
the use of unbundled elements of the BOC's network, and resale of the BOC's services -- are
fully and irreversibly open to competitive entry to serve both business and residential consumers.
To do so, the Department will look first to the extent of actual local competition as the best
evidence that local markets are open. The degree to which such entry is broad-based will
determine the weight the Department places on it as evidence. If broad-based commercial entry
involving all three entry paths has not occurred, the Department will examine competitive
conditions to see whether significant barriers continue to impede the growth of competition and
whether benchmarks to prevent backsliding have been established. Wherever practical, this


Page 3      

examination will focus on the history of actual commercial entry. The experience of competitors
seeking to enter a market can provide highly probative evidence concerning barriers to entry, or
the absence thereof. However, we do not regard competitors' small market shares, or even the
absence of entry, standing alone, as conclusive evidence that a market remains closed to
competition, or as a basis for denying an application under section 271. For a variety of reasons,
potential competitors may not immediately seek to use all entry paths in all states, even if the
barriers to doing so have been removed, and a BOC's entry into interLATA services should not
be delayed because of the business strategies of its competitors.

   At this time, BellSouth faces no significant competition in local exchange services in
Louisiana. Lacking this best evidence that the local market has been opened to competition, the
Department cannot conclude that our competition standard is satisfied unless BellSouth proves
that significant barriers are not impeding the growth of competition in Louisiana. It has failed to
do so in this application. BellSouth asserts that it has met the checklist and public interest
requirements of section 271, but that assertion rests in large measure on BellSouth's view as to
the nature of those requirements -- a view that is often at odds with the plain language of the
statute and with the Commission's prior decisions, as well as the Department's competitive
standard. While we believe that BellSouth has made important progress towards fulfilling its
responsibilities under the Telecommunications Act to open its local markets to competition, the
evidence available in the present application falls well short of demonstrating compliance with
several critical prerequisites for approval. In particular:


Page 4 .       

        BellSouth has failed to demonstrate that it offers access to unbundled network
        elements "in a manner that allows requesting carriers to combine such elements in
        order to provide . . . telecommunications service," as required by the 1996 Act, 47
        U.S.C. 251(c)(3).

 

        BellSouth has failed to demonstrate its ability to provide adequate,
        nondiscriminatory access to the operations support systems that will be critical to
        competitors' ability to obtain and use unbundled elements and resold services. It
        has failed to measure and report all of the indicators of wholesale performance
        that are needed to demonstrate that it is currently providing adequate access and
        interconnection and to ensure that acceptable levels of performance will continue
        after section 271 authority is granted.

 

        Although the Louisiana PSC has adopted an appropriate pricing methodology,
        BellSouth's prices do not always reflect the essential principles of that
        methodology, failing, for example, to provide for any transition to geographically
        deaveraged prices for unbundled network elements that would permit efficient
        competitors to enter the market and compete effectively.

 

   We discuss each of these deficiencies below, after addressing the threshold question of
BellSouth's eligibility to apply under either Track A or Track B.

I.  BellSouth Can Satisfy Section 271(c)(1) If the Commission Concludes That PCS
   Providers Are "Competing Providers of Telephone Exchange Service" Within the
   Meaning of Section 271(c)(1)(A)

 

   Section 271(c)(1) of the 1996 Act requires the BOC seeking in-region, interLATA
authority to meet the requirements of either subparagraph (A) ("Track A") or subparagraph (B)
("Track B"). BellSouth contends that this interLATA entry application satisfies Track A, which
requires that the BOC be providing access and interconnection to its network for "one or more
unaffiliated competing providers of telephone exchange service . . . to residential and business
subscribers" offering service exclusively or predominantly over their own facilities. 47 U.S.C.
271(c)(1)(A). To support this claim, BellSouth points to its interconnection agreements with


Page 5      

several Personal Communications Service ("PCS") providers in Louisiana -- PrimeCo, Sprint
Spectrum, and MereTel. 3

   In order to accept BellSouth's argument that it has satisfied Track A, the Commission
would have to find that these PCS providers are "competing providers of telephone exchange
service" within the meaning of section 271(c)(1)(A). 4 Although we examine, from an antitrust
perspective, the factual record concerning the manner and extent to which these PCS providers
could be said to be "competing" with BellSouth, we defer to the Commission's expert judgment
in interpreting its own statute on the legal question of whether this is the correct standard for
determining who is a "competing" provider of telephone exchange service.

   The 1996 Act specifically provides that cellular services "shall not be considered to be
telephone exchange services" for purposes of Track A, 47 U.S.C. 271(c)(1)(A), but it does not
specifically address the status of PCS under Track A. While the Commission has not yet


Page 6      

determined the effect of this "cellular exclusion" on the status of PCS providers under Track A,
this exclusion lends support to the claim that PCS should be considered "competing telephone
exchange service" under Track A, 5 following the statutory construction principle of "expressio
unius est exclusio alterius." 6

   The Commission has determined that Track A's "competing" requirement can be satisfied
by providers that offer an "actual commercial alternative" to the BOC's telephone exchange
service, 7 but has not yet addressed whether the statutory requirements of Track A require an
assessment of the technical and economic substitutability between competitors' and a BOC's
services, and, if so, the degree of substitutability that is needed to establish that a provider is
"competing." BellSouth argues that any commercially available provider of telephone exchange
services can satisfy the Track A facilities-based competitor requirement, even if its services are


Page 7      

only substitutable for BellSouth's to a relatively marginal degree. Specifically, BellSouth asserts
that Track A's concept of "competing" requires only that a facilities based provider " actually be
in the market' and compete for customers in a geographic locale served by the BOC" 8 and that
"the price, features, and scope' of a competitor's service need not be comparable to those of the
BOC's service." 9 In the alternative, BellSouth argues that the PCS offerings in Louisiana would
satisfy a Track A requirement of "economic comparability" to its own wireline service because
at least some number of lower-use customers would switch from traditional wireline service to
the available PCS offerings. 10 .   The House Commerce Committee explained that it did "not
intend for cellular to qualify [under the precursor of Track A], since the Commission has not
determined that cellular is a substitute for local telephone service." H. Rep. No. 104-204, at 77.
11


   As the interpretation of section 271(c)(1)(A) falls within the Commission's discretion
under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), we
respectfully defer to the Commission's judgment on this question. The Commission is entitled to
adopt any reasonable construction of this term in interpreting the Track A requirements for


Page 8      

section 271 applications. To assist the Commission's decision, however, we offer our
assessment that PCS and wireline service are not currently close substitutes in Louisiana from an
antitrust perspective, but, given the issues of statutory construction presented here, take no
position on the merits of whether an antitrust-like substitutability analysis is the most reasonable
way to interpret "competing" as used in section 271(c)(1)(A).

   From an economic perspective, the substitutability of products (or services) can be
assessed on a wide array of evidence, including analyses of the technical characteristics of
products and their uses; the manner in which products are marketed; the relative prices of the
products; and analyses of the frequency and circumstances under which customers switch from
one product to another. 12 As the evidence in the record makes clear, PCS is substantially more
expensive than wireline service for the great majority of consumers. 13 In addition, PCS services
are priced differently; PCS subscribers pay usage charges for outgoing calls (whereas wireline
local services are often flat rated), and for in-coming calls (which are usually free with wireline
service). In lieu of these basic economic considerations, we concur with the Commission's


Page 9 .       

decision to refrain from treating PCS as a substitute -- at least in the antitrust sense -- for wireline
service. 14

   From a functional perspective, however, PCS is, as the Commission has previously
determined, "comparable" to wireline telephone exchange service. 15 In addition, it is likely that
there is a limited degree of substitution between PCS and wireline service among a small
proportion of customers. The extent to which these considerations are relevant to and balanced
in interpreting the Track A facilities-based competitor requirement are matters that we leave to
the Commission.

 

II.   BellSouth Has Failed to Demonstrate That It Is Offering Access and
   Interconnection That Satisfy the Checklist Requirements

 

   Even if the Commission concludes that BellSouth satisfies the Track A facilities based
competitor requirement, it should still deny this application. BellSouth has not demonstrated that
it is offering access and interconnection that satisfy critical requirements of the competitive
checklist or that it has fully and irreversibly opened Louisiana's markets to competition.


Page 10 .       

   Under Track A, an applicant is required to show that each checklist item is available both
as a legal matter and as a practical matter. A mere paper promise to provide a checklist item, or
an invitation to negotiate, would not be a sufficient basis for the Commission to conclude that a
BOC "is providing" all checklist items. Nor would such paper promises constitute an
appropriate basis for the Department to conclude that the market had been fully opened to
competition.

   A.   BellSouth Has Not Demonstrated That It Is Providing Access to Network
        Elements in a Manner That Allows Requesting Carriers to Combine Them

 

   Section 251(c)(3) requires incumbent LECs to provide unbundled network elements "in a
manner that allows requesting carriers to combine such elements in order to provide ...
telecommunications service." BellSouth has failed to show that it is offering or providing access
to unbundled elements in accordance with this requirement. 16 As we explained in our filing on
BellSouth's application in South Carolina, interconnection agreements and an SGAT that fail to
state adequately the terms and conditions under which a BOC will provide unbundled elements


Page 11      

so that they may be combined do not satisfy section 251(c)(3). 17 In light of the substantial
competitive implications of this issue, we believe that a BOC should be required to (1) clearly
articulate the manner in which it proposes to offer UNEs so that they may be combined, (2)
demonstrate that its proposed method is reasonable and non-discriminatory; and (3) establish that
it has the practical ability to process orders and provision unbundled elements that are to be
combined by CLECs. 18 In this application, BellSouth again fails to satisfy these requirements.

   Given the recent litigation relating to the requirement to provide UNEs in a manner that
enables competitors to combine them, the Louisiana Public Service Commission ("LPSC") has
yet to make any specific findings that BellSouth is providing unbundled network elements
("UNEs") in a manner that allows requesting carriers to combine them to provide


Page 12      

telecommunications services. 19 In its original SGAT and in its interconnection negotiations,
prior to the decision in Iowa Utilities Board v. FCC, 120 F.3d 753 (8th Cir. 1997) ("Iowa
Utilities Board
"), BellSouth refused to provide UNEs at cost based prices or to allow them to be
used to provide exchange access if the requesting carrier intended to combine them to provide an
end user service that competed with a BellSouth service. Both in its initial decision, as well as
its decision on rehearing (that vacated section 51.315(b) of the Commission's rules), Iowa
Utilities Board v. FCC
, No. 96-3321, Order On Petitions For Rehearing, 1997 WL 658718, at *2
(8th Cir. Oct. 14, 1997), the Eighth Circuit made clear that entrants were entitled to purchase
UNEs and use them in combination to provide service. In fact, the Eighth Circuit justified its
ruling that the incumbents need not combine UNEs for competitors on the ground that "the fact
that the incumbent LECs object to this rule [on combining elements for CLECs] indicates to us
that they would rather allow entrants access to their networks than have to rebundle the
unbundled elements for them." Iowa Utilities Board, 120 F.3d at 813.

   BellSouth did modify its Louisiana SGAT in light of this decision -- to include a
provision stating that BellSouth must allow requesting carriers to gain access to network
elements in order to combine them 20 -- but it has yet to develop specific proposals as to how this


Page 13      

might be accomplished. Accordingly, interested parties have not had an opportunity to comment
on any such proposals and the LPSC made no findings concerning any such specific proposal. 21
Similarly, the LPSC has not considered the soundness of what, if any, charges BellSouth intends
to collect from CLECs as part of making UNEs available so that they may be combined.

   After the Eighth Circuit ruled, the LPSC directed BellSouth to add the following
provision to its SGAT:
   Combining Network Elements. A requesting carrier is entitled to gain access to all of the
   unbundled elements that when combined by the requesting carrier are sufficient to enable
   the requesting carrier to provide telecommunication service. Requesting carriers will
   combine the unbundled network elements themselves. 22

 


Page 14      

In essence, this provision suffers from a similar lack of specificity to the provision that we found
unsatisfactory in our South Carolina filing. 23 Accordingly, the Department finds BellSouth's
Louisiana SGAT provision on combining UNEs to be legally insufficient as well. 24

   BellSouth states that it is open to negotiating at least some of the issues concerning the
combining of UNEs. 25 This is insufficient for a basic reason: outlining an undeveloped plan for
enabling competitors to combine elements and offering to negotiate terms and conditions on a
case-by-case basis do not commit BellSouth to any procedure -- let alone one that would be
sufficient to satisfy section 251(c)(3) and the checklist standard.

   While there is much that is unclear concerning the manner in which BellSouth proposes
to provide unbundled elements, it does appear clear that BellSouth believes it may require
CLECs to lease collocation space and deploy their own equipment for the purpose of combining
unbundled loops, local switching, and other unbundled elements. At present, BellSouth has


Page 15      

suggested that it may be willing to discuss other approaches, but has not made any binding
commitment to enable a CLEC to combine UNEs in any other fashion. Thus, on the present
record, given BellSouth's insistence on physical collocation -- or an unspecified solution to be
devised later -- we cannot conclude that BellSouth is providing "just, reasonable, and
nondiscriminatory" access to unbundled elements, as required by the checklist and section
251(c)(3).

   CLECs have provided substantial evidence in this proceeding indicating that a collocation
requirement would dramatically and unnecessarily increase the obstacles to combining elements,
would decrease the quality of the service that new entrants are able to provide compared to the
incumbent (increasing the risk of service outages), and would severely limit the number of
customers that new entrants would be able to serve for the foreseeable future. Given the lack of
specificity in the SGAT and the absence of any consideration by the LPSC of these issues, we are
not in a position to assess these concerns. We do note that, given the presence of alternative
approaches for permitting the recombination of network elements, two of which are outlined in
an affidavit submitted by AT&T, 26 any determination of which approaches are reasonable and
non-discriminatory requires an assessment of the available alternatives. Neither BellSouth, nor
the LPSC, has undertaken a serious examination of this question. Rather, BellSouth has merely
asserted, but not demonstrated, that a requirement of collocation arrangements should be


Page 16 .       

considered reasonable and non-discriminatory. In light of the cumbersomeness of this approach,
the threat of service outages and the competitive disadvantages that such a requirement could
impose on CLECs, we cannot conclude -- at least on the present record -- that BellSouth's
offering of collocation satisfies its obligation under section 251(c)(3).

   In order to show that it is "providing" unbundled elements, a BOC must also demonstrate
that it has the practical ability to provide network elements in a manner that permits them to be
combined. The BOCs' current networks were not designed to provide unbundled elements to
others and it should not be assumed that they necessarily possess the capabilities to do so. To
date, there has been no actual experience with the provision of network elements by BellSouth to
CLECs attempting to combine them and the limited testing thus far does not appear to have
tested the particular capabilities at issue here. In the absence of actual provisioning or
satisfactory evidence of testing, BellSouth has not demonstrated that it has the practical ability to
provide unbundled elements in a manner that will permit CLECs to combine them to provide
telecommunications service.

   The resolution of the issues relating the combining of elements will be very important to
promoting efficient competitive entry. In certain cases, the most economically efficient means
for CLECs to serve a large segment of customers in the foreseeable future may be through the
use of combinations of unbundled elements, whether a CLEC uses only combinations of
elements purchased from incumbent LECs, or uses such elements in conjunction with network
elements of its own. If appropriate means can be found to ensure that elements are provided in a


Page 17      

manner that allows CLECs to combine them without unnecessary obstacles and overly
cumbersome procedures, alternative providers of local services may be able to serve many
consumers using unbundled elements. Conversely, if unbundled elements are provided in a
manner that requires CLECs to incur large costs to combine them, many customers -- especially
residential ones -- may lack a facilities-based alternative to the BOC for a considerably longer
period of time.

   B.  BellSouth's Wholesale Support Processes Are Deficient
 

   Efficient and effective wholesale support processes the manual and electronic processes,
including access to OSS functions, that provide competing carriers with meaningful access to
resale services, unbundled elements, and other items required by section 251 and the checklist of
section 271 are critical to opening local markets to meaningful competition. As we made clear
in our South Carolina evaluation and reaffirm here, BellSouth has not yet demonstrated that its
wholesale support processes are sufficient to meet the checklist and to ensure that its local
markets are fully and irreversibly open to competition. 27

   The Department's analysis of wholesale support processes flows, not simply from
statutory requirements, 28 but most fundamentally from our recognition that these processes are
critical to facilitating competition. Inadequate processes will prevent competitors from providing
the level of quality and timeliness that customers rightly expect from telecommunications


Page 18      

providers, and faced with such shortcomings, customers will hold the competing carrier not the
delinquent incumbent responsible for the failure. 29 Because of this risk, competitors are unlikely
to undertake entry on a significant scale when incumbents are offering only a paper commitment
to provide the necessary support processes at some future point rather than adequate and reliable
support processes. Accordingly, to have meaningful competition and "to ensure that a new
entrant's decision to enter the local exchange market in a particular state is based on the new
entrant's business considerations, rather than the availability or unavailability of particular OSS
functions," Michigan Order 133, it is essential that the necessary wholesale support processes
be in place, available on a non-discriminatory basis, and scalable to meet reasonably foreseeable
future demand.

   BellSouth places great weight upon the findings of the LPSC that its OSS satisfy the
checklist. We find the LPSC's determination to be unpersuasive for several reasons. First, the
LPSC's determination was not based upon the Commission's approach for assessing checklist
compliance. 30 Second, the LPSC did not articulate the analysis it performed in assessing OSS


Page 19      

compliance, so that it is difficult to ascertain the basis for its conclusion on OSS or its reasons for
rejecting the recommended decision of the Chief Administrative Law Judge (ALJ) that did
discuss OSS issues at length and found significant deficiencies. 31 Third, it appears that the
LPSC's recommendation was premised, at least in large part, on a technical demonstration held
on August 13 32 as opposed to a more thorough assessment of performance parity and operational
readiness through internal testing evidence, carrier-to-carrier testing, and performance indicators
reflective of actual use. Finally, BellSouth's OSS are operated on a regional, rather than a state-
by-state, basis, and other state commissions in BellSouth's region have concluded that the same
systems approved by the LPSC were insufficient. 33


Page 20 .       

   Putting aside BellSouth's legal arguments and efforts to explain away the concerns
articulated in the Department's South Carolina filing, it remains clear that BellSouth has failed to
satisfy the Department's three essential requirements for an acceptable wholesale support system,
as we made clear in our South Carolina Evaluation and reaffirm here. 34 First, BellSouth has not
instituted performance measures that will enable it to demonstrate -- through objective criteria --
that it can provide wholesale performance at parity with its own retail performance where such a
comparison can be made, and a meaningful opportunity to compete, where no retail counterpart
is available. As we have stressed, proper performance measurement is an essential aspect of
providing effective support systems, and although BellSouth has taken important steps in this
regard, it has yet to institute the necessary range of measures to demonstrate that it has provided
satisfactory support processes. 35 Second, as explained in our South Carolina filing, BellSouth
has failed to implement support systems that provide CLECs with access to the basic
functionalities at parity with its own systems
. BellSouth has attempted to explain away a number
of the Department's concerns, but, in the short period of time since its initial filing, it has failed
to make the changes necessary to provide such access. 36 Finally, the Department remains


Page 21 . .       

unconvinced that the important BellSouth systems have been "stress tested" to establish their
operational readiness -- i.e., that the systems can be relied on when used at foreseeable levels of demand.

III.  The Louisiana Market Is Not Fully and Irreversibly Open to Competition

   The 1996 Act requires the Commission to consult with the Attorney General on all
applications under section 271, and authorizes the Attorney General to provide an evaluation of
such applications "using any standard the Attorney General considers appropriate." 37 The 1996
Act does not limit the Department's evaluation to any of the specific findings that the
Commission is required to make, under section 271(d)(3), before approving an application.
Indeed, it does not limit the evaluation to those findings, collectively, though of course the
evaluation may be relevant to any or all of those findings. In any event, the Commission is
required to accord "substantial weight" to the Department's evaluation. 47 U.S.C.
271(d)(2)(A).

   As we have explained previously, significant commercial entry can give rise to the
inference that a market has been opened to competition. 38 At this time, however, BellSouth faces
no significant competition in local exchange services in Louisiana. 39 Thus, despite the apparent
interest in entering Louisiana by a significant number of competitors, there is no reason to


Page 22      

presume that the market is fully and irreversibly open to competition. Therefore, we must
examine competitive conditions more carefully to see whether any significant barriers continue to
impede the growth of competition in Louisiana.

   A.  BellSouth Has Not Demonstrated That All of Its Current or Future Prices
        for Unbundled Elements and Resale of Certain Retail Services Will Permit
        Efficient Entry or Effective Competition

 

        1.  Pricing of Unbundled Elements
 

   Competition through the use of unbundled network elements will be seriously
constrained, and may even be impossible, if those elements are not available at appropriate
prices. In evaluating pricing arrangements as part of its competitive assessment, the Department
will ask whether a BOC has demonstrated that its current prices are, and future prices will be,
supported by a reasoned application of a procompetitive pricing methodology.

   In our South Carolina filing, we explained that a procompetitive pricing methodology is a
necessary precondition to a fully and irreversibly opened local market. 40 Our evaluation of a
state's wholesale pricing structure does not require any particular methodology, but rather, insists
on a reasoned application of a pro-competitive one. We expect that in most cases, a BOC will be
able to demonstrate this by relying on a reasoned pricing decision by a state commission.
However, if a state commission has not explained its critical decisions, or has explained them in
terms that are inconsistent with procompetitive pricing principles, the Department will require
further evidence that prices are consistent with its open-market standard.


Page 23      

   In Louisiana, BellSouth's pricing for unbundled elements is in most respects consistent
with the Department's focus on pro-competitive pricing principles. Significantly, BellSouth's
permanent prices for interconnection, unbundled elements and transport and termination, recently
approved by the LPSC, were developed from a study by the LPSC's staff consultant according to
the TSLRIC/LRIC ratemaking requirements that the LPSC adopted after the
Telecommunications Act was passed, as well as the TSLRIC principles of the Michigan PSC. 41
The Department is satisfied that this methodology embodies the basic concepts of forward-
looking cost-based pricing, and is consistent with the Department's competitive standard.

   Despite the pro-competitive methodology adopted by the LPSC, the lack of any plan for a
geographic deaveraging of local loop prices over time or any adequate showing of cost-based
prices for collocation preclude us from determining that the pricing structure in Louisiana will
facilitate efficient and effective competitive entry. In another area -- the pricing of vertical
features associated with unbundled switching -- we are not satisfied on the current record that
BellSouth's pricing is consistent with our open-market standard, but we do not preclude the


Page 24      

possibility that BellSouth might be able to justify its pricing under that standard with additional
evidence.
   Geographic Deaveraging. As we noted in our South Carolina filing, we would expect the
cost of unbundled network elements -- particularly, local loops -- to vary across different
geographic areas within the state, and thus, would expect states to adopt some mechanism for
geographically deaveraging prices, now or in the future. 42 The LPSC, however, has not offered
any justification for refusing to adopt geographically deaveraged prices. Various potential local
competitors advocated geographic deaveraging of unbundled elements, 43 while both BellSouth
and the LPSC's staff consultant proposed averaged statewide rates. 44 Because the LPSC's ALJ
concluded that geographic deaveraging was necessary for an accurate cost determination, she
recommended that the LPSC reject the use of statewide averaged rates and adopt instead


Page 25      

geographic deaveraging based on broad "density" zones, proposing that the LPSC reserve a final
decision on an appropriate method of geographic deaveraging while continuing to use statewide
averaged rates on an interim basis. 45 The LPSC failed to adopt any phased-in program of
geographic deaveraging -- without any analysis or explanation -- in favor of a permanent
statewide averaged UNE rate structure. 46

   The lack of any plan for geographic deaveraging, particularly in loop prices, will have a
significant effect on local entry in Louisiana using unbundled elements, and could affect the
viability of such competition for some types of customers. Experience from all other states that
have established deaveraged prices, as well as from general nationwide studies, indicates that
there are considerable variations in loop costs between urban and rural areas, and there is
certainly no evidence in this record that would suggest otherwise for Louisiana. 47 BellSouth has
not argued that there are no differences in loop costs across geographic areas, but has defended


Page 26      

the lack of deaveraging on the ground that deaveraging would increase the incentives of
competitors to focus their offerings on more densely populated areas. 48

   As the 1996 Act makes quite clear, there must be a transition to an efficient, sustainable,
and equitable competitive environment, whereby unbundled element prices will eventually be
geographically deaveraged to reflect differences in costs, and subsidies to support universal
service will be provided explicitly and in a competitively-neutral manner. To be sure, this
transition will requires the reform of universal service support, as called for by section 254(f) of
the 1996 Act, to replace the implicit subsidization in present retail rates for local service and to
permit appropriate adjustments to a state's rate structure. 49 Thus, while we do not believe that
geographic deaveraging must necessarily take place immediately, before section 271 authority
can be granted, it must at least be clear that it will be accomplished over some transition period.
However, when there has been no measure of geographic deaveraging of loop prices, and there is
no reasonable transition plan to implement such deaveraging in the future, we cannot conclude
that a market is or will be open to efficient competition using unbundled elements.
   Collocation. BellSouth offers no prices at all in Louisiana for one of the significant
components of physical collocation -- space preparation -- leaving the determination of such


Page 27      

prices to negotiation on a case-by-case basis. For other components, such as space construction,
BellSouth also intends to impose charges that have not been adequately demonstrated to be cost-
based. 50 Because physical collocation is an important component of providing interconnection
and access to unbundled network elements under section 251(c)(6), the absence of reasonable
and predictable prices for collocation threatens to act as a formidable barrier to entry.

   The LPSC's ALJ concluded that BellSouth's rates for collocation should be subject to the
same forward-looking cost standards applicable to pricing of interconnection and unbundled
network elements generally, and proposed to use a collocation cost model offered by potential
competitors. 51 The LPSC's staff consultant did not reject this model, but simply stated that she
did not have time to analyze it, and therefore used BellSouth's cost assumptions with limited
modifications of the final prices for other across-the-board corrections. 52 The LPSC, however,
did not discuss collocation at all in its final pricing decision, but simply rejected the ALJ's
recommendations and allowed BellSouth's handling of physical collocation space preparation on
an individual case basis, as well as its proposed construction and other charges, to stand. 53

   Although we understand that there may be instances in which it would be justifiable to
postpone addressing certain issues, as a rule we believe that it is far preferable for a BOC to have


Page 28      

prices and other relevant terms of service in place when it applies, rather than to defer the
establishment of such terms for future negotiations following its interLATA entry, when its
incentives to delay local competitive entry would be heightened. On the current record,
BellSouth has not shown that it could not provide greater specificity in advance as to how it will
charge for physical collocation space. Because its failure to commit itself to certain pricing
principles raises significant competitive concerns -- i.e., raising the possibility of unreasonable
prices and drawn out negotiations that have the effect of precluding competitive entry -- we
cannot conclude that the pricing structure for collocation will permit efficient entry so as to fully
and irreversibly open the local market. 54
   Vertical Switching Features. The issue of pricing for vertical switching features received
considerable attention from both the consultant and the ALJ. However, BellSouth's study on
this issue was submitted at a late stage in the state pricing docket, as BellSouth had initially
resisted providing vertical features as unbundled elements. The consultant rejected some of
BellSouth's cost assumptions, but still priced vertical switching features as a separate element in
addition to the switch port charge of $2.20, recommending a charge of $8.28 for all vertical
features that was approved by the LPSC. 55 Our concern with the pricing of vertical services does
not go merely to whether a charge for vertical features should be imposed separately or bundled
with the switch port charge, but also to the costs associated with purchasing them. The ALJ


Page 29 .       

proposed not to adopt any permanent rate for vertical switching features, but to conduct further
proceedings on this issue, in light of the limited opportunity the consultant had to analyze
BellSouth's cost data, while using the consultant's recommended rate on an interim basis. 56 The
LPSC rejected this recommendation without explanation, adopting the recommended rate as
permanent without conducting further proceedings. 57 In light of the ALJ's and the LPSC
consultant's suggestions that this issue would have benefited from a greater opportunity for
analysis and discovery, possibly leading to a significantly different recommendation, we question
whether the LPSC's procompetitive pricing principles were applied in a reasoned fashion as to
vertical services. 58


Page 30      

        2.  Pricing of Resold Services at Wholesale

   The 1996 Act requires that all retail services be made available for resale at a wholesale
discount. 47 U.S.C. 251(c)(4). Specifically, it provides that states must set the wholesale
discount based on an "avoided" cost methodology, using "retail rates charged to subscribers" and
"excluding the portion thereof attributable to any marketing, billing, collection and other costs
that will be avoided by the local exchange carrier." 47 U.S.C. 252(d)(3). In assessing whether a
procompetitive pricing structure is in place in a particular state, the Department will assess not
only the pricing of UNEs, but also whether competitors have access to resold services at a
procompetitive, i.e., "avoided cost" discount, and under reasonable terms and conditions.

   In setting BellSouth's general resale discount in Louisiana at 20.72%, the state
commission has commendably explained its methodology and application of the "avoided cost"
concept, identified relevant issues posed by the determination of avoided costs, and shown how it
applied its methodology based on BellSouth's cost data to arrive at the discount. 59 In so doing,
the LPSC relied on a detailed independent analysis by its own staff consultant that distinguished
wholesale from retail functions, reflecting the "opportunity to avoid" cost methodology rather
than whether BellSouth chose to continue to incur retail costs. 60 The Department is satisfied that


Page 31 .       

the process that the LPSC has followed to set this general discount, and the result it has reached,
are consistent with the Department's competitive standard. 61

 

 

 

   B.  BellSouth Has Failed to Institute Performance Measurements Needed to
        Ensure Consistent Wholesale Performance

 

   A conclusion that a market has been "fully and irreversibly opened to competition"
requires both a demonstration that the competitive conditions currently in place will foster
efficient competition, as well as assurances that those conditions will remain in place after a
section 271 application has been granted. In terms of wholesale performance where a BOC's
systems will be critical to enabling its competitors to succeed in the marketplace an appropriate
means of "benchmarking" performance is needed. As we have explained previously, we
examine whether a BOC has established (1) performance measures and reporting requirements so
that wholesale performance can be measured; (2) performance standards i.e., commitments


Page 32      

made by the BOC to meet specified levels of performance (preferably backed up by liquidated
damages clauses); and (3) performance benchmarks i.e., a track record of performance. These
steps will permit an assessment of current performance and will enable competitors and
regulators to more effectively address any post-entry "backsliding" from prior performance
through contractual, regulatory, or antitrust remedies.

   As described in our South Carolina Evaluation, at 45-48, BellSouth has failed to
"provide[] sufficient performance measures in its evaluation to make a determination of parity or
adequacy in the provision of resale or UNE products and services to CLECs." Friduss South
Carolina Aff. 78. BellSouth responds that several measurements the Department listed were
"included in the South Carolina filing, yet overlooked." 62 The Department did not overlook that
data. The Department's Evaluation and the Friduss Affidavit make clear that they were focusing
on BellSouth's permanent performance measures, 63 and the Department found and confirmed in
discussions with BellSouth that BellSouth had not included these measurements as part of its
permanent measurements. As the Department has repeatedly stated, one important purpose of
performance measurements is to detect backsliding and thus facilitate meaningful post-entry
oversight that ensures that the market opening is irreversible. Data such as BellSouth provided


Page 33 .       

are important for evaluating BellSouth's support processes and determining whether they operate
in a nondiscriminatory manner at the present time, but that present data cannot detect backsliding
in the future. Future data is, of course, required for that purpose, and this necessitates an ongoing
commitment to provide these performance measures.

   In its current application, BellSouth has added some permanent performance measures,
but major deficiencies remain. 64 Given BellSouth's lack of performance measures in a number of
crucial areas, we still are unable to determine whether BellSouth has established enforceable
performance standards for these areas or a track record, or benchmark, of wholesale performance.

   As is true with our analysis of wholesale support generally, our insistence on performance
benchmarks does not require any particular level of use in Louisiana. Appropriate benchmarks
may be established through commercial performance elsewhere in the BellSouth region. In the
event that a BOC is not able to set a benchmark through actual use though we doubt that any
region will not have some actual competitive entry the Department would consider other means
of ensuring adequate performance, including enforceable performance standards and other means
of demonstrating wholesale capability, i.e., carrier-to-carrier testing, independent auditing, or


Page 34      

internal testing. In this case, however, BellSouth has not yet instituted the necessary performance
measures, adopted enforceable performance standards, or demonstrated a satisfactory
performance benchmark (through actual use or otherwise). Thus, given our inability to conclude
that the necessary protections against backsliding are in place, we cannot conclude that the
market has been fully and irreversibly opened to competition.

 

   C.  BellSouth's "Public Interest" Arguments Do Not Justify Approval of This
        Application

 

   BellSouth erroneously contends, as it did in South Carolina, that the benefits of allowing
its entry now into the interLATA market in Louisiana warrant approval of this application under
the "public interest" standard. BellSouth and its economic experts significantly overvalue the
benefits of the BOC's long distance entry now, and virtually ignore the benefits to be gained
from opening BellSouth's local markets, as explained in the Supplemental Affidavit of Marius
Schwartz. 65 Primarily, BellSouth and its experts reiterate here the mistaken or unsupported
claims they made in South Carolina and that Prof. Schwartz has already refuted. To the extent
they have offered any additional arguments in response to Prof. Schwartz, they have failed to
present any credible evidence that would affect the validity of his conclusions. Indeed, only one
of BellSouth's economic experts, Prof. Hausman, has even attempted to respond to Prof.
Schwartz's Supplemental Affidavit in any detail. 66 His criticisms, which are addressed in detail


Page 35      

in Appendix A to this Evaluation, are mistaken on a variety of grounds or simply unclear, and for
all of the reasons discussed in Appendix A, the Commission should reject Prof. Hausman's
arguments. In short, the Department adheres to its position that the "fully and irreversibly
opened to competition" standard, as explained by Prof. Schwartz, continues to represent the best
reconciliation of the competing benefits and risks associated with local and long distance markets
in the section 271 entry process.

   As explained in our South Carolina filing 67 and in the Schwartz Supplemental Affidavit,
the Department's analysis and that of Prof. Schwartz, in contrast to that of Prof. Hausman and
BellSouth, give full consideration to competitive effects in both the interLATA and the local
markets. Accordingly, for the reasons explained in Prof. Schwartz's supplemental affidavit, the
Department's entry standard, far from delaying competition, promotes it, more than would
dependence on post-interLATA entry enforcement to compel the BOCs to open their local
markets. 68 In short, our view is that as soon as, but not before, the preconditions of the 1996 Act
are met and a BOC is willing and able to provide -- at appropriate prices -- what competitors
require for entry at various scales of operation, using interconnected separate facilities,
unbundled elements, and resale, section 271 authority should be granted. Because BellSouth has
not made this necessary showing, it would not be in the public interest to grant its section 271
application for Louisiana.
.       
IV.  Conclusion

 

   BellSouth has not taken all measures needed to ensure that local markets in Louisiana are
fully and irreversibly open to competition, both because it has not satisfied the requirements of
the competitive checklist as discussed in part II of this Evaluation, and for the additional reasons
discussed in part III of this Evaluation. Therefore, BellSouth's application for in-region
interLATA entry in Louisiana under section 271 of the Telecommunications Act should be
denied.

Respectfully submitted,

December 10, 1997


 

__________/s/__________
Joel I. Klein
Assistant Attorney General         
Antitrust Division

__________/s/__________
Lawrence R. Fullerton
Deputy Assistant Attorney General
Antitrust Division

__________/s/__________
Thomas G. Krattenmaker
Special Counsel for Policy and
      Regulatory Affairs
Antitrust Division

__________/s/__________
Philip J. Weiser
Senior Counsel
Antitrust Division
   __________/s/__________
Donald J. Russell
Chief
Carl Willner
Luin Fitch
Frank G. Lamancusa
Attorneys
Telecommunications Task Force


__________/s/__________
W. Robert Majure
Assistant Chief
Economic Regulatory Section

Antitrust Division
U.S. Department of Justice
1401 H Street, N.W., Suite 8000
Washington, DC 20530
(202) 514-5621

FOOTNOTES

1 Pub. L. No. 104-104, 110 Stat. 56 (1996) (codified as amended in various sections of 47 U.S.C.).

2 This open market standard is explained more fully in In re: Application of SBC Communications, Inc. et al., Pursuant to Section 271 of the Telecommunications Act of 1996 to Provide In-Region, InterLATA Services in the State of Oklahoma, CC Docket No. 97-121, Evaluation of the United States Department of Justice, at vi-vii and 36-51 (May 16, 1997) ("DOJ Oklahoma Evaluation") and in the Affidavit of Marius Schwartz ("Schwartz Aff."), attached to the instant Evaluation as Ex. 1. Other aspects of the Department's criteria for evaluating applications under section 271 are addressed in the DOJ Oklahoma Evaluation and in In re: Application of Ameritech Michigan Pursuant to Section 271 of the Telecommunications Act of 1996 to Provide In-Region, InterLATA Services in the State of Michigan, CC Docket No. 97-137, Evaluation of the United States Department of Justice (June 25, 1997) ("DOJ Michigan Evaluation").

3 BellSouth's application does not assert that any wireline, facilities-based providers are currently serving residential and business customers in Louisiana. Moreover, BellSouth also does not appear to be entitled to proceed under Track B -- at least under the Commission's standard for assessing whether Track B is available -- as it acknowledges that both AMC and KMC are on the verge of becoming facilities-based competitors that provide service to both business and residential consumers. See Affidavit of Gary M. Wright 35, 41 ("Wright Louisiana Aff."), attached to Brief in Support of Application by BellSouth for Provision of In-Region, InterLATA Services in Louisiana, In re: Application by BellSouth Corporation, BellSouth Telecommunications, Inc., and BellSouth Long Distance, Inc., for Provision of In-Region, InterLATA Services in Louisiana, CC Docket No. 97-231 (Nov. 6, 1997) ("BellSouth Louisiana Brief") as App. A, Vol. 6, Tab 16. Thus, BellSouth's ability to satisfy section 271(c)(1) turns solely on whether PCS providers can satisfy Track A.

4 The other prerequisites of Track A are not seriously disputed. It seems clear that these PCS providers are (1) "unaffiliated" with BellSouth, (2) operational, and (3) serve both residential and business subscribers predominantly or exclusively over their own facilities.

5 We also note that the Commission has previously determined that broadband PCS providers "at a minimum . . . provide comparable service' to telephone exchange service" and therefore fall within the definition of "telephone exchange service" provided in 47 U.S.C. 153(47)(B). In re: Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, First Report and Order, 11 FCC Rcd 15,449 1013 (1996) ("Local Competition Order").

6 "The expression of one thing is the exclusion of the other." Black's Law Dictionary, at 521 (5th ed. 1979). See, e.g., Ethyl Corp. v. EPA, 51 F.3d 1053, 1061, 1063 (D.C. Cir. 1995).

7 In re: Application by SBC Communications Inc. Pursuant to Section 271 of the Communications Act of 1934, as amended, to Provide In-Region, InterLATA Services in Oklahoma, Memorandum Opinion and Order, 12 FCC Rcd 8685 14 (1997) ("Oklahoma Order"). As the Commission has explained, this does not require that a new entrant have any specific market share to be a "competitor," though the Commission has noted that there may be some de minimis threshold. In re: Application of Ameritech Michigan Pursuant to Section 271 of the Communications Act of 1934, as amended, to Provide In-Region, InterLATA Services in Michigan, CC Docket No. 97-137, FCC 97-298, Memorandum Opinion and Order 77-78 (rel. Aug. 19, 1997) ("Michigan Order").

8 BellSouth Louisiana Brief at 14.

9 Id. at 15.

10 Id. at 16.

11 Others have argued, however, that Congress did not regard cellular as a substitute for wireline exchange service and thus presumably would not have regarded similar PCS offerings as a substitute either. As the House Commerce Committee explained, it did "not intend for cellular to qualify [under the precursor of Track A], since the Commission has not determined that cellular is a substitute for local telephone service." H. Rep. No. 104-204, at 77.

12 See Horizontal Merger Guidelines, U.S. Department of Justice and the Federal Trade Commission, 4-8 (rev. April 8, 1997) ("Horizontal Merger Guidelines").

13 See Affidavit of Aniruddha Banerjee on Behalf of BellSouth at 5-7 ("Banerjee Louisiana Aff."), attached to BellSouth Louisiana Brief as App. D, Tab 6; Declaration of Carl Shapiro on Behalf of Sprint at 4-15 ("Shapiro Louisiana Decl."), attached to Petition to Deny of Sprint Communications Company, CC Docket No. 97-231 (Nov. 6, 1997) as App. E.

14 "[T]he primary obstacle to classifying wireless as a potential substitute for wireline telephony is the per minute charge. ... The services offered by the few operating broadband PCS carriers are currently priced closer to cellular service than to comparable wireline services and therefore it is too early to state that broadband PCS providers' offerings might be perceived as a wireline substitute." Annual Report and Analysis of Competitive Market Conditions with Respect to Commercial Mobile Services, Second Report, Federal Communications Commission, at 54-55 (rel. March 25, 1997).

15 See n. 5 supra.

16 47 U.S.C. 271(c)(2)(B)(ii) sets forth the general requirement that the BOC's access and interconnection agreements or statement of terms include "[n]ondiscriminatory access to network elements in accordance with the requirements of sections 251(c)(3) and 252(d)(1)." In addition, the competitive checklist specifically requires the provision of "[l]ocal loop transmission from the central office to the customer's premises, unbundled from local switching or other services" (47 U.S.C. 271(c)(2)(B)(iv)), "[l]ocal transport from the trunk side of a wireline local exchange carrier switch unbundled from switching or other services" (47 U.S.C. 271(c)(2)(B)(v)), "[l]ocal switching unbundled from transport, local loop transmission, or other services" (47 U.S.C. 271(c)(2)(B)(vi)), and "[n]ondiscriminatory access to databases and associated signaling necessary for call routing and completion" (47 U.S.C. 271(c)(2)(B)(x)).

17 In re: Application by BellSouth Corporation, BellSouth Telecommunications, Inc., and BellSouth Long Distance, Inc., for Provision of In-Region, InterLATA Services in South Carolina, CC Docket No. 97-208, Evaluation of the United States Department of Justice, at 16-25 (Nov. 4, 1997) ("DOJ South Carolina Evaluation"), attached to this Evaluation as Ex. 5.

18 Providing access to UNEs in a manner that will enable CLECs to combine them will also enable CLECs to use unbundled local switching (ULS), a checklist item required by section 271(c)(2)(B)(vi). See DOJ Michigan Evaluation at 16-21. Partially due to the inability of CLECs to obtain UNEs for use in combination, there has only been minimal experience with ULS in BellSouth's region, and there are serious questions about whether or not BellSouth is "providing" this checklist item. See Florida Public Service Commission, In re: Consideration of BellSouth Telecommunication, Inc.'s Entry into InterLATA Services Pursuant to Section 271 of the Federal Telecommunications Act of 1996, Docket No. 960786-TL, Order No. PSC-97-1459-FOF-TL, Final Order on BellSouth Telecommunication, Inc.'s Petition Filed Pursuant to Section 271(c) of the Telecommunications Act of 1996 and Proposed Agency Action Order on Statement of Generally Available Terms and Conditions, at 108-111 (Nov. 19, 1997) ("Florida PSC Order"), attached to AT&T Comments as App. Vol. IV, Attach. 56 (concluding that BellSouth has not satisfied this checklist obligation).

19 The proceedings involving the LPSC's consideration of issues relating to unbundled network elements are similar in many respects to the proceedings in South Carolina, discussed in DOJ South Carolina Evaluation at 17-19.

20 See Louisiana Public Service Commission, In re: Consideration and Review of BellSouth Telecommunications, Inc.'s Preapplication Compliance with Section 271 of the Telecommunications Act of 1996, Docket No. U-22252, Order U-22252-A, at 16 (rel. Sept. 5, 1997) ("Louisiana PSC Order"), attached to BellSouth Louisiana Brief as App. C-1, Vol. 13, Tab 136.

21 There are, in fact, proceedings pending at the LPSC on this question. On October 29, BellSouth requested that the LPSC amend its regulations to include provisions similar to those contained in the South Carolina SGAT, providing for requesting carriers to obtain such access in collocation arrangements. Comments of BellSouth Telecommunications, Inc. on Eighth Circuit Opinion in Iowa Utilities Board, Docket No. U-20883, at 8-9 (Oct. 29, 1997), attached to this Evaluation as Ex. 6. In contrast, AT&T filed comments requesting that the LPSC adopt requirements that requesting carriers be permitted direct access to unbundled elements and be furnished with the technical information necessary for recombining the ILEC network elements. AT&T's Comments and Proposed Amendments to the LPSC's Regulations for Competition in the Local Telecommunications Market Based on the Iowa Utilities Board Decision, Docket No. U-20883, at 3 (Oct. 29, 1997), attached to this Evaluation as Ex. 7. As of this filing, the LPSC has not yet acted on either of these requests, and, to our knowledge, has not announced whether it will make further determinations on the methods by which BellSouth must allow requesting carriers to gain access to UNEs in order to recombine them.

22 Statement of Generally Available Terms and Conditions for Interconnection, Unbundling and Resale Provided by BellSouth Telecommunications, Inc. in the State of Louisiana as modified by Louisiana Public Service Commission, Order Nos. U-22252-A and U-22022/22093-A, attached to BellSouth Louisiana Brief as App. A, Vol. V, Tab 14.

23 DOJ South Carolina Evaluation at 20-23.

24 As we have explained, a commitment to provide UNEs in accordance with section 251(c)(3) must include: (1) the terms and conditions under which a BOC will permit access to UNEs; (2) the functionalities that a BOC is committed to provide in order to enable CLECs to combine such elements in an effective manner; and (3) the technical specifications that CLECs will need to order UNEs so that they can be recombined. See DOJ South Carolina Evaluation at 13, 16-23.

25 For example, BellSouth, in Varner's affidavit, states that "[a]dditional services desired by CLECs to assist in their combining or operating BellSouth unbundled network elements are available as negotiated," and "[a]dditional software modifications requested by CLECs for new features or services currently not available and additional services desired by CLECs to assist in their combining or operating BellSouth unbundled network elements may be obtained through the [Bona Fide Request] process." Affidavit of Alphonso J. Varner on Behalf of BellSouth 66, 67 ("Varner Louisiana Aff."), attached to BellSouth Louisiana Brief as App. A, Vol. V, Tab 14.

26 Affidavit of Robert V. Falcone and Michael E. Lesher on behalf of AT&T Corp. 97-122 ("Falcone and Lesher Louisiana Aff."), attached to Comments of AT&T Corp. in Opposition to BellSouth's Section 271 Application for Louisiana, CC Docket No. 97-231 (Nov. 25, 1997) as App. Vol. V, Tab E.

27 DOJ South Carolina Evaluation at 25-31; Appendix A to DOJ South Carolina Evaluation ("DOJ South Carolina App. A"), attached to this Evaluation as Ex. 4.

28 Local Competition Order 516-517, 520-525; see also Michigan Order 130-32.

29 Consequently, competing carriers may tend to delay ramping up their operations until they gain a level of confidence in the incumbent's systems.

30 During its open session the day after the Michigan Order was released, just before reaching its decision on the SGAT, the LPSC rejected a motion by Commissioner Field to ask BellSouth for an additional sixty days to review the SGAT to, inter alia, "allow [the LPSC] to analyze fully the implications of the [Michigan Order] for BellSouth's SGAT." Partial Minutes of August 20, 1997, Open Session of the LPSC Held in Baton Rouge, Louisiana, at 2-4 ("LPSC Partial Minutes"), attached to BellSouth Louisiana Brief as App. C-1, Vol. 13, Tab 135. Instead, the LPSC proceeded to immediately approve the SGAT.

31 Recommendation, Docket No. U-22252, at 24-27 (Aug. 14, 1997) ("ALJ Recommendation"), attached to BellSouth Louisiana Brief as App. C-1, Vol. 13, Tab 131. The LPSC staff also recommended against finding compliance on OSS. LPSC Staff 271 Recommendation, Docket No. U-22252, at 3 (Aug. 15, 1997) ("LPSC Staff Recommendation"), attached to BellSouth Louisiana Brief as App. C-1, Vol. 13, Tab 133). After observing that the issue was "hotly contested" and that the LPSC had conducted a technical conference and propounded 115 data requests, the LPSC simply stated: "Following careful consideration and analysis, the Commission concludes that the Operations Support Systems do in fact work and operate to allow potential competitors full non-discriminatory access to the BellSouth system." Louisiana Public Service Commission Order, Docket No. U-22252, Order U-22252-A, at 15 (rel. Sept. 5, 1997).

32 The LPSC comments and the record of the state proceeding suggest that the majority of the commissioners based their decision on this short technical demonstration. See Comments of the Louisiana Public Service Commission, CC Docket No. 97-231, at 2, 28 (Nov. 24, 1997); see also LPSC Partial Minutes at 2, 4-5, 7-8.

33 The Florida Public Service Commission, for example, recently issued an order rejecting BellSouth's SGAT, finding that BellSouth OSS do not meet the statutory requirements and highlighting many concerns similar to those that we identified in our evaluation of BellSouth's South Carolina application. Florida PSC Order.

34 DOJ South Carolina Evaluation at 25-31; BellSouth South Carolina App. A.

35 Affidavit of Michael J. Friduss on Behalf of the U. S. Department of Justice 18-24, 45-73 ("Friduss South Carolina Aff."), attached to this Evaluation as Ex. 3.

36 For example, flow-through continues to be a major problem, with extremely low rates compared to BellSouth's retail performance. See Affidavit of William N. Stacy, Checklist Compliance (Operations Support Systems) Ex. WNS-41, attached to BellSouth Louisiana Brief as App. A, Vol. 4a, Tab 12.

37 47 U.S.C. 271(d)(2)(A).

38 See DOJ Oklahoma Evaluation at 43-44; DOJ Michigan Evaluation at 30.

39 The competitive situation in Louisiana is reviewed in more detail in Appendix B to this Evaluation.

40 DOJ South Carolina Evaluation at 35-40.

41 Louisiana Public Service Commission, In re: Regulations for Competition in the Local Telecommunications Market, Amendments as Adopted 3/19/97 to Sections 901, 1001, and 1101 of the Regulations for Competition in the Local Telecommunications Market General Order Dated March 15, 1996 (as amended 10/16/96), at 901.C & n.1, 1001.E (Mar. 19, 1997), attached to BellSouth Louisiana Brief as App. C, Tab 186, App. "A." The Department understands the language in the LPSC's rules to the effect that "[t]here is no mandate that unbundled elements be provided by the ILEC to TSPs at its TSLRIC or LRIC of providing such elements," id. 1001.E, to permit negotiation of rates on other bases, not as authorization for the LPSC itself to depart from the forward-looking pricing principles that it directed ILECs to use in providing cost studies to the LPSC, which would be used in conducting arbitrations or reviewing SGATs to establish rates under section 252 of the 1996 Act.

42 DOJ South Carolina Evaluation, at 41 n.54.

43 See, e.g., Louisiana Public Service Commission, Docket Nos. U-22022/U-22093, Post Hearing Brief of MCI Telecommunications Corp. at 10 (Sept. 29, 1997), attached to BellSouth Louisiana Brief as App. C-3, Vol. 34, Tab 276; Louisiana Public Service Commission, Docket Nos. U-22022/U-22093, AT&T Communications of the South Central States, Inc.'s Post-Hearing Brief, at 4-5 & n.5 (Sept. 29, 1997), attached to BellSouth Louisiana Brief as App. C-3, Vol. 34, Tab 281.

44 See Louisiana Public Service Commission, Docket Nos. U-22022/U-22093, Hearing Transcript at 3091 (Sept. 24, 1997) ("Dismukes Testimony"), attached to BellSouth Louisiana Brief as App. C-3, Vol. 34, Tab 273 (no analysis by staff consultant of rate deaveraging); Complete Transcript of October 22, 1997 Open Session of the Louisiana Public Service Commission at 85-86 ("Tr. of LPSC Oct. 22, 1997 Open Session"), attached to BellSouth Louisiana Brief as App. D, Tab 2 (LPSC staff opposed to any geographic deaveraging of wholesale rates before geographic deaveraging of retail rates and a universal service fund proceeding).

45 Louisiana Public Service Commission, Docket Nos. U-22093/U-22022, Final Recommendation, at 26, 58 (Oct. 17, 1997) ("Louisiana ALJ Pricing Recommendation"), attached to BellSouth Louisiana Brief as App. C-3, Vol. 34, Tab 284.

46 Louisiana Public Service Commission, Docket Nos. U-22093/U-22022, Order No. U-22022/22093-A, at 4-5 (Oct. 24, 1997) ("Louisiana Final Pricing Order"), attached to BellSouth Louisiana Brief as App. C-3, Vol. 34, Tab 285.

47 According to MCI, the deaveraged loop rate for the most densely populated areas in Louisiana would decrease from $19.35 to $10.12. Comments of MCI Telecommunications Corporation, CC Docket No. 97-231, at 56 (Nov. 25, 1997).

48 Louisiana Public Service Commission, Docket Nos. U-22022/U-22093, Post Hearing Brief of BellSouth Telecommunications, Inc., at 51-52 (Sept. 29, 1997), attached to BellSouth Louisiana Brief as App.C-3, Vol. 34, Tab 274.

49 In discussing a transitional approach for geographic de-averaging, we do not suggest that states need or should wait to establish deaveraged rates for unbundled elements. Indeed, many have done so already.

50 Louisiana Final Pricing Order Attach. A at 6.

51 Louisiana ALJ Pricing Recommendation at 52-55, 64-65.

52 Dismukes Testimony at 3119-3120.

53 Louisiana Final Pricing Order Attach. A at 6.

54 See, e.g., DOJ Oklahoma Evaluation at 31-34.

55 LPSC Final Pricing Order at 4; Dismukes Testimony at 2867-69, 2885-87, 2913-17, 3054-74, 3111-17.

56 Louisiana ALJ Pricing Recommendation at 52, 64.

57 Louisiana Final Pricing Order at 4-5.

58 See Tr. of LPSC Oct. 22, 1997 Open Session at 93-94 (comments of staff consultant Kimberly Dismukes). A number of other states, including ones in the BellSouth region, have rejected the concept of imposing a separate charge for vertical switching features and agreed that the costs of most or all of these features are properly reflected as part of port charges in the range of $2-3, a quarter of BellSouth's total price for a switch port and its vertical features in Louisiana. See, e.g., Georgia Public Service Commission, Transcript of Administrative Session, at 7, 11, 16, 19 (Oct. 21, 1997) (permanent rate of $1.85 for switch port including vertical features); Florida Public Service Commission, In re: Petitions by AT&T, et al., for arbitration of certain terms and conditions of a proposed agreement with BellSouth Telecommunications, Inc. concerning interconnection and resale under the Telecommunications Act of 1996, Docket No. 960833-TP, Order No. PSC-96-1579-FOF-TP, Final Order on Arbitration at 15-16 and Attach. A (Dec. 31, 1996) (cost-based rate of $2.00 for switch port including vertical features); New York Public Service Commission, Case No. 95-C-0657, 94-C-0095, 91 C-1174, Opinion No. 97-2, Opinion and Order Setting Rates for First Group of Network Elements, at Attach. D, Element Rates (Apr. 1, 1997) (including most listed vertical features in port charge of $2.50).

59 Louisiana Public Service Commission, In re: Review and Consideration of BellSouth Telecommunication, Inc.'s Resale Cost Study, Docket No. U-22020, Order, at 9-16 (Nov. 12, 1996), attached to BellSouth Louisiana Brief as App. C-4, Vol. 38, Tab 329.

60 The LPSC's approach to resale pricing, while not denominated as an "avoidable" cost methodology, appears to operate consistently with the Commission's underlying concern that "resellers should not be required to compensate a BOC for the cost of services, such as marketing, that resellers perform." Michigan Order 295.

61 We do point out, however, that there is one area in which BellSouth's resale policies raise questions, restrictions on resale involving Contract Service Arrangements (CSAs), see Louisiana Public Service Commission, Regulations for Competition in the Local Telecommunications Market, 1101.B.2 (as amended Mar. 19, 1997), attached to BellSouth Louisiana Brief as App. C-2, Vol. 22, Tab 186. The Commission has recently stated that restrictions analogous to those in Louisiana violate the Act and the Commission's binding regulations on the scope of resale. AT&T Communications of the South Central States, Inc. v. BellSouth Telecommunications, Inc; the Mississippi Public Service Commission; and the Public Service Commissioners of the State of Mississippi, C.A. No. 3:97CV400WS (S.D. Miss.), Memorandum of the Federal Communications Commission as Amicus Curiae at 13-24 (filed Dec. 4, 1997). In its Local Competition Order, 948, the Commission specifically rejected any exemption from the resale obligation for "contract and other customer-specific pricing arrangements."

62 Reply Affidavit of William N. Stacy 2, attached to Reply Brief in Support of Application by BellSouth for Provision of In-Region, InterLATA Services in South Carolina, In re: Application of BellSouth Corporation, BellSouth Telecommunications, Inc., BellSouth Long Distance, Inc., for Provision of In-Region, InterLATA Services in South Carolina, CC Docket 97-208 (Nov. 14, 1997) ("South Carolina Reply Brief") as App. Tab 8.

63 The Department understands that BellSouth is committing to report only its permanent measurements on a regular, ongoing basis to CLECs and regulatory authorities.

64 For example, BellSouth's list of permanent performance measurements still lacks complete, properly defined measurements for (1) Pre-order System Response Times Five key functions, (2) Total Service Order Cycle Time, (3) Service Order Quality, (4) Speed of Answer Ordering Center, (5) Average Service Provisioning Interval, (6) Percent Service Provisioned Out of Interval, (7) Port Availability , (8) Completed Order Accuracy, (9) Orders Held for Facilities, (10) Billing Accuracy, (11) Billing Completeness, (12) Operator Services Speed of Answer, (13) Directory Assistance Speed of Answer, and (14) 911 Database Update Timeliness and Accuracy. These measures, and their significance, are discussed in the Friduss South Carolina Affidavit.

65 This affidavit is attached to this Evaluation as Ex. 2 ("Schwartz Supp. Aff.").

66 Reply Declaration of Prof. Jerry A. Hausman, attached to BellSouth South Carolina Reply Brief, CC Docket 97-208, as App. Tab 2.

67 DOJ South Carolina Evaluation at 48-50.

68 Schwartz Supp. Aff. 36-59.
 

 

Updated August 19, 2015