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

In the Applications of             )
     )
NYNEX Corporation             )
  Transferor,                      )
                              )
      - and -                  )File No. NSD-L-96-10 
     )
Bell Atlantic Corporation               )
  Transferee,                      )
     )
For Consent to Transfer Control         )
of NYNEX Corporation and Its       )
Subsidiaries                       )

                   MEMORANDUM OPINION AND ORDER
                                 
     Adopted:  August 14, 1997                             Released:  August 14, 1997

By the Commission:  Commissioners Quello and Chong issuing separate statements.

                        Table of Contents
                                                        Paragraph

I.  Introduction . . . . . . . . . . . . . . . . . . . . . . .  1

II.  Background. . . . . . . . . . . . . . . . . . . . . . .   17
     A.  The Applicants. . . . . . . . . . . . . . . . . . .   17
     B.  The Applications. . . . . . . . . . . . . . . . . .   21
     C.  Petitioners and Commenters. . . . . . . . . . . . . . 25
     D.  Hart-Scott-Rodino Documents . . . . . . . . . . . . . 28

III.  Legal Standards. . . . . . . . . . . . . . . . . . . . . 29

IV.  Analysis of Potential Public Interest Harms . . . . . . . 37
     A.  Background and Summary. . . . . . . . . . . . . . . . 37
     B.  Relevant Markets. . . . . . . . . . . . . . . . . . . 49
     C.  Market Participants . . . . . . . . . . . . . . . . . 58
     D.  Analysis of Competitive Effects . . . . . . . . . . . 95
          1.  Effect of the Merger on Unilateral Conduct 
                by Providers of Mass Market Local Services .  101
          2.  Effect of the Merger on Unilateral Conduct 
          by Providers of Mass Market Bundled Services . . .  114
          3.  Effect of the Merger on Coordinated Interaction 121
          4.  Effect of the Merger on Dynamic Market Performance 125
          5.  Potential Entry and Expansion. . . . . . . . .  128
          6.  Potential Competition Doctrine and 
          Measurement of Market Concentration. . . . . . . .  136
          7.  Conclusion . . . . . . . . . . . . . . . . . .  144
      E.Other Competitive Effects. . . . . . . . . . . . . .  147

V.  Analysis of Potential Public Interest Benefits . . . . .  157
     A.  Efficiencies. . . . . . . . . . . . . . . . . . . .  158
          1.  Applicants' Efficiency Claims. . . . . . . . .  160
          2.   Discussion. . . . . . . . . . . . . . . . . .  168
     B.  Conditions. . . . . . . . . . . . . . . . . . . . .  177
          1.  General. . . . . . . . . . . . . . . . . . . .  177
          2.  Conditions To Be Imposed . . . . . . . . . . .  180
          3.  Benefits of the Conditions . . . . . . . . . .  192
          4.  Other Proposed Conditions. . . . . . . . . . .  201

VI.  Miscellaneous . . . . . . . . . . . . . . . . . . . . .  233
     A.  Procedural Matters. . . . . . . . . . . . . . . . .  233
     B.  Basic Qualifications. . . . . . . . . . . . . . . .  235

VII.  Ordering Clauses . . . . . . . . . . . . . . . . . . . .246

Appendix A:  List of Commenters and Filings

Appendix B:  List of Companies Filing Letters in Support of the Application

Appendix C:  Conditions

Appendix D:  Performance Monitoring Reports

Appendix E:  (REDACTED) Summary of Confidential Information and Conclusions  

                         I.  INTRODUCTION

     1.  In this order, the Commission considers the applications filed by NYNEX Corporation
("NYNEX") and Bell Atlantic Corporation ("Bell Atlantic") pursuant to Sections 214(a) and
310(d) of the Communications Act of 1934, as amended ("the Communications Act"), for
approval of the transfer of control of certain licenses and authorizations from NYNEX to Bell
Atlantic in connection with the proposed merger of the two companies.  Under the terms of the
merger agreement, NYNEX would become a wholly-owned subsidiary of Bell Atlantic.

     2.  In accordance with the terms of Sections 214(a) and 310(d), before we can approve the
transfers of licenses and other authorizations underlying the merger, we must be persuaded that
the transaction is in the public interest, convenience and necessity.  Applicants bear the burden of
demonstrating that the proposed transaction is in the public interest.  The public interest standard
is a broad, flexible standard, encompassing the "broad aims of the Communications Act."  These
"broad aims" include, among other things, the implementation of Congress' "pro-competitive, de-
regulatory national policy framework" for telecommunications, "preserving and advancing"
universal service, and "accelerat[ing] rapidly private sector deployment of advanced
telecommunications and information technologies and services."  Our examination of a
proposed merger under the public interest standard includes consideration of the competition
policies underlying the Sherman and Clayton Acts -- the Commission is separately authorized to
enforce Section 7 of the Clayton Act in the case of mergers of common carriers -- but the public
interest standard necessarily subsumes and extends beyond the traditional parameters of review
under the antitrust laws.  In order to find that a merger is in the public interest, we must, for
example, be convinced that it will enhance competition.  A merger will be pro-competitive if the
harms to competition -- i.e., enhancing market power, slowing the decline of market power, or
impairing this Commission's ability properly to establish and enforce those rules necessary to
establish and maintain the competition that will be a prerequisite to deregulation -- are
outweighed by benefits that enhance competition.  If applicants cannot carry this burden, the
applications must be denied.

     3.  In demonstrating that the merger will enhance competition, applicants carry the
burden of showing that the proposed merger would not eliminate potentially significant sources
of the competition that the Communications Act, particularly as amended by the
Telecommunications Act of 1996, sought to create.   When facing a changing regulatory
environment that reduces barriers to entry, firms that would otherwise compete directly may, as
one possible strategic response, seek to cooperate through merger.  As courts have previously
recognized, in evaluating whether applicants have demonstrated that the transaction is in the
public interest, we consider the transaction in light of "the trends and needs of the industry" as a
whole, the factors that "influenced Congress to make specific provision for the particular
industry," and the complexity and rapidity of change in the industry.  Accordingly, and
consistent with the 1996 Act's focus on competition and deregulation, it is incumbent upon
applicants to prove that, on balance, the merger will enhance and promote, rather than eliminate
or retard, competition.  The competition and deregulation Congress sought to foster extends not
just to traditional local telephone service, but to related interstate access services, to Commercial
Mobile Radio Services ("CMRS"), and to interstate long distance services.

     4.  We must be especially concerned about mergers between incumbent monopoly
providers and possible rivals during this initial period of implementation of the 1996 Act. 
Competition in the local exchange and exchange access marketplace is still in the earliest stages. 
This Commission, through its Local Competition Orders, set forth its initial pro-competition
rules to implement those provisions of the 1996 Act that are designed to open the local
telecommunications marketplace to competition.  Together, these orders addressed a range of
legal, regulatory, operational and economic barriers to entry.  Key portions of these orders
recently were vacated, which created even greater uncertainty as to the pace of development of
competition.  It is particularly difficult to determine at this time exactly how quickly and to what
extent existing barriers to entry will decline.  As further examples of the current uncertainty,
permanent prices for interconnection, unbundled network elements and transport and termination
remain to be set in the vast majority of states, and protracted judicial review of both
interconnection agreements and state permanent pricing decisions is likely to exacerbate this
uncertainty.

     5.  The process of lowering barriers to entry is, as noted, only beginning, not nearing
completion.  We are continuing to identify both the barriers to entry themselves and the best and
swiftest means to address those barriers.  For example, this Commission is currently considering
a petition for rulemaking regarding performance standards and enforcement mechanisms for
operating support systems.  Creating and enforcing the conditions that will permit competition
to develop and flourish is an ongoing task, that requires continuous review and study of market
conditions, the behavior of incumbents and rivals, and the relative capabilities of parties to
safeguard their respective interests by creating private enforcement mechanisms that ensure
compliance and cooperation.  We do not believe that the best approach to promote competition is
to refrain taking any actions to offset incumbent local exchange carriers' ("incumbent LECs")
market power.  Such a course would ensure that incumbent LECs could use the market power
they possess as a result of their historic monopolies to ensure that only minimal competition
develops in local exchange and exchange access telecommunications.  In such a case, a central
purpose of the 1996 Act, the development  of robustly competitive markets that permit broad
deregulation by federal and state authorities, would thereby be frustrated.

     6.  We also recognize that, even were we able immediately to lower the barriers addressed
by the 1996 Act, significant barriers to entry into the local telecommunications marketplace,
including interstate exchange access services, will remain.  Entrants must still   attract capital,
and amass and retain the technical, operational, financial and marketing skills necessary to
operate as a telecommunications provider.  For mass market services, entrants will have to invest
in establishing brand name recognition and, even more important, a mass market reputation for
providing high quality telecommunications services.  These consumer "goodwill" assets take
significant amounts of time and resources to acquire.  An unknown entrant's attempts to build
"goodwill" by providing reliable, high quality service relies heavily on the cooperation of the
incumbent local exchange carrier that is providing wholesale services for resale, interconnection,
unbundled network elements or transport and termination, and can be frustrated by the incumbent
local exchange carrier if that carrier engages in discriminatory conduct affecting service quality,
reliability or timeliness.  For all these reasons, we cannot assume that merely writing the rules
called for by the 1996 Act eliminates concerns about potentially harmful effects of some mergers
on the development of local telecommunications competition.

     7.  In order properly to evaluate proposed mergers in this evolving marketplace, and to
take account of the uncertainties surrounding the pace and extent of the development of
competition, we will evaluate the likely effects of the proposed merger on competition both
during implementation of the 1996 Act and as that implementation alters market structure in the
future.  In defining the relevant product markets, for example, we will examine not just the
markets as they exist today, but as we expect they will exist after a Bell Company receives
authorization to provide in-region interLATA services pursuant to Section 271 of the
Communications Act.  In evaluating the likely effects of the proposed merger, we will also
assume that the most critical provisions of Sections 251 and 252 of the Communications Act
regarding interconnection, unbundled network elements, resale, reciprocal compensation for
transport and termination, collocation, dialing parity and number portability are being
implemented, and that the state has eliminated any prohibitions against entry.  Even though
there is uncertainty as to how quickly such implementation will actually occur, we make these
assumptions in order to attempt to examine the likely effects of the merger on competition that
may be just beginning to develop, or, in some cases, may not yet be permitted to develop.  Given
these assumptions, we will attempt to identify those carriers whose capabilities and incentives
make them most likely to enter and, within that group, those most likely to have a significant
pro-competitive effect on the relevant markets as those markets open.  These most significant
market participants may be either actual existing competitors or "precluded" competitors, i.e.,
those competitors that could not enter prior to the changes contemplated by the 1996 Act and that
are most likely to enter in response to implementation of the 1996 Act.  We will then attempt to
examine the potential effects of the proposed merger on relevant markets, both during and as we
move toward hypothetical full implementation of the 1996 Act.  We will examine particularly
whether the merger will, in the relevant markets, remove significant assets or capabilities that
could otherwise be used to enhance competition and constrain market power.

     8.  With respect to the proposed merger of Bell Atlantic and NYNEX, we conclude that
the proposed merger will eliminate Bell Atlantic as a likely significant independent competitor in
the market to provide local exchange and exchange access services, and bundled local exchange,
exchange access and long distance services, to residential and smaller business customers,
particularly in LATA 132 and the New York metropolitan area (including northern New Jersey),
but not limited to that area.  We conclude that Bell Atlantic did plan to enter LATA 132 and
other NYNEX territories, and that Bell Atlantic should be considered a competitor to NYNEX,
but for the proposed merger.  We base this conclusion on documents showing that, among other
things, Bell Atlantic ceased its planning to enter NYNEX territories during the pendency of
merger discussions, and on our assessment of Bell Atlantic's incentives and capabilities to
compete in the relevant markets.  

     9.  The proposed merger likewise eliminates NYNEX as a possible entrant into Bell
Atlantic territories.  Although the evidence in the record does not indicate that NYNEX engaged
in explicit and documented planning for such entry to the same degree Bell Atlantic
contemplated entry into NYNEX territories, the merger eliminates any prospect of NYNEX
competing with Bell Atlantic in the southern half of the northeast corridor between Virginia and
Maine, and in particular any prospect that NYNEX would have entered northern New Jersey
either on its own initiative or as a competitive response to Bell Atlantic entry into New York.

     10.  We also conclude that Bell Atlantic, as an independent entity, possesses
competitively significant assets and capabilities that otherwise would enable it to compete with
NYNEX.  Bell Atlantic and NYNEX are two of the five likely most significant market
participants that would compete to provide local exchange and exchange access or bundled local
exchange, exchange access and long distance telecommunications services to residential and
small business customers in LATA 132 and the New York metropolitan area.  These five most
significant competitors have, or are likely to speedily gain, the greatest capabilities and
incentives  to compete most effectively and soonest in the relevant market during implementation
of the 1996 Act.  They combine the knowledge and ability to operate a large, mass market-
focused local telephone company, access to substantial financial resources, mass marketing
capabilities and, particularly in LATA 132, brand reputation -- including a history of providing
quality telecommunications services in the residential and smaller business markets.  Although
Bell Atlantic's arguments in support of the application's focus on whether Bell Atlantic would
have entered New York City de novo in competition with NYNEX, the proposed merger in fact
eliminates these significant capabilities from any form of competition with NYNEX, whether de
novo entry, through acquisition of a smaller, existing entrant, or via joint venture.  Indeed, the
record reflects the fact that, prior to the merger, Bell Atlantic had entered into some joint
ventures as a means of offering service not only in New Jersey, but in New York as well.

     11.  Merging a dominant market participant, in this case NYNEX, with a participant
ranked no less than fifth by competitive significance in terms of its impact in the relevant market,
in this case Bell Atlantic, has two predictable effects.  First, such a merger strengthens NYNEX's
market power against competitive erosion by one of the most significant market participants. 
Second, the merger would by its own terms increase the likelihood of coordinated action among
the remaining four most significant market participants to increase prices, reduce quality or
restrict output.  Such effects on market power remain important concerns even in a regulated
market environment.  Our overarching policy goal of developing robust competition, and with
competition enabling broad deregulation requires that market performance be permitted to
improve to the point where competition, rather than regulation, effectively constrains market
power.  Moreover, even while subject to regulation, a firm can exercise market power if, for
example, (1) a price cap fails to lower prices for services to competitive levels, (2) a bundled
product offering, such as combined local and long distance service, is only partially price
regulated, or (3) quality is difficult to specify and monitor.  The unilateral and coordinated
effects of a proposed merger are mitigated by competitive forces only to the extent that barriers
to entry or expansion are sufficiently low that actual or other possible competitors can and would
expand or enter with sufficient strength, likelihood and timeliness to render unprofitable an
attempted exercise of market power resulting from the merger.

     12.  Cognizant of the uncertainty as to the pace and extent of the lowering of barriers to
entry, and taking the merger on its terms alone and without any other considerations, we believe
that Applicants have failed to carry their burden of showing, under the public interest standard,
that entry would be sufficiently easy to mitigate the potential harms to competition from merging
the leading and no less than fifth most significant participant in the market for providing
telecommunications services to residential and small business customers.  Applicants also have
not carried their burden of demonstrating, under the public interest standard, that efficiencies
generated by the merger will mitigate entirely the potential competitive harms.  On July 19,
1997, however, Bell Atlantic and NYNEX proffered a series of commitments they would be
willing to undertake as conditions of the approval of their merger.  While this remains a close
case, these conditions allow us, in this case, to find that the transaction, as supplemented by the
conditions, will be in the public interest.  

     13.  In their proposed commitments, Bell Atlantic and NYNEX agree to provide detailed
performance monitoring reports to competing carriers, states and this Commission, regarding
network performance and the performance of their operating support systems ("OSS").  Bell
Atlantic and NYNEX further commit to negotiate performance standards and enforcement
mechanisms, including private or self-executing mechanisms, covering all five aspects of OSS
(pre-ordering, ordering, provisioning, repair and maintenance, and billing) and network
performance.  They also agree to develop and implement, within 15 months, uniform OSS
interfaces covering the entire Bell Atlantic/NYNEX combined regions, and to develop uniform
interfaces within their current respective regions within 120 days.  Bell Atlantic and NYNEX
will engage in carrier-to-carrier testing of OSS systems with any carrier that requests such
testing, and will provide evidence to this Commission of Bell Atlantic's and NYNEX's ability to
handle reasonably expected demand for all OSS functions with respect to resold services,
unbundled network elements and combinations of unbundled network elements.  Bell Atlantic
and NYNEX also commit to offer interconnection, unbundled network elements and transport
and termination at rates based on forward looking economic cost.  They further agree to provide
for purchase, in conjunction with unbundled switching, shared transport offered on a minute-of-
use basis, routed in the same manner as Bell Atlantic and NYNEX route their own traffic, and
without the imposition of access charges.  Bell Atlantic and NYNEX further agree to offer an
optional plan that assesses non-recurring charges on a recurring basis, and an installment
payment plan for collocation and certain other large non-recurring charges.  Bell Atlantic and
NYNEX also agree to offer, in interconnection negotiations and arbitrations, payment
mechanisms for common construction costs and interconnector-specific construction and
equipment costs related to collocation that apportion costs among the incumbent LEC and
collocating carriers consistent with the Commission's decision in its Second Physical Collocation
Order.

     14.  We believe these conditions create pro-competitive benefits that at least in part
mitigate the potentially negative impacts of the proposed merger on competition in LATA 132
and the New York metropolitan area, and that, when extended throughout the Bell Atlantic and
NYNEX regions, outweigh any other adverse effects in those areas.  These conditions will make
it more likely that other market participants can enter, expand or become more significant market
participants that are capable of mitigating in the relevant market, the competitive harms that we
otherwise foresee as likely resulting from the elimination of Bell Atlantic as a likely independent
market participant.  The conditions we impose, particularly the pricing and non-recurring charge
conditions, reduce sunk costs and therefore the risk, associated with entry and expansion.  The
OSS-related conditions will ease entry throughout the Bell Atlantic-NYNEX region by making it
possible to use the same interfaces and OSS systems from Maine to Virginia.  This will allow
entrants to decide the scope of entry that best fits their business plans, and, in particular,
facilitates entry by competitors into both New York and New Jersey simultaneously.  The
reporting, performance standards, and enforcement conditions, as well as the OSS testing
conditions, increase the likelihood that other entrants will be able to establish a brand reputation
over time for providing high quality telecommunications services, offsetting in part the loss of
the availability of Bell Atlantic's capabilities as a competitor to NYNEX in the relevant markets. 
Moreover, the fact that Bell Atlantic and NYNEX have extended these pro-competitive
commitments and benefits across their entire region helps Applicants carry their burden by
affirmatively advancing competition throughout the region.  In light of the proposed
commitments, and conditioned specifically on compliance by Bell Atlantic and NYNEX with
those commitments, we find the transfers of licenses and Section 214 certificates are in the public
interest, convenience and necessity.

     15.  Granting this application subject to conditions does not mean applicants will always
be able to propose pro-competitive public interest commitments that will offset potential harm to
competition.  Nor would these particular conditions necessarily justify approval of another
proposed merger for which applicants had not otherwise carried their burden of proof.  Different
cases will present different facts and competitive circumstances.  As competitive concerns
increase, it becomes significantly more difficult for applicants to carry their burden to show that
the proposed transaction is in the public interest. A merger that in the relevant markets,
eliminated a competitor with even greater assets and capabilities then Bell Atlantic would present
even greater competitive concerns.  For some potential mergers, the harm to competition may be
so significant that it cannot be offset sufficiently by pro-competitive commitments or
efficiencies.  In such cases, we would not anticipate the applicants could carry their burden to
show the transaction, even with commitments, is pro-competitive and therefore in the public
interest.

     16.  We also note that we are concerned about the impact of the declining number of large
incumbent LECs, on this Commission's ability to carry out properly its responsibilities to ensure
just and reasonable rates, to constrain market power in the absence of competition, and to ensure
the fair development of competition that can lead to deregulation.  During the transition to
competition it is critical that the Commission be able effectively to establish and enforce its pro-
competitive rules and policies.  As diversity among carriers declines, both this Commission and
state commissions may lose the ability to compare performance between similar carriers that
have made different management or strategic choices.  We often rely, for example, on cross-
carrier comparisons as strong evidence as to technical feasibility or reasonableness.  The Bell
Companies, being of similar size, history, and regional concentration have, to date, been useful
benchmarks for assessing each other's performance.  Reducing the number of Bell Companies
makes it easier to coordinate actions among them, and increases the relative weight of each
company's actions on average performance.  Because we approve this merger with conditions,
thereby reducing the number of independently controlled large incumbent LECs, future
applicants bear an additional burden in establishing that a proposed merger will, on balance, be
pro-competitive and therefore serve the public interest, convenience and necessity.

                         II.  BACKGROUND

     A.  The Applicants

     17.  NYNEX is a local exchange carrier providing telecommunications services in New
York, New Hampshire, Vermont, Maine, Massachusetts, Rhode Island, and parts of Connecticut. 
NYNEX currently serves approximately 18 million persons with 17.7 million access lines. 
The company also offers cable television, directory publishing, video entertainment, information
services, and (through joint ventures) wireless communications services.  NYNEX has
investments in telecommunications businesses in the United Kingdom, Gibraltar, Greece,
Poland, Slovakia, and the Czech Republic, and through partnerships and joint ventures is
building and operating wireline and wireless networks in Thailand, Indonesia, and the
Philippines. 

     18.  Bell Atlantic, through network operations subsidiaries, provides telecommunications
services, including voice and data transport and calling services, network access, directory
publishing and public telephone services, to customers in New Jersey, Pennsylvania, Delaware,
Maryland, Virginia, West Virginia, and Washington, D.C.  Bell Atlantic serves approximately
20 million customers with 20.6 access million lines.  Through various subsidiaries and joint
ventures, Bell Atlantic also provides systems integration services, customer premises equipment
distribution, video services, and domestic wireless communications.  Bell Atlantic also has
investments in telecommunications businesses in New Zealand, Mexico, Italy, Slovakia,
Indonesia, and the Czech Republic.   

     19.  Bell Atlantic and NYNEX, through subsidiaries, are general partners in Bell Atlantic
NYNEX Mobile, which operates cellular mobile radiotelephone systems and provides cellular
service in, inter alia, Connecticut, Massachusetts, New York and Rhode Island.   Bell Atlantic
NYNEX Mobile describes itself as "the largest wireless provider on the East coast . . . [offering]
a full range of wireless voice, data & paging communications solutions to customers in the
Northeast [and] mid-Atlantic."   

     20.  Bell Atlantic and NYNEX also provide interLATA service between northeastern
New Jersey and the New York City metropolitan area.  The facilities through which this
interLATA service is provided are owned by Bell Atlantic on the New Jersey side of the Hudson
River and by NYNEX on the New York side.  Each Applicant also has, in and near  its "home
region," a brand name recognition and a reputation for providing high quality local exchange and
exchange access service to the mass market of small business and residential customers.

     B.  The Applications

     21.  The Applicants have filed fifteen applications requesting consent to the transfer of
control to Bell Atlantic of two groups of licenses and authorizations.  The first group consists of
Section 214 and Title III authorizations that are held or requested by subsidiaries of NYNEX,
primarily the New York Telephone Company and the New England Telephone & Telegraph
Company.  The second group consists of Section 214 and Title III authorizations used to
provide cellular services that are held by two partnerships, Cellco Partnership ("Cellco") and
PrimeCo Personal Communications, L.P. ("PrimeCo") in which NYNEX holds negative
control.  The licenses or authorizations sought to be transferred include Section 214
authorizations and licenses to operate domestic public fixed radio services, experimental radio
service, public mobile services, satellite radio services, maritime services, aviation services,
private land mobile radio services, private operational fixed microwave services, and personal
communications services.  Many of these licenses are used, or could be used immediately, to
provide local exchange service and exchange access.  In addition, on July 19, 1997, Bell
Atlantic and NYNEX submitted an ex parte filing proffering a number of specific commitments
they would undertake as conditions of our approval of the transfer of licenses and Section 214
certificates, and subsequently clarified those commitments in and ex parte filing on August 13,
1997.

     22.  Under the terms of the merger agreement, Bell Atlantic will form a new subsidiary
that will merge into NYNEX.  NYNEX, the surviving corporation, will become a wholly-
owned subsidiary of Bell Atlantic.  NYNEX's shareholders will receive .768 newly issued shares
in Bell Atlantic for each NYNEX share owned.  Approximately 56 percent of Bell Atlantic
shares will be held by current Bell Atlantic shareholders and 44 percent by current NYNEX
shareholders.

     23.  The only change in ownership will occur at the holding company level.  NYNEX
will survive as a wholly-owned subsidiary of Bell Atlantic, and the NYNEX subsidiaries that
hold Section 214 or 310 authorizations will survive as wholly-owned subsidiaries of NYNEX
and will continue to provide service to the public.  The wholly-owned subsidiaries of Bell
Atlantic that hold Section 214 or 310 authorizations will continue to be wholly-owned by Bell
Atlantic and to provide service to the public. 

     24.  The proposed transfer was reviewed by the United States Department of Justice
("DOJ") pursuant to the Hart-Scott-Rodino ("HSR") amendment to the Clayton Act.  DOJ
completed its review without taking action against the proposed merger.  On April 24, 1997,
DOJ issued a press release stating that the proposed merger does not violate the antitrust laws. 
We do not regard the DOJ action as resolving the issues before the Commission, which involve
consideration of the public interest.

     C.  Petitioners and Commenters

     25.  Several parties filed timely comments or petitions to deny or impose conditions upon
a grant of the transfer applications, arguing primarily that the transfer is not in the public interest
because it will impair competition.  These commenters are:  AT&T Corporation ("AT&T") and
MCI Communications Corporation ("MCI"), each of which is a customer of the Applicants as a
purchaser of exchange access and, as stated infra, a precluded competitor in LATA 132 and the
New York metropolitan area; Teleport Communications Group Inc. ("TCG"), a competitive
local exchange carrier operating in Bell Atlantic and NYNEX territories; Consumer Federation
of America ("CFA") and Competition Policy Institute ("CPI"), each of which is a consumer
advocacy group; Cablevision Systems Corporation ("Cablevision"), a company that develops and
markets telecommunications and video programming services, including as a CLEC in the New
York City metropolitan area; and Comcast Cellular Communications, Inc. ("Comcast"), a
substantial owner and investor in TCG and owner of wireless interests.  Diana J. Lutz, a former
employee of NYNEX, and Thomas Lutz request that the Commission deny the merger until all
outstanding NYNEX labor grievances have been resolved.  Applicants replied to these
submissions.  Commenters supporting the proposed transfer applications included United
Homeowners Association et al. and Dr. Barbara O'Connor, chairperson of the Alliance for
Public Technology and professor at California State University, Sacramento, California.  

     26.  None of the state commissions in Applicants' regions filed comments in this
proceeding regarding the effects of the merger on competition.  Thirteen state commissions,
however, reviewed the proposed merger.  Only three, the New York Public Service Commission,
the Maine Public Utilities Commission and the Vermont Public Service Board, discuss the
effects of the merger on competition, other than referring to the DOJ's review of the transaction. 
The Maine and Vermont Commissions concluded that Bell Atlantic was not a likely entrant into
those states.  The Maine Commission also found, however, that "it was likely that, absent the
merger, Bell Atlantic would have been a competitor to NYNEX somewhere (probably in New
York) for both local and interexchange services."  The New York Commission concluded that
"[t]he record in these proceedings supports the conclusion that Bell Atlantic might have entered
the local exchange market in New York as a competitor, but that the impact of its absence is
difficult to ascertain with certainty.  Nevertheless, . . . Bell Atlantic would have had an
understanding of the resources, commitment and difficulties of becoming a full-fledged facilities-
based competitor of NYNEX."  The New York Commission then concluded that the transaction
met its public interest standard, subject to certain conditions some of which go beyond policies
underlying the federal Communications Act.  
     
     27.  On June 12, 1997, the Common Carrier Bureau released a public notice designating
this a "permit-but-disclose" proceeding, upon determining that "the public interest would be
served by modifying the applicable ex parte procedures in this case to permit a fuller exchange
on the complex and broad legal and policy issues under consideration."  Numerous ex parte
presentations were made.

     D.  Hart-Scott-Rodino Documents

     28.  AT&T requested that the Commission review, and permit parties to review, the Hart-
Scott-Rodino documents Bell Atlantic and NYNEX filed with the DOJ.  Applicants objected
primarily on grounds that the Commission already had sufficient information on which to make
an informed decision and that delay would be expensive.  On November 22, 1996, the Common
Carrier Bureau issued a letter requiring Bell Atlantic and NYNEX to make approximately 30,000
of the documents available pursuant to a simultaneously issued protective order.  The
Commission requested documents pertaining to the following subjects: (1) Applicants' strategic
planning related to the proposed transfers; (2) perceived and actual potential competition; (3) in-
region interexchange service; and (4) the state of competition in the local exchange markets in
the applicants' service areas.  On February 19, 1997 and June 9, 1997, the Common Carrier
Bureau issued letters requiring applicants to provide additional access to documents.  Pleadings
pertaining to the Hart-Scott-Rodino documents have been filed under seal pursuant to the
confidentiality agreements.  Redacted versions were filed for the public record.  On July 22,
1997, at the request of the Common Carrier Bureau, the Applicants filed certain of the Hart-
Scott-Rodino documents with the Commission under seal.  The portion of this decision that
discusses the Hart-Scott-Rodino documents has been issued under seal as Appendix E.

                      III.  LEGAL STANDARDS

     29.  Pursuant to Title II and Title III of the Communications Act of 1934, as amended, the
Commission must review the Applicants' requests to transfer the certificates, licenses and
authorizations involved in this proposed merger and determine whether the transfer serves the
public interest, convenience and necessity.  Under both Title II and Title III, applicants bear the
burden of demonstrating that the transaction is in the public interest.  The Commission also has
authority pursuant to the Clayton Act to review proposed mergers of common carriers and to
determine whether such a merger violates Section 7 of the Clayton Act.  The Communications
Act permits the Commission to impose such conditions as are necessary to serve the public
interest, and the Clayton Act permits the Commission to issue a cease and desist order and
negotiate through a consent order such conditions as the public interest may require.  In this
case, because we find the transaction as supplemented by the commitments proffered by the
Applicants is in the public interest, and because our public interest review here has subsumed
Clayton Act considerations, we will not initiate a proceeding under Section 11 of the Clayton
Act.  

     30.  Section 214(a) of the Communications Act provides that no common carrier shall
acquire any line "unless and until there shall first have been obtained from the Commission a
certificate that the present or future public convenience and necessity require or will require" the
operation of the line.  Section 214(c) of the Communications Act also authorizes the
Commission to attach to the certificate "such terms and conditions as in its judgment the public
convenience and necessity may require."  Similarly, Section 310(d) of the Communications Act
provides that no construction permit or station license may be transferred, assigned or disposed
of in any manner except upon a finding by the Commission that the "public interest, convenience
and necessity will be served thereby."  On a Title III application, if the Commission lacks
sufficient evidence to find the transaction is in the public interest, then it must either deny the
application or designate it for hearing as to material issues of fact.  If the Commission is able to
determine that the application would serve the public interest if particular conditions are met, the
Commission can grant the application subject to compliance with the specified conditions. 
Section 303(r) of the Communications Act authorizes the Commission to prescribe such
restrictions or conditions, not inconsistent with law, as may be necessary to carry out the
provision of the Act.  

     31.  Both the Title II public convenience and necessity standard and the Title III public
interest convenience and necessity standard are to be "so construed as to secure for the public the
broad aims of the Communications Act."  These broad aims include those expressed in Section
1 of the Communications Act, to "make available . . . to all the people of the United States . . . a
rapid, efficient, Nation-wide, and world-wide . . . communication service," and those expressed
in the 1996 Act, to establish a "pro-competitive, deregulatory national policy framework
designed to . . . open[] all telecommunications markets to competition."  Thus, we believe the
public interest standard necessarily encompasses the goals of promoting competition and
deregulation.  Moreover, because interstate switched access is generally provided over the same
"bottleneck" facilities and by the same providers as provide local exchange and exchange access
service, failure to create competition among local service providers necessarily means a lack of
competition to provide interstate switched access. 

     32.  In fulfilling the statutory obligation to serve the public interest, the Commission
examines whether a proposed license transfer is consistent with the policies of the
Communications Act, including, among other things, the transfer's effect on Commission
policies encouraging competition and the benefits that would flow from the transfer. 
Commission analysis of the effect of the transfer on competition is informed by antitrust
principles, but not limited by the antitrust laws.  The public interest standard, and the
competitive analysis conducted thereunder, are necessarily broader than the standard applied to
ascertain violations of the antitrust laws.  Under the public interest standard, the burden of
proof is on the applicant, not the Commission.  In addition, under the public interest standard,
the Commission may consider the trends within and needs of the industry, the factors that
influenced Congress to enact specific provisions for a particular industry, and the complexity and
rapidity of change in the industry. 

     33.  The Commission also has concurrent jurisdiction with the DOJ and the FTC under
Sections 7 and 11 of the Clayton Act to disapprove acquisitions of "common carriers engaged in
wire or radio communications or radio transmissions of energy . . . where in any line of
commerce in any section of the country" the effect of such acquisition may be "substantially to
lessen competition, or to tend to create a monopoly."   Section 7 of the Clayton Act
incorporates the policies underlying Sections 1 and 2 of the Sherman Act prohibiting
combinations in restraint of trade and actual or attempted monopolization.  Because our
jurisdiction under the Communications Act is sufficient to address the competitive concerns
raised by this merger -- including the issue of whether the proposed transfer may injure
competition -- and because the conditions modifying the merger sufficiently offset our concerns
regarding potential adverse competitive impacts flowing from the merger, we choose not to
exercise our Clayton Act authority in this case.  However, we would not hesitate to exercise our
Clayton Act authority, issue a complaint and initiate a hearing in the appropriate case.  

     34.  In their June 23 Comments, for the first time Applicants challenge the Commission's
jurisdiction under the Communications Act to consider the competitive effects of the proposed
merger in local exchange and exchange access services.  Bell Atlantic and NYNEX assert that
the Commission cannot use Sections 214 and 310 to disapprove the merger because of concerns
over intrastate wireline services.  Bell Atlantic and NYNEX also assert that the Commission
cannot utilize Sections 214 or 310 to impose conditions related to intrastate wireline services
because to do so would overstep the jurisdictional limitation on Commission authority contained
in Sections 2(b) and 221(b) of the Act.  Applicants further argue that even if it has jurisdiction,
the Commission lacks the authority to review the competitive concerns raised in this proceeding
because there is no "nexus" between the alleged competitive harms resulting from the transaction
(i.e., the elimination of potential competition for wireline service in LATA 132) and the scope
and purposes of the specific licenses to be transferred.  The Applicants also challenge the
Commission's authority under Sections 7 and 11 of the Clayton Act. 

     35.  Because Applicants have now proffered a set of commitments they would be willing
to undertake as a condition of approval, these arguments are moot.  We disagree, however, with
all of the Applicants' arguments relating to our authority under the Communications Act.  We
also disagree with all of the Applicants arguments regarding our authority under the Clayton Act. 
Because we do not herein invoke our Clayton Act authority, however, we will not address these
arguments.  As noted at the outset, our public interest authority is very broad and encompasses
the goals of promoting competition and deregulation.  There is long-standing precedent
supporting fulsome public interest analyses of the competitive implications of transfers of Title II
certificates and Title III licenses, and for review of large merger transactions even where the
Commission authorized licenses represent only a very small part of the overall transaction. 
This Commission cannot approve transfers of certificates or licenses that, on balance, are not in
the public interest.  There is also ample precedent for the imposition of conditions that would
render the transaction consistent with the public interest.  In addition, the public interest
analysis necessarily includes a review of the nature and extent of local competition, as
exemplified by the fact that Section 271 of the Act specifically applies the public interest
standard to, inter alia, a review of local market conditions. 

     36.    Moreover, as noted above, the Applicants had the burden of demonstrating that the
transaction served the public interest.  In our rapidly evolving telecommunications marketplace,
they must demonstrate not only the efficiency benefits of the merger, but how the merger would
enhance or not retard competition.  Failure to carry the burden of proof means the Commission
must deny the applications or designate them for hearing.  As discussed below, by considering
both the transaction and Applicants' proffered conditions, we reach the conclusion that
Applicants have met their burden of demonstrating that the transaction is in the public interest. 
We will, therefore, grant the applications expressly conditioned on compliance with the proffered
commitments.  Such conditions will be enforceable through our usual processes.

         IV.  ANALYSIS OF POTENTIAL PUBLIC INTEREST HARMS

     A.  Background and Summary

     37.  In evaluating the competitive impact of a proposed merger and thus whether a
proposed merger will enhance competition, we use a framework for competitive analysis that we
use for assessing market power in other contexts and that is also embodied in the antitrust laws,
including the Department of Justice and Federal Trade Commission 1992 Horizontal Merger
Guidelines and the April 8, 1997 revisions.   With respect to mergers that may present
horizontal market power concerns, we begin by defining the relevant markets, both in terms of
the relevant products and geographic scope.  Once we have defined the relevant markets, we
identify the market participants, especially the most significant market participants.  Next, we
evaluate the effects of the merger on competition in the relevant market, such as whether the
merger is likely to result in either unilateral or coordinated effects that enhance or maintain the
market power of the merging parties.  In addition, we also consider the effect of the merger on
the Commission's ability to constrain market power as competition develops, but before
competition is itself sufficient to constrain market power.   We also consider whether the
proposed transaction will result in merger-specific efficiencies such as cost reductions,
productivity enhancements, or improved incentives for innovation, and whether the merger will
support the general policies of market-opening and barrier-lowering that underlie the 1996 Act. 
In the appropriate case, we would also examine whether the proposed merger has vertical effects
that enhance market power.  As previously discussed, the burden is on the applicants to
demonstrate that the transaction will be in the public interest, convenience and necessity.

     38.  To determine whether the proposed merger enhances competition, we examine the
proposed merger in light of a number of significant changes to the laws governing the provision
of telecommunications services made by the 1996 Act.  As previously noted, that Act set forth a
"pro-competitive, de-regulatory national policy framework designed to accelerate rapidly private
sector deployment of advanced telecommunications and information technologies and services to
all Americans by opening all telecommunications markets to competition. . . ."  To implement
this framework, the 1996 Act amended the Communications Act of 1934 to add provisions that,
inter alia: proscribe state and local laws, regulations and legal requirements that "prohibit or
have the effect of prohibiting the ability of any entity to provide any interstate or intrastate
telecommunications service;" require incumbent local exchange carriers ("incumbent LECs") to
offer to competitors interconnection and the ability to lease on an unbundled basis elements of
the incumbent LEC network ("unbundled network elements") at just, reasonable and non-
discriminatory rates, terms and conditions; require incumbent LECs to offer retail services at
wholesale rates; require incumbent LECs to provide reciprocal compensation for the transport
and termination of traffic at rates not exceeding the additional costs of terminating such calls;
require incumbent LECs to protect competitors physically to collocate equipment necessary for
interconnection or access to unbundled network elements; and require all local exchange carriers,
including incumbent LECs, to implement number portability and dialing parity.  The Act also
terminated the Modification of Final Judgment ("MFJ") that had precluded Bell Companies from
providing any interLATA service, and substituted Section 271, which permits a Bell Company
immediately to provide long distance services outside those states in which it provided wireline
local exchange service prior to the 1996 Act, and to receive authorization from this Commission
to provide long distance service originating within any of its "in-region" states upon satisfaction
of specific criteria.  These requirements, when and to the extent fully implemented, will reduce
barriers to entry to providing both local and long distance telecommunications.

     39.  Declining entry barriers affect our competitive analysis in at least four ways.  First,
the definition of the relevant product market may change as a result of entry, as providers enter
currently complementary product markets from which they were previously precluded by law,
regulatory, or the economic or operational barriers addressed by the 1996 Act.  As these
providers create bundled offerings, the manner in which consumers perceive the product may
change, shifting away from the traditional view of a local service package and a long distance
service package to a view of the product as a package of all telecommunications regardless of
distance.  Second, the geographic scope of the relevant market may also change if, as a result of
changes in entry barriers, firms enter adjacent geographic markets such that the area within
which consumers face similar choices expands.  Third, in identifying market participants, we
must include not only those firms currently in the market, but also those firms that are
"precluded" competitors, i.e. that would be likely to enter in the absence of the entry barriers the
1996 Act seeks to address, such as the need to build a full parallel local distribution network, the
unavailability of retail services for resale, the inability to receive reciprocal compensation for
transport and termination at no more than additional cost, the inability to collocate equipment
necessary for interconnection or access to unbundled network elements, the lack of dialing parity
and number portability, or the legal prohibition against Bell Company provision of in-region
long distance service prior to receiving authorization from this Commission under Section 271. 
We must also evaluate the capabilities and incentives of both actual and precluded competitors to
compete effectively in the relevant market, and in particular which carriers are the most
significant market participants in terms of their effect on competition in the relevant markets as
these markets are developing.  Finally, we must consider whether applicants have met their
burden of showing the merger will enhance competition taking into account the competitive
significance of the merging parties compared with other actual or precluded competitors, and any
efficiencies created by and attainable only through the proposed merger.

     40.  In evaluating the extent to which a proposed merger potentially alters the market
structure, conduct or performance, we examine the potential impact of the merger both during
and as the 1996 Act is more fully implemented.  In examining the markets as if the 1996 Act
were more fully implemented, we are not making a judgment that such implementation will
occur swiftly.  Indeed, as previously discussed, there is considerable uncertainty as to how
quickly the barriers the 1996 Act sought to address will actually decline.  Examining market
structure as if the 1996 Act were more fully implemented, however, illuminates the extent to
which the merger will change future market structure, and increase market power or slow its
decline.  Changes in the speed of fuller implementation of the 1996 Act may alter the amount of
time necessary to see any potentially harmful effects on competition manifest themselves, but not
whether the proposed merger would tend to produce such effects.

     41.  In evaluating the potential impact of the proposed merger on telecommunications
markets during and as the 1996 Act is more fully implemented, we will necessarily be making
predictions of future market conditions and the likelihood of success of individual competitors. 
In making our predictions, we are not bound by the rules of evidence that may apply in judicial
contexts, because as the Supreme Court stated in FCC v. RCA Communications Inc.: 

          To restrict the Commission's action to cases in which tangible evidence
          appropriate for judicial determination is available would disregard a major
          reason for the creation of administrative agencies, better equipped as they
          are for weighing intangibles by specialization, by insight gained through
          experience, and by more flexible procedure.  In the nature of things, the
          possible benefits of competition do not lend themselves to detailed
          forecast . . . .

Predictions of market evolution are the most judgmental when, as now, competition in a key
portion of the marketplace, local exchange and exchange access services, is in the earliest stages. 
It is, however, precisely because such competition is just beginning at this time and uncertainties
exist that care in evaluating the potential impact of mergers in evolving markets is crucial to
ensuring the development of a pro-competitive, deregulatory national telecommunications
industry structure.

     42.  Even upon hypothetical full implementation of the Telecommunications Act of 1996,
significant barriers to entry into the local telecommunications marketplace will remain.  Entrants
must still be able to attract capital, as well as to amass and retain the technical, operational,
financial and marketing skills necessary to operate as a telecommunications provider in the local
market.  For mass market services, entrants will have to invest in establishing the brand name
recognition and, even more importantly, the mass market reputation for providing high quality
telecommunications services.  These consumer "goodwill" assets take significant amounts of
time and resources to acquire.  An unknown entrant's attempts to build "goodwill" by providing
reliable, high quality service relies heavily on the cooperation of the incumbent LEC that
provides interconnection, unbundled elements, resold services or transport and termination, and
can be frustrated by the incumbent LEC if that carrier engages in discriminatory conduct
affecting service quality, reliability or timeliness.  For all these reasons, we cannot at this time
simply assume that implementation of the Telecommunications Act of 1996 and the potential for
development of competition will eliminate any concerns about potential competitive effects of
mergers, particularly the effects on the pace of the development of competition.  Nor should we
lose sight of the fact that mergers can raise competitive concerns even in markets that
appropriately are not subject to regulation, as competition is often a matter of degree.

     43.  With respect to the proposed merger of Bell Atlantic and NYNEX, we conclude that
the proposed merger will likely eliminate Bell Atlantic as a competitor to NYNEX and therefore
retard competition and its development.  We conclude first that the relevant market is the
provision of local exchange and exchange access services to residential and small business
customers, particularly in LATA 132.  There is significant evidence that bundled local and long
distance services may become a relevant product market as well as firms begin to enter
complementary markets.  Because there is also significant evidence that the New York
metropolitan area, including northern New Jersey, may likely become a relevant geographic
market as competition develops, we will treat the New York metropolitan area as a relevant
geographic market as well.  The record further suggests that other geographic markets may
also be relevant, including Boston, Massachusetts and Providence, Rhode Island.

     44.  We next identify the market participants in the relevant markets, including
LATA 132 and the New York metropolitan area market.  We conclude that Bell Atlantic was
likely to enter the LATA 132/New York metropolitan area and other NYNEX territories to
provide service to the relevant markets.  Bell Atlantic did plan to enter these markets and that it
first halted those plans during the pendency of merger discussions.  While the universe of
actual competitors and "precluded" competitors is potentially large, we conclude that Bell
Atlantic and NYNEX are two of the five most significant market participants in the relevant
markets in terms of their competitive assets and incentives for serving the mass market, and their
ability to more quickly to serve the relevant markets.

     45.  We then examine the competitive effects of the merger, considering the relative
significance of Bell Atlantic, NYNEX and other market participants, particularly other
significant market participants.  We conclude that the proposed merger likely strengthens
NYNEX's unilateral market power against erosion from competition by removing one of the
most significant market participants.  We also conclude that the merger increases the
likelihood of coordinated action among the remaining four most significant market participants
to increase prices, reduce quality or restrict output.  Moreover, although Bell Atlantic's
arguments focus on whether Bell Atlantic would have entered de novo in competition with
NYNEX, the proposed merger eliminates these significant capabilities from any form of
competition with NYNEX, whether by de novo entry, acquisition of a smaller, existing entrant,
or joint venture.  Market power, moreover, remains an important concern, even in the present
regulated market environment.  In order to reach a pro-competitive de-regulatory industry
structure, market performance must improve to the point where competition, rather than
regulation, effectively constrains market power.  Even under regulation, a firm can exercise
market power if, for example, (1) a price cap fails to bind sufficiently to lower prices to
competitive levels or allows flexibility with respect to a basket of services, (2) a bundled product
offering, such as combined local and long distance service, is only partially price regulated, or
(3) quality is difficult to specify and monitor.  

     46.  We also conclude that the potential unilateral and coordinated effects of the proposed
merger will not likely be mitigated by competitive forces.  Barriers to entry or expansion are not
likely to be sufficiently low that actual or potential competitors can and would expand or enter
with sufficient strength, likelihood and timeliness to render unprofitable an attempted exercise of
market power resulting from the merger.

     47.  We also examine the effects of the proposed merger on the Commission's ability to
develop and enforce the pro-competitive rules necessary to achieve competition and
deregulation.  We conclude that the merger will to some extent reduce this Commission's ability
to develop and enforce such rules, and to constrain market power during the period until
competition develops sufficiently to constrain market power.

     48.  Accordingly, we conclude that the evidence in the record suggests that the proposed
merger likely will eliminate or retard competition, and therefore that applicants must demonstrate
offsetting pro-competitive benefits in order for this Commission to find that the transaction, on
balance, is in the public interest.

     B.  Relevant Markets

     49.  The first step in a merger analysis is to define the relevant product and geographic
markets.  It is important to note that no party to the proceeding, including the Applicants,
proposed any definition of relevant markets even though the burden is on the Applicants to
establish the relevant markets.  

     50.  In defining the relevant product and geographic markets, the Commission follows the
approach taken in the LEC In-Region Interexchange Order.  In that Order, the Commission
defined a product market as a service or group of services for which there are no close demand
substitutes.  This is consistent with the 1992 Merger Guidelines, which state that, "market
definition focuses solely on demand substitution factors, i.e., possible consumer responses." 
To determine relevant product markets, the Commission must consider whether, if, in the
absence of regulation, all carriers raised the price of a particular service or group of services,
customers would be able to switch to a substitute service offered at a lower price.  In the LEC
In-Region Interexchange Order, we further observed that for purposes of analysis we could
aggregate separate products markets for which customers faced the same competitive
alternatives.  For the reasons described below and for purposes of this proceeding, we define
the following three relevant product markets:  (1) local exchange and exchange access service;
(2) long distance service; and, (3) local exchange and exchange access service bundled with long
distance service.  

     51.  In the LEC In-Region Interexchange Order, we treated, for purposes of determining
proper regulatory treatment of interexchange affiliates of the Bell Companies and independent
LECs, interstate, domestic, long distance service as a separate product market.  We will treat
local exchange and exchange access services as a relevant product market separate from
interstate, interexchange, long distance service, because while each point to point local calling
route constitutes a separate market, the fact that each customer faces the same competitive
alternatives for each route allows us to aggregate these routes into a service called local exchange
and exchange access service.  In addition, the MFJ's prohibition on Bell Company provision of
interexchange services and the federal-state regulatory structure have lead to consumers facing
different competitive alternative sources for local exchange and exchange access service and long
distance service.  

     52.  As competition increases, however, and more and more companies enter each others'
markets, we believe that telecommunications services packages that bundle a combination of
services may become a separate product market as well.  Applicants clearly contemplate
providing "one-stop shopping" to their customers.  Once the Bell Companies comply with the
requirements of Section 271 of the Communications Act, they will be able to offer both local
exchange and exchange access services and in-region long distance services.  As both
Applicants and other competitors move to offer bundled local exchange and exchange access
services and long distance services, consumer expectations and perceptions of the product may
also change.  We believe that to the extent consumer demand for bundled service packages forces
carriers to offer such bundles, the bundling of local exchange and exchange access services with
long distance services may well become a relevant product market even if, today, it is still
nascent in most markets and nonexistent in many others.

     53.  Within a product market it is possible to identify and aggregate consumers with
similar demand patterns.  We conclude there are at least three customer groups that can be
identified as having similar patterns of demand:  (1) residential customers and small businesses;
2) medium-sized businesses; and 3) large businesses/government users.  Each of these customer
groups exhibits distinct buying patterns.  Bundles of services that appeal strongly to one segment
(e.g., residential customers may want local service featuring Call-Waiting) are often not
acceptable substitutes for the services preferred by the other segments (e.g, large businesses may
not need Call Waiting but may want multiple lines, ISDN and an extensive voice mail system). 
Additionally, residential or small business customers may have a different decision making
process than do large businesses or government users.  Residential and small business customers
are served primarily through mass marketing techniques including regional advertising and
telemarketing.  In our experience, medium sized businesses are targeted by specialized firms
that do not necessarily seek to address the mass market.  Larger business and governmental
users, in contrast, are served under individual contracts and marketed through direct sales
contracts.  Because the greatest competitive concerns arise with respect to service to residential
and small business customers and because this is the market segment that Bell Atlantic was most
likely to enter, we focus our examination of competitive concerns on that market segment. 

     54.  A geographic market aggregates those consumers with similar choices regarding a
particular good or service in the same geographical area.  In the LEC In-Region Interexchange
Order, we found that each point-to-point market constituted a separate geographic market.  We
further concluded, however, that we could consider groups of point-to-point markets where
customers faced the same competitive conditions.  We will therefore treat as a geographic
market, an area in which all customers in that area will likely face the same competitive
alternatives for a product.  This approach allows assessment of the market power of a
particular carrier or group of carriers based on unique market situations by recognizing, for
example, that certain carriers may target particular types of customers, provide specialized
services or control independent facilities in specific geographic areas.  

     55.  We conclude that LATA 132, which essentially covers the same territory as
NYNEX's New York Metropolitan Regional Calling Area, currently constitutes a relevant
geographic market for the three product markets.  At present, any carrier that offers service in
the New York Metropolitan Regional Calling Area offers that service to all customers in that
area. Thus, with respect to mass market customers, each customer in the area can select service
from the same alternative providers.  Applicants appear to concede that LATA 132 is a
relevant geographic market.  Additionally, the New York television advertising market, as well
as most of the New York radio advertising market, encompasses all of LATA 132.

     56.  We also conclude, however, that as new entry occurs and customers in a broader area
come to have the same choice among competitors, there may well be a wider geographic market. 
We therefore will also treat the New York metropolitan area, including northern New Jersey (the
"New York metropolitan area") as a relevant market.  There are economies of scope for
advertising in this market.  The television advertising market, as well as most of the radio
advertising market, of New York City extends into northern New Jersey.  Many residents from
New Jersey work or travel to New York on a regular basis, making it increasingly likely that the
New York advertising market reaches these potential consumers.  Bell Atlantic itself advertises
in New York media in order to target New Jersey residents.  The record also contains other
evidence indicating that many companies, including Bell Atlantic, believe the New York
Metropolitan market may extend beyond LATA 132.  To the extent, however, that the market
would permit price discrimination between services offered in New York City and those in
northern New Jersey, northern New Jersey may continue to be a separate geographic market.

     57.  While parties generally agreed that the most serious competitive concerns focused on
LATA 132, some parties raised concerns that there may be competitive effects in other parts of
the northeast.  Bell Atlantic was planning entry not only in LATA 132, but in other parts of the
NYNEX territory as well.  Bell Atlantic's Chairman and Chief Executive Officer noted in an
announcement of the proposed merger:  "[O]ur two regions are really one big market, with all the
major urban areas up and down the east coast and lots of communities of interest."
Demographers refer to contiguous areas in the country, irrespective of political boundaries, that
have similar economic and social characteristic as communities of interest.  We note that
various demographers identify communities of interest that extend well beyond the New York
Metropolitan area.  For example, the Office of Management and Budget's ("OMB") New York
Consolidated Metropolitan Statistical Area (CMSA), includes portions of Connecticut,
Pennsylvania, New York and New Jersey.  The Department of Commerce's Bureau of
Economic Analysis includes within its New York Economic Area, portions of New York,
northern New Jersey, Pennsylvania, Connecticut, and Massachusetts.  For the purposes of this
decision, however, we will focus on the competitive effects of the merger on local exchange and
exchange access service in LATA 132/New York metropolitan area and on bundled local and
long distance services originating in LATA 132/New York metropolitan area ("the relevant
markets") that are offered to residential and small business customers. 

     C.  Market Participants

     58.  The second step in our competitive analysis is to identify those companies in each
relevant market we have defined that are the most significant market participants.  From the
universe of actual and precluded competitors, we identify these participants based on an analysis
of capabilities and incentives to compete effectively in the relevant market.  Of particular interest
are those market participants that are likely to be at least as significant a competitive force as
either of the merging parties.

     59.  We first identify "actual competitors" as market participants.  We define "actual
competitors" as firms that are now offering the relevant products in the relevant geographic
market and that we expect to be doing so as the 1996 Act, and particularly Sections 251, 252,
and 271, become more fully implemented.

     60.  We also identify as market participants those firms that have been effectively
"precluded" from the market.  These "precluded competitors" are firms that are most likely to
enter but have until recently been prevented or deterred from market participation by barriers to
entry the 1996 Act seeks to lower.  Such barriers can be legal, regulatory, economic, or
operational,  and include exclusive franchises, the MFJ prohibition on the provision long distance
service by the Bell Companies and the Section 271 limitations on in-region long distance service,
the availability and price of interconnection, unbundled network elements, retail services for
resale, transport and termination, and collocation, as well as dialing parity and number portability
and access to poles, conduits and rights of way. 

     61.  Even as the 1996 Act is more fully implemented, however, significant entry barriers
will remain, including economic and operational barriers such as difficulties in obtaining
financial capital; obtaining and retaining the technical, operational, financial and marketing skills
necessary to operate as a telecommunications vendor; and attracting and holding customers. 
Indeed, implementation of the 1996 Act will also not eliminate all legal and regulatory
restrictions:  for example, licenses will still need be required, and spectrum assignments will
continue to be made pursuant to legislative and regulatory procedures.  These remaining entry
barriers narrow the universe of significant market participants who will be able more quickly to
enter and serve the relevant markets.  Accordingly, we will also analyze the capabilities and
incentives of each possible competitor to see whether that possible competitor (a) has the
capabilities and incentives such that it would be reasonably likely to enter the relevant market as
the 1996 Act is implemented and (b) would likely exert pressure on competitors in the absence
of regulation to lower prices, innovate or upgrade services.   

     62.  In determining the most significant market participants from the universe of actual
and precluded competitors, we identify the market participants that have, or are likely to speedily
gain, the greatest capabilities and incentives to compete most effectively and soonest in the
relevant market.  Some of these capabilities are basic to the operation of a local telephone
company, relatively technical, and concern access to the necessary facilities, "know how," and
operational infrastructure such as sales, marketing, customer service, billing and network
management.  Other capabilities are less tangible.  They include brand name recognition in the
mass market, a reputation for providing high quality, reliable service, existing customer
relationships, or the financial resources to obtain these intangible assets.  Another factor is
whether the actual or precluded competitor had plans to enter the relevant market or was engaged
in such planning.  Such plans would be probative evidence of a perception of possession of
capabilities and incentives necessary to affect the market.

     63.  In evaluating the relative significance of market participants, we also consider
matters that would be material to the entry of all precluded competitors as a class, but not to any
one entity in particular.  Such factors would include whether the relevant market is expanding,
prevailing prices in the relevant market, and the availability of capital both generally and in the
relevant market. 

     64.  The foregoing factors are similar to those factors used in cases applying the antitrust
doctrine of actual potential competition to determine whether firms proposing to merge would
have entered relevant markets with capabilities equivalent to those of other potential entrants.
And, as in actual potential competition cases, in deciding whether a given precluded competitor
has the capabilities and incentives to be a market participant, probative evidence may be
documents from the precluded competitor's files showing it would likely have entered the
relevant market.  Documents, if they demonstrate serious consideration of entry, may create an
inference of a capability to effect the market without a detailed examination of the competitor's
capabilities and incentives.  

     65.  Finally, in determining the most significant market participants from among the
actual and precluded competitors, it is particularly relevant to identify which competitors, other
than the merging parties, are likely to be as significant a competitor as the lesser of the merging
parties.  If one of the merging parties has the same capabilities and incentives as a large number
of other competitors, then the loss of that one participant may be unlikely to remove much
individual discipline from the market.  But, to conclude that a merger would have little or no
competitive effect on these grounds, the number of similar (i.e., most significant) market
participants must be large.

     66.  In assessing just how many other significant market participants must remain for our
competitive concern to diminish, we are guided by the underlying policy and economic analysis
of the 1984 Merger Guidelines.  Our conclusion, however, departs from the standard articulated
in those Guidelines for several reasons.   First, telecommunications markets such as local
exchange and exchange access services presently have only one supplier as a practical matter or,
as in the case of mass market bundled local exchange and exchange access, and long distance
services, no current actual suppliers.  In contrast, in the typical potential competition case the
relevant markets are oligopolies with four or more competitors.  In a four member oligopoly
with four potential competitors, the loss of one potential competitor that leaves behind three
equivalent ones still holds out the possibility of a seven-firm market.  In telecommunications
markets that are virtual monopolies or that are not yet developed, however, the loss of even one
significant market participant can adversely affect the development of competition and the
attendant proposals for deregulation. 

     67.  In addition, the doctrine of actual potential competition as reflected in the 1984
Merger Guidelines has usually been applied to stable markets that potential entrants have
decided not to enter.  In contrast, telecommunications markets are undergoing major change,
with new entry anticipated as implementation of the 1996 Act progresses.  

     68.  We therefore see no reason to apply mechanistically the 1984 Merger Guidelines'
provisions on potential competition to the novel features of telecommunications markets, and
will evaluate the number of most significant market participants and the competitive effects of
mergers among them, even where three other potential competitors with equivalent competitive
capabilities to the merging parties will remain.  Our decision in SBC-PacTel might be read to
suggest that we would examine the competitive effects of a proposed merger only when fewer
than three potential competitors would remain following the merger.  We believe that the
relevant provision of the 1984 Merger Guidelines, to which we referred in SBC-PacTel, does not
support such a reading of SBC-PacTel.  Section 4.133 of the 1984 Merger Guidelines does not
provide immunity from antitrust review when at least three potential competitors with equivalent
competitive capabilities would remain, but indicates only that the Department of Justice is
"unlikely" to challenge the merger.    As discussed above, the structure of our analysis here is a
more complete and fully developed articulation of potential and precluded competition issues
presented by mergers during implementation of the 1996 Act, and is therefore more consistent
with reviewing the effect of the proposed merger on the public interest.

     69.  We also note that our analysis in this Order would not compel a contrary result in
SBC -PacTel.  Nothing in the record of the SBC-PacTel proceeding suggested that SBC or
PacTel had incentives to enter each others' local service territory, or capabilities that would have
made them among other than a large number of most significant market participants.  In that
case, unlike this one, the two merging companies' territories were not adjacent (and certainly
without a major center of population and telecommunications on their border); neither company
had assets, customers, or a recognized brand name in the other's territory; and there was no
realistic suggestion that either one had ever considered entering the other's markets for local
exchange service.  We note, however, that the determination of the identification and number of
likely most significant market participants is fact specific; and that it is certainly possible, in an
appropriate case, to find that a merger of non-adjacent LECs would present competitive
concerns.

     70.  Having defined our analytical framework, we now identify, and assess, the relative
strengths of actual and precluded competitors for local exchange and exchange access services to
residential and small business consumers, i.e., the mass market in LATA 132 and the New York
metropolitan area.  We conclude that five companies -- NYNEX, Bell Atlantic, AT&T, MCI,
Sprint -- are the most significant market participants:  that is, they are either in the market already
or are the most likely to enter and to have an effect on the market for local exchange and
exchange access services, and bundled local exchange, exchange access and long distance
services to the mass market.  NYNEX is currently both an actual provider of local exchange and
exchange access services and a precluded provider of bundled local exchange, exchange access,
and long distance services in LATA 132, as is Bell Atlantic in a broader New York metropolitan
area market.  The remaining four most significant market participants distinguish themselves
from the universes of actual and precluded competitors and of other market participants by their
experience and strong brand reputation in the provision of telephone service to the mass market. 
Technological change, successful marketing, and modification of consumer perceptions may
eventually result in additional companies having significant competitive effects in this market
should their comparable or substitutable services achieve widespread acceptance. As we explain
below in greater detail, we, at present, do not consider other potential providers identified by the
Applicants such as cable multiple system operators ("MSOs"), competitive access providers
("CAPs"), or commercial mobile telephone service providers to be among the most significant
market participants in the relevant markets in LATA 132 on a par with Bell Atlantic, although
we would certainly hope that they will so evolve.

     71.  We first consider whether NYNEX and Bell Atlantic are market participants with
respect to the mass market for local exchange, exchange access, and bundled services in LATA
132 and the New York metropolitan area.

     72.  NYNEX.  NYNEX is an actual participant in the market for local exchange and
exchange access services for the mass market in LATA 132 and in at least a portion of the New
York metropolitan area market.  NYNEX is also a precluded competitor in the market for
bundled local exchange, and exchange access, and long distance telecommunications service in
LATA 132 and at least a part of the New York metropolitan area.  NYNEX is precluded from
providing this bundled product until it receives authorization to provide in-region interLATA
services pursuant to Section 271 of the Communications Act.  

     73.  Bell Atlantic.  We find that Bell Atlantic is both a precluded competitor and among
the most significant market participants both in the market for local exchange and exchange
access, and in the market for bundled local exchange, exchange access, and long distance
services for the mass market in LATA 132 and the New York metropolitan area.  The basis for
this conclusion is that Bell Atlantic was actively seeking to enter those markets using wireline
technology and has the capabilities necessary to have an effect on those markets.  As described in
greater detail in Appendix E, Bell Atlantic's internal documents establish that Bell Atlantic was,
until merger discussions were well underway, engaged in planning out-of-region entry into local
exchange, exchange access, and long distance services in a number of locations in the NYNEX
region, most notably LATA 132.  The extent of planning reflected in the documents persuades us
that Bell Atlantic would likely have entered LATA 132.  The documents also show Bell Atlantic
would have been most likely to target mass market, not large business, customers.   

     74.  Bell Atlantic seeks to minimize its potential participation in LATA 132 by
distinguishing between "the plans of a company, with resource commitments behind them, and
business case studies or evolving explorations of business options by middle management or
outside consultants."  Bell Atlantic claims that its planning amounted only to the latter and
describes its documented activities as reflective of  "the undeveloped conditional, provisional,
character of even the middle managers' consideration of a local-service add-on to a long-distance
offering."  Essentially, Bell Atlantic asserts that the work done by middle management was
exploratory and did not amount to a "plan" because senior management had not given a go-ahead
to commit significant resources to the project.

     75.  Although a decision by the Board of Directors actually to commence entry into
LATA 132 would be conclusive evidence that Bell Atlantic was a precluded competitor, we
believe that planning done prior to such a decision remains important and probative, especially
when done with the continued oversight of senior management. We do not accept Bell Atlantic's
view that the actual potential competition doctrine considers a company's plans to enter in
determining whether it is a market participant only if it is shown that the decision to enter had
been made irrevocably and at the company's highest levels or until the company had committed
resources to entry.  The case law under the actual potential competition doctrine does not
compel this level of proof.  The more authoritative and reasonable case law applying the doctrine
of actual potential competition requires only a showing that a company was reasonably likely to
enter, not that entry be certain as shown by vote of the Board of Directors or by the commitment
of resources.  Based on the documents before us, we find that Bell Atlantic's officials,
including those at the highest levels, had advanced sufficiently far in their detailed planning that
it is likely that Bell Atlantic would have entered LATA 132 but for the proposed merger.  In this
regard, we wish to make clear for the future that we consider all plans, regardless of whether they
have been formally adopted or backed by a commitment of resources, as potentially relevant to
the analysis of market participants.  Accordingly, the facts and circumstances concerning such
planning should be forthrightly presented to the Commission.

     76.  Our analysis of Bell Atlantic's documents is buttressed by other indications that Bell
Atlantic had incentives to enter LATA 132.  With respect to capabilities, local exchange and
exchange access services for the mass market are product offerings most strongly tied to Bell
Atlantic's capabilities, as it currently provides these services within its own region.  While Bell
Atlantic also has substantial experience in providing mobile telephony in both its own region and
the NYNEX region through its combined operation with NYNEX, we do not believe that it
planned to use this technology as an entry vehicle.  We reach this conclusion both based on a
review of documents and because the economics of such an entry strategy are not favorable at
present.  Bell Atlantic is now providing mobile telephony in LATA 132 at higher prices than
the prices for wireline local exchange and exchange access services.  
For Bell Atlantic to enter the market for those services pursuant to a wireless strategy and
compete with NYNEX's wireline service, it would have to price its wireless service to mass
market customers at a fraction of what its current mobile telephone customers are paying.  This
would create a significant risk of arbitrage by customers that would force down the price of Bell
Atlantic's mobile telephone service.  Bell Atlantic, we think, would be unwilling to undertake
this risk.  

     77.  We observe that relative rate structure differences between New Jersey and New
York, revealed in the record, may create incentives for Bell Atlantic to enter not only LATA 132,
but also other markets in New York State.  Flat rates for local exchange service charged by
NYNEX in New York State substantially exceed the flat rates charged by Bell Atlantic in New
Jersey.  Bell Atlantic's highest flat rate, charged to customers in the Newark and Jersey City free
calling areas, is $8.19, compared to a rate of $20.16 charged to customers in Buffalo and Albany. 
NYNEX's lowest standard rate of $12.45, charged in free calling areas with 1,300 customers or
fewer, still substantially exceeds Bell Atlantic's highest New Jersey rate.  This evidence,
although not dispositive because it does not expressly take cost information into account (such
data is not in the record), suggests that Bell Atlantic may be able to enter any of a number of
markets in New York state and profitably undercut NYNEX.

     78.  All of the above factors, as well as the specific planning and marketing information
further detailed in Appendix E, lead us to conclude that Bell Atlantic is a precluded competitor
and among the most significant market participants in the market for providing local exchange
and exchange access services or bundled local exchange, exchange access, and long distance
services to the mass market in LATA 132.  Of course, in a New York metropolitan area market,
Bell Atlantic would also be an actual competitor, and among the most significant market
participants.

     79.  Bell Atlantic described its brief and apparently unsuccessful experience in providing
out-of-region long distance service in North Carolina.  Bell Atlantic has not, however,
sustained its burden of proof that such effort is a significant predictor of results were it to enter
LATA 132.  For the thirteen years since divestiture, Bell Atlantic advertising to its northern New
Jersey customers has reached New York metropolitan area consumers outside of its service
territory because of the reach of the New York area broadcast and print market outlets.  There is
also significant commuting and business activity shared between LATA 132 and Bell Atlantic's
territory in northern New Jersey.  From the record in this case, it appears that no such special
relationship exists between Bell Atlantic's in-region services in southern Virginia and the area in
North Carolina where it briefly offered long distance services.

     80.  Other Entities.  We next consider whether other entities are actual or precluded
competitors and whether they can be classified among the most significant market participants in
the market for local exchange and exchange access services or bundled local exchange, exchange
access, and long distance services to the mass market in LATA 132 and the New York
metropolitan area. 

     81.  The Applicants have provided us with a list of selected carriers to which the New
York Public Service Commission has granted "Certificates of Public Convenience and Necessity
to Resell All Forms of Telephone Service in New York" as of January 27, 1997.  We do not
consider, however, certification alone as defining any class of competitors.  We view such
certification as a step necessary for entry, but not dispositive of the company's capabilities and
incentives.  Many such entrants target large business customers with specialized service
offerings, and offer little or no small business or residential service.  As discussed above, for
purposes of analyzing this merger, we are evaluating whether actual and precluded competitors
have the requisite capabilities and incentives to enter and have an effect on the provision of local
exchange and exchange access services and bundled local exchange, exchange access, and long
distance service to the mass market.

     82.  AT&T, MCI, and Sprint.  We conclude that the three largest interexchange carriers
are precluded participants and among the most significant market participants in the mass market
for local exchange and exchange access or bundled local exchange, exchange access and long
distance service.  The Applicants draw similar conclusions.  Each of these carriers meets our
definition of precluded competitors, i.e., each is likely to enter the relevant markets.   Each is
also among the most significant market participants because each has the capabilities and
incentives to acquire a critical mass of customers in the relevant markets and to do so relatively
rapidly.  AT&T still serves 63% of long distance customers nationwide and in fiscal year 1996
had total revenues of $52.2 billion and a net income of $5.9 billion.  MCI serves approximately
15% of long distance customers nationwide and had operating revenues of $18.5 billion in 1996,
with net income of $1.2 billion.  Sprint currently serves approximately 7% of long distance
customers nationwide and had net operating revenues of  $14 billion in 1996, with net income
$1.2 billion.  Each has announced major local entry initiatives.  Our conclusion that AT&T,
MCI, and Sprint are among the most significant market participants is further supported by the
customer preference survey information in the record.

     83.  Other Interexchange Carriers.  We disagree with Applicants' implicit suggestion that
the smaller interexchange carriers ("IXCs") should be considered as more significant market
participants than Bell Atlantic.  We distinguish the three largest IXCs from all other IXCs in
our analysis with respect to their capabilities to serve the mass market more quickly and
effectively.  While many long distance providers have access to facilities, knowledge and
operational infrastructure, the smaller ones do not have as significant an existing customer base
or as great a financial ability as AT&T, MCI, Sprint.  The smaller IXCs' infrastructure
investments are not on the same scale, and their experience in serving the mass market is not as
broad as the three largest carriers.  In addition many focus primarily on serving large business
customers.

     84.  Most significantly, these smaller IXCs generally lack the brand reputation and
recognition in the relevant markets that are critical assets for offering services to the mass
market.  As further described in Appendix E, Bell Atlantic has a much higher brand recognition
and consumer preference in the relevant markets than any of the small IXCs.  Only one smaller
IXC showed signs of brand recognition and consumer preference, but with lower recognition and
consumer preference than Bell Atlantic.  Developing a stronger brand reputation will require
significant investments of time and resources, as well as substantial, reliable performance.  We
remain unconvinced, therefore, that any of the smaller IXCs currently have other capabilities that
compensate sufficiently for them to be considered among the most significant market participants
at this time.

     85.  Cable MSOs.  Incumbent cable television providers ("Multiple System Operators" or
"MSOs") have facilities in LATA 132 and the New York metropolitan area that are capable of
being upgraded to provide local exchange and local exchange access services to residential and
business customers.  Among the major New York area MSOs are Time Warner
Communications, Cox Communications, Comcast, TCI, U S West Media Group, and
Cablevision Lightpath.  Each has a discrete territory within which it is the only coaxial cable
television provider.  

     86.  Like the other current service providers, MSOs have name recognition and a
reputation with their customers (although not a reputation for providing telecommunications
services).  Like the three largest IXCs, a major component of their customer base is residential. 
Their reputation for dependable, high-quality service, however, is significantly less than those of
the three largest IXCs.  Documents provided by the Applicants indicate that only an
inconsequential share of surveyed consumers in LATA 132 would select a cable company as a
local telephony service provider.  We do believe, however, that MSOs are endeavoring to
improve their performance, and, hence their service reputation among their existing customer
base.  Insofar as improvements in service performance are related to improved facilities, the
record contains evidence that suggests some MSOs in the New York area are moving toward a
technology platform that could support telephony or Internet services to an emerging market. 
MSOs have the capabilities and incentives that potentially enable them to become significant
market participants sometime in the future.  Still evolving technical and financial constraints may
limit their ability to enter and compete in the relevant markets as quickly as the most significant
market participants we have identified.

     87.  CAPs.  We accept the Applicants' assertion that a few of the larger CAPs, such as
Teleport Communications Group (TCG) and MFS/Worldcom (MFS), have the requisite access to
facilities, knowledge and operational infrastructure to qualify them as precluded competitors in
the relevant market.   As of May 1995, Teleport had 600 business customers for local exchange
and exchange access services in New York, and as of October 25, 1995, it had three switches
in New York and a fiber optic network that extended 400 miles through Manhattan and parts of
Queens, Brooklyn, Nassau and Suffolk Counties, and White Plains.  MFS also provides
service in the New York metropolitan market.  MFS offers voice, data and other enhanced
services and telecommunication systems oriented toward business and government users.  
According to the Applicants, MFS has begun to provide local exchange and exchange access
services in the New York City metropolitan market with approximately 250 miles of fiber optic
cable. 

     88.  Nevertheless, the financial capabilities of these larger CAPs are limited compared to
those of Bell Atlantic, AT&T, MCI, and Sprint.  (TCG had 1996 gross revenues of $267.7
million in 1996 and a net loss of $114.9 million.  MFS had 1996 revenues of $4.49 billion and
a net loss of $2.2 billion.)  Both companies are experiencing substantial growth in their core
business.  Although reputation among the existing customer base is an important asset to a CAP,
Bell Atlantic's market research indicates that the CAPs have a limited brand name reputation
among residential and small business customers in LATA 132.  We have no reason to believe
that CAPs would have a stronger brand reputation in other parts of the New York metropolitan
area.  Because of their relatively limited access to capital and their low brand name recognition
among small business and residential customers, we are unpersuaded by the Applicants that
CAPs are, either singularly or as a class, likely to have significant competitive impact in the
relevant markets.  Accordingly, while this is a close case, we do not consider even the larger
CAPs among the most significant market participants in terms of their ability quickly to enter
and serve the relevant markets.

     89.  Mobile Telephone Service Providers.  Providers of mobile telephone service via
radio consist primarily of cellular and broadband Personal Communications Services licensees,
but also include digital specialized mobile radio providers.  Several of these firms have
formidable financial resources and are recognized and regarded favorably by both wireless and
wireline users.  Among the principal wireless providers that currently compete in LATA 132 and
the New York metropolitan area are AT&T, Sprint Telecommunications Venture, SBC,
Omnipoint, Nextel, and Bell Atlantic-NYNEX Mobile ("BAMS-NYNEX Mobile"), a joint
venture involving the Applicants.  As explained below, this competition takes place in a market
distinguishable from the relevant markets at issue in this proceeding.  

     90.  Mobile telephone service providers are currently positioned to offer products that
largely complement, rather than substitute for, wireline local exchange.  These providers
utilize spectrum whose carrying capacity is relatively finite.  There are economic and technical
limits to increasing spectrum reuse through reduction in cell size and use of compression and
encoding techniques.  Additionally, their installed technology and facilities are specialized for
use in mobile communications.  These factors limit the ability of wireless carriers to compete on
a mass market scale with wireline providers in the local exchange and exchange access services
market.  Although the Applicants predict that some of these providers will become competitors
to wireline providers, the Applicants recognize that, as stated supra, such competition is
currently precluded as a practical matter by the higher prices that mobile telephone service
providers can charge.  Thus, only if wireline prices were to increase or other factors caused
wireless prices to decline materially, would this class of entrants become viable competitors in
the relevant market.  Accordingly, we are unpersuaded by the Applicants and CFA that mobile
telephone service providers are, at this time, either singularly or as a class, significant market
participants; they lack the requisite incentives and access to facilities that would allow them to
compete effectively in the relevant market.  We are mindful, however, of the possibility that
conditions could alter significantly as a result of increased spectrum being made available (either
through reallocation or through developments in mobile and fixed wireless technologies), major
pricing shifts as a result of competition, or the alteration of consumer perceptions as to the
substitutability of wireless for wired telephony.

     91.  We do believe that fixed wireless may ultimately become a viable (and, in some
markets, a formidable) substitute for wireline service, but whether that occurs depends on
spectrum availability, technological issues, and other future events.  Fixed wireless service for
the mass market will be among the potential applications that will benefit as more spectrum
becomes available for wireless or is used more efficiently, and as this Commission continues to
allocate and license such spectrum.  These regulatory proceedings and the business rollout for
such new competitors, however, will take considerable time.  Neither the Applicants nor AT&T,
the largest wireless carrier in this country, nor any other party has submitted any evidence on the
underlying business and technological issues pertaining to near term prospects for wireless
competition in the relevant markets. 

     92.  We also reject CFA's arguments that:  (1) the grant of the application to transfer the
relevant authorizations would eliminate wireless as an effective competitive threat in the
Applicants' markets for local exchange and exchange access services; and (2) a combination of
the Applicant's wireless services will inhibit the development of competition in the wireless
industry.  Within their wireline service areas, the Applicants hold no more than one block of
the currently issued licenses, and are constrained by our CMRS spectrum cap in their ability to
acquire additional licenses.  Multiple blocks of licenses have been issued to other companies
expected to compete with the Applicants' wireless operations.  Accordingly, we find that
divestiture is unnecessary to promote effective wireless-wireline competition.  Moreover, CFA's
general concerns about prospects for competition in wireless services ignore the fact that the vast
majority of the Applicant's wireless license holdings are already jointly operated; the
Commission is considering an appeal of this decision and it would be inappropriate to address
the issue here.  

     93.  Non-Adjacent Out-of-Region Bell Companies.  We do not doubt that non-adjacent
out-of-region Bell Companies have financial strength and expertise in providing local exchange
and exchange access services.  This expertise should permit them to enter LATA 132 and the
New York metropolitan area via resale and unbundled network elements.  The fact that each
Applicant contemplated entry into the other's territory supports the inference that other Bell
Companies may contemplate entry into such attractive markets as LATA 132.  No party,
however, has shown that any one of those companies, or that those companies as a class, have a
broadly recognized brand name and reputation for quality service, and/or an existing customer
base in the mass market in LATA 132 or the New York metropolitan area.  Accordingly, we
view them as precluded competitors in LATA 132, but not among the most significant market
participants.

     94.  Conclusion.   We conclude that five companies -- NYNEX, AT&T, MCI, Sprint, and
Bell Atlantic -- are the most significant market participants in LATA 132.  NYNEX is an actual
competitor in the market for local exchange and exchange access services to small business and
residential customers, and a precluded competitor in the market for bundled local exchange,
exchange access, and long distance services to small business and residential customers.  AT&T,
MCI, Sprint, and Bell Atlantic are each precluded competitors, and among the most significant
market participants, in both these relevant markets.  We find that although many other companies
are precluded competitors, and some may be actual market participants in one or both of the
relevant markets, no other company is among the most significant market participants in either of
the relevant markets.  We note that because our identification of the most significant market
participants focuses on those carriers that have the greatest capabilities and incentives to compete
most effectively and soonest, our evaluation does not in any way indicate any opinion as to the
long term viability of other market participants as competition develops over time in the relevant
markets.

     D.  Analysis of Competitive Effects

     95.  Having identified the relevant markets and the most significant market participants,
we now examine the competitive effects of the merger.  There are several reasons we believe that
some competitive effects -- those producing an increase in market power, or an enhanced ability
to maintain market power -- will generally not be in the public interest, even when the exercise of
market power arguably is constrained by regulation.  The 1996 Act set a clear national policy
that competition leading to deregulation, rather than continued regulation of dominant firms,
shall be the preferred means for protecting consumers.  Mergers that increase market power or
retard the decline of market power conflict with this policy by maintaining rather than
decreasing, the need for continued regulation.  A merger that reverses or slows the decline of
market power may also hinder or make more costly the transition to competitive, deregulated
telecommunications markets.  Finally, to the extent that regulation is not completely effective at
preventing the exercise of market power, a merger that increases market power adversely affects
consumer welfare.  

     96.  Ordinarily, our analysis of the competitive effects of a particular horizontal merger
(between two firms that compete with each other) will follow the framework of the 1992
Horizontal Merger Guidelines, with an assessment of present market conditions and an
analysis of the ways in which the transaction is likely to alter the market.  We believe that this is
a useful way of applying economic principles in most merger cases (indeed, this is the precise
purpose for which the 1992 Horizontal Merger Guidelines have been developed).  In some cases,
however, the transaction will have a greater effect on future, rather than present, market
performance.  This is especially true if a merger may be a strategic response to declining entry
barriers, in which an incumbent firm is seeking to avoid competition by eliminating a potentially
significant future competitor.  In the case of local telecommunications markets, competition is
only now emerging and a merger between a current monopolist and one of the new competitors
may have a substantial adverse impact on future market performance even though the new
competitor currently has only a small number of customers.

     97.  When faced with a proposed merger that affects markets that are themselves in a
process of rapid change (e.g., where competition is emerging as a result of regulatory change, or
where necessary technology and resources are only beginning to be deployed), the best way to
analyze the likely effect of the merger is to isolate the effect of the merger from all other factors
affecting the development of the relevant markets over time.  This is achieved by framing the
analysis in a way that holds constant the effects of all changes in market conditions other than
those directly caused by the merger.  An example of our use of this approach in analogous
circumstances is the analysis we used to assess the likely competitive effects of particular
outcomes in the auction of Direct Broadcast Service ("DBS") spectrum.  When we conducted
that analysis, we assumed that the spectrum being auctioned would be deployed, and compared
the ways in which the identity of the licensee could affect market development.  Such an
approach, when applied to the merger before us, would remain faithful to the structure of the
1992 Horizontal Merger Guidelines (i.e., by examining the effect of the merger on market
structure and competition) while assuming an appropriate set of market conditions (i.e., emerging
competition in telecommunications markets due to the implementation of the 1996 Act).  

     98.  To isolate the effects of the merger, we first assume that the key local competition
provisions of the 1996 Act, are being implemented, and that new entrants take advantage of the
opportunities created by these provisions to enter markets from which they have historically been
precluded.  Although we could also isolate the effect of the merger by looking at markets as
they existed prior to the first effects of the local competition provisions of the 1996 Act, such an
approach would be inconsistent with the competitive paradigm established by the Act and would
be unlikely to reveal the extent to which the merger is likely to affect future market structure,
conduct, and performance.  Our analysis also assumes that both Bell Atlantic and NYNEX have
received authorization to provide in-region interexchange services pursuant to Section 271 of the
Act.  Finally, we consider whether entry and expansion by other firms (in response to the merger)
may alter the merger's effects.  

     99.  In evaluating the competitive effects of the proposed merger between Bell Atlantic
and NYNEX, we first analyze the competitive effect in LATA 132, and then use these findings
as a proxy for the likely competitive effects of the merger on the broader New York metropolitan
area.  Based on the data provide by the applicants, we include precluded competitors as
participants in the relevant markets, with AT&T, Bell Atlantic, MCI, and Sprint joining NYNEX
(currently the sole provider throughout most of LATA 132) as the most significant participants in
the market for local and exchange access services provided to the mass market (residential and
low-volume and medium-volume (collectively, small business) customers) in LATA 132.  We
also include NYNEX in the market for interexchange services in LATA 132, which means that it
and other competitors in the market can offer bundled local and interexchange services in
LATA 132.  Finally, we include Bell Atlantic in the market for interexchange services in New
Jersey, which means that it can offer bundled services in northern New Jersey as well as LATA
132.

     100.  Based on our review of the record, we find that it likely that the proposed merger
will limit or retard the development of competition.  The evidence demonstrates that, by
removing one of the five most significant market participants, the merger is likely to: 
(1) increase firms' ability to exercise market power unilaterally in the market for local mass
market services in LATA 132; (2) increase firms' ability to exercise market power unilaterally in
the market for bundled local and interexchange services in LATA 132; (3) increase the likelihood
that firms will exercise market power through coordinated interaction; and (4) adversely affect
the dynamic development of competition in both local and bundled markets in LATA 132.  The
presence of other, less significant market participants is not likely to constrain such behavior. 
We also find that additional entry that could occur in response to an exercise of market power is
unlikely to have a constraining effect on such an exercise of market power.  Finally, we conclude
that the commitments made by Bell Atlantic, and made a condition of our approval of the
merger, mitigate, but do not fully offset, the potential adverse effects of the merger on consumers
in the relevant markets.

      1.Effect of the Merger on Unilateral Conduct 
     by Providers of Mass Market Local Services

     101.  A merger that eliminates a significant market participant may increase the unilateral
market power of the acquiring firm as well as other competitors, enabling such market
participants acting individually to raise prices, reduce quality, or restrict output profitably. 
Such effects can occur even under price cap regulation since the removal of an independent
alternative may permit a firm in the post-merger market might profitably and unilaterally reduce
its level of service quality or innovation, or offer smaller price reductions than it would have
offered in the absence of the merger.  This is particularly true where the firms in the market are
offering products that are perceived by consumers as differentiated, rather than as perfect
substitutes.  

     102.  With respect to the merging firms, a merger may lead to particularly strong
increases in the acquiring firm's ability to affect market performance unilaterally where the
merging firms' services are very close substitutes for each other.  As set forth in the 1992
Horizontal Merger Guidelines, "[a] merger between firms in a market for differentiated products
[such as brand-name services] may diminish competition by enabling the merged firm to profit
by unilaterally raising the price of one or both products above the pre-merger level. . . . .  The
price rise will be greater the closer substitutes are the products of the merging firms, i.e., the
more the buyers of one product consider the other product to be their next best choice."  In
simple terms, if the services offered by Bell Atlantic and NYNEX would be viewed as close
substitutes by significant numbers of customers, the merger of the two firms can remove the
strongest constraint on the acquiring firm's ability to raise prices (or restrict output and/or
quality).

     103.  With respect to other market participants, a merger that eliminates a market
participant can also increase these other firms' incentives to behave less competitively.  This
occurs when the merger eliminates an alternative set of services to which customers could turn if
their current provider were to raise its prices or reduce the quality of its services.  To the extent
the eliminated services are viewed as less close substitutes for other competitors' services than
for the acquiring firm's services, the unilateral effects with respect to other competitors will be
less strong than with respect to the acquiring firm.

     104.  Analysis of unilateral effects may also consider any unique capabilities the merging
firms may bring to the market, such as access to the technical facilities that are needed to provide
service, a reputation for providing quality service, and the financial ability to expand as market
opportunities present themselves.  As markets open, we expect different market participants
initially to possess different combinations of assets.  One may be particularly skilled at network
operation, another at marketing and sales, and so on.  A significant precluded competitor is likely
first to exploit any area(s) in which it has a relative advantage while it increases its abilities with
respect to those in which it does not.  Firms with similar advantages would tend to compete for
the same customers and, therefore, exert relatively more competitive pressure on the market. 
Consequently, a merger of two firms that consolidates a particular kind of asset, especially an
asset that is difficult to replicate in the short run, likely will reduce competition.

     105.  Under the proposed merger, Bell Atlantic will join forces with NYNEX, the
incumbent LEC in LATA 132, rather than compete head-to-head with NYNEX and other market
participants in LATA 132.  We find that the elimination of Bell Atlantic as an independent
significant market participant likely will increase the unilateral market power of NYNEX and the
major IXCs for several reasons:  (1) mass market customers place a premium on reputation of
local exchange and exchange access services; (2) the mass market local exchange and
exchange access services that would be offered by NYNEX, Bell Atlantic, and the three major
IXCs will be differentiated from competing services by brand name reputation; (3) mass
market local exchange and exchange access services offered by Bell Atlantic would be an
important substitute (or "second choice") for the services of NYNEX and the three major
IXCs; (4) Bell Atlantic possesses significant advantages for competition in the relevant
markets that are not possessed to a comparable degree by the other most significant market
participants; and (5) other, less significant, market participants will not soon be able to offer
close substitutes for the services offered by Bell Atlantic and the major IXCs in the relevant
markets because they lack the brand name assets that differentiate significant market participants.

     106.  Following the merger, Bell Atlantic's services will be eliminated as an independent
alternative in the relevant markets.  Contrary to the arguments made by the Applicants, the
evidence presented in the record demonstrates that services offered by Bell Atlantic would
contribute substantially to the development of competition in LATA 132.  These services are a
"second choice," i.e., closest substitute, with respect to the services of other participants for a
significant percentage of customers.  The evidence also demonstrates that significant numbers
of customers prefer Bell Atlantic in head-to-head comparisons with other market participants. 
One reason Bell Atlantic may be viewed as such a strong second choice is its unique position
among precluded competitors as a known provider of local (as opposed to long distance)
telecommunications services.  Bell Atlantic currently markets itself to its local exchange and
exchange access customers using the same media as NYNEX uses to reach its own customers in
LATA 132.  Due to Bell Atlantic's extensive marketing through the principal media outlets
that serve LATA 132, we believe it is reasonable to conclude that Bell Atlantic has a certain
measure of reputation in the market as a local telephone company, which is something that it
shares only with NYNEX among the firms that are participants in the markets for mass market
local and bundled telecommunications services in LATA 132. 

     107.  We also disagree with the Applicants, and find that Bell Atlantic possesses unique
advantages not possessed by other market participants.  Unlike AT&T or MCI, Bell Atlantic has
substantial experience serving mass market customers of local exchange and exchange access
services (as does Sprint, but not in the New York metropolitan area).  We also agree with AT&T
that an incumbent LEC entering an out-of-region local market would bring particular expertise to
the interconnection negotiation and arbitration process because of its intimate knowledge of local
telephone operations.  Finally, we find that the competitive assets possessed by Bell Atlantic
are unlikely to be quickly duplicated by smaller market participants, such as cable operators and
CAPs.  As discussed above, it is costly and time-consuming to acquire the brand name assets,
particularly a reputation for providing high quality telecommunications services, that
differentiate the most significant participants offering mass market telecommunications services
in LATA 132.  

     108.  In sum, the merger eliminates one of just four new significant market participants,
and one that is the "second choice" alternative for a significant number of customers. As a result,
the merger as proposed (without commitments) appears likely to increase the risk that a carrier
may find it profitable to exercise unilateral market power in the relevant markets.  The
commitments made by the companies, and made a condition of our approval, however, go a long
way to addressing this loss of customer choice by making it easier for firms remaining in the
market and firms entering the market to expand quickly and offer services in competition with
those offered by other providers.  

     109.  Other Arguments That the Merger Will Adversely Affect Local Competition.  MCI
and TCG assert that the proposed merger and the likely subsequent entry of the merged entity
into in-region long distance service will permit strategic conduct to inhibit competition in the
local exchange and exchange access market.  First, MCI argues that the merged entity will rely
entirely on itself to provide exchange access services to its long distance affiliate within its home
region.  Accordingly to MCI, this could foreclose competition in the local market by shrinking
the amount of access charges other would-be entrants could earn by supplying switched access
services.  Second, both MCI and TCG claim that the merged entity will bundle exchange access
and interexchange services into "packages," thus solidifying its control in the local exchange
market.  Cablevision makes a similar argument with regard to bundling video and telephone
services.  

     110.  We are unpersuaded by MCI's first argument about foreclosure of competition
through self-selection for the provision of switched access services.  Although it is true that
interexchange carriers can, and often do, select providers of transport services (to and from LEC
central offices), for most of the rest of the switched access charges they pay, the IXCs are unable
to choose a carrier other than the LEC chosen by the end user -- it is the end user and not the IXC
that determines the identity of the primary access provider.  For the most part, therefore, the
share of access charges that the Applicants can earn remains unchanged by the merger.  Under
the proposed merger, the merged entity will lose access payments as precluded competitors gain
customers and minutes of local exchange traffic.  Accordingly, MCI's foreclosure argument does
not present anything that we are not considering in our analysis of the effect of the merger on the
development of competition in LATA 132.

     111.  With respect to transport services, there are already a number of competitors
offering such services, and individual interexchange carriers (including MCI) often choose
particular providers to carry large amounts of traffic on a dedicated basis.  If, after receiving
interexchange authority under Section 271, the merged entity's interexchange affiliate similarly
chooses a particular provider of transport services, it will simply be operating like other firms in
the market, particularly while its share of traffic is relatively modest.  Moreover, MCI can also
self-provision interstate, interexchange transport services on an exclusive basis by becoming a
competitive LEC through the procedures in the 1996 Act or by establishing arrangements
pursuant to our expanded interconnection rules.

     112.  With regard to the second argument, concerning the bundling of services into
packages composed of local exchange, exchange access, interexchange, and other services such
as video or Internet, we initially note that commenters have not provided any example of a way
in which the merger increases the ability of Bell Atlantic or NYNEX to bundle services. 
Balanced against any possible harm to competition (whether in the local exchange market or in
the market for the service bundled with local exchange service), is the consumer benefit
associated with bundling -- a form of one-stop shopping -- which is considered desirable by
many customers.  The balancing of these issues involved with bundling is one of the principal
subjects of rules such as the accounting and non-accounting safeguards provided by Section 272
of the 1996 Act and the rules promulgated thereunder, and opponents have not presented any
reason for reconsidering that balance in the context of the proposed merger.  In addition, we
note that the merged entity will not have an exclusive ability to create such packaging.  We
believe that, by using the entry routes contemplated by the 1996 Act, MCI and other market
participants also will be capable of offering one-stop shopping.  The customers who want one-
stop shopping may choose the combined services of the merged entity or those of one of its
competitors.  

     113.  The Conditions on Our Approval of the Merger Substantially Address the
Unilateral Exercise of Market Power.  The commitments made by Bell Atlantic, which we have
made conditions of our approval of the merger, help to mitigate the ability of the merged entity
unilaterally to exercise market power.  They also address the likelihood that other market
participants may be able to behave less competitively as a result of the merger.  In particular,
those conditions increase the likelihood that precluded competitors that are not currently among
the most significant market participants will become such significant participants.  They reduce
the risk to competitors of receiving inferior access and interconnection from Bell Atlantic-
NYNEX; they reduce the time and expense associated with OSS development; they make it more
feasible to use unbundled transport facilities, permitting smaller scale deployment of facilities;
and they facilitate the ability of competing carriers to make investment and pricing decisions
based on a cost structure that more accurately reflects the true economic cost of the facilities and
services obtained from Bell Atlantic-NYNEX.  Thus, the conditions increase the ability of
precluded firms to become significant market participants, and the speed with which they may do
so.  Therefore, the potential harm to consumers through the unilateral exercise of market power
brought on by the elimination of Bell Atlantic as a significant market participant will be reduced,
and will be more quickly addressed. 

      2. Effect of the Merger on Unilateral Conduct by 
     Providers of Mass Market Bundled Services

     114.  For the same reasons that the proposed merger would likely have unilateral effects
in the relevant markets for local exchange and exchange access services, the proposed merger is
likely to have effects in a market for bundled local and long distance telecommunications
provided to residential and small business customers.  The evidence in the record demonstrates
that many of these mass market customers would like to purchase both local and long distance
telecommunications services as part of a single bundled service.  Therefore, we must also
consider the extent to which the merger may adversely affect market performance in the bundled
service market in LATA 132.  For the most part, this analysis does not differ from the analysis in
the prior section of competitive effects in the local exchange market.  Arguments raised in
opposition to the merger, however, present an additional concern.  The merging parties control
facilities and services that are essential for providers of interexchange telecommunications
services, and those services are an integral component of the bundled services that may emerge
as a relevant market.  Accordingly, we must consider whether the merging parties would gain an
increased ability to price strategically to inhibit competition among interexchange service
providers and, thereby, adversely affect market performance in the bundled service market.

     115.  Price Squeeze Concerns.  Opponents to the proposed merger have raised arguments
about a particular form of strategic pricing involving the applicants' monopoly control over
bottleneck local loop facilities to inhibit competition from long-distance rivals.  AT&T and MCI
argue that, once the merged entity begins selling in-region lo