WPCIg 2 BJZ^Courier3|x w RomanTimes New Roman BoldTimes New Roman ItalicCG TimesHP LaserJet 5Si in 528HPLAS5SI.PRSx  @\!X@CourierTimes New RomanTimes New Roman BoldTimes New Roman ItalicCG TimesGaramond Antiqua ÍX01Í Í#Xj\  P6G;ynXP#2B<pTCourierTimes New RomanCourierTimes New RomanTimes New Roman BoldTimes New Roman ItalicCG TimesGaramond AntiquaGaramond HalbfettSSSS9?/SSxSSIP!PZ9+ZM999+999999S9S/xIxIxIxIxIlnIgIgIgIgI9/9/9/9/xSxSxSxSxSxSxSxSxSxSxIxSxRxSxSxS]SxIxIxInInInZnIxigIgIgIgIxSxSxSxZxSxZxS9/9S999Su]ZZxSg/gCg9g9g/xSbxSxSxSxSxn9n9n9]?]?]?]ZgFg/gMxSxSxSxSxSxSxxZgIgIgIxSg9xS]?g9xSi+SS88WuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuuxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN8HH"&H>XHH8HB8>HH^HH>"".2",2,2,"222N2222"&22H22,006"6."""""""""2"2H,H,H,H,H,XAB,>,>,>,>,""""H2H2H2H2H2H2H2H2H2H2H,H2H1H2H2H282H,H,H,B,B,B6B,H?>,>,>,>,H2H2H2H6H2H6H2""2"""2F866H2>>(>">">H2;H2H2H2H2XHB"B"B"8&8&8&86>*>>.H2H2H2H2H2H2^HH6>,>,>,H2>"H28&>"H2?22!!WFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFFxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxN$<<$.2",2222`2 LL2 LL2L"",,2d""X f yO'ԍU S West comments at 11. K U S West contends that the Commission applied the doctrine to private line and MTS services in the mid1980s because AT&T then faced emerging, not full or substantial, competition. U S West further asserts that, in the  X4OCP Guidelines? f {O& 'ԍGuidelines for Dominant Carriers' MTS Rates and Rate Structure Plans, CC Docket No. 841235,  {O 'Memorandum Opinion and Order, 59 Rad.Reg.2d 70 (1985) (OCP Guidelines). case, the Commission recognized it would not be wise to prevent AT&T from responding to competition prior to the market becoming "fully competitive" as this  Xa4would send erroneous signals to the marketplace, resulting in inefficient competitive entry.I@aD f yOV'ԍU S West comments at 11.I U S West additionally claims that failure to permit SWBT to respond to competition for its high revenue, low cost customers will cause SWBT to lose revenue, eventually endangering its ability to provide universal service.  X 425.` ` In opposition to Transmittal No. 2633, MCI and AT&T argue that in deciding  X 4the Interexchange Order,A  f {O\'ԍCompetition in the Interstate Interexchange Marketplace, CC Docket No. 90132, Report and Order,  {O&'6FCC Rcd 5880, 5897 (1991) (Interexchange Order). which held that AT&T could offer contract tariffs only upon a showing that substantial competition existed for the longdistance services that could be included in the contract tariff, the Commission effectively abandoned the competitive necessity doctrine for individualized offerings, and replaced it with a substantial competition  X}4standard.YB}0 f yO^'ԍMCI comments at 78; AT&T comments at 5.Y AT&T contends that allowing the pricing flexibility sought by SWBT here might stifle the emerging competition for access services before competitors can gain a meaningful  XO4foothold in the market.DCO f yO'ԍAT&T comments at 7.D Time Warner argues that high local entry barriers in combination with new entrants' disproportionate reliance on a small number of large customers make strategic pricing by dominant LECs especially threatening to emerging competition in the  X 4local market context.MD P f yO #'ԍTime Warner comments at 14. M In contrast, Time Warner asserts, once an incumbent LEC faces substantial competition, and new entrants have sunk the costs required to enter the local"D0*&&aa"  X4market on a widespread basis, strategic pricing is unlikely to be successful.NE f yOy'ԍTime Warner comments at 14. N  X426.` ` Sprint states that SWBT has provided no evidence that the local access market is subject to meaningful competition or that SWBT is close to the degree of private line competition AT&T faced in 1984. Sprint further notes SWBT has furnished market figures only for Dallas and Houston, and only for high capacity service, whereas the market share given for AT&T reflects competition for switched services in general, not the discrete private  X_4line market segment.FF_X f yOh 'ԍSprint comments at 6.F Time Warner asserts that SWBT's citation of market penetration by competitors is misleading. It states SWBT's share of the entire market for access services, as opposed to its share of the market for high capacity services, is much higher today than was  X 4AT&T's share of the long distance market in 1984.QG  f yO'ԍTime Warner comments at 16 n.31.Q AT&T states that although SWBT may have presented data that there is emerging competition for high capacity access services in Dallas, SWBT retains the overwhelming share of the market in other major cities in its  X 4serving area, including St. Louis (85%) and Kansas City (93%).JH\ x f {O'ԍEx parte, Letter from Charles Griffin, AT&T to William F. Caton, Acting Secretary, Federal  {O'Communications Commission, November 7, 1997 (citing SWBT Transmittal No. 2622, filed March 25, 1997, Southwestern Bell HICAP Track, Third Quarter 1996, p. 7).J  X 427.` ` MCI argues that, to obtain the relief it seeks, SWBT must file a waiver petition and prove that competition exists within a defined geographic area, like the showings of  Xy4NYNEX in the Universal Service Preservation Plan Order,<IZy f yO'ԍ10 FCC Rcd 7445. In this order, the Commission permitted NYNEX to deaverage certain access charge elements in LATA 132 after finding that "the earlier monopoly environment has eroded to a sufficient degree" in  {OV'that LATA. Id. at 7462.< and Ameritech in the Customers  Xd4First Order.HJd f yO'ԍ11 FCC Rcd 14028.H  X8428.` ` Time Warner further argues that today's access market differs markedly from the long distance market of the 1980s. It argues that, unlike postdivestiture AT&T, today incumbent LECs such as SWBT are the sole suppliers of facilities essential to the success of their competitors, such as reasonably priced collocation and operations support systems  X4(OSS).OKN f yO$'ԍTime Warner comments at 1011.O According to Time Warner, to encourage cooperative behavior by incumbent LECs, the Commission must withhold pricing flexibilities such as competitive necessity until"K0*&&aaK"  X4incumbent LECs prove they furnish needed competitive inputs to their competitors.OL f yOy'ԍTime Warner comments at 1213.O Time Warner contends there is no way for the Commission to use competitive necessity to prevent predatory and strategic pricing by incumbent LECs prior to development of adequate  X4competition.MMX f yO'ԍTime Warner comments at 13. M As noted above, Time Warner believes strategic pricing remains likely until substantial competition for access services exists.  Xv429.` ` Time Warner contends the law review article cited by SWBT in its Direct Case is inapposite because lower entry barriers existed in the long distance market of the 1980s. In contrast, facilitiesbased competition, which requires high sunk costs, remains the only viable  X14source of competition to incumbent LEC access services.LN1 f yO 'ԍTime Warner comments at 15.L Time Warner argues that resale, a significant source of competition to AT&T during the 1980s, is less threatening to incumbent LECs today because resale requires functioning OSS, which must be provided by the  X 4incumbent LEC.OO x f yO'ԍTime Warner comments at 1415.O  X 430.` ` Time Warner additionally notes that the Commission already has granted incumbent LECs significant pricing flexibility to enable these companies to respond to competition. This flexibility includes eliminating the lower price bands for access services, allowing substantial volume and term discounts, and permitting geographic deaveraging for switched transport services. Time Warner refutes SWBT and U S West's arguments about inefficient entry by new entrants. According to Time Warner, the new entrants' knowledge that the Commission will likely grant additional pricing flexibilities will deter SWBT's  X4competitors from engaging in inefficient entry.RP f yO'ԍTime Warner comments at 15, n.29.R Time Warner asserts that the existence of two alternative providers of high capacity service is insufficient evidence of competition for the Commission to make a determination about whether SWBT should be allowed to employ  X4RFP tariffs that are anticompetitive.LQ f yO! 'ԍTime Warner comments at 16.L Instead, Time Warner argues that the Commission should examine the competitiveness of other services SWBT provides over the same facilities (including supply and demand and prices SWBT has charged under price caps) to determine opportunities for crosssubsidy, similar to the inquiry that the Commission engaged in prior to granting contract tariff authority to AT&T. According to Time Warner, allowing competitive necessity pricing prior to conducting such an inquiry might permit SWBT to lower the price it charges for high capacity service by overallocating joint and common costs to other services. "N( Q0*&&aa" Time Warner believes the Commission also would need to define properly the geographic markets at issue in order to prevent SWBT and other incumbent LECs from utilizing competitive necessity to misallocate joint and common costs from competitive to non X4competitive markets.LR f yO4'ԍTime Warner comments at 16.L  X'` ` b. Discussion (#  X_431.` ` We find for the reasons detailed below that the competitive necessity doctrine  XH4does not provide a defense for any of the violations at issue here.vSZHX f yOQ 'ԍIn this Order, we conclude that Transmittal No. 2633 violates section 202(a) and our rules requiring rate averaging. Because these grounds are sufficient for rejecting the tariff, we do not reach the issue of whether the  {O 'Transmittal violates other rules as well. See Section IV.A.3., infra. v Specifically, we find that Commission precedent does not address the specific circumstances at issue here and therefore does not require application of the competitive necessity doctrine for the individualized tariff offerings that Transmittal No. 2633 would permit. Moreover, because of our concerns about facilitating the development of competition and preventing foreclosure or deterrence to market entry by new entrants, we decline, based on the record here, to apply the competitive necessity defense to Transmittal No. 2633, a customerspecific tariff offering that is not available to similarly situated customers.  Xy'` ` (1) Commission precedent does not require application of the competitive necessity doctrine to tariffs that are not generally  XK4available. (#  X432.` ` Contrary to the arguments advanced by SWBT, we do not find that past Commission precedent requires the conclusion that SWBT is entitled to invoke the competitive necessity doctrine in defense of Transmittal No. 2633. Commission precedent reveals instead that this agency has rarely applied the competitive necessity doctrine as a defense for otherwise discriminatory rates or practices, particularly in the context of offerings that were not generally available to similarly situated customers. In those rare instances when the Commission has considered the doctrine as a defense for tariff offerings that were not generally available to similarly situated customers, the Commission rejected the proposal as unlawfully discriminatory in violation of section 202(a), finding that the carrier was unable to  XN4satisfy its burden under the competitive necessity doctrine.sTNz f {Oy"'ԍSee DS3 ICB Order, AT&T CPP Order, infra.s We discuss below those cases that form the history of the Commission's consideration of the competitive necessity doctrine as a defense to claims that a carrier's proposed rates were unjust and unreasonable. "  T0*&&aa"Ԍ X4 33.` ` Telpak Proceedings. In the Telpak proceedings in the 1960's and 1970's, the Commission permitted AT&T to invoke the competitive necessity doctrine on multiple occasions as a possible defense to allegations that proposed volume discounts for certain  X4"private line" services were discriminatory.U f {O6'ԍSee American Tel. and Tel. Co. Tariff F.C.C. No. 250, TELPAK, Tentative Decision, 38 F.C.C. 370,  {O'Final Decision, 37 F.C.C. 1111 (1964); Telpak Tariff Sharing Provisions of American Tel. and Tel. Co. and the  {O'Western Union Tel. Co., CC Docket No. 17457, 23 F.C.C.2d 606, 613 (June 10, 1970), aff'd in part, rev'd in  {O'part, American Tel. and Tel. Co. v. FCC, 449 F.2d 439 (2d Cir. 1971); American Tel. & Tel. Co. Revisions to  {O^'Tariff F.C.C. Nos. 260 and 267 concerning Resale and Shared Use, Transmittal No. 12715, CC Docket 20097,  {O( 'Memorandum Opinion and Order, 64 F.C.C.2d 1003, 1004 (rel. June 16, 1977), aff'd in part and rev'd in part  {O 'sub nom. Aeronautical Radio, Inc. v. FCC, 642 F.2d 1221 (D.C. Cir. 1980), cert. denied, 451 U.S. 920 (1981). Private line services provide a customer with continuous communication between fixed points without the  {O 'necessity of establishing a new circuit for each call or message. See Aeronautical Radio v. FCC, 642 F.2d 1221, 1224 (D.C. Cir. 1980). AT&T proposed the volume discounts in response to competition presented by new market entrants using new technology to provide a  X4less expensive alternative to AT&T's private line services.Vp f {O'ԍAmerican Tel. and Tel. Co. Tariff F.C.C. No. 250, TELPAK, Tentative Decision, 38 F.C.C. 370, Final Decision, 37 F.C.C. 1111 (1964). In the absence of an articulated policy regarding pricing flexibility for AT&T services, the Commission imported to address these issues the Interstate Commerce Commission's application of the competitive necessity  XJ4doctrine.HWJ f yO'ԍ38 F.C.C. at 374.H Under the Commission's application of the competitive necessity doctrine at that time, AT&T was unable to satisfy the heavy burden necessary to justify its facially  X 4discriminatory rates.fX0  Z f {O''ԍTelpak Tariff Sharing Provisions of American Tel. and Tel. Co. and the Western Union Tel. Co., CC  {O'Docket No. 17457, 23 F.C.C.2d 606, 613 (June 10, 1970), aff'd in part, rev'd in part, American Tel. and Tel.  {O'Co. v. FCC, 449 F.2d 439 (2d Cir. 1971). Specifically, the Commission stated that the carrier seeking to invoke the doctrine must demonstrate: X(1) That those benefiting from the discrimination have an alternative of satisfying their communications requirements from a substitute source of supply and that they will shift to the substitute source unless the discrimination is maintained;(# X(2) That the discriminatory rate or preference is just sufficient to retain the business which would otherwise be lost; [and](# X(3) That the discrimination benefits the users of the companies' services who are discriminated against;  {O 'i.e., charges to other users are lower because of the discriminatory rate than they would be without such rates.(#f In finding that the Telpak tariff was discriminatory and that the discrimination was not justified by the competitive necessity doctrine, the Commission ruled" RX0*&&aa "  X4that the Telpak rates must be offered under a generally available tariff.CY f {Oy'ԍ American Tel. & Tel. Co. Revisions to Tariff F.C.C. Nos. 260 and 267 concerning Resale and Shared  {OC'Use, Transmittal No. 12715, CC Docket 20097, Memorandum Opinion and Order, 64 F.C.C.2d 1003, 1004 (rel.  {O 'June 16, 1977), aff'd in part and rev'd in part sub nom. Aeronautical Radio, Inc. v. FCC, 642 F.2d 1221 (D.C.  {O'Cir. 1980), cert. denied, 451 U.S. 920 (1981). See also American Tel. & Tel. Co. v. FCC, 572 F.2d 17, 2324  {O'(2d Cir.), cert. denied, International Business Machines Corp. v. FCC, 439 U.S. 875, 99 S.Ct. 213, 58 L.Ed.2d 190 (1978) (upholding Commission policy of unlimited Telpak sharing as remedy to unlawful discrimination under Telpak). C The Court of Appeals upheld the Commission's strict application of the doctrine to AT&T's discriminatory  X4rates.jZ f {O 'ԍAmerican Tel. and Tel. Co. v. FCC, 449 F.2d at 450.j  X4!34.` ` Private Guidelines Order. In early 1984, with the implementation of the AT&T divestiture and the initiation of LEC access tariffs, the Commission also considered the availability of competitive necessity as a defense against charges of otherwise unlawful  X_4discrimination.[ _ f yO'ԍAlthough the Commission had adopted rigid rate structure rules governing the provision of the new switched access service provided by LECs, effectively prohibiting the use of volume discounts for switched access service, it had not adopted rate structure rules for special access service and had no comparable rules to govern AT&T private line services. In the Private Line Guidelines Order, the Commission promulgated certain guidelines for review of proposed volume discounts in the generally available tariffs for  X34unswitched services offered by AT&T (private line) and the LECs (special access).&\ 3 f {Op'ԍPrivate Line Guidelines Order, 97 F.C.C.2d at 925. The guidelines included: (1) rate structures for the same or comparable services should be integrated; (2) rate structures for the same or comparable services should be consistent with one another; (3) rate elements should be selected to reflect market demand, pricing convenience for the carrier and customers, and cost characteristics; a rate element which appears separately in one rate structure should appear separately in all other rate structures; (4) rate elements should be consistently defined with respect to underlying service functions and should be consistently employed through all rate structures; and (5) rate structures should be simple and easy to understand. The guidelines did not preclude a carrier, in a given case when a private line tariff did not comply with the guidelines, from justifying its departure  {O'from them by showing that the tariff is just, reasonable, and nondiscriminatory. Id. at 950951.& In addition, the Commission, referencing a RobinsonPatman Act competitive necessity case, found that a dominant carrier could attempt to justify a volume discount in a private line or  X 4special access offering under a somewhat relaxed version of a Telpak competitive necessity  X 4showing.R] ` f {O!'ԍId., 97 F.C.C.2d at 94748.R Under this test, which remains the Commission's most recently applied test, the dominant carrier could seek to justify such a generally available offering by demonstrating that: (1) the customers of the discounted offering have equal or lower priced alternatives that are generally available from which to choose; (2)the discounted offering responds to competition without undue discrimination; and (3) the discount contributes to reasonable rates"}]0*&&aa/"  X4and efficient services for all users._^ f {Oy'ԍSee Id., 97 F.C.C.2d at 948._ In the Private Line Guidelines Order, the Commission's discussion indicated only that carriers could make competitive necessity showings to attempt to justify volume discounts for generally available private line and special access services.  X4"35.` ` OCP Guidelines Order. In 1985, the Commission developed guidelines for the review of certain AT&T switched longdistance service offerings (called optional calling plans  Xx4(OCPs)) for generally available volume discounts.S_ZxZ f {O 'ԍOCP Guidelines Order, 59 Rad.Reg.2d 70. Optional calling plans (OCPs) offer discounts or reduced rates for a specified period of calling to long distance customers in exchange for the customer's commitment to a fixed monthly charge or to participate for a minimum period of service.S The Commission crafted a standard known as the "net revenues" test, which permitted discounts if a carrier could prove the  XJ4discounts contributed to its overhead over a given period.`&J| f {Ow'ԍOCP Guidelines Order, 59 Rad.Reg.2d at 8084. See also AT&T Revisions to Tariff F.C.C. No. 1,  {OA'Transmittal Nos. 3380, 3537, 3542, 3543, CC Docket No. 92-95, 7 FCC Rcd 7730 (1992) (approving AT&T calling card plan as not violating section 202(a) because the rates were generally available to any interested  {O'customer, citing OCP Guidelines Order). The Commission held its decision should not be construed as "ruling out" use of the competitive necessity doctrine where a carrier could not satisfy the net revenues test, but found that the circumstances would be rare where a carrier that could not satisfy net revenues test would be able to pass the competitive  X 4necessity test.aa j f {O 'ԍOCP Guidelines Order, 59 Rad.Reg.2d at 86.a  X 4#36.` ` DS3 ICB Order. In 1989, the Commission addressed LEC offerings of individual case base (ICB) rates for special access DS3 services, finding that ICB pricing of DS3 service raised a presumption of unreasonable discrimination under section 202(a) of the  X{4Act._b{ f {O('ԍDS3 ICB Order, 4 FCC Rcd at 86418642. _ The Commission found that the ICB DS3 services and the generally tariffed DS3 services were "like" services provided at disparate rates. The Commission found that in that instance, the simultaneous use of averaged cost rates for some facilities and individual cost  X64rates for other facilities would result in unreasonable discrimination that was unlawful.cZ6 f {Ou 'ԍDS3 ICB Order, 4 FCC Rcd at 8642 (concluding that although it "might be theoretically possible" for such an arrangement to be fair, just, and reasonable, based on the record, the LECs failed to "achieve such a result"). Although LECs argued that the competitive necessity doctrine was a defense to claims of discrimination, the Commission concluded that the LECs had failed to meet their burden under the competitive necessity doctrine, finding that the LECs had offered merely anecdotal"c0*&&aaw"  X4evidence of competition to justify the individual offerings.Zd f {Oy'ԍDS3 ICB Order, 4 FCC Rcd at 8643. Z The Commission specifically  X4ordered SWBT to convert its ICB rates for DS3 service to generally available rates._eZ f {O'ԍDS3 ICB Order, 4 FCC Rcd at 8645, 8648._  X4$37.` ` AT&T CPP Order. Also in 1989, in the AT&T CPP Order, AT&T sought to offer a discounted rate to a single customer in response to an offer to that same customer by  X4MCI.f f {O, 'ԍAT&T Communications Tariff F.C.C. No. 15 Competitive Pricing Plans, CC Docket No. 88471,  {O 'Memorandum Order and Opinion, 4 FCC Rcd 7933 (1989) (AT&T CPP Order). During the course of the litigation, MCI broadened its offer, making it generally available to all similarly situated customers. Applying the competitive necessity doctrine, the Commission held AT&T's transmittal to be unreasonably discriminatory, ruling that under the second prong of the test AT&T's offer was required to be equal in scope to MCI's. The Commission stated that it expressed no opinion regarding whether AT&T's transmittal was lawful at the time it was first filed, when MCI's offer had been limited to a single  X 4customer.Yg H f {O'ԍAT&T CPP Order, 4 FCC Rcd at 7935.Y The Commission ultimately did not reach the issue of whether singlecustomer offerings were permissible under the competitive necessity doctrine.  X 4%38.` ` AT&T's Tariff 15. In 1991, AT&T raised the issue of competitive necessity in the context of customerspecific offerings by filing its Tariff 15. This tariff proposed to  X4permit AT&T to match individual competitors' offers brought to it by customers. In Resort  X}4Condominiums International (RCI Order), the Commission rejected AT&T's attempt to justify belowtariff rates. Not reaching AT&T's competitive necessity argument, the Commission  XQ4ruled that Tariff 15 represented an anticompetitive price signalling scheme.>h\Q f {O'ԍAT&T Communications Tariff F.C.C. No. 15, Competitive Pricing Plan No. 2, Resort Condominiums  {O'International, CC Docket No. 9011, 6 FCC Rcd 5648, 5649 (1991) (RCI Order), remanded in an unpublished order (D.C. Cir., Jan. 21, 1992).> Specifically, the Commission found that the pricing mechanism created under Tariff 15 had the effect of ensuring that AT&T's competitors had an understanding that, so long as they maintained their rates at a certain level, they would not trigger a rate reduction by AT&T. In addition, the Commission found that Tariff 15 limited the scope of competition by permitting rate reductions only in response to reductions initiated by competitors, and also by limiting its  X4response merely to matching the competitor's price cut.i&" f {Ov#'ԍRCI Order, 6 FCC Rcd at 564950. Later in 1991, the D.C. Circuit granted AT&T's motion for a stay  {O@$'of the RCI Order. The D.C. Circuit's threesentence order granting the stay stated that AT&T "demonstrated satisfaction of the stringent standards required for a stay pending court review," but did not otherwise explain  {O%'why the court granted AT&T's motion. In its brief, AT&T argued, inter alia, that the Commission had erred by"%h0*&&%"Ԍrelying on a price matching theory in rejecting Tariff 15. According to AT&T, the competitive necessity doctrine, as established under general antitrust law, justified Tariff 15. In 1992, the D.C. Circuit granted the  {O 'Commission's motion for a voluntary remand of the RCI Order. Ultimately, the tariff at issue in the RCI Order, along with several similar AT&T tariffs based on competitive necessity, went into effect by operation of law."i0*&&aa"Ԍ X4ԙ&39.` ` SWBT RFP Order. In 1995, in the SWBT RFP Order, involving an SWBT RFP tariff similar to this one, the Commission did not find that the competitive necessity doctrine provided a defense to discrimination charges in situations involving customerspecific  X4tariffs. Rather, stating that it had never addressed the applicability of the competitive necessity doctrine to dominant LEC special access services, the Commission assumed  X4arguendo that the doctrine applied, but found SWBT failed to meet the defense's  Xz4requirements.Njz f {O 'ԍSBC RFP Order, 11 FCC Rcd at 1220. See also GTE Telephone Operating Companies, 11 FCC Rcd 3698 (Com. Car. Bur. 1995) (rejecting RFP tariff on vagueness grounds without reaching competitive necessity  {Oo 'doctrine issue). SWBT appealed the SBC RFP Order and the DC Circuit remanded the matter to the  {O9'Commission to resolve the difficult issues underlying the application of competitive necessity. Southwestern Bell  {O'Tel. Co. v. FCC, 100 F.3d at 1008.N  XL4'40.` ` In summary, our precedent does not compel us to apply the competitive necessity doctrine in this case. In the overwhelming majority of our cases in which we considered the doctrine, the proposal involved tariffs that were generally available to similarly situated customers. In those rare instances that the Commission has applied the doctrine in the context of individualized offerings not generally available to similarly situated customers, the Commission rejected the proposals as unlawful without reaching the question of whether the doctrine even should be available to carriers proposing individualized offerings. In this case, we will directly address whether the competitive necessity doctrine should be available  X4here.{kj f {O'ԍ This is in contrast to the Commission's approach in the RCI Order.{ For the reasons explained below, the public interest in this case requires that we not apply the competitive necessity doctrine to Transmittal No. 2633.  XO'` `  (2).` Serious public interest concerns presented by Transmittal No. 2633 require that we prohibit SWBT from using the  X!'competitive necessity doctrine as a defense in this situation. (#  X4(41.` ` The Act, as amended by the 1996 Telecommunications Act, directs the Commission to establish rules and policies that remove barriers to entry in the local exchange and exchange access marketplace. Competition in these markets will lead to lower prices and better quality service. The benefits of a competitive marketplace can be derailed, however, by the practices of dominant carriers improperly seeking to retain their position in the marketplace through anticompetitive means. "i k0*&&aa="Ԍ X4)42.` ` Based on this record, we are concerned that Transmittal 2633 may permit SWBT unreasonably to deter or foreclose competitive entry into the markets in which it has a monopoly. As formulated, Transmittal 2633 allows SWBT a virtually unlimited opportunity to preempt new market entrants in its territory by reducing rates to individual customers to which it believes new entrants may make offers, without making those rates available to similarly situated customers elsewhere. The threat of such market foreclosure is inconsistent with our ultimate goal competition for the provision of access service and the deregulation  X_4of incumbent LEC access services.l_ f {O'#Xj PynXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#X PɒP#эAccess Charge Reform NPRM, 11 FCC Rcd at 21363; Access Charge Reform Order, at para. 273. Thus, absent a more persuasive showing of competition than exists in the record here, we find that the potential for SWBT to use this targeted tariff to deter market entry into its local exchange and exchange access market or to drive recent entrants from the market warrants a finding that offerings under Transmittal No. 2633 would be unreasonably discriminatory, the competitive necessity doctrine should not be available and, therefore, that Transmittal 2633 is unlawful.  X 4#XP PynXP#*43.` ` The CustomerSpecific Nature of Transmittal No. 2633. Transmittal No. 2633 sets forth a structure permitting the carrier to file specific rate quotes in response to RFPs.  X4The proposed tariff would permit SWBT to file "applicationspecific rates," i.e., rates not available in its generally available tariffs, in response to a customer RFP so long as the customer indicates in its RFP "that the request involves a competitive situation." Under the tariff, the entire definition of an RFP is that it: "Denotes a written request from a customer for a competitive bid on a service to be provided by the Telephone Company." Transmittal No. 2633 indicates that SWBT would make: "[t]he rates quoted to a customer in response to a RFP . . . available to any similarly situated customer that submits a RFP requesting the same service in the same quantities and at the same Central Office(s)." As SWBT explains in its supporting justification, the tariff language does not commit it to offer a special rate on all written requests that satisfy the tariff's definition of RFP. Under the tariff, a customer has "one hundred and eighty (180) days after receiving a Request for Proposal rate to order the service requested at the rate quoted." Transmittal No. 2633 would permit the use of RFP quotes throughout the SWBT service territory, though as noted, any particular quote would be for specific quantities of specific services at specific central offices.  X94+44.` ` Although SWBT claims that its tariff is "generally available to similarly situated customers," the tariff language belies this assertion. According to the tariff, the rates are only available to customers putting out written bid requests seeking the same services at the same quantities at the same central offices. We conclude, based on the restrictive language of Transmittal No. 2633 and our knowledge of the interstate access market, that the likelihood of more than the original requesting customer requiring the same quantities of the same services at the same central offices is negligible if not nonexistent. SWBT has offered no evidence to convince us otherwise. Because the terms of Transmittal No. 2633 in practice prevent the possibility of a similarly situated customer, we find that Transmittal No. 2633 is"#Zl0*&&aa!" not "generally available to similarly situated customers."   X4,45.` ` SWBT seeks the ability to offer RFP tariffs anywhere in its region without offering the discount to similarly situated customers, so long as that customer has submitted an "RFP." As defined by Transmittal No. 2633, an "RFP" is merely a written request for a  X4price quote.lm f {O'ԍSee Transmittal No. 2633, Proposed Section 29.129.2.l Such an approach could readily lead to numerous arrangements resulting from bilateral negotiations between customers seeking to obtain service at prices below tariffed  X_4rates and incumbent carriers, rather than bona fide competitive RFP procedures.n_Z f yOj 'ԍIndeed, the Coastal competitive bid request specifically contemplates such extended negotiations. Thus, it could be relatively easy for specific longdistance carriers to transfer their access purchases from a tariffed basis to a contract basis. Transmittal No. 2633 would permit SWBT to offer or decline to offer such rates to customers if, in its sole judgment, it determines that a  X 4"competitive situation" exists.bo  f yO'ԍTransmittal No. 2633, Proposed Section 29.129.2.b In light of the record before us, we decline to grant an incumbent LEC the unfettered ability to decide when to offer its interstate access services pursuant to individually negotiated contracts rather than pursuant to generally available access tariffs subject to Commission rules that further our public interest goals, such as competition and deregulation.  X{4-46.` ` Evidence of Competition in this Record. SWBT's evidence of competition to justify Transmittal No. 2633 consists of the following: (1) "RFPs" consisting of one to two  XM4page letters from two customers, with onepage attachments;HpMz f yOx'ԍD&J at Attachments 34.H (2) customer anecdotes, set forth in footnote 16 of the Description and Justification filed with Transmittal No. 2633, from a study commissioned by SWBT in 1993, in which SWBT customers state they would like to  X4see SWBT be permitted to offer belowtariff rates;@q  f yO'ԍD&J at 11 n.16.@ (3) tariff pages from MFS and TCG tariffs purporting to demonstrate that these companies offer equal or lowerpriced competitive  X4alternatives;r f yO% 'ԍSWBT Direct Case at Exhibit A. SWBT also states that American Communications Service, Inc. and  {O 'MCImetro Access Transmission Services, Inc. operate in Dallas and Houston. See D&J at 78. (4)a quotation from a Time Warner promotional brochure describing Time Warner's SONET ring network in Indianapolis, and a quotation from an MFS brochure describing that company's facilities in unspecified locations, which SWBT contends, demonstrate that the services described in the Time Warner and MFS tariff pages are comparable to the service that SWBT seeks to offer under this transmittal; (5) a letter from AT&T acknowledging SWBT's response to AT&T's request and informing SWBT that"g r0*&&aa" AT&T had decided to "pursue other options;" and (6) an assertion that SWBT has lost 43  X4percent of its share of the high capacity market in Dallas, and 38 percent in Houston.Ms f yOb'ԍSWBT Direct Case at 8, n.15.M  X4.47.` ` We agree with MCI, AT&T, and others that SWBT's evidence of competition is inadequate to demonstrate that sufficient competition exists in Dallas and Houston to justify the grant of the additional pricing flexibility that would be permitted under Transmittal No. 2633 to SWBT in those cities, much less throughout SWBT's serving area. The existence of only two RFPs and their informal nature also adds credence to the opponents' view that the requests for competitive bids may have been issued solely to gauge the extent of competition in the relevant markets. SWBT's customer anecdotes, taken from a 1993 report which SWBT did not submit into the record of this proceeding, and the MFS and Time Warner tariff pages  X 4and brochurest X f yO 'ԍ SWBT Exhibit A, MFS tariff at 3.3.2; Time Warner tariff at 8.8.1. We note that, unlike SWBT's tariff, which limits availability to customers "requesting the same service in the same quantities and at the same  {O'central office(s)," see Transmittal No. 2633, Section 29.2., the MFS and Time Warner tariffs do not contain geographic restrictions on availability. MFS's tariff provides that rates and terms may be subject to, among other things, "availability of existing MFS facilities." SWBT Exhibit A, MFS tariff at 3.3.2. Inasmuch as MFS, unlike SWBT, lacks ubiquitous facilities, we find MFS' condition to be a reasonable one. are similarly unprobative.  X 4/48.` ` SWBT's additional evidence is no more persuasive. With respect to SWBT's market share loss data, we note that in this proceeding SWBT failed either to submit its consultant's report asserting the market share losses, or to identify the docket number where this information could be found. SWBT's assertions in this record also are limited to special access services in Dallas and Houston. Yet nothing in Transmittal No. 2633 would limit SWBT from responding to competitor efforts to enter the switched access market as opposed to the special access market or from offering customerspecific RFP bids anywhere in SWBT  X44territory.u4 f yO'ԍTransmittal No. 2633, Proposed Section 29.3.4 (providing that facilities may be used for switched or special access). SWBT's showing of competition is no more persuasive than the anecdotal  X4evidence we rejected in the DS3 ICB Order.Wv* f {O'ԍSee DS3 ICB Order, supra.W  X4049.` ` Nonavailability of Competitive Necessity Doctrine. Based on this record, we find significant potential that SWBT, by offering customerspecific discounts under Transmittal 2633, may be able unreasonably to foreclose or deter entry into its markets. To enter the access market successfully, a new entrant must be able to attract a sufficient amount of business to achieve significant economies of scale. New entrants must make large upfront investments before they can begin offering service. For example, a new entrant planning to"~ v0*&&aa" offer directtrunked transport and special access would have to invest in transmission equipment, fiber, and a variety of other equipment to connect access customers with interexchange carriers (IXCs). A new entrant's decision to enter is, therefore, based on its expectation that it will be able to recover, within a reasonable time frame, its cost of these upfront investments, along with the ongoing costs of providing access services, plus a reasonable return on its investment. SWBT, being the incumbent provider, has already made such investments and has a customer base that allows it to benefit from significant economies  X_4of scale.%wX_ f yO'#Xj PynXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#X PɒP#эBecause an incumbent has already invested in facilities, a large portion of its costs are considered sunk, and should not affect pricing decisions. Only ongoing costs, or variable costs, must be covered in the shortrun once an investment is made. % Therefore, it may well be in SWBT's longterm interest to deprive entrants of the opportunity to achieve significant economies by locking in large customers using customerspecific, longterm contracts before a competitor enters on a facilities basis. SWBT may find it advantageous to offer lower prices to a few relatively large access customers even when such reductions might not, in the short term, contribute as much to profits as would a  X 4generally available tariffed rate.x$  f yO'#Xj PynXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#X PɒP#эIn this situation, SWBT would not have to price its service below its incremental cost. When new entrants have not reached a level of output where they benefit from economies of scale, their incremental costs  {O'are greater than the incumbent's. See Rasmusen, Eric B., J. Mark Armseyer, and John S. Wiley, Jr. "Naked  {O'Exclusion," American Economic Review (December 1991) Vol. 81, No. 5, pp. 11371145.  X 4150.` ` The broad geographic reach of Transmittal No. 2633 exacerbates our public interest concerns. SWBT's proposal would allow it to respond to any RFP within its region, even in areas in which new competition is incipient or is absent altogether. If the incumbent is able to develop a reputation of aggressively competing via targeted bids with recent entrants by doing so in a handful of markets, it may be able to dissuade potential entrants from entering any of its other markets. Thus, the incumbent may protect its monopoly position in  X44all of its markets by aggressively competing in markets where entry initially occurs.0y\4 f {O'#Xj PynXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#X PɒP#эOrdover, Janusz, A. and Garth Saloner "Predation, Monopolization, and Antitrust" in Handbook of  {O'Industrial Organization, Schmalensee, Richard & Robert D. Willig, eds., Vol. 1, 1989 Elsevier Science Publishers B.V., pp. 550556. 0 The ability to lower prices on a customerspecific basis anywhere in SWBT territory would make this strategy much less costly for SWBT, and would weigh heavily in a new entrant's decision to establish a facilitiesbased presence in any SWBT geographic market. Similarly, entrants that have yet to realize such economies may be forced to withdraw from the market or curtail expansion plans if SWBT is able to capture a large portion of the market through customerspecific responses to written requests for bids. Thus, we also consider here the amount of competition faced by an incumbent throughout its entire region and the openness of its markets rather than considering solely whether a single new entrant has responded to an individual customer's RFP."e y0*&&aaW"Ԍ X4ԙ251.` ` We also find that competitors are likely to have to enter SWBT's market in part by relying on the use of SWBT's network. Therefore, in evaluating Transmittal 2633, we must also consider the potential for SWBT to use its market power to foreclose or deter entry arising from SWBT's control and provision of the inputs that some of its competitors may require access to in order to compete. Allowing SWBT to respond to RFPs before its market is open to competition creates a situation where SWBT can disadvantage its rivals by denying them access to key inputs. We are therefore considering whether incumbent LECs should be required to make key inputs available at reasonable rates before they are allowed to  XH4respond to RFPs.qzH f {O 'ԍSee Access Charge Reform NPRM, 11 FCC Rcd at 21427, 21439.q  X 4352.` ` To the extent that SWBT is arguing that it should have precisely the same pricing flexibility freedoms as we accord to competitive access providers (CAPs) and other  X 4new entrants and therefore be permitted to offer Transmittal No. 2633, we disagree.F{ Z f yO'#Xj PynXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#X PɒP#эSWBT Direct Case at 2, n.2.F For example, the Telecommunications Act of 1996 specifically recognizes that incumbent LECs and new entrants are not equivalent; section 251(c) creates a series of marketopening  X 4obligations that apply to incumbent LECs but not other LECs.|  f {OB'ԍCf. 47 U.S.C.  251(c) (additional obligations imposed only on incumbent LECs) with 47 U.S.C. 251(b) (obligations imposed on all local exchange carriers). When robust competition is widespread we should do everything possible to eliminate anomalies or asymmetries between the rules applicable to incumbents and the rules applicable to new entrants. In the interim, we expect to continue to lessen regulatory constraints as competition increases. Our access charge proceeding will enable us to consider as a broader matter, beyond the record presented here, when and under what circumstances incumbent LECs should be accorded greater pricing flexibility than they already have. The present record in this case, however, incorporates no persuasive showing that SWBT is experiencing substantial competition throughout its region. In short, the regulatory treatment of CAPs and SWBT is predicated on their markedly different economic circumstances and competitive opportunities.  X4453.` ` Thus, in a competitive setting, we generally would agree that regulation of new entrants and incumbent LECs should be symmetrical, and recognize that allowing SWBT to respond to written bid requests in markets where entrants have sufficiently established themselves would result in lower prices, and presents SWBT little opportunity to take actions that may lessen competition. Based on this record, however, we conclude that SWBT is experiencing minimal competition throughout its region and the economic characteristics of CAPs and SWBT are strikingly different. First, CAPs are attempting to enter a market dominated by incumbent providers, may not have attracted a sufficient amount of business to achieve economies of scale, and are, therefore, generally unable to behave anticompetitively. "D|0*&&aa" Because CAPs face substantial competition from incumbent LECs, they are often unable to take any action that will result in a lessening of competition. In contrast, SWBT, by virtue of its incumbency, enjoys significant economies of scale, and could potentially deter entry by targeting access service offerings to a few large customers. We, therefore, generally find it in the public interest to regulate SWBT and its competitors differently to reflect the economic  X4characteristics of the marketplace.} f yO'#Xj PynXP# I. A. 1. a.(1)(a) i) a) I. A. 1. a.(1)(a) i) a)#X PɒP#эThe ability of new entrants to win customers through the use of contracts guarantees them a stream of revenues, increasing the likelihood that their entry will be successful.  Thus we conclude that, absent a more compelling showing that competition for access services exists throughout SWBT's region, allowing SWBT under Transmittal No. 2633 to respond to any written request for bids within its territory is contrary to the public interest, but find no compelling public policy reason to limit the actions of CAPs.  X 4554.` ` In conclusion, on the current record, we find that in such markets, the benefit of allowing SWBT to respond on a customerspecific basis to a written bid request as provided in Transmittal No. 2633 is outweighed by the threat that SWBT will use such pricing flexibility unreasonably to deter or foreclose entry. We recognize that this may result in SWBT losing some customers in RFP situations. Granting SWBT the ability selectively to respond with highly particularized offers to written bid requests, before new entrants have established themselves in a particular market, however, may result in SWBT deterring more efficient entrants from profitably entering the market. Thus, Transmittal 2633 may well result in less, rather than more, competition in the long run. We find that Transmittal No. 2633 is against the public interest for the reasons stated above. Because Transmittal No. 2633 is against the public interest, its discriminatory rates are unjust and unreasonable in violation of section 202(a). We further conclude that, at least until we revisit these issues in the broader context of the rulemaking proceeding, we will not apply the competitive necessity doctrine to dominant local exchange carriers who are proposing customerspecific tariffs because we find that such an application would thwart the public interest of promoting competition in the local exchange and exchange access markets.  X|4655.` ` We also reject SWBT's arguments relying on the Commission's Notice of  Xe4Proposed Rulemaking in the Regulation of Basic Services docket.Z~e  f {O6'ԍSWBT October 9, 1997 Ex Parte at 2.Z The Commission terminated that docket in 1990 in light of "sufficient changes in the telecommunications marketplace and regulation" that had occurred since 1987, including the introduction of price cap regulation for AT&T and proposals to adopt such regulation for LECs, integrated service  X 4offerings under AT&T's Tariff 12, and other changes in the interexchange marketplace.  f {On$'ԍDecreased Regulation of Certain Basic Telecommunications Services, Order, 5 FCC Rcd 5412 (1990)  {O8%'(Regulation of Basic Services NPRM). In" 0*&&aa" light of such changes that granted other significant forms of pricing flexibility, the Commission decided not to adopt its competitive bid proposal. Accordingly, the tentative conclusions of the NPRM are of no decisional significance here.  X4756.` ` The Access Reform Proceeding. In the past, the Commission has demonstrated that as competition develops, it will grant flexibility to incumbent LECs to allow them greater  Xv4freedom to address that competition.v f {O'ԍ See NYNEX Telephone Companies Petition for Waiver, Memorandum Opinion and Order, 10 FCC Rcd  {O'7445, 7462 (1995) (Universal Service Preservation Plan Order) (NYNEX permitted to deaverage certain access charge elements in LATA 132 after finding that "the earlier monopoly environment has eroded to a sufficient  {OK 'degree" within that LATA); Ameritech Operating Companies Petition for a Declaratory Ruling and Related  {O 'Waivers to Establish a New Regulatory Model for the Ameritech Region, Order, 11 FCC Rcd 14028 (1995)  {O '(Customers First Order) (permitting Ameritech to deaverage the transport interconnection and carrier common line access charges in the Chicago and Grand Rapids LATAs). In both of these cases, the carriers filed formal waiver requests and made significantly greater competitive showings for approval of less discriminatory pricing practices than that sought by SWBT here. The grant of flexibility to those carriers included competitive safeguards, such as removal of the discounted rates from the carriers' price cap calculation to ensure that other customers would not pay higher rates as a result of the discounts.  SWBT already has available to it various measures of pricing flexibility, to meet such competition, including volume and term discounts. As SWBT moves to respond to competition, it has the freedom to file new volume and term discounts  X14and new zone density rates as generally available tariffs. In the Access Charge Reform proceeding, we are considering various proposals concerning pricing flexibility for incumbent  X 4LECs. The various proposals concern, inter alia, the issues of competitive response tariffs,  X 4contract tariffs, volume and term discounts, geographic deaveraging.x" 2 f {O'ԍSee Access Charge Reform NPRM, 11 FCC Rcd at 2143221440. See id. at 21445448 (discussing possible deregulation reforms including different prices for access for different classes of end users, modifications to our rate structure rules for transport and local switching, and the consolidation of various baskets).x A more complete record may convince us that our concerns here about an incumbent LEC's ability to foreclose or deter market entry should not apply to these or similar sorts of tariffs. Based on the record before us, however, we find that Transmittal 2633 presents a significant potential for harm to the competitive market, and we, therefore, reject it as unlawful.  Xf' v3. ` ` The competitive necessity doctrine is not a defense to any violation here of the DS3 ICB Order's prohibition against dominant LECs offering tariffs on an individual case basis or of the Commission's policies concerning  X!'contract tariffs. (#`  X4857.` ` vDS3 ICB Order. Under the DS3 ICB Order, the Commission held that ICB pricing of DS3 service raises a presumption of unreasonable discrimination under section"0*&&aa"  X4202(a) of the Act._ f {Oy'ԍDS3 ICB Order, 4 FCC Rcd at 86418642. _ In the Designation Order, the Bureau questioned whether Transmittal  X4No. 2633 complied with the DS3 ICB Order's restriction on ICB tariff offerings by dominant  X4LECs.$Z f {O'ԍDesignation Order at para. 12. According to the Bureau, ICB offerings refer to the carrier practice of providing a particular service in response to a specific request from a customer under individualized rates, terms,  {Os'and conditions. Id. at para. 20 (citing "Common Carrier Bureau Restates Commission Policy on Individual Case Basis Tariff Offerings," Public Notice, 11 FCC Rcd 4001 (Com. Car. Bur. 1995)).  X4958.` ` SWBT, in its Direct Case, contends that, because it has not "filed" its RFP tariff as an ICB tariff, its RFP tariff does not violate the Commission's prohibition against  Xz4ICB tariffs for other than new offerings.IzF f yOq 'ԍSWBT Direct Case at 34.I The IXCs and new entrants disagree, stating that the individualized pricing options embodied in Transmittal No. 2633 render it an ICB tariff, and that SWBT has failed to comply with the stringent requirements that enable incumbent  X54LECs to offer ICB pricing.X5 f yO'ԍTCG comments at 67; GST Comments at 5;X Sprint and GST observe that the Commission has interpreted section 202(a) as prohibiting a carrier from pricing the same service as both ICB and non X 4ICB, and that Transmittal No. 2633 violates this policy.Y f f yO'ԍSprint comments at 4; GST comments at 5.Y In its Reply, SWBT argues that because the Commission's competitive necessity doctrine applies to Transmittal No. 2633, all other Commission rules and policies (including prohibitions against contract tariffs and ICB  X 4offerings) must be read in light of the doctrine's applicability.C f yOi'ԍSWBT Reply at 2. C It argues that to reject Transmittal No. 2633 as an unlawful contract tariff or ICB tariff without considering the  X4doctrine would be arbitrary and capricious.C f yO'ԍSWBT Reply at 23.C  Xf4:59.` ` As stated above, because of our concerns that Transmittal No. 2633 might stifle competitive entry, we conclude it would not be in the public interest to permit SWBT to invoke the competitive necessity defense to justify Transmittal No. 2633's discriminatory pricing. We have already concluded that Transmittal No. 2633 violates our rules requiring  X 4averaged rates.X  f {O#'ԍSee Section IV.A.1., supra.X SWBT does not contend that Transmittal No. 2633 fits any of the  X4exceptions that would make it a lawful ICB tariff, irrespective of competitive necessity and the average rates requirement. Because we find this tariff unlawful on other grounds, we"0*&&aa" need not reach the issue of whether Transmittal No. 2633 is also unlawful under our ICB pricing prohibitions.  X4;60.` ` The Commission's Contract Tariff Policies. In the Designation Order, the Bureau raised the issue of whether Transmittal No. 2633 violates the Commission's policy  X4prohibiting dominant LECs from offering contract tariffs.Y f {O'ԍSee Designation Order at para. 18.Y The Bureau noted that, in the  Xx4Access Charge Reform NPRM, the Commission has proposed to permit dominant LECs to offer RFP and other contract tariffs upon a showing that a certain level of competition exists in the market and has sought comment on the level of competition that must be shown to  X54exist prior to permitting incumbent LECs to offer contract and RFP tariffs.5Z f {O@ 'ԍDesignation Order, at para. 4 (citing Access Charge Reform NPRM, 11 FCC Rcd at 21439). The Bureau observed that, although the Commission ultimately may decide that LECs may offer contract  X 4and RFP tariffs, current Commission policy prohibits such tariffs,k  f {O'ԍSee Access Charge Reform NPRM at 21428, 2143921440.k and that Transmittal No. 2633 appeared to run afoul of this prohibition. The Bureau sought comment on this issue. The Bureau also observed that a finding that Transmittal No. 2633 is an RFP tariff would compel rejection of the transmittal, assuming the Commission were to find against SWBT on  X 4the issue of competitive necessity. ~ f {O'ԍSWBT argues that the competitive necessity doctrine provides a defense to this requirement. See  {O'Section IV.A.2.a., supra.  X}4<61.` ` In its Direct Case, SWBT argues that current Commission policy does not prohibit RFP tariffs. According to SWBT, section 61.3(m) of our rules stands only for the  XO4proposition that interexchange carriers (IXCs) and nondominant carriers may offer contract  X:4tariffs, but does not preclude LECs from offering them.G: f yO'ԍSWBT Direct Case at 3.G SWBT further argues that, although RFP tariff filings are the subject of an ongoing Commission rulemaking, competition for LEC services has not waited for the Commission's decision in that proceeding, and that  X4the competitive necessity doctrine justifies SWBT's filing of an RFP tariff.Gj f yO 'ԍSWBT Direct Case at 3.G SWBT further argues that it did not formally file its RFP tariff as a contract tariff, and therefore should not  X4be subject to the Commission's prohibition against contract tariff filings by dominant LECs.G f yOr#'ԍSWBT Direct Case at 3.G AT&T states SWBT is being "disingenuous" in claiming it did not file Transmittal No. 2633 as a contract tariff. AT&T argues that Transmittal No. 2633 must be considered a contract" 0*&&aa" tariff because its offer of customized service to a specific customer contains all the elements  X4the Commission previously has identified as characteristics of a contract tariff.D f yOb'ԍAT&T comments at 2.D TCG characterizes SWBT's argument that it did not "file" Transmittal No. 2633 as a contract tariff  X4as an attempt to elevate form over substance.CX f yO'ԍTCG comments at 5.C AT&T, TCG, KMC, and GST all contend that, pursuant to section 61.3(m), dominant LECs by definition may not offer contract  X4tariffs. f yO& 'ԍAT&T comments at 23; TCG comments at 4; KMC comments at 2, GST comments at 3.  Xv4  X_4=62.` ` The Commission has never authorized dominant LECs to offer contract tariffs.  XH4In the Expanded Interconnection and Virtual Collocation orders, the Commission rejected  X34incumbent LEC pleas that they be permitted to offer contract tariffs.u^3x f {O\'ԍSee Virtual Collocation Order, 9 FCC Rcd at 52065207 (rejecting incumbent LEC arguments that they  {O&'should be able to engage in individual case basis contract and competitive response pricing); Expanded  {O'Interconnection Order, 9 FCC Rcd at 2731 (rejecting contract tariffs).u We have already concluded that Transmittal No. 2633 violates our rules requiring averaged rates, and found that the record does not support permitting use of the competitive necessity doctrine as a  X 4defense for this rule violation.e  f {O='ԍSee Sections IV.A.1. and IV.A.2., supra.e SWBT has put forth no argument (other than competitive necessity) that Transmittal No. 2633 somehow constitutes a lawful contract tariff, so as to cure the violation of our averaging requirement. Accordingly, we need not reach the issue of whether Transmittal No. 2633 constitutes an unlawful contract tariff.  X{' B.XApplication for Review of Bureau denial of SWBT's waiver request. (#  XM4>63.` ` In footnote 5 of its Description and Justification, SWBT sought a waiver of the  X64DS3 ICB Order, or "any of [the Commission's] rules . . . necessary for SWBT's filing to  X!4take effect.">!0 f yO'ԍD&J at 3 n.5.> Under section 1.3 of our rules, the Commission may waive any provision of  X 4its rules or orders if "good cause" is shown.O  f {O{!'ԍ See 47 C.F.R.  1.3.O The standard of good cause requires the petitioner to demonstrate that special circumstances warrant deviation from the rules or orders and that such a deviation would better serve the public interest than the general rule. Moreover, grant of a waiver presumes the validity of the general rule, must not undermine the policy served by the rule, and must not be so broad as to eviscerate the rule. Rather, the" R 0*&&aa("  X4request must be tailored to the specific contours of the exceptional circumstances. f {Oy'ԍNortheast Cellular Telephone Co. v. FCC, 897 F.2d 1164, 1166 (D.C. Cir. 1990); See also Wait Radio  {OC'v. FCC, 418 F.2d 1153 (D.C. Cir. 1969), cert. denied, 409 U.S. 1027 (1972). Parties must obtain a waiver before filing any tariff that would conflict with the Commission's rules.  X4Failure to observe this procedure is grounds for rejecting the tariff.$ f {O'ԍU S West Communications, Inc., Revisions to Tariff F.C.C. No. 5, Transmittal No. 525, 9 FCC Rcd 5228 (Com. Car. Bur. 1994).  X4?64.` ` The Bureau found that SWBT's onesentence waiver request, contained in a footnote to its Description and Justification, failed to identify each of the particular rules from  Xv4which it seeks relief or to describe any special circumstances justifying grant of a waiver.Vv~ f {O 'ԍDesignation Order, at para. 14.V On August 13, 1997, SWBT filed an application for review of the Bureau's denial of its waiver request, arguing that the Bureau's decision was premature "since even the Bureau is unsure as to which rules might affect SWBT's RFP tariff filing." According to SWBT, it is therefore inappropriate to reject SWBT's waiver request on the "sole ground" that SWBT has not identified each of the particular rules from which SWBT seeks relief. SWBT argues that the better course of action would be to allow the waiver request to remain in effect pending a  X 4ruling by the Commission on SWBT's Transmittal No. 2633.  f {O'ԍApplication for Review of Southwestern Bell Telephone Company, CC Docket No. 97158, at 23 (filed Aug. 13, 1997).  X 4@65.` ` In opposition, MCI argues that SWBT mischaracterizes the Bureau's decision. According to MCI, the Bureau rejected SWBT's waiver request because SWBT failed to satisfy any of the applicable waiver standards, including the identification of the particular  Xb4rules for which waiver is sought.bj f {O}'ԍMCI Opposition to Application for Review, CC Docket No. 97158 (filed Aug. 28, 1997) at 2. MCI states further that SWBT's mere invocation of competitive necessity does not permit it to file a tariff that violates Commission rules, and that SWBT must first file a formal waiver request as NYNEX and Ameritech have done in  X4comparable situations.& f {O'ԍMCI comments at 56 (citing NYNEX Telephone Companies Petition for Waiver, Memorandum Opinion  {O 'and Order, 10 FCC Rcd 7445, 7462 (rel. May 4, 1995) and Ameritech Operating Companies Petition for a  {O^!'Declaratory Ruling and Related Waivers to Establish a New Regulatory Model for the Ameritech Region, Order, 11 FCC Rcd 14028 (rel. Feb. 15, 1996)). Sprint comments that, since SWBT did not support its waiver  X4request, the Bureau properly denied it.F f yO$'ԍSprint comments at 5.F "!z0*&&aa"Ԍ X4A66.` ` We disapprove of the practice of inserting vague, unsupported waiver requests in footnotes to Description and Justification transmittals. SWBT's argument that it need not identify the rules for which waiver is sought is unavailing. It is not the Bureau's role to evaluate vague requests for waiver and identify all possible rule violations in order to determine whether those rules should be waived. Further, SWBT's application for review fails to answer the substantive shortcomings the Bureau identified in the initial waiver request. In any event, to the extent that SWBT's waiver request was intended to be a part of its defense based on the competitive necessity doctrine, we have concluded above that such a defense is not available here, and thus any accompanying waiver request should be denied. Accordingly, SWBT's application for review is denied.  X 4E V. CONCLUSION ă  X 4B67.` ` We conclude that competitive necessity is not available as a defense for a dominant carrier to justify a customer-specific offering that is not generally available to similarly situated customers. We conclude that Transmittal No. 2633's provisions could enable SWBT to forestall unreasonably the development of competition by foreclosing or deterring market entry by potential competitors, and therefore that the discrimination inherent in the transmittal is unreasonable. For the reasons stated above, we find that the public interest requires us to find Transmittal No. 2633 unlawful.  X' !  VI. ORDERING CLAUSES Đ\  X4C68. IT IS ORDERED that, pursuant to Sections 4(i), 202(a), 204, and 205 of the Communications Act, 47 U.S.C.  154(i), 202(a), 204, and 205 that the tariff revisions  X4proposed in Southwestern Bell Telephone Company Transmittal No. 2633 ARE  X'UNLAWFUL.  X|4D69.` ` IT IS FURTHER ORDERED that the Southwestern Bell Telephone Company  Xe4 SHALL FILE revisions to remove all of the tariff revisions submitted under Transmittal No. 2633 no later than five business days after the release of this Order. Southwestern Bell Telephone Company shall refer to the "FCC" number of this Order as the authority for making this filing.  X4E70.` ` IT IS FURTHER ORDERED that Southwestern Bell Telephone Company's application for review of the Common Carrier Bureau's denial of Southwestern Bell  X 4Telephone Company's request for waiver of the Commission's rules is DENIED . "!"0*&&aaL "Ԍ X4 F71.` ` IT IS FURTHER ORDERED that pursuant to section 204(a) of the Communications Act, 47 U.S.C.  204(a), the investigation instituted by the Common Carrier Bureau in CC Docket No. 97158 for Southwestern Bell Telephone Company Transmittal No.  X42633 IS TERMINATED. ` `  hhCFEDERAL COMMUNICATIONS COMMISSION   X14 ` `  hhCWilliam F. Caton ` `  hhCActing Secretary " #0*&&aa "   n#.S  n#.S X01Í ÍX01Í Í` `  hhCqpp November 14, 1997  X4, Concurring Statement of ă  X4I  Commissioner Harold FurchtgottRoth ă  V_4Re: Southwestern Bell Telephone Company, Tariff F.C.C. No. 73 Based on the facts and record of this proceeding, I believe that Southwestern Bell Telephone Company's (SWBT's) Transmittal No. 2633 should be rejected. I share the concern, expressed in the majority's decision, that Southwestern Bell has not on this record demonstrated adequately that it faces competition sufficient to warrant the pricing flexibility sought by its tariff offering. Accordingly, I concur in the result the majority's decision reaches. Nevertheless, I write separately because I believe that the majority's decision, in its public interest analysis, addresses issues that are more appropriately considered in the context of the  Xb4pending Access Reform proceeding's broader inquiry into pricing flexibility for dominant local  XM4exchange carriers (LECs).M X4ԍ#&m PE37o&P#Access Charge Reform, CC Docket No. 96262, Notice of Proposed Rulemaking, 11 FCC  T'Rcd 21354, 21439 (1996); Report and Order, FCC 97158, at para. 260 (1997). The competitive necessity defense issue raised by SWBT's tariff transmittal is only part of the larger issues concerning pricing flexibility for dominant LECs.  X4As such, the more developed record in the Access Reform proceeding provides the appropriate context in which to consider the issues relating to the circumstances under which dominant LECs should be accorded additional pricing flexibility. Consequently, I reserve judgment on  X4those issues until the upcoming Access Reform order. "$Q 0*0*0*"  \4 X  ` `  hhCqpp#Xxjp P7 SXP#November 14, 1997  # djp P7 CP#ѐ ]'# Xxjp P7 SXP# hSEPARATE STATEMENT OF \: COMMISSIONER MICHAEL K. POWELL \  \4 Re:X Southwestern Bell Telephone Company, Tariff F.C.C. No 73(#  \v4  J_4# Xx P XP#I support this decision to reject Southwestern Bell Telephone Company's Transmittal No. 2633. I agree that at this time, based on this record, we cannot grant the broad relief the company seeks. I do so reluctantly in cases where consumers stand to benefit from lower prices, as is the case here. However, I am convinced that to grant the relief requested now would very possibly raise new barriers to entry and that the question of pricing flexibility is a component of a whole host of complex questions that are best addressed in our Access Reform Proceeding. Nonetheless, I write separately to emphasize how important it will be for the Commission to provide clear guidelines as to when and under what conditions, dominant local exchange carriers can offer customers lower prices in response to competitive pressures from new entrants as we transition from a regulatory regime to a marketoriented one.