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Next, we must evaluate the likely competitive effects of the proposed merger in each of the relevant markets. In the instant case, this requires us to examine both the likely competitive effects due to the "horizontal" aspects of the merger and the likely competitive effects due to the "vertical" aspects of the merger. We must examine competitive effects due to the horizontal aspects of the merger because, as described below, AT&T and Teleport participate in some of the same product and geographic markets. We must examine competitive effects due to the vertical aspects of the merger because, as also described below,  X-AT&T uses in its long distance operations a service provided by Teleport, i.e., access to local  X-exchange networks to originate or terminate long distance telephone calls.@~7 {O-ԍxSee, e.g., Michael H. Riordan & Steven C. Salop, Evaluating Vertical Mergers: A PostChicago  {O-Approach, 63 Antitrust L. J. 513, 519 (1995) (Evaluating Vertical Mergers).  XF-x19. Finally, we must weigh any potential competitive harms of the merger against its likely benefits. We do so to determine whether, on balance, the proposed transaction would  X-promote the public interest.AJ7 {O-ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 19987,  2. As the Commission has previously noted, in evaluating a proposed merger affecting local telecommunications markets, we necessarily must assess future market conditions, and, in doing so, we can and must rely on our specialized judgment and expertise to render  {O-informed predictions about future market conditions and participants. See, e.g., FCC v. RCA Communications,  {O-Inc., 346 U.S. 86, 9697 (1953); Cellnet Communications, Inc. v. FCC, No. 964022, 1998 WL 372319, at  {Oy -**1012 (6th Cir. July 7, 1998) (and cases cited therein). See also FCC v. WNCN Listeners Guild, 450 U.S.  {OC!-582, 59495 (1981); Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20011,  41 & n.99; BT/MCI Order, 12 FCC Rcd at 20012,  42 & n.72. " A,C)C)UU"Ԍx   X-x B. Relevant Markets  X-x` ` 1. Product Markets  XQ-x20. RELEV  The relevant services provided by both Teleport and AT&T are local exchange and exchange access services, domestic long distance services, and U.S. international  X -telephone service.@BZ 7 {O-ԍxSee AT&T Reply Comments at 8, 1013; Application at 1, 8. The only international service for which this proposed merger would create a "horizontal" combination is international telephone service, also referred to as international message telephone service or IMTS.@ The Commission has determined in prior proceedings that each of those  X-services constitutes a distinct product market.6C7 {O -ԍxSee Bell Atlantic/NYNEX Order, 12 FCC Rcd at 2001415,  5051; LEC Regulatory Treatment Order,  {OM -12 FCC Rcd at 15762, 15787,  5, 54 & n.19 (1997); BT/MCI Order, 12 FCC Rcd at 15376,  52. 6 We reaffirm those  determinations and adopt them for purposes of this proceeding, because we find no close demand substitutes for local exchange and exchange access services, domestic long distance services, and U.S.  X -international services.D F7 yOv-ԍxMoreover, there is nothing in the record that questions or undermines the Commission's prior determinations in this regard. For purposes of this proceeding, therefore, we identify the following three relevant product markets: (1) local exchange and exchange access services; (2) domestic  X9 -long distance services;sE9 7 {O-ԍxSee Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20015, 51.s and (3) U.S. international telephone service.F9 0 7 yO-ԍxThere is no evidence in this record that the Commission needs to assess potential competitive effects on other product markets. We further find that, in this proceeding, it is reasonable to subdivide the local exchange and exchange access  X -market into customer groups that demonstrate similar demand patterns.)GZ 7 {O,-ԍxSee e.g., Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20016,  53. We note, however, that in other merger proceedings it may be appropriate to analyze the competitive effects of the merger on customer segments in other product markets.) For purposes of this proceeding, we identify two such groups: (1) residential and small business consumers of local exchange and exchange access services, which we refer to as the mass market; and (2) medium and largesized business/government consumers of local exchange and exchange  Xg-access services, which we refer to as the larger business market.Hg7 {O!-ԍxSee, e.g., BT/MCI Order, 12 FCC Rcd at 15375,  50. We find nothing in the record that suggests a need to analyze mediumsized businesses as a separate customer group. We also identify, for purposes of analyzing potential competitive effects due to the vertical aspects of the merger,  X!-one relevant input product market, namely, exchange access service.*IX!7 yO%-ԍxThe Communications Act defines exchange access as "the offering of access to telephone exchange  yO&-services or facilities for the purpose of the origination or termination of telephone toll services." 47 U.S.C.  153(16). * " $I,C)C)UU("Ԍ X-xU` ` 2. Geographic Markets  X-x21.GEO In the Bell Atlantic/NYNEX Order and the BT/MCI Order, the Commission  X-determined that, for purposes of merger analysis, it may aggregate into a relevant geographic market those customers in the same geographic area that face similar competitiveU choices  XU-regarding a particular relevant product or service.J&U7 {O-ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 20016,  54; BT/MCI Order, 12 FCC Rcd at 15375,  51.  {O-In the Bell Atlantic/NYNEX Order, for example, the Commission explained that it would treat as a separate relevant geographic market "an area in which all customers in that area will likely face the same competitive  {O* -alternatives for a [relevant] product." Id. With respect to local exchange and exchange access services, we recognize that discrete local areas may constitute separate relevant geographic markets, since customers in different local areas may well face different competitive alternatives. In this case, however, we conclude that we need not evaluate each discrete local area where Teleport is providing services, because we conclude that the merger is unlikely to have anticompetitive effects in the local market where Teleport has the greatest  X -market share.cK 7 {O-ԍxSee infra Section III.D.2.c Moreover, carriers in local markets generally face similar competitive conditions. For example, virtually all local markets are dominated by the incumbent local exchange carrier (LEC).  X -x22. With respect to domestic long distance services, the Commission has previously stated that, in general, it would treat long distance services as a single national geographic  X-market.aL~H7 {O-ԍxLEC Regulatory Treatment Order, 12 FCC Rcd at 1579295,  6469. The Commission's decision to treat long distance services as a single national market was based upon its conclusion that geographic rate averaging, price regulation of exchange access services, and excess capacity in long distance transport caused  {O-carriers to behave similarly in each domestic pointtopoint market. See id. at 15794,  66. The Commission clarified that it would treat long distance calling as a single national market unless there is credible evidence indicating that there is or could be a lack of competition in a particular pointtopoint market, and there is a  {O^-showing that rate averaging will not sufficiently mitigate the exercise of market power. See id.a We find nothing in the record in this proceeding to cause us to deviate from this approach in analyzing the likely competitive effects of the instant merger on the market for domestic long distance services. Accordingly, for purposes of this proceeding, we will adopt a national market as the relevant geographic market for domestic long distance services. With respect to U.S. international telephone service, the Commission seeks to determine whether  X-the proposed merger will have anticompetitive effects on any U.S. international route.M 7 {OA!-ԍxSee, e.g., LEC Regulatory Treatment Order, 12 FCC Rcd at 15800,  79; BT/MCI Order, 12 FCC Rcd  yO "-at 1537677,  54." M,C)C)UU"Ԍxs  X-x C. Market Participants  X-x23. MARPAR  The second step in our competitive analysis is to identify actual and, where  Xt-applicable, precluded participants in each relevant market.Nt7 {O-ԍxSee Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20019,  58; BT/MCI Order, 12 FCC Rcd at 15379,  61. From the universe of suchs participants, we seek to identify, where appropriate, those that appear to be the most significant, based upon an analysis of both their capabilities and their incentives to compete  X -effectively in the relevant market.OF "7 {O -ԍxSee Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20020,  62 (focusing on 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 telephone company. They can be relatively technical, and concern access to the necessary facilities, "know how," and operational  {O-infrastructure such as sales, marketing, customer service, billing, and network management. Id. Other  yO-capabilities are less tangible. They include brand name recognition in the mass market; a reputation for providing high quality, reliable service; existing customer relationships; and the financial resources to obtain  {OZ-these intangible assets. Id.ė   X-x` ` 1. Local Exchange and Exchange Access Market x  X -x` `  a.` Participants in the Provision of Local Exchange and Exchange Access Service to Residential and Small Business  X9 -Customers (#  X -x24. PARLOC  Although competitors have entered a few discrete local areas, incumbent LECs are the sole actual providers of local exchange and exchange access services to the vast majority  X-of residential and small business customers in most areas of the United States.P$0 7 yO-ԍxIn 1996, incumbent LECs earned 98.6 percent of all the local exchange and exchange access revenues  {OV-generated nationwide. See Trends in Telephone Service (Feb. 1998) at 32. The local competition that has developed has focused on larger business customers in large cities, not on residential or small business customers.  {O-Id. at 28; see also Bell Atlantic/NYNEX Order, 12 FCC Rcd at 2003233,  8788.  Thus, incumbent LECs remain the most significant actual providers of local exchange and exchange  Xg-access services to residential and small business customers.Qg7 yO4 -ԍxIn fact, the record in this proceeding contains no evidence suggesting the existence of any significant  {O -actual market participants other than the incumbent LECs in this market segment.  X!-x25. As for other significant market participants, the Commission, in the Bell  X-Atlantic/NYNEX Order, found that AT&T, MCI, and Sprint were previously precluded competitors that were among the most significant potential participants in the market for local  X-exchange and exchange access services provided to residential and small business customers, because each had "the capabilities and incentives to acquire a critical mass of customers in the"vQ,C)C)UUq"  X-relevant markets and to do so relatively rapidly."oR7 {Oy-ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 20029,  82.o The Commission further found that facilitiesbased CLECs, such as Teleport, were not among the most significant market participants in this market, because they lacked the financial resources and brand name  X-reputation necessary to enter the residential and small business market quickly.ySZ7 {O-ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 2003233,  8788.y Finally, the Commission found that Bell Atlantic, as an adjacent incumbent LEC, was among the most  XQ-significant market participants in at least parts of NYNEX's territory. TZQ7 {O -ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 2002529,  7379. While we need make no specific findings here, we note that adjacent incumbent LECs may well be among the most significant market participants in many local areas. We find that the record before us supports the same findings in this proceeding. x  X-x` `  b. ` Participants in the Provision of Local Exchange and  X-Exchange Access Services to Larger Business Customers (# x` `  X -x26. PARBUS  Incumbent LECs also continue to dominate the larger business market for local exchange and exchange access services. In this market, however, in contrast to the market for residential and small business customers, incumbent LECs are facing increasing competition from numerous new entrants, including Teleport, that are building facilities as they seek to  X -provide services to larger business customers.U 7 yO-ԍxThere is evidence indicating that it may be easier for new entrants, especially smaller facilitiesbased CLECs, to enter the larger business than the mass market. For example, the Commission has previously noted that (1) business customers are more often "served under individual contracts and marketed through direct sales [contacts]," (2) competitive access providers (CAPs) have limited access to capital relative to the BOCs and major interexchange carriers, and (3) CAPs have a limited brand name reputation among residential and small  {O-business customers. Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20016, 20033,  53, 88. AT&T also has started offering local service  X -for larger business customers through its Advanced Digital Link Service.KV 7 yO -ԍxAT&T Reply Comments at 13.K  X-x27. Recent statistics support the conclusion that incumbent LECs are facing increasing competition from new entrants in the market for local exchange and exchange access services to larger business customers. In 1996, for example, there were approximately 109 CLECs, with total revenues of $949 million, that were providing local exchange and exchange access  X-services.HWD7 {O"-ԍxSee Trends in Telephone Service (Feb. 1998) at Table 9.1. The 109 CLECs reported here include legal entities identifying themselves in their annual TRS Fund Worksheet filings as CAPs/CLECs. The number of legal entities reporting in this category in any particular year is influenced by ownership structure. For example, in 1996, American Communications Systems, Inc. reported as 20 separate legal entities (e.g., American Communications Services of Albuquerque, Inc., American Communications Services of Maryland, Inc. . . .). A number of companies, including GST Telecom, Inc., ICG Communications, Inc., McLeodUSA Incorporated, and Teleport, reported as single legal entities, even though they may operate through multiple legal entities. A list of  {OA(-the legal entities that reported as CAPs/CLECs in 1996 appears in Federal Communications Commission, Carrier"A(V,C)C)("  {O-Locator: Interstate Service Providers (Industry Analysis Div., CCB Nov. 1997).H CLEC revenues have been increasing rapidly, from 0.3 percent of total revenues in"ZW,C)C)UU" the local exchange and exchange access market in 1994 (when the only CLECs were competitive providers of exchange access services, commonly referred to as competitive  X-access providers or CAPs) to approximately 1.0 percent in 1996.yXZ7 {O-ԍxTrends in Telephone Service (Feb. 1998) at Table 9.1. y CLEC revenues grew by  X-approximately 70 percent in 1996 and over 100 percent during 1997.NY\7 {O4-ԍxAT&T June 5, 1998 ex parte (attaching New Paradigm Resources Group, Inc., 1998 CLEC Report:  {O-Annual Report on Local Telecommunications Competition, (9th ed. Mar. 1998) (New Paradigm Report)  yO -(Executive Summary) at 2). N Moreover, during this period, CLECs tripled fiber deployment from 0.4 million fiber miles at the end of 1994 to 1.3 million fiber miles (or approximately 10 percent of the 12.3 million fiber miles of incumbent  X.-LECs) at the end of 1996.9Z.7 {O -ԍxTrends in Telephone Service (Feb. 1998) at Chart 9.1. Interconnected CLECs appear to have gained at least 40 percent of the high capacity special access market in the New York City central offices in which they  {O-are located, including 10 of 11 central offices below 59th Street in Manhattan. See New York Telephone Company and New England Telephone and Telegraph Company, Nonrecurring Charges for Reconfiguration of  {O-Circuits, 13 FCC Rcd 8324, 8336 (1998). Similar claims have been made concerning Boston, where Teleport  {O-operates a fiber ring. See NYNEX Files Petition to Extend USPP Waiver to Eastern Massachusetts LATA 128,  {O-Public Notice, 11 FCC Rcd 8655 (1996).9 In addition, between 1995 and 1997, the number of competitors with collocation arrangements in incumbent LEC central offices nearly doubled from 58 to  X-106, and the number of central offices with such arrangements increased from 176 to 611  X-(347 percent).r[Z 7 {O-ԍxTrends in Telephone Service (Feb. 1998) at Table 9.2.r Applicants state that, in each of Teleport's top ten markets, Teleport faces competition from five to twelve other operating CLECs, including Intermedia Communications, Inc., Metromedia Fiber Networks, Time Warner Communications,  X\ -NEXTLINK, WorldCom, Inc., and e.spire.S\\ 7 {O-ԍxAT&T June 10, 1998 ex parte.S We find that, although incumbent LECs continue to dominate the local exchange and exchange access larger business market, numerous new entrants are rapidly entering this market, especially in central business districts in urban areas, and that any number of these other new entrants have both the capabilities and the incentives to compete effectively and will be "at least as significant a competitive force as  X-either of the merging parties."s]~7 {O -ԍxSee Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20019,  58.s "],C)C)UU"Ԍ X-x ` ` 2. Participants in the Provision of Domestic Long Distance Services  X-  X-x28. LDSTATS  PARLD  Hundreds of firms compete in the market for domestic long distance services,  X-which in 1997 generated revenues of approximately $88.6 billion.^7 {O-ԍxLong Distance Market Shares (June 1998) at 13. We note that these revenues include both interstate  {O-and intrastate toll revenues. Id. at 11. We need not undertake a "precluded competitor" analysis in connection with the long distance and international markets in this case because focusing on current market conditions presents a "worst case" scenario. The expected subsequent entry of precluded competitors into these markets will  {O4-only tend to lessen any possible anticompetitive effects from the merger. See Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20037,  99.  While AT&T remains the largest competitor in this market, its market share, measured by various means, has been  XQ-steadily eroding since 1984._QF7 yOH -ԍ MKTSHR xAT&T's share of longdistance carrier operating revenues has fallen from 90.1 percent in 1984 to 44.5  {O -percent in 1997. Long Distance Market Shares (June 1998) at 16. AT&T's share of interstate switched access  {O -minutes fell from 80.2 percent at the end of 1984 to 51.4 percent at the end of 1997. Id. at 23. We note that  {O-the Commission reclassified AT&T as a nondominant carrier in this market in 1995. AT&T Domestic Non {On-Dominance Order, 11 FCC Rcd at 3273 (finding that AT&T lacked market power in the interstate, domestic, interexchange market). In addition to the four interexchange carriers (AT&T, MCI, Sprint, and Worldcom) that currently possess coasttocoast fiberoptic networks, at least four other carriers (Qwest Communications International, Inc., IXC Communications, Inc., Williams Communications Group, Inc., and Level 3 Communications, Inc.) are in the process  X-of constructing coasttocoast fiber networks.` 7 {O<-ԍxSee, e.g., IXC, Qwest Activate CoasttoCoast Networks, Telecommunications Reports (Apr. 20, 1998). Moreover, there are numerous regional facilitiesbased carriers and hundreds of carriers that provide longdistance services via resale  X -or a combination of resale and owned facilities.aJ X 7 yO-ԍxAccording to Commission data, there were 621 companies providing long distance service as of the end  {OP-of 1996, the most recent year for which statistics are available. See Trends in Telephone Service (Feb. 1998) at 46. The combined revenue share of long distance carriers other than the four largest has grown from 2.6 percent  {O-in 1984 to 19.8 percent in 1997. Long Distance Market Shares (June 1998) at 16. See also ACC Proxy  {O-Statement at 95 (describing Excel Telecommunications, Inc., Frontier Corp., LCI International, and Cable and Wireless, Inc. as large regional long distance companies that constitute "second tier" of long distance industry).  {O>-These four "second tier" companies each had long distance revenues exceeding $1 billion in 1997. Long  {O-Distance Market Shares (June 1998) at 11, 13. Finally, when the five regional Bell  X\ -Operating Companies (BOCs)b \ j7 yOw -ԍxThe five regional BOCs Ameritech, Bell Atlantic, BellSouth, SBC Communications, and U S West are the successors to the local telephone companies that were owned by or affiliated with AT&T and included as defendants in the antitrust case that led to the Modified Final Judgment and divestiture of local telephone companies by AT&T. meet the statutory requirements to enter this market in their regions, we expect them to be strong competitors. GTE and other nonBOC incumbents are  X -actual participants in this market.c$" R7 {O&-ԍxSee Application of Ameritech Michigan Pursuant to Section 271 of the Communications Act of 1934, as  {O&-amended, to Provide InRegion, InterLATA Services in Michigan, 12 FCC Rcd 20543, 20552 & n.27 (1997) (noting that Southern New England Telecommunications Corporation's (SNET's) long distance affiliate captured 35 percent of SNET's local customers within two years of entry, and that GTE had reportedly converted one"u(b,C)C)(" million of its local customers into GTE long distance customers and was signing up customers at the rate of 6,000 per day in 1997). GTE has more than doubled the number of its long distance customers within the last  {O -year to 2.2 million. See GTE Profits Flatten With New Data Investment, Competition, Communications Daily (July 21, 1998)." c,C)C)UU "Ԍx  X-x29. Teleport is also a participant in this market, albeit a new entrant.d7 yO@-ԍxTeleport announced plans to enter the long distance market in September 1997. AT&T Reply Comments at 7. In 1997, Teleport's combined long distance revenues, including those of ACC, which it acquired in April 1998, totaled approximately $128 million, which represents approximately 0.14 percent  Xt-of 1997 total long distance revenues.ket 7 {O/ -ԍxLong Distance Market Shares (June 1998) at 13.k  XQ-  X.-x` `  3. Participants in the Provision of U.S. International Telephone  X -Service (# x  X- x30. INTLSTAT  PARINTL  There are also hundreds of carriers that compete with AT&T and Teleport in the market for U.S. international services, which in 1996 generated revenues of approximately  X -$17.7 billion.af 7 {O-ԍx43.61 Report at Figure 7 & Table D1.a In 1996, there were 47 carriers providing U.S. international services by using their own facilities or lines leased from other carriers, with total market revenues of  X9 -approximately $15.0 billion ($14.2 billion of which was attributable to telephone service).Vg9 . 7 {O-ԍx43.61 Report at Figure 7.V About three hundred additional carriers provided U.S. international telephone service on a  X -purely resale basis, with total market revenues of approximately $3.5 billion.\h 7 {Od-ԍx43.61 Report at Table D1.\ Additionally, the BOCs represent precluded competitors in this market, at least with respect to the provision  X-of inregion international services.iZR 7 {O-ԍxSee BT/MCI Order, 12 FCC Rcd at 1538384,  7677. We also expect that foreign carriers will enter this market as a result of the marketopening commitments made by the United States in the WTO Basic Telecom Agreement. GTE and other nonBOC incumbent LECs are actual  X-participants in this market.Vjt7 {O!-ԍx43.61 Report at Figure 6.V  XD-x31. With respect to the merging parties, AT&T's share of the international telephone service market, measured in terms of revenues, was 100 percent in 1984, but is now below 50  X-percent. kZ7 {O&-ԍ RESALE xTrends in Telephone Service (Feb. 1998) at 24. In 1996, market shares for the largest providers of international long distance telephone service to U.S. customers were as follows: AT&T, 48.3 percent ($8.6 billion); MCI, 20.3 percent ($3.6 billion); Sprint, 8.9 percent ($1.6 billion); Worldcom, 4.4 percent ($775"G(j,C)C)h("  {O-million); 18.1 percent ($3.2 billion) attributable to all others. Long Distance Market Shares (June 1998) at 26. These market share figures are based on combined revenues ($17.7 billion) for facilitiesbased and facilities {O"-resale ($14.2 billion) and pure resale international telephone service ($3.5 billion). See id.; Trends in Telephone  {O-Service at 2425. The Commission granted AT&T's request to be classified as a nondominant carrier in this  {O-market in 1996. See AT&T International NonDominance Order, 12 FCC Rcd at 17964 (finding that AT&T no longer possessed market power in the U.S. international services market). AT&T's market share has continued  yOH-to decline since AT&T was declared nondominant.  Teleport is also a participant in this market, but not a significant one.ql7 {O-ԍxAT&T Reply Comments at 15; 43.61 Report at Table D1.q The"l,C)C)UU(" combined international telephone service revenues of Teleport and its subsidiary, ACC, was  X-approximately $47 million in 1996.m7 {O0 -ԍx43.61 Report at Figure 7 & Table D1. This figure may overstate the amount of ACC's enduser IMTS revenues to the extent that ACC Long Distance Corp. resells ACC Global Corp.'s IMTS.  x D. Analysis of Competitive Effects Due to "Horizontal" Aspects of the Merger  XQ-x` ` 1. Overview (#`  X.- x  X -x32. HORIZ  In this section, we assess the possible competitive effects due to the horizontal  X-aspects of the proposed merger. As the Commission has explained in some detail in prior orders, a  merger may have an anticompetitive effect due to its horizontal aspects if the merger enables the combined entity to achieve unilateral market power, or if it reduces the number of competitors in the relevant market so that the remaining firms can collectively exercise market  X\ -power through coordinated interaction.n\ 7 {O -ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 20038,  10102; BT/MCI Order, 12 FCC Rcd at 15397 {O-98,  123125. See also 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 4155841560  2.12.2. Coordinated interaction consists of a group of firms' actions that are profitable for each firm only because of the  {Oe-accommodating reactions of the others. See 1992 Horizontal Merger Guidelines at 41558,  2.1. A firm has  {O/-unilateral market power if it can elevate price and suppress output on its own and remain profitable. See id. at 41559,  2.2 Alternatively, a merger may have a procompetitive effect if, as a result of the merger, the merged entity can more quickly or effectively challenge a dominant firm possessing unilateral market power in the relevant market, or if the  X -merged entity becomes a stronger maverick that can prevent or limit coordinated interaction.jo |7 {O -ԍxBT/MCI Order, 12 FCC Rcd 1539798,  12425.j  X-x ` ` 2. Local Exchange and Exchange Access Services  Xg-x` `  a. Residential and Small Business Customers  X!-x 33. DISCLOC  We find that the merger of AT&T and Teleport is not likely to result in any increase in unilateral market power or increase the possibility of coordinated interaction in the provision of local exchange and exchange access  services to residential and small business  X-customers. As noted above, neither AT&T nor Teleport currently has more than a de minimis"o,C)C)UUr"  X-market share in this market.p 7 yOy-ԍxTeleport's market share for all local exchange and exchange access services was less than 0.5 percent nationally in 1997. This figure is based on Teleport's estimates that its local revenues were $494.3 million,  {O -while total local revenues were $104 billion. Teleport 1997 10K at 3. AT&T states that, prior to suspending its local residential marketing efforts, it was only able to capture total local revenues of $68 million in 1997, which translates to a market share of 0.07 percent nationally. AT&T Reply Comments at 11, 13. Thus, AT&T's and Teleport's combined local revenues approximately $562 million were less than 0.6 percent of total local revenues in 1997. AT&T Reply Comments at 10. Because Teleport primarily serves larger business customers, its share of the mass market (and the combined entity's postmerger share), is far smaller than these figures  {O-suggest. Teleport 1997 Annual Report at 17. More importantly, the merger of Teleport into AT&T will not  X-eliminate a "most significant" market participant in the relevant market. In the Bell  X-Atlantic/NYNEX Order, the Commission found that, although AT&T was a most significant market participant in the mass market, CAPs generally, and Teleport specifically, were not  Xx-among the most significant participants in this market.qx7 {O -ԍxSee Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20024, 2003233,  70, 8788; BT/MCI Order, 12 FCC Rcd at 15399,  127. There is nothing in the record of  XU-this proceeding to alter this conclusion.r$U 7 {O-ԍxThe record reflects, for example, that Teleport has not targeted this market. See, e.g., Teleport 1997 10 {O-K at 3 (listing Teleport's major classes of customers without mentioning residential customers). Moreover, there is no record evidence that Teleport possesses any unique advantages that would make it among the most significant participants in this market.  We thus conclude that AT&T's acquisition of Teleport will not eliminate a most significant participant in the mass market for local exchange and exchange access services. x  X-x!34. We find that, instead of having an anticompetitive effect, the merger, by combining the complementary assets and capabilities of the merging parties, is likely to have a procompetitive effect in producing a competitor that can more quickly provide consumers  X` -with an alternative choice for local service. By combining AT&T's strong brand name and  X= -substantial base of residential, long distance customersKs\= 7 {O-ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 2003020031,  8284. The Commission's finding that AT&T had a strong brand name reputation among mass market telephone customers was based upon customer  {Ob-preference surveys. See id. at 20031,  84.K with Teleport's substantial local  X -facilitiest 7 {O-ԍxSee Teleport 1997 10K at 2, 15 (noting that Teleport owns 35 local switches and has fiber SONET rings in as many as 83 cities). and expertise and knowledge in providing local services, the merged entity should be better situated than either AT&T or Teleport individually to compete more quickly for  X -residential customers in multiple dwelling units in high density markets in the short run,u `7 {O#-ԍxApplication at 8. See also AT&T Reply Comments at 2122 (stating that this group of residential customers "will be served immediately by the merged entity"). and for broader groups of residential customers in the longer run. "u,C)C)UU"Ԍ X-XxX` ` X b. Larger Business Customers (#  X-x"35. BIZBEG  DISCBUS  We further conclude that the merger of Teleport and AT&T is not likely to result in any anticompetitive effects in the market segment for local exchange and exchange access  Xt-services sold to larger business customers. Moreover, as we find in Section III.F. infra, we believe that a likely benefit of the merger is that the combined entity will be able to expand its local operations more quickly than either AT&T or Teleport could do so individually.  X-x#36. We find no evidence in the record suggesting that the merged entity will be able to exercise unilateral market power in the local larger business market segment, or that the merger would increase the likelihood of coordinated interaction. While we recognize the limited predictive value of current market share data in markets as dynamic as local telephone  X^ -markets, we note that the combined entity's diminutive market share , immediately after the merger, clearly indicates that the entity will not possess unilateral market power. Although the record does not contain market share statistics for the individual markets at issue, Applicants' small market share in most markets is clearly demonstrated by the fact that, taken together, they accounted for only 0.8 percent of 1997 local revenue in larger business markets  X-nationwide.fv7 yO(-ԍxEvidence in the record suggests that revenues from dedicated local services and switched local services attributable to business customers were approximately $68 billion in 1997, and that AT&T's and Teleport's local  {O-revenues amounted to approximately $562.3 million in that year, or approximately 0.8 percent. See Teleport  {O-1997 10K at 3; AT&T Reply Comments at 10. Thus, even if all of AT&T's and Teleport's revenues were derived from sales to business customers, their combined market share would be trivial. f Teleport's premerger share of revenues in the New York metropolitan area,  X-the market where Teleport has had the most success to date,pw|7 {O-ԍxAT&T Reply Comments at 1112; AT&T May 22, 1998 ex parte.p as a percent of total local revenues, was only about 3.5 percent in 1997, and the postmerger increase in market share  XF-will be insufficient to raise any competitive concerns.x"F7 yO-ԍxAlthough the record does not indicate AT&T's market share of local larger business customers in metropolitan New York, an upper bound for total local revenues can be estimated by attributing all of AT&T's local revenues nationwide to the New York metropolitan area. Even under these unrealistic assumptions, the  {O]-postmerger market share of the merged entity would be only 4.9 percent. See AT&T Reply Comments at 12.  Similarly, given the continued dominance of incumbent LECs in local markets, and the small but growing market shares of the many new entrants into local larger business markets, it appears most unlikely that the  X-merger would facilitate any exercise of coordinated market power.sy\ 7 yO -ԍxAmong conditions discouraging collusion are a large competitive fringe; heterogenous, complex, and  {ON!-changing products; and a high ratio of fixed to total costs. See, e.g., F.M. Sherer and David Ross, Industrial  {O"-Market Structure and Economic Performance 315 (1990).s We thus conclude that the merger is not likely to confer unilateral market power on the combined entity or facilitate the exercise of coordinated market power.  XQ-x$37. We further conclude that the merger will not eliminate one among a limited number of most significant participants so as to impede the development of competition in providing local services to larger business customers. In this regard, as we noted above, local competition appears to be emerging most quickly in central business districts of major urban"y,C)C)UU" areas, where numerous new entrants are building or leasing facilities to compete for larger  X-business customers.Lz7 {OV-ԍ See supra Section III.C.1.b.L Also, as noted, AT&T states, for example, that in each of Teleport's ten top markets, there are between five and twelve operational CLECs against which Teleport  X-must compete.@{Z7 {O-ԍxSee AT&T June 10, 1998 ex parte. See also Federal Communications Commission, Fiber Deployment  {Ol-Update End of Year 1996 at 4650 (Industry Analysis Div., CCB Aug. 1997) ( Fiber Deployment Update). For example, AT&T reports that in New York City, Teleport's largest market, the following CLECs are currently operational: Focal Communications, Intermedia Communications, Inc., MCI Local Service, Metromedia Fiber Networks, MelTel, RCN Corporation, Time Warner Communications, USN Communications, Inc., WinStar Communications, Inc., and WorldCom, Inc. In addition, according to AT&T, the following CLECs are expected to be operational in New York within the next 1218 months: Advance America Tel., Inc., Allegiance Telecom, Inc., Comav Telco Inc., e.spire, Eagle Communications, Inc., Local Fiber, L. L.C., NEXTLINK  {O -Communications, L.L.C., XCOM Technologies, Inc. AT&T June 10, 1998 ex parte (citing New Paradigm  {O -Report).@  In addition, by the end of 1996, CLECs had deployed more than 1.3 million fiber miles along more than 28,500 route miles, which represents approximately 10 percent of  XQ-the incumbent LECs' total fiber deployment.]|Q 7 {O-ԍxSee Fiber Deployment Update at 27, 39.] x%38. We note, as well, that the larger business markets for local exchange and exchange access services differ significantly from the residential and small business markets  X-for such services.} 7 {O-ԍx Bell Atlantic/NYNEX Order, 12 FCC Rcd at 2002435,  7094. In the Bell Atlantic/NYNEX Order, the Commission concluded that, in addition to the incumbent NYNEX, there were only four most significant participants Bell Atlantic, AT&T, MCI and Sprint that could quickly and effectively enter the market for  X^ -residential and small business customers in LATA 132.o~^ 7 {O--ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 20024,  70.o This finding was based on the particular advantages that these companies had in entering the mass market, including strong brand name recognition, experience with mass market advertising, an established residential  X -customer base, and substantial financial resources.} 7 {OV-ԍxSee Bell Atlantic/NYNEX Order, 12 FCC Rcd at 2002435,  7094.} x&39. In the market segment for local services to larger business customers, by contrast, we see many more firms entering successfully, and the capabilities and assets that the  Xi-Commission cited in Bell Atlantic/NYNEX as prerequisites for successful entry in the mass market appear less essential to successful entry into the market for local services to larger business customers. Because larger business customers in general tend to be more sophisticated and knowledgeable purchasers of telecommunications services than residential or  X-small business users, broadbased brand name recognition and mass advertising appear less  X-important in attracting larger business customers. Moreover, although we found in the Bell  X-Atlantic/NYNEX Order that CAPs' access to capital was limited relative to that of incumbent LECs or the major interexchange carriers and, thus, rendered them less significant participants"zB,C)C)UU" in the mass market, CAPs have been reasonably successful in attracting capital sufficient to  X-begin entry into and expansion of their core larger business market segment..\7 {OV-ԍxSee Bell Atlantic/NYNEX Order, 12 FCC Rcd at 2003433,  8788. Capital raised by CLECs in 1997  {O -has been estimated at $7 billion. Goldman Sachs, Telecom Services, CLECs 1998: Issues and Outlook (Dec. 1997) at 8.. As a result,  X-unlike the residential market segment discussed in the Bell Atlantic/NYNEX Order, this market segment has a large number of market participants with similar incentives and capabilities. Thus, AT&T's acquisition of Teleport will not eliminate one among a limited number of most significant market participants, and the merger should not slow the development of competition in the provision of local services to larger business customers. We further find that, as described below, the merger is likely to enable the merged entity to more quickly  X-mount a challenge to the dominant position currently held by incumbent LECs.O7 {O -ԍxSee infra Section III.E.O Q  X-x` ` 3. Domestic Long Distance Services x'40. DISCLD  We conclude that the proposed merger between Teleport and AT&T will not have any anticompetitive effects in the market for domestic long distance Qservices. More specifically, we find that the merger will not give AT&T unilateral market power in this market. In 1995, the Commission reclassified AT&T as a nondominant interexchange carrier, based on its finding that AT&T lacked unilateral market power in the domestic interexchange  X-market.s~7 {O-ԍx AT&T Domestic NonDominance Order, 11 FCC Rcd at 3273.s Since that time, AT&T's market share has continued to decline as new competitors  X-have entered and as new fiber networks have been constructed.f7 yOM-ԍxAT&T's share of longdistance carrier operating revenues fell from 51.8 percent in 1995 to 44.5 percent  yO-in 1997, and its share of interstate switched access minutes fell from 55.5 percent to 51.4 percent during the  {O-same period. Long Distance Market Shares (June 1998) at 3, 16. We note, as well, that the HerfindahlHirschman Index (HHI) for the long distance market overall (based on long distance carrier revenues), has  {Oo-decreased considerably, from 3,197 in 1995 to 2,508 at the end of 1997. Id. at 16. Under Dept. of Justice  {O9-guidelines, a market with an HHI of 2500 is considered "highly concentrated." 1992 Horizontal Merger  {O-Guidelines, 57 Fed. Reg. at 41558,  1.51.f Because the merger will  Xi-increase AT&T's market share by an inconsequential 0.1 percent,xiX 7 {Or-ԍxThis figure is based on operating revenues of long distance carriers. Long Distance Market Shares  {O< -(June 1998) at 13. The increase in the HHI will be 12.3 points. Mergers producing an increase in HHI of less than 50 points, even in highly concentrated markets postmerger, are unlikely to have adverse competitive consequences and ordinarily require no further analysis under Department of Justice and Federal Trade  {O"-Commission guidelines. 1992 Horizontal Merger Guidelines, 57 Fed. Reg. at 41558,  1.51(c).x we find that we need not  XF-reconsider the conclusion in the AT&T Domestic NonDominance OrderDF7 yO%-ԍx11 FCC Rcd at 3273.D that AT&T lacks unilateral market power in this market. Moreover, because we find that Teleport, operating on its own, would have a minimal competitive impact on the long distance market, the merger should not increase the likelihood of coordinated interaction among competitors. We also conclude, for these same reasons, that it is not necessary to separately assess the merger's",C)C)UU"  X-impact on specific consumer groups (i.e., mass market and larger business customers) in this product market, as we have done with regard to local exchange and exchange access services.  X-x` ` 4. U.S. International Telephone Service x(41. NONDOM-I  DISCINTL  We find that the proposed merger will not have any anticompetitive effects on any U.S. international telephone route. The evidence in the record indicates that it is unlikely that the merger will significantly increase concentration on any international route. The only market for which Teleport or ACC report facilitiesbased (or facilitiesresale) U.S. international telephone service revenue is the U.S.U.K. (United Kingdom) route, which is one  X-of the five largest outbound routes in terms of minutes billed in the United States.&7 {O -ԍxSee 43.61 Report at 70; Trends in Telephone Service (Feb. 1998) at 21, 23. Carriers are required to report international message telephone service (IMTS) revenues on a countrybycountry basis for facilitiesbased  {O -and facilitiesresale services. Section 43.61 Data at 3. Carriers are required to report only worldwide totals for  {Oy -pure resale services. Id. In 1996,  X -ACC had reported U.S. billed IMTS revenue of $1.64 million on this route.J 7 {O-ԍx43.61 Report at 70.J AT&T's reported revenue on this route in 1996 was $477.04 million out of a total $699.19 million  X; -(68.22 percent).K\; H7 {O4-ԍx43.61 Report at Tables A1, E1. Market shares of other participants on this route are: (1) MCI/Western Union International, 15.7 percent; (2) Sprint, 9.9 percent; (3) WorldCom, 1.6 percent; and (4) all other carriers,  {O-4.5 percent. Id. at Table E1.K Thus, using 1996 figures, the combined entity would have revenues on this route of $478.68 million and a market share of 68.46 percent. This represents an increase in  X -market share of only 0.24 percent.$ l 7 yO-ԍxStaff analysis indicates that the increase in HHI as a result of the proposed merger would be only 32.8  yO-points. As previously noted, mergers producing an increase in HHI of less than 50 points, even in highly  {O-concentrated markets postmerger, are unlikely to have adverse competitive consequences. 1992 Horizontal  {Ol-Merger Guidelines, 57 Fed. Reg. at 41558,  1.51(c). We do not believe that this increase in concentration raises anticompetitive concerns, particularly in light of the expected increases in capacity on  X-this route identified by the Commission in the BT/MCI Order.WZX 7 {O-ԍxSee BT/MCI Order, 12 FCC Rcd at 15402, 1540506  134, 140141 (stating that the Commission expects the transport capacity between the United States and the United Kingdom to increase significantly as a result of reductions in regulatory barriers to entry and in facilities costs).W ACC did not report any other facilitiesbased or facilitiesresale income from any other route. We note that, as a pure resale carrier, ACC, together with Teleport, accounts for 0.25 percent of the total U.S. billed  XH-IMTS revenues in 1996.*Hz7 yOs#-ԍxComparing ACC Long Distance Corp. and Teleport combined 1996 pure resale revenues (approximately  {O;$-$45 million) with total IMTS revenues ($17.7 billion). See supra note RESALE107 and 43.61 Report at Table D1.* We find that the resulting increase in concentration in the provision of IMTS does not raise anticompetitive concerns. We also conclude, for these reasons, that it is not necessary to separately assess the merger's impact on specific consumer  X-groups in this particular product market. ",C)C)UU"Ԍ X-x QE. Analysis of Competitive Effects Due to "Vertical" Aspects of the Merger x)42. VERT  Applicants contend that their proposed transaction is predominantly a "vertical" merger because Teleport supplies a service, exchange access, which is an input that AT&T  Xt-uses inQ providing long distance services to enduser customers. In the BT/MCI Order, the Commission explained that, in evaluating mergers that result in increased vertical integration, it must examine whether the merger will increase the ability or incentives of the merged firm  X -to affect competition adversely in any downstream enduser market.5 7 {O-ԍxBT/MCI Order, 12 FCC Rcd at 15410,  155. The Commission stated that consumers could be harmed by a merger that resulted in increased vertical integration if the vertical integration enabled the merged entity to engage in price or nonprice discriminatory practices that resulted in consumers' paying higher prices for the same services or receiving lower quality services at the same price, or if it enabled the merged entity to execute  {O -a successful predatory price squeeze. Id.5 The Commission went on to discuss a number of factors that might affect the incentives or ability of the merged firm  X-to engage in strategies intended to raise rivals' costs.m|7 {O-ԍxBT/MCI Order, 12 FCC Rcd at 1541014,  15662.m Of particular relevance here, the Commission noted that a vertically integrated firm's incentive to engage in such strategies would be significantly reduced if rivals of the merged firm "had adequate alternative sources  X^ -of supply" after the merger.c^ 7 {O-ԍxBT/MCI Order, 12 FCC Rcd at 15414,  164.c x*43. In the instant case, the only allegation of an anticompetitive vertical effect of the merger, which is raised by Sprint, is that the merged entity may either raise the cost of exchange access services to its longdistance competitors or deny them such access altogether,  X-which may harm competition in longdistance markets.Z7 yO-ԍxSprint Petition for Investigation at 24. According to Sprint, the merged entity may have an incentive to forego profit maximization from the sale of access and price its exchange access service at the level of  {O-incumbent LECs in order to raise access costs to its rivals in the long distance market. Id. at 5. The essence of this line of argument appears to be that, for specific business customers, Teleport is the only alternative to incumbent LECs in providing exchange access and that, after the merger, the merged entity will have an incentive to raise access rates to nonaffiliated long distance carriers to the level set by the incumbent LEC, thereby giving AT&T an advantage in competing for the business customer. x+44. We find that Sprint has failed to prove its argument. The evidence in the record suggests that there are competing providers of originating access in most markets in which  Xt-Teleport is competing,t 7 {O#-ԍxSee AT&T ex parte in CC Docket No. 9824 filed June 10, 1998 (indicating that there are between five and twelve operational CLECs in each of Teleport's ten top markets). and that further entry appears likely. Since there are, or soon will be, other providers for originating exchange access services in these markets, it does not appear likely that Teleport could profitably raise prices to rival long distance companies since customers could switch to other access providers. Accordingly, we have no basis to conclude" ,C)C)UU" that the merger of AT&T with Teleport is likely to have any adverse competitive effects due to vertical aspects of the merger. x,45. We also reject Sprint's argument that the merger would accelerate the pace of vertical integration by long distance companies and competitive access providers, thus  XQ-reducing the availability of competitive access services.ZQ7 yO-ԍxSprint Petition for Investigation at 23.Z While there may be independent reasons why long distance carriers and competitive access providers may want to integrate vertically, we see no evidence in the record suggesting that such a desire is motivated primarily, or at all, by the announced merger of AT&T and Teleport. More importantly, as discussed above, we find that a primary benefit of the merger is that it will increase the competitive choices available to customers for services, including access, more quickly than would occur absent the merger.  X9 -x-46. Finally, because we conclude that the vertical aspects of the merger are not likely to produce any anticompetitive effects, we also reject Sprint's argument that the Commission should only approve the merger subject to the conditions that: (1) Teleport is maintained as a  X -separate entity, and (2) Teleport is subject to nondiscriminatory access requirements.` X7 yO-ԍxSprint Petition for Investigation at 56.` We note in this regard that the merged entity will remain subject to Sections 201 and 202 of the Communications Act, and any party that believes itself aggrieved by alleged discriminatory  Xg-behavior can seek recourse from the Commission under Section 208 of the Act.&g7 {O-ԍx47 U.S.C.  201, 202, 208. Sections 201 and 202 state, inter alia, that interstate common carriers must provide service on just, reasonable, and nondiscriminatory terms and conditions; Section 208 permits aggrieved  {O-parties to file complaints with the Commission regarding, inter alia, alleged violations of Sections 201 or 202.  {O\-Id.  XD- x  X!- xF. Potential Public Interest Benefits   X-x.47. BENEFS  In this case, the applicants have not proffered evidence of any specific cost savings or quantifiable synergies that would result from the merger. They do contend generally, however, that combining Teleport's local facilities and its extensive experience in penetrating local markets with AT&T's brandname recognition and marketing expertise, financial resources, and efficiencies from the merger will produce a substantially more  X,-formidable local competitor than either Teleport or AT&T could be alone.B,7 yO!-ԍxAT&T Reply Comments at 1. In particular, Applicants assert that the proposed merger should: (1) enhance development of facilitiesbased local competition by taking advantage of the complementary aspects of AT&T's long distance and wireless networks and marketing expertise, and Teleport's local fiber optic and broadband wireless capabilities and rightsof way; (2) accelerate and expand AT&T's provision of facilitiesbased local exchange service, primarily to business customers and to multiple dwelling units in high density markets currently served by Teleport; and (3) enhance the merged entity's ability to provide endtoend service to broader classes of customers by enabling AT&T to tap the experience and expertise of Teleport's management team to  {O+'-lead the company's overall local entry strategy for business and residential markets. Application at 8. " ,C)C)UU"Ԍ X-x/48. Although Applicants have not quantified or substantially supported the public interest benefits that may result from the merger, we are persuaded that, as a result of the merger, the combined entity likely will be able to expand its operations and enter local markets more quickly than either party could do absent the merger. As the Commission  Xt-specifically found in the Bell Atlantic/NYNEX Order, AT&T has a strong brand name reputation in the provision of telephone service to the mass market, as well as a substantial  X0-base of residential, longdistance customers.07 {O-ԍxBell Atlantic/NYNEX Order, 12 FCC Rcd at 2002931,  8284. The Commission based its finding, in part, on customer preference surveys. These capabilities will now be combined with Teleport's local facilities and expertise and knowledge in providing local services. Even though the record is sparse, we believe these benefits warrant approval of the merger in light  X-of our finding that the merger is unlikely to result in any anticompetitive effects.}""7 {O -ԍxCf. Bell Atlantic/NYNEX Order, 12 FCC Rcd at 20063,  157 ("As the harms to the public interest become greater and more certain, the degree and certainty of the public benefits must also increase commensurately in order for us to find that the transaction on balance serves the public interest, convenience and necessity").}  X - xtG. Other Issues  X; -x049. OTHER  Potential Harm to Residential Customers. Commenters contend that Applicants will target the business market to the detriment of residential consumers, particularly t  X -residential customers in lowincome, predominantly minority communities. 7 yO-ԍxBellSouth Petition for Approval with Conditions to Protect the Public Interest at 7; Keith Maydak Reply at 5; Inner City Press Petition to Deny at 12. Inner City Press argues, therefore, that the proposed merger should be denied unless it will foreseeably result  X-in benefits to a fair cross section of the residents of the affected markets.0Zd 7 {O-ԍxInner City Press Petition to Deny at 27. See also Keith Maydak Petition to Deny at 12 (stating that the merger would not be in the public interest because it would interfere with other carriers' ability to compete and would harm consumers).0 On the other hand, another public interest group, the Greenlining Institute and Latino Issues Forum, claims that the proposed merger is likely to have a positive impact on the development of local competition within the growing minority business market, given AT&T's past marketing  X#-performance within the minority community.m# 7 yOZ -ԍxGreenlining Institute and Latino Issues Forum Comments at 2.m  X-x150. Although we find that the proposed merger may, at the outset, increase competition primarily in the more lucrative business markets, we disagree that the proposed merger will harm residential consumers. The record contains no evidence suggesting that the proposed merger will exacerbate the current disparity in the level of competition between the local mass market and the local larger business market. Moreover, in their applications, Applicants have explicitly identified a set of residential customers that will be served immediately, and thereafter, by the merged entity customers that live in "multiple dwelling" ,C)C)UU"  X-units in high density markets." 7 {Oy-ԍxApplication at 8; AT&T Reply Comments at 2122. We also are not persuaded by commenters'  {OC-arguments that the applications should be denied because the public interest showing was insufficient. See, e.g.,  {O -BellSouth Motion to Dismiss at 17. We do, however, urge parties filing for transfers of control to provide, in  {O-their initial papers, a complete and detailed public interest statement in order to facilitate the Commission's analysis of the competitive effects of the proposed transaction. Providing the information in the initial application avoids unnecessary delay of our review process, and affords parties a meaningful opportunity to comment. AT&T's and Teleport's public interest statement, in their initial papers, falls short of the level of detail the Commission seeks in order to perform a comprehensive merger analysis. We conclude that the initial  {O-application in this case, as supplemented by Applicants' reply and ex parte filings to which interested parties had  {O -an opportunity to respond through the ex parte process, provides us with sufficient information to perform our analysis.  For these reasons, we reject the argument that the application should be denied based on its potential impact on residential consumers.  X-x251. BellSouth also argues that the proposed merger will harm residential customers by transferring traffic from the public switched network to Teleport's facilities, thereby  XQ-significantly reducing funds available to support universal service.Q4 7 yO6-ԍxBellSouth Petition for Approval with Conditions to Protect the Public Interest at 78. We find no merit in this argument. Even as the provider of a private network, Teleport is required to make universal service contributions. Pursuant to Section 254(d) of the Communications Act, the Commission has held that "private service providers that offer their services to others for a  X-fee" are required to contribute to universal service. 7 {O:-ԍxFederalState Joint Board on Universal Service, Report and Order, 12 FCC Rcd 8776, 9183 (1997) (subsequent history omitted).  X -x352. Certain commenters also assert that the proposed merger would harm the public interest because, as a result of the merger, AT&T would become the largest international and  X9 -alternative local exchange carrier, giving it an advantage over other carriers.9 7 yO-ԍxLetter from Lisa Orlic to the Secretary, Federal Communications Commission (dated February 19, 1998) (Docket No. 9824); Charles Fullenwiley Petition to Deny at 1. We reject this  X -argument. As the Commission has previously noted, in determining whether a merger serves the public interest, the issue is not whether the merged entity will have competitive advantages over its rivals, but rather whether any such advantages will be so great as to  X-impede the effective functioning of a competitive market..~v7 {O -ԍxBT/MCI Order, 12 FCC Rcd at 15410,  156; Competition in the Interstate Interexchange Marketplace,  {O!-Report and Order, 6 FCC Rcd 5880, 589192 (1991). We note that one commenter filed a twoparagraph letter in which he argues that, in light of AT&T's proposed takeover of Telecommunications, Inc., the Commission should seek additional comments and consider imposing conditions on the proposed acquisition of Teleport by AT&T. We reject this request. Petitioner has provided no basis for further delaying authorization of this  {O$-merger. See Petition to Allow a Supplemental Comment Period in Light of Announcement of Takeover of Telecommunications Inc., filed by Keith Maydak on July 2, 1998..  X-  Xg-x453. AT&T's Shared CustomerProvided Access Policy. Ameritech objects to the proposed acquisition of Teleport because of AT&T's allegedly discriminatory and"D,C)C)UU*" anticompetitive Shared CustomerProvided Access (SCPA) policy. This policy requires competing providers of dedicated access services to interconnect with AT&T by bifurcating their own networks and installing redundant sets of equipment in two different collocation  X-spaces in AT&T's pointsofpresence (POPs).7 yO-ԍxAmeritech Reply at 12, 67. One set of equipment must be used only for interconnecting dedicated access service provided to AT&T, while the second set of equipment must be used for interconnecting all  {O-dedicated access service provided to any customers other than AT&T (e.g., enduser customers who want to use Ameritech for dedicated access service but need to connect to the AT&T POP because AT&T is their  {O2-interexchange carrier). Id. Ameritech urges the Commission to either delay approval of the proposed merger until the Commission has granted the relief requested in certain pending complaint proceedings, or grant the merger application on the condition that AT&T agrees not to charge competing carriers rates for interconnection that are any  X -greater than the costs incurred by AT&T to provide such interconnection to Teleport.F |7 yO8 -ԍxAmeritech Reply at 7.F  X-x554. We conclude that approval of the applications should not be contingent on resolution of the pending complaints or subject to the condition proposed by Ameritech. The record shows that the concerns over the discriminatory aspects of AT&T's SCPA policy have been resolved by subsequent actions taken by the parties as part of formal complaint  X9 -proceedings pending before the Commission.9 7 {O-ԍxIllinois BellTel. Co., et al. v. AT&T Corp., File No. E9835;  New England Telephone & Telegraph  {O-Company v. AT&T Corp., File No. E9701. See AT&T May 6, 1998 ex parte. In those proceedings, AT&T has committed to modifying, on a prospective basis, its SCPA policy to eliminate the requirement that competing access providers have separated, dual facilities for dedicated access equipment  X -located at AT&T's POPs. h 7 {O-ԍxSee, e.g., AT&T May 6, 1998 ex parte at 2. See also AT&T Main Brief, E9701 at 67 (April 4, 98); Joint Stipulation, Attachment A at 34, E9835 (Apr. 4, 1998). The only issues remaining between the parties relate to past damages claimed by Ameritech, what charges are appropriate, and whether space, power, and other amenities for access interconnection facilities in AT&T's POPs that are subject to the  Xg-SCPA policy constitute Title II service and should be tariffed.\g 7 {O-ԍxAT&T May 6, 1998 ex parte at 6.\ Because AT&T has committed to abandon the practice that is the subject of Ameritech's complaint, we need not address the issue here. We expect, however, that AT&T will abide by its commitment to change its SCPA policy, as described above.  X-x655. Other Alleged Misconduct by AT&T. Several commenters assert that we should disapprove the proposed merger or impose conditions on it because AT&T regularly engages  Xr-in "slamming,"rT 7 yOw%-ԍxSlamming is "[t]he practice of switching a telephone customer's long distance supplier without obtaining permission from the customer." Newton's Telecom Dictionary (13th ed. 1998). deceptive advertising practices, and discriminatory pricing."r7 {O-ԍxSee, e.g., Inner City Press Petition to Deny at 5; JMJ Associates Inc. Comments at 1 (alleging that AT&T has responded to informal complaints from the public in a disingenuous manner); Charles Fullenwiley Petition to Deny (alleging that AT&T engages in deceptive marketing practices); Keith Maydak Petition to Deny (accusing AT&T of engaging deceptive practices including slamming, tariff swaps, and tying arrangements).  We find that"r,C)C)UUp" commenters' conclusory allegations regarding AT&T's service do not raise substantial and material questions of fact regarding AT&T's qualifications or the public interest benefits of the proposed merger, and that the public interest would not be served by our withholding action on the proposed merger.  X.- }IV. CONCLUSION ă  X-x756. CONCL  #Xj\  P6G;FXP# For all the foregoing reasons, we conclude that Applicants have carried their burden of showing that the proposed merger will serve the public interest, convenience and necessity. Accordingly, we hereby grant the Applications.  X9 -x6 V. ORDERING CLAUSES ă  X -x857. ORDERING  Accordingly, having reviewed the applications and the record in this matter, IT IS ORDERED, pursuant to Sections 4(i) and (j), 214(a), 214(c), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 214(a), 214(c), 309, 310(d), that the applications filed by AT&T Corp. (AT&T) and Teleport Communications Group Inc. (Teleport) in the above-captioned proceeding ARE GRANTED.  X!-x958. IT IS FURTHER ORDERED, pursuant to Sections 4(i) and (j), 214(a), 214(c), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 214(a), 214(c), 309, 310(d), that the above grant shall include authority for AT&T to acquire control of  Xr-Xxa)X` ` any authorization issued to Teleport's subsidiaries and affiliates during the Commission's consideration of the transfer of control applications and the period required for consummation of the transaction following approval;(#`  X-Xxb)X` ` construction permits held by licensees involved in this transfer that mature into licenses after closing and that may have been omitted from the transfer of control applications; and (#`  XZ-Xxc)X` ` applications that will have been filed by such licensees and that are pending at  X7-the time of consummation of the proposed transfer of control.a77 {O$-ԍxAT&T/McCaw Order, 9 FCC Rcd at 5909 n.300.a(#`  X-x:59. IT IS FURTHER ORDERED that all references to AT&T and Teleport in this Order shall also refer to their respective officers, directors and employees, as well as to any affiliated companies, and their officers, directors and employees."!D,C)C)UUe""Ԍ X-ԙx;60. IT IS FURTHER ORDERED, pursuant to Sections 4(i) and (j), 214(a), 214(c), 309, and 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 214(a), 214(c), 309, 310(d), that the "Motion to Dismiss" of BellSouth, "Petitions to Deny" of Charles Fullenwiley, Keith Maydak, and Inner City Press/Community on the Move and Inner City Public Interest Law Project, the "Petition for Approval with Conditions to  XQ-Protect the Public Interest" of BellSouth," the "Petition for Investigation and Other Relief of Sprint" and the "Petition to Allow a Supplemental Comment Period in Light of Announcement of Takeover of Telecommunications Inc." of Keith Maydak ARE DENIED.  X-x<61. IT IS FURTHER ORDERED, that this Memorandum Opinion and Order SHALL BE EFFECTIVE upon release, in accordance with 47 C.F.R. 1.103.  X\ - x` `  hh@FEDERAL COMMUNICATIONS COMMISSION x` `  hh@Magalie Roman Salas x` `  hh@Secretary  $] x` `  hh@hpp X-T xSEPARATE STATEMENT OF TP COMMISSIONER HAROLD FURCHTGOTTROTH TP  VQ- Re:XxFor Consent to Transfer Control of Teleport Communications Group Inc. to AT&T Corp.; CC Docket No. 9824 . (#  X - xI support today's decision approving the proposed merger between Teleport Communications Group and AT&T Corp. I concur in its results and explicitly approve of the decision not to impose any conditions on the merger. I write separately, however, to express my concerns with several aspects of the underlying reasoning and my unwillingness to adopt the proposed framework for analyzing mergers. Let me be clear, I recognize that much work has been put into this Order by the Commission staff and I applaud their efforts. In general, I find that they have done an exceptional job of analyzing the competitive effects of the merger in the relevant markets. xDue to what I would characterize as poor internal Commission processing, however,  X-this item was not formally circulated to the Commissioners until more than three months after it had cleared Department of Justice review. I voted for this item within 48 hours of receiving it, and I have prepared this statement as rapidly as possible. Under optimal circumstances, I would prefer to discuss the merits of the framework that we use here to approve this merger. For example, how exactly does the Commission's definition of relevant markets and its analysis of the competitive effects of the merger on those markets differ from the Department of Justice's analysis? To the extent that it is materially different, what is the Commission's express statutory authority or unique expertise to perform such a review? If the analysis is not materially different, then why is it not redundant for this agency to repeat an analysis that numerous experts at the Department of Justice already perform? Can the Commission's precluded competitor framework apply to a market that has already been deregulated and the largest competitors declared nondominant? Under the precluded competitor framework, is our analysis of potential competitors too speculative especially since we do not seem to require the same type of evidence as the Department of Justice's merger guidelines would require of intent to enter the market by another means? Is there any limit on the additional Public Interest benefits that the Commission examines to determine whether a merger is in the public interest? Seeing this item for the first time after such an inordinate delay, however, is not the optimal circumstance. xHad there been more of an opportunity for discussion, I may have been persuaded that these questions had been adequately addressed. Regrettably, that opportunity was not presented until too late in the process for an application that does not appear to raise any serious contentions. xI do not support the Commission's use of the framework used in this item. I hope that we do not repeat its use in the future. $] x