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                           Before the
                Federal Communications Commission
                     Washington, D.C. 20554


In the Matter of                 )
                                )
AMERITECH CORP.,                 )
Transferor,                      )
                                )
AND                              )    CC Docket No. 98-141
                                )
SBC COMMUNICATIONS, INC.,        )    EB File No. EB-04-IH-0216
Transferee,                      )
                                )
For Consent to Transfer of       )
Control of Corporations Holding  )
Commission Licenses and Lines    )
Pursuant to Sections 214 and     )
310 (d) of the Communications    )
Act and Parts 5, 22, 24, 25, 
63, 90, 95, and 101 of the 
Commission's Rules

                              ORDER

 Adopted:  January 5, 2005            Released:  January 7, 2005

By the Commission:  

I.   INTRODUCTION

     1.   In this Order, we deny SBC Communications Inc.'s 
(``SBC's'') request that we discontinue the independent auditor 
condition in Merger Condition XXVII of the SBC/Ameritech Merger 
Order for periods beginning on or after January 1, 2004.1  
Specifically, we find that SBC has not demonstrated that 
discontinuing this audit condition for the period in question 
would serve the public interest.  

II.  BACKGROUND

     2.   In the SBC/Ameritech Merger Order, the Commission 
adopted the Merger Conditions to mitigate any potential public 
interest harms of the merger of Ameritech Corporation 
(``Ameritech'') and SBC.2  These Merger Conditions, to which SBC 
agreed, included Condition XXVII, the independent auditor 
condition.3  This condition requires SBC to engage an independent 
auditor to conduct audits on an annual basis regarding SBC's 
compliance with the Merger Conditions and the sufficiency of 
SBC's internal controls.4  The Merger Order specifically 
contemplates that the independent auditor condition will permit 
oversight of SBC's compliance with all the merger conditions.  
For instance, Commission staff approves the independent auditor 
and reviews the scope and quality of the independent auditor's 
work, the independent auditor's final audit report must be 
publicly filed with the Commission, and the Commission staff has 
access to the independent auditor's working papers and supporting 
materials for two years following the submission of the final 
audit report.5  As SBC agreed when the Commission released the 
Merger Order, the independent auditor condition expires when the 
last of the remaining Merger Conditions subject to this 
requirement sunsets.6

     3.   On June 9, 2004, SBC requested that the Commission 
discontinue the independent auditor condition for all periods 
beginning on or after January 1, 2004.7  SBC filed a supplemental 
letter on July 7, 2004 providing additional information.8  On 
July 13, 2004, the Enforcement Bureau issued a public notice 
seeking comment on SBC's request.9  AT&T Corporation and Premiere 
Network Services, Inc. filed comments, and various other 
competitive local exchange carriers (``LECs'') filed joint reply 
comments.10  These commenters universally oppose SBC's request.  
SBC also filed reply comments on August 10, 2004.11

III.      DISCUSSION

     4.   In evaluating SBC's request, we consider whether 
discontinuing the independent auditor condition would serve the 
public interest.12  The purpose of imposing the independent 
auditor requirement was to provide a cost-effective yet 
``thorough and systematic evaluation of SBC's compliance with the 
conditions and the sufficiency of SBC's internal controls'' to 
supplement the Commission's usual investigative authority in 
ensuring compliance and enforcement of the Merger Conditions.13  
As discussed below, we find no reason to revisit our decision to 
impose the independent auditor condition as originally 
contemplated by the Merger Order.

     5.   In support of its request, SBC makes the general 
argument that there is no productive reason for the Commission 
and SBC to conduct further audits for the period under 
consideration.  In particular, SBC contends that most of the 
conditions have sunset as of June 1, 2004, and the amount of 
information provided to the Commission through the audit report 
will be substantially less than in prior years.14  We disagree 
with SBC's argument and find no reason to depart from the 
Commission's previous determinations that the audit condition is 
in the public interest.  The Commission concluded that the 
SBC/Ameritech merger was in the public interest because the 
``approval is subject to significant and enforceable 
conditions.''15  Moreover, the Commission found that ``[o]nly a 
strong corporate compliance program, in conjunction with the 
independent audit and other enforcement mechanisms, will enable 
consumers to realize the full benefits of the conditions.''16  
The Commission recognized from the outset the importance of the 
independent auditor condition as an integral component of a 
successful program to monitor SBC's compliance with the operative 
Merger Conditions as well as a disincentive to discrimination and 
other potential misbehavior.17  

     6.   SBC also contends an audit is not necessary for two of 
the remaining operative conditions because they merely require 
SBC to maintain specific discounts for competitive local exchange 
carriers on previously ordered eligible services for the 
remainder of the effective period but do not require SBC to take 
additional action.18  SBC contends that in the event that it does 
not maintain these discounts, competitive carriers could file a 
complaint with the Commission.19  The Merger Condition, however, 
placed the burden on SBC, and not the competitive carriers, to 
take active steps to ensure compliance, including hiring an 
independent auditor to conduct audits.20  Several commenters 
observed that relying on the complaint process without an 
independent evaluation would be unnecessarily burdensome to the 
harmed party.21  They also argue that the Commission is less 
likely to discover violations through complaints than through the 
audit process because a harmed party may not have the incentive 
or resources to file a complaint.22  We agree with these 
commenters.  We see no reason to second-guess our earlier 
decision that, as a condition for approval of SBC's and 
Ameritech's merger, SBC should bear the burden of complying with 
the independent auditor condition for the entire period 
envisioned in our original order.

     7.   SBC also claims that, in the absence of audits, other 
compliance and enforcement mechanisms established in the Merger 
Order would provide adequate assurance of SBC's compliance with 
the Merger Conditions.  In particular, SBC contends that a third 
operative condition, the nondiscriminatory rollout of digital 
subscriber line (``xDSL'') services condition, is self-policing 
because SBC continues to file quarterly reports on its compliance 
with the xDSL deployment.23  In addition, SBC contends that it 
will continue to file compliance reports that would ``describe 
SBC's compliance with all open merger conditions that will allow 
the Commission and others to confirm SBC's compliance with merger 
conditions.''24  

     8.   We reject SBC's claim that its remaining compliance 
obligations obviate the need for the independent auditor 
condition.  As previously stated, the Commission found that the 
compliance program protected the public interest, but only in 
conjunction with the independent auditor condition.25  Quarterly 
reports and compliance reports are not a substitute for an 
independent audit.  SBC's obligations to file unaudited quarterly 
and compliance reports do not provide an independent review of 
SBC's performance.  During the audit process, the Commission 
staff and independent auditor have access to the working papers, 
supporting materials, and interpretations underlying SBC's 
compliance assertions that may not be disclosed in the 
performance reports or available to third parties.26  Finally, 
when contemplating the merger, the Commission considered the 
independent auditor condition a useful tool to supplement its 
usual investigative authority27 and found that the ``findings in 
the auditor's report, or review of the auditor's working papers, 
could form the basis of enforcement actions.''28  In view of the 
foregoing, we find no reason to alter our prior conclusion that 
the compliance mechanisms discussed in SBC's request are not 
substitutes for the independent auditor condition.

     9.   Lastly, SBC contends that we should discontinue the 
audit requirement because ``the cost of the audits for the years 
2004 and beyond would cost at least one million dollars,'' and 
``the burdens of continued audits clearly outweigh any possible 
benefits.''29  We find this contention unpersuasive.  The 
Commission specifically found that ``the audit requirement 
establishes an efficient and cost-effective mechanism for 
providing reasonable assurance of SBC/Ameritech's compliance with 
the conditions.''30  SBC has not provided substantial evidence to 
contradict this finding.  We conclude that, therefore, SBC has 
not demonstrated that discontinuing the independent auditor 
condition would serve the public interest.

IV.  ORDERING CLAUSE

     10.  Accordingly, IT IS ORDERED, pursuant to sections 1-4, 
201-205, 214, 251, 303(r), 309, and 416(b) of the Communications 
Act of 1934, as amended, 47 U.S.C. §§ 151-154, 201-205, 214, 251, 
303(r), 309, and 416(b) that SBC Communications Inc.'s request 
that the Commission discontinue requiring audits under Condition 
XXVII of the SBC/Ameritech Merger Order is DENIED.

                         

                         FEDERAL COMMUNICATIONS COMMISSION



                         Marlene H. Dortch                       
Secretary


_________________________

1 Applications of Ameritech, Transferor, and SBC Communications 
Inc., For Consent to Transfer Control of Corporations Holding 
Commission Licenses and Lines Pursuant to Sections 214 and 310(d) 
of the Communications Act and Parts 5, 22, 24, 25,63, 90, 95, 101 
of the Commission's Rules, Memorandum Opinion and Order, 14 FCC 
Rcd 14712, 15034-35, Appendix C, ¶ 66 (1999) (``SBC/Ameritech 
Merger Order'' or ``Merger Order''), vacated in part sub nom., 
Ass'n of Communications Entrs. v. FCC, 235 F.3d 662 (D.C. Cir. 
2001); see Letter from Jim Lamoureux, Senior Counsel, SBC 
Telecommunications Inc., to William Davenport, Chief, 
Investigations and Hearings Division, Enforcement Bureau, Federal 
Communications Commission, dated June 9, 2004 (``SBC Request'').  
2 See SBC/Ameritech Merger Order, 14 FCC Rcd at 14716, 14881, ¶¶ 
2, 410; id., 14 FCC Rcd at 14964-15039, Appendix C).  We refer to 
the market-opening conditions in Appendix C as the Merger 
Conditions.
3 See SBC/Ameritech Merger Order, 14 FCC Rcd at 14881-84, ¶¶ 406-
412.
4 SBC/Ameritech Merger Order, 14 FCC Rcd at 15034-35, Appendix C, 
¶ 66 (requiring an annual examination engagement).  
5  See id.; see also Delegation of Additional Authority to the 
Enforcement Bureau, Order, 17 FCC Rcd 4795 (2002).
6 See SBC/Ameritech Merger Order, 14 FCC Rcd at 15034-35, 
Appendix C, ¶ 66; Applications of Ameritech Corp., Transferor, 
and SBC Communications Inc., Transferee, For Consent to Transfer 
Control of Corporations Holding Commission Licenses and Lines 
Pursuant to Sections 214 and 310(d) of the Communications Act and 
Parts 5, 22, 24, 25, 63, 90, 95, and 101 of the Commission's 
Rules, Memorandum Opinion and Order, 17 FCC Rcd 19595, 19597, ¶ 
3, n.7 (noting that the independent audit condition does not 
follow the general sunset date, i.e., 36 months after the merger 
closing date, because it specifically establishes its own period 
of applicability).
7 See SBC Request.  
8 See Letter from David Cartwright, Director, Federal Regulatory, 
SBC Telecommunications Inc., to Diana Lee, Investigations and 
Hearings Division, Enforcement Bureau, Federal Communications 
Commission, dated July 7, 2004.
9 See Public Notice, ``Enforcement Bureau Seeks Comment on SBC's 
Request to Discontinue Audit of SBC's Compliance with Merger 
Conditions,'' DA 04-2092 (rel. July 13, 2004).  
10 See Comments of AT&T Corporation, filed July 27, 2004 (``AT&T 
Comments''); Letter from Leo A. Wrobel, President, Premiere 
Network Services Inc., to Marlene H. Dortch, Secretary, Federal 
Communications Commission, filed on July 16, 2004; Reply Comments 
of ACN Communications Services, Inc., Adelphia Business Solutions 
Operations, Inc. d/b/a TelCove, ATX Communications, Inc., Capital 
Telecommunications, Inc., CTC Communications Corp., CTSI, LLC, 
DSLnet Communications, LLC, El Paso Networks, LLC, Focal 
Communications Corp., Gillette Global Network, Inc., d/b/a Eureka 
Networks, ICG Telecom Group, Inc., Integra Telecom, Inc., 
Lightship Telecom, LLC, LightWave Communications, LLC, McLeodUSA 
Telecommunications Services, Inc., Mpower Communications Corp., 
NTELOS Network Inc., PAETEC Communications, Inc., Pac-West 
Telecomm, Inc., RCN Telecom Services, Inc., TDS Metrocom, LLC, 
and Vycera Communications, Inc., filed August 10, 2004 (``Joint 
Reply'').
11 See Reply Comments of SBC Communications Inc., filed August 
10, 2004 (``SBC Reply'').
12 See 47 U.S.C. § 416(b); SBC/Ameritech Merger Order, 14 FCC Rcd 
at 14885, ¶ 415 & n.781 (providing that the Commission may modify 
the Merger Conditions); see also, e.g., Application of GTE 
Corporation, Transferor, and Bell Atlantic Corporation, 
Transferee, For Consent to Transfer Control of Domestic and 
International Section 214 and 310 Authorization and Application 
to Transfer Control of a Submarine Cable Landing License, Order, 
17 FCC Rcd 6982, 6984, ¶ 7 & n.14 (2002) (finding that a 
temporary suspension of the Bell Atlantic/GTE Merger Conditions 
would serve the public interest); Applications of Ameritech 
Corp., Transferor, and SBC Communications Inc., Transferee, For 
Consent to Transfer Control of Corporations Holding Commission 
Licenses and Lines Pursuant to Sections 214 and 310(d) of the 
Communications Act and Parts 5, 22, 24, 25, 63, 90, 95, and 101 
of the Commission's Rules, Second Memorandum Opinion and Order, 
15 FCC Rcd 17521, 17532, ¶ 21 (2000) (finding that SBC's request 
to modify its Merger Condition is in the public interest).
13 SBC/Ameritech Merger Order, 14 FCC Rcd at 14884, 14918, ¶¶ 
412, 503.
14 SBC Request at 1.  SBC states that, with the Enforcement 
Bureau staff's approval, SBC included two Merger Conditions with 
a 2004 sunset in the scope of the 2003 independent audit.  Id.
15 See SBC/Ameritech Merger Order, 14 FCC Rcd at 14716, ¶ 2.  
16 See SBC/Ameritech Merger Order, 14 FCC Rcd at 14882, ¶ 409; 
AT&T Comments at 12.
17 See SBC/Ameritech Merger Order, 14 FCC Rcd at 14821-22, 14881-
84, ¶¶ 246-47, 406-12.
18 SBC Request at 1.  The discount conditions are Condition XIV, 
carrier-to-carrier promotions: unbundled loop discount, and 
Condition XV, carrier-to-carrier-promotions: resale discount.  
SBC/Ameritech Merger Order, 14 FCC Rcd at 15015-15019, Appendix 
C, ¶¶ 45-47.  
19 SBC Request at 1; SBC Reply at 7-8.
20 SBC/Ameritech Merger Order, 14 FCC Rcd at 14881, ¶ 406 
(stating that the Merger Conditions place responsibility of 
taking active steps to ensure compliance on SBC by: (1) 
establishing a compliance program; (2) requiring an independent 
compliance audit; and (3) setting voluntary payment obligations).  
The voluntary payment provisions sunset in 2004. 
21 See AT&T Comments at 13-14; Joint Reply at 20-22.
22 See AT&T Comments at 13-14 (stating that the difference 
between the small discount amount available compared to the high 
cost of pursuing a complaint and the time expended in such 
complaints serves as a deterrent to filing any formal complaint); 
Joint Reply at 22.
23 Id.; SBC/Ameritech Merger Order, 14 FCC Rcd at 14999, Appendix 
C, ¶ 22.
24 SBC Request at 1; SBC Reply at 8.
25 SBC/Ameritech Merger Order, 14 FCC Rcd at 14881, ¶ 406. 
26 See AT&T Comments at 14-16; Joint Reply at 20-21.
27 See SBC/Ameritech Merger Order, 14 FCC Rcd at 14918, ¶ 503.  
See also AT&T Comments at 17; Joint Reply at 21-23.
28 See SBC/Ameritech Merger Order, 14 FCC Rcd at 14882-83, ¶ 410; 
AT&T Comments at 12.  
29 SBC Request at 2; SBC Reply at 7. 
30 See SBC/Ameritech Merger Order, 14 FCC Rcd at 14882, 14884, ¶¶ 
409, 412; AT&T Comments at 4, 17; Joint Reply at 20.