The Alliance for Public Technology (APT), 1 has previously urged the Commission to evaluate whether proposed mergers serve "the public interest, convenience and necessity"2 by examining whether the transaction promotes the goal of Section 706 of the Telecommunications Act of 1996 to "encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans."3 Moreover, APT has advocated that the Commission use "social compacts" with merged entities to utilize their enhanced market power and increased investment capacity to meet Section 706's objective of ubiquitous broadband deployment.4 We are very pleased, therefore, that discussions with the Commission's Common Carrier Bureau have led SBC and Ameritech to propose conditions for approval of this merger that include some elements of a "social compact." APT commends the companies and FCC staff for their efforts to advance the public trust in a major merger.

The parties have proposed merger conditions that they believe will promote advanced services deployment, foster competition within and without the merged company's region, and improve residential service. Failure to comply with the conditions would subject the combined company to stiff penalties. One of the conditions under consideration concerns the merged entity's establishment of a separate subsidiary to provide advanced telecommunications services, such as digital subscriber line (DSL) and frame relay. Although SBC, Ameritech, and the Commission endorse the separate affiliate as the competitive vehicle for promoting deployment of advanced services, APT continues to find this prospect troubling.

Under the proposed conditions, competitive local exchange carriers (CLECs) and the separate subsidiary would collocate wire centers, share common electronic operation support systems (OSS), and obtain conditioned xDSL loops at cost-based prices. In short, the combined company intends to operate its advanced services affiliate independently and to relate to the subsidiary just as it would any other CLEC, except that the proposed conditions would allow: 1) joint marketing by the parent company and the affiliate of the other's services using the parent's brand name; and 2) common use of telephone company employees.

Recognizing the predisposition of CLECs and separate subsidiaries to compete by serving high-volume business and affluent residential customers, APT has admonished the Commission to monitor carefully incumbent telephone companies' use of separate subsidiaries.5 Monitoring to detect activity that may undermine the ubiquity goal of Section 706, enables the Commission to eliminate the affiliate requirement and permit incumbents' use of the full scope and scale of their operations if necessary to reach communities traditionally marginalized by competitive markets.

APT hastens to remind the Commission that competition is a tool to ensure that everyone in the country enjoys the life-enhancing benefits of sophisticated information technologies, but it should not be an end in itself. In a nation committed to the vitality of market institutions, we support the marketplace for its creativity and innovative capacity, but understand that it does not ensure equitable distribution of resources. As it considers the proposed merger conditions, APT asks the Commission to recognize that competition alone will not bridge the growing digital divide in the development and deployment of advanced communications networks.

Contrary to the Commission's optimistic conclusion of reasonable and timely advanced telecommunications deployment,6 the National Telecommunications and Information Administration (NTIA) of the Department of Commerce has documented in its recent report "Falling Through the Net: Defining the Digital Divide" an increasing number of "information have nots" among certain minorities, people with lower incomes, and those living in specific regions of the nation. The report's findings should alarm the Commission, for it substantiates that millions of people are falling into the digital divide as the converged communications industry competes for the high end of the market. Given this reality, the Commission's review of the SBC/Ameritech merger conditions must examine whether the conditions are sufficient to help reverse the implicit "electronic redlining" of underserved communities by the marketplace. Therefore, we strongly recommend that the Commission impose conditions that offer realistic incentives for the merged entity to use economies of scale and scope to provide advanced services to everyone. The conditions should also encourage the combined company to invest in research and development to build markets in communities where sustainable relationships for nurturing highly beneficial applications of advanced technologies do not now exist.

Accordingly, APT reiterates the necessity of the Commission combining its monitoring with implementation of pro-active policies that overcome market failures. To that end, we have urged the Commission to "establish a federal/state policy framework to encourage, facilitate, and support community/provider partnerships and related market-oriented processes which are designed to (a) aggregate effective demand for community-based applications and information technologies, and (b) build a strong 'demand pull' basis for advanced infrastructure investments to the home."7 APT finds encouraging Chairman Kennard's endorsement in his July 19, 1999 remarks before the National Association of Regulatory Commissioners (NARUC) of a proposal developed by APT and NARUC for a joint conference of state and federal regulators to explore such pro-active policies for implementing Section 706. Therefore, we hope that the Commission promptly establishes the joint conference.

We find further encouragement in SBC/Ameritech's proposed commitment to deploy xDSL to at least 10 percent of the wire centers in rural and urban low-income communities. We agree with the Edgemont Neighborhood Coalition, however, that the proximity of some urban poor people to business and industry may allow SBC/Ameritech to fulfill its commitment without connecting vast portions of such underserved communities to advanced telecommunications networks. As SBC knows, upgrading investments in central offices to bring xDSL within reach of those living on the wrong side of the divide does not mean that access alone will result in usage of high capacity bandwidth. Partnerships that nurture community-driven applications of the advanced technologies--applications that help to meet the important life needs of residents--are a necessary complement to developing sustainable markets in low-income and other underserved communities. The community-building grants of NTIA's Telecommunications Infrastructure and Information Assistance Program (TIIAP) have helped to demonstrate the capacity of advanced technologies to enhance the quality of life and labor for people in rural areas and central cities throughout the nation..

SBC knows firsthand the importance of nurturing the diffusion of technology applications that target the needs of underserved communities. In California, the company has negotiated a Community Partnership Agreement (CPA) with about 130 community-based organizations to gain approval from that state's public utility commission for the acquisition of Pacific Telesis. Among other commitments to advanced universal service, the CPA established a ten-year $50 million Community Technology Fund (CTF) to support community-driven development and deployment of applications. A commitment to technology diffusion was also a critical element in the settlement that SBC and Ameritech negotiated with the Edgemont Neighborhood Coalition to obtain Ohio regulators' approval of the merger.

These critically important precedents confirm that the FCC should consider providing market-oriented incentives that states in the combined SBC/Ameritech territory could replicate. For example, in connection with the APT's recommendation to monitor closely the provision of advanced services in underserved areas, the Commission could forbear from imposing the separate affiliate condition where the merged company actively supports technology diffusion efforts like those in California and Ohio. No "level playing field" that promotes competition for all consumers will result from a requirement that forces the incumbent to operate like a competitive carrier, while imposing on such carrier ubiquity constraints but allowing CLECs to skim the cream from the broadband market. APT firmly believes that Congress intended for competition to be a means for achieving Section 706's goal of universal advanced telecommunications infrastructure deployment, and not a means for undermining that objective. Further, it is difficult to reconcile the Commission's support of integrated operation of upgraded cable networks to encourage investments in that industry, with its policy of promoting bifurcated telephone networks for competitive xDSL high-capacity bandwidth services. This is especially true where the bifurcation seems to erode the capacity of an upgraded network to connect communities that are trying to conquer the digital divide.

In summary, we applaud SBC/Ameritech's willingness to suggest measures that the can Commission adopt as a "social compact." APT strongly suggests, however, that the Commission condition its merger approval on a requirement that SBC/Ameritech invest in advanced telecommunications infrastructure for underserved communities. In addition, the Alliance urges the Commission to monitor closely and assess the effectiveness of the conditions it imposes by establishing a mechanism for annual reporting and review of the merged company's broadband deployment. Consistent with the FCC's oversight responsibility under Section 706, we ask that the Commission impose similar conditions in all mergers. By fulfilling its mandate and focusing attention on the importance of 706 and its goals, the Commission can significantly promote the public's interest in a competitive marketplace. Respectfully submitted,

Donald Vial
Chair, Public Policy Committee

Maureen A. Lewis
General Counsel

The Alliance for Public Technology
919 Eighteenth Street, N.W.
Tenth Floor
Washington, DC 20006
(202)263-2972

July 26, 1999

to make available as far as possible, to all people of the United States, regardless of race, color, national origin, income, residence in rural or urban area, or disability, high capacity two-way communications networks capable of enabling users to originate and receive affordable and accessible high quality voice, data, graphics, video and other types of telecommunications services.

2 47 USC Sec. 310 (d). See also, 47 USC Sec. 214 (a).

3 See Comments of the Alliance for Public Technology, In the Mater of GTE Corp., Transferor, and Bell Atlantic Corp., Transferee, For Consent to Transfer Control, CC Docket No. 98-184 (Nov. 23. 1998); and Response of the Alliance for Public Technology, In the Matter of Amended Applications of WorldCom, Inc. and MCI Communications Corp. for Transfer of Control of MCI Communications Corp. to WorldCom, Inc., CC Docket No. 27-211 (Jan. 26, 1998).

4 See, for example, Petition of the Alliance for Public Technology Requesting Issuance of Notice of Inquiry and Notice of Proposed Rulemaking to Implement Section 706 of the 1996 Telecommunications Act, CC Docket No. 9244 (Feb. 18, 1998) (APT Petition) at 33.

5 Comments of the Alliance for Public Technology, In the Matter of Deployment of Wireline Services Offering Advanced Telecommunications Capability, CC Docket No. 98-147 (Sept. 25, 1998) at 6.

6 "Report on Advanced Telecommunications Capability" issued February 2, 1999 at Para. 7.

7 APT Petition at 36.