In the Matter of Application of Ameritech Michigan Pursuant to Section 271 of the Telecommunications Act of 1996 to      Provide In-Region, InterLATA Services in the State of Michigan

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CC Docket No. 97-137

Joel I. Klein Acting Assistant Attorney General Antitrust Division Andrew S. Joskow Deputy Assistant Attorney General Antitrust Division	Lawrence R. Fullerton Deputy Assistant Attorney General Antitrust Division Philip J. Weiser Senior Counsel Antitrust Division
Communications with respect to this document should be addressed to:
John B. Hayes Economist Competition Policy Section June 25, 1997	Donald Russell Chief Carl Willner Katherine E. Brown Stuart H. Kupinsky Luin Fitch Juanita Harris Attorneys Telecommunications Task Force

TABLE OF CONTENTS

Table of Contents

Summary of Evaluation

Introduction

1. The Requirements of Section 271 and the Competitive Objectivesof the Telecommunications Act

2. Ameritech's Compliance with Track A (Facilities-Based Competitor)

3. Ameritech's Compliance with the Requirements of the Checklist
   1. Ameritech Has Not Demonstrated that It Is Providing Access to Local Switching and Transport As Required by Sections 251 and 271 of the Telecommunications Act
      1. Ameritech Refuses to Provide Shared Local Transport

      2. Ameritech Has Imposed Improper Restrictions on the Ability of Unbundled Local Switching Customers to Collect Access Charges for Calls Carried by Their Unbundled Elements

      3. Ameritech Has Not Yet Demonstrated the Capability to Provide Unbundled Switching and Transport in a Reliable Manner

   2. Wholesale Support Processes for Provision of Unbundled Network Elements and Resale Services

   3. Adequacy of Interconnection Trunking Facilities

4. Ameritech's Compliance with Section 272

5. Evaluation under the Department's Standard
   1. Competition Exists in Local Exchange and Exchange Access Markets in Michigan But Is Not Yet Sufficient to Warrant any Presumption that Local Markets are Fully and Irreversibly Open

   2. Need for Further Measures to Open Local Markets
      1. Inadequate Performance Measures

      2. Lack of Final Cost-Based Pricing

Conclusion

Appendix A: Wholesale Support Processes

Appendix B: Michigan Overview and Descriptions of Local Competitors in MichiganB-1

Based on the record before us, Ameritech's application to provide in-region interLATA service in Michigan should be denied because Ameritech has not yet satisfied the requirements of Section 271 of the Telecommunications Act of 1996.

Ameritech has made significant and important progress toward meeting the preconditions for in-region interLATA entry under Section 271 in Michigan, and has satisfied many of those preconditions, but it has not yet complied with several of the requirements of the competitive checklist. Unbundled switching and unbundled transport are not available in a manner consistent with the 1996 Act and the Commission's regulations, and as a result, local competitors cannot freely combine network elements into a " network platform" and receive access charges in connection with their provision of local service. Ameritech's wholesale support processes, including OSS, have not been shown to be adequate to handle reliably the ordering and provisioning of significant quantities of demand for resold services and unbundled elements by local competitors, although Ameritech has taken the right steps toward establishing the means by which the adequacy of these systems could be resolved in the future and has made some progress toward effective ordering and provisioning of resold services and unbundled elements. Ameritech also has not provided trunking facilities of acceptable quality to ensure nondiscriminatory interconnection.

Granting interLATA entry to Ameritech in Michigan at this time also would be inconsistent with the Telecommunications Act's objective, embodied in the Department's competitive standard, of ensuring that local markets are "fully and irreversibly open to competition." This standard focuses on opportunities for commercial entry to serve both business and residential customers, looking first at actual entry in order to demonstrate that the market is open and that enforceable benchmarks are in place. Local exchange competition in Michigan is still on a very small scale, and the areas in which Ameritech has not fully complied with the competitive checklist constitute tangible obstacles to the growth of local competition. In addition, Ameritech's lack of fully adequate performance measures and enforceable performance benchmarks suggests that the development of local competition in Michigan has not yet been shown to be irreversible. For these reasons, Ameritech's current Section 271 application in Michigan should be denied.

In the Matter of Application of Ameritech Michigan Pursuant to Section 271 of the Telecommunications Act of 1996 to      Provide In-Region, InterLATA Services in the State of Michigan

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CC Docket No. 97-137

Introduction

The United States Department of Justice, pursuant to Section 271(d)(2)(A) of the Telecommunications Act ("1996 Act" or "Telecommunications Act"), ¹ submits this evaluation of the application filed by Ameritech Michigan ("Ameritech") on May 21, 1997 to provide in- region interLATA telecommunications services in the State of Michigan. ²

The State of Michigan has been among the leaders in removing legal and economic barriers to local competition. In some urban areas of the state, new entrants have made notable progress, though local competition is still on a very small scale and has not yet reached many areas of the state. Significantly, this emerging local competition has revealed many practical difficulties in developing and implementing the complex processes that will be needed to support competition in an environment where entrants remain dependent on nondiscriminatory access and interconnection arrangements with a dominant incumbent local exchange carrier ("ILEC").

The U. S. Department of Justice ("the Department") set out in detail the standards and criteria that it will apply in evaluating applications under Section 271 of the 1996 Act in our previous filing opposing SBC's application to provide in-region interLATA services in Oklahoma. ³ Applying those standards and criteria to Ameritech's Michigan application, we observe that through its ongoing efforts as well as through its cooperation with the Department, Ameritech has made significant progress toward satisfying the requirements of Section 271, and has already successfully fulfilled many of the 1996 Act's preconditions for in-region interLATA entry. Nevertheless, based on the record before us, we believe that the Commission should deny this application on the grounds that Ameritech has yet to make the necessary showings on two important requirements. First, it has not yet satisfied all fourteen points of the competitive checklist as set out in Section 271(c)(2)(B) of the 1996 Act, a conclusion also reached by the Michigan Public Service Commission ("MPSC"). And second, Ameritech has failed to show that its local markets in Michigan are "irreversibly opened to competition," the competitive standard used by the Department in evaluating Section 271 applications, which in turn means that granting this application would not be in the public interest.

I. The Requirements of Section 271 and the Competitive Objectives of the Telecommunications Act

Section 271 reflects Congress' commitment to the critically important goal of fully opening local telecommunications markets to competition. See Affidavit of Dr. Marius Schwartz ¶¶ 6-24, 154-159 ("Schwartz Aff."), Exhibit 1 to this Evaluation. ⁴ It is widely understood that the incumbent Bell Operating Companies and other local exchange carriers ("LECs"), broadly viewed, still have virtual monopolies in local exchange services and switched access, and dominate other local markets as well. ⁵ It is also widely understood that the BOCs' cooperation will be necessary, at least in the short and medium term, to assist in the development of meaningful local exchange competition, and accordingly, the 1996 Act conditioned BOC in- region, interLATA entry on completion of a variety of steps designed to facilitate entry and foster competition in local markets. In order to ensure that the 1996 Act fulfilled its paramount goal of opening of local markets to competition, Congress chose to accept the requisite delay in achieving the benefits of BOC in-region interLATA entry, rather than allowing entry immediately or at a date certain.

Section 271 establishes the basic requirements for in-region interLATA entry. ⁶ The first three such requirements -- satisfaction of the requirements of Section 271(c)(1)(A) ("Track A") or Section 271(c)(1)(B) ("Track B"), the competitive checklist, and Section 272 -- establish specific, minimum criteria that a BOC must satisfy in all cases before an application may be granted. In addition, Congress called for the exercise of discretion by the Commission in determining whether "the requested authorization is consistent with the public interest, convenience, and necessity." 47 U.S.C. § 271(d)(3)(C)(1997). Finally, Congress provided for a competitive evaluation of the application by the Department of Justice, "using any standard the Attorney General considers appropriate." 47 U.S.C. § 271(d)(2)(A)(1997) (emphasis added). In reaching its conclusion on a particular application, the Commission is required to give "substantial weight to the Attorney General's evaluation." 47 U.S.C. § 271(d)(2)(A)(1997).

II. Ameritech's Compliance with Track A (Facilities-Based Competitor)

Track A, under which Ameritech filed this application, ⁷ requires a demonstration that the BOC "is providing access and interconnection," pursuant to binding agreements approved under Section 252, to "one or more unaffiliated competing providers of telephone exchange service ... to residential and business subscribers." Moreover, the competing providers must be providing local exchange service "exclusively" or "predominantly over their own telephone exchange service facilities." Section 271(c)(1)(A).

Ameritech contends that its application, based on its approved interconnection agreements with three operational providers, Brooks Fiber ("Brooks"), MFS and TCG, satisfies Track A. ⁸ In our view, however, Ameritech can only rely on Brooks Fiber to satisfy Track A's requirement of a residential local exchange service competitor. Brooks, MFS and TCG are all competing in some local exchange markets in Michigan for business customers, but only Brooks is actively competing in any residential local exchange markets in Michigan. ⁹ Ameritech offers no contrary evidence, admitting that it is "unaware whether any of the Michigan customers of MFS or TCG subscribe to residential service." Ameritech Brief at 7. In the absence of residential service, MFS and TCG cannot be considered facilities-based providers that can be used to satisfy Track A of Section 271.

Turning then to Brooks, which is serving both residential and business customers, we observe that Brooks is not serving any of its local customers by resale of Ameritech's services. Ameritech Brief at 12. It provides significant switching and transport of its own, separate from Ameritech, to serve all of its customers, as well as a substantial share of its own local loops for both business and residential customers. ¹⁰ While the issue of "predominance" -- as required by Track A -- is necessarily one of degree, we believe that on the specifics of the facts presented, it is reasonable to conclude that Brooks is predominantly a facilities-based provider in Michigan for purposes of Track A. ¹¹

This conclusion, however, is only the first step of the Section 271 inquiry.

III. Ameritech's Compliance with the Requirements of the Checklist

Section 271(c)(2)(A) requires that a BOC proceeding under Track A provide access and interconnection that meets the requirements of the fourteen-point "competitive checklist" set forth in Section 271(c)(2)(B), pursuant to "one or more agreements." The competitive checklist specifies a minimum set of facilities, services, and capabilities that must be made realistically available to competitors, thereby ensuring that a wide range of entry strategies are open to competitors as a practical matter. ¹²

The 1996 Act provides an opportunity for state commissions to evaluate a BOC's compliance with the checklist. At the same time, the 1996 Act authorizes the Commission to make the final determination of checklist compliance. ¹³ In the Department's view, the MPSC has raised valid concerns, which have been echoed by other state regulatory authorities in the Ameritech region -- namely, the Public Service Commission of Wisconsin ("PSCW"), in a final decision rejecting Ameritech's SGAT, ¹⁴ and the Illinois Commerce Commission ("ICC"), in a proposed order by the Hearing Examiner ¹⁵ -- and which suggest that Ameritech has yet to make the necessary showing that it has complied with the competitive checklist.

Although Ameritech is furnishing most items on the checklist to local competitors, the Department concludes that Ameritech has not yet satisfied the competitive checklist on several grounds, including the provision of unbundled switching, unbundled transport, interconnection trunking of adequate quality, and wholesale support systems including OSS. ¹⁶

1. Ameritech Has Not Demonstrated that It Is Providing Access to Local Switching and Transport As Required by Sections 251 and 271 of the Telecommunications Act

Section 271(c)(2)(B)(ii) sets forth the general requirement that the BOC's access and interconnection agreements or statement of terms include "[n]ondiscriminatory access to network elements in accordance with the requirements of sections 251(c)(3) and 252(d)(1)." In addition, the competitive checklist specifically requires the provision of "[l]ocal loop transmission from the central office to the customer's premises, unbundled from local switching or other services" (Section 271(c)(2)(B)(iv)), "[l]ocal transport from the trunk side of a wireline local exchange carrier switch unbundled from switching or other services" (Section 271(c)(2)(B)(v)), "[l]ocal switching unbundled from transport, local loop transmission, or other services" (Section 271(c)(2)(B)(vi)), and "[n]ondiscriminatory access to databases and associated signaling necessary for call routing and completion" (Section 271(c)(2)(B)(x)).

Ameritech's application acknowledges that it is not actually furnishing unbundled local switching to any of its local exchange competitors. Ameritech Brief at 15. Some potential competitors, including AT&T, MCI, and LCI, have sought extensive unbundled switching arrangements as part of their requests for interconnection agreements. Ameritech represents that no CLEC has chosen to order unbundled local switching, but that it is making this item available through its interconnection agreements and would provide it if it received an order. In a situation where a BOC is not furnishing a checklist item due to the absence of current orders, it can still "provide" that item by making it available both as a legal matter (i.e., contractually through complete terms in binding approved interconnection agreements that comply with all applicable legal requirements) as well as a practical matter (i.e., it must stand ready to fulfill a competitor's request on demand). Based on this standard, the Department cannot conclude that Ameritech is yet "providing" the checklist elements of unbundled local switching and unbundled local transport.

At present, Ameritech is not "providing" unbundled local switching or unbundled local transport as either a legal or a practical matter to CLECs in Michigan. As a legal matter, Ameritech has refused to provide carriers purchasing unbundled switching with true shared local transport (or "common transport" as it is often described). In addition, Ameritech has, as a legal matter, not allowed users of unbundled local switching to collect the access charges for long distance service they provide through unbundled network elements, if the CLEC's calls are transported from an interexchange carrier's point of presence ("POP") to the unbundled switch over trunks that also carry Ameritech customers' calls. In our view, these restrictions are inconsistent with Ameritech's obligations under Sections 251 and 271 and the relevant orders of the Commission. Ameritech argues that these restrictions cohere with the Commission's Local Competition Order, explaining that it would drop them if the Commission rejects its position in a pending motion for clarification and reconsideration. Moreover, Ameritech has offered to "true up" any balance of accounts between itself and a CLEC purchasing these items once the Commission has clarified the legal status of common transport, i.e., whether it is a required unbundled network element. Whatever the merits of these interim accommodations -- the need for which should be obviated once the Commission rules on the common transport issue -- the fact remains that, at this point, Ameritech still has not made the necessary showing that it possesses the technical capability of successfully provisioning unbundled local switching and transport. Given that fact, we conclude that Ameritech is not yet "providing" these items within the meaning of the checklist.

1. Ameritech Refuses to Provide Shared Local Transport

Ameritech has failed to satisfy the requirement that it provide local transport as required by the Commission's Local Competition Order. This failure stems from Ameritech's legal position that it is not required to provide "common transport" as well as dedicated transport. Ameritech has only recently begun to engage in inter-carrier testing of common transport as a network element, and, thus, at the present time is unable to demonstrate a technical ability to provide access to this network element. Since the provision of common transport requires network capabilities that are not used in connection with other network elements or functionalities, such a demonstration will be necessary before any determination could be made that Ameritech is "providing" common transport.

Ameritech's affiant Daniel J. Kocher describes the local transport options that Ameritech is willing to sell to purchasers of unbundled switching. Affidavit of Daniel J. Kocher ¶¶ 65-68 ("Kocher Aff."), attached to Ameritech Brief, Volume 2.5. Under the first option, named Network Platform-UNE, competitors may purchase unbundled interoffice transport at Total Element Long Run Incremental Cost ("TELRIC")-based prices. Under this option, however, the unbundled local switching ("ULS") customer would not be able to have its calls routed over the same trunk groups that carry Ameritech's traffic. Rather, this option requires that such competitors establish their own separate routing tables to be placed in the switch, which must route the competitors' calls over circuits that are separate from the trunks carrying Ameritech's traffic. Ameritech claims that this arrangement satisfies the requirement for shared transport since such dedicated circuits could reside in the same cable sheathing or carrier system as Ameritech's facilities. But unless the CLECs' traffic is permitted to travel over the same individual circuits as the incumbent's traffic, the trunking efficiencies from the use of the same switch can not be achieved.

Ameritech argues that routing traffic over the same circuits amounts to "common transport" and that since this involves both transmission and switching it should be regarded as a "service" as opposed to a network element. Kocher Aff. ¶¶ 67-68. Thus, Ameritech offers a second local transport option to purchasers of unbundled local switching. This option, called Network Combination Transport Service, permits a competitor to combine unbundled switching with a wholesale usage service (the price of which is not based on TELRIC). Under this option, competitors are not entitled to collect originating or terminating access charges. Id.

As noted above, Ameritech views "common transport" as a wholesale service rather than an unbundled element, because, among other things, "common transport" involves the interaction of two network elements: switching and transport. This rationale, however, is not supported by the 1996 Act, the Commission's regulations, or the rulings of the MPSC. ¹⁷ Section 251(c)(3) of the 1996 Act specifically provides that requesting telecommunications carriers may obtain unbundled network elements and that the incumbent LECs must provide them "in a manner that allows requesting carriers to combine such elements." Moreover, the Commission's implementing regulations that are in effect -- i.e., have not been stayed in judicial proceedings -- require that such combinations of elements be provided, stating that "[e]xcept upon request" the BOC cannot separate "requested network elements that the incumbent LEC currently combines." 47 C.F.R. § 51.315(a), (b) (1997). Thus, as the Commission has emphasized, ¹⁸ the ability of new entrants to compete with incumbent LECs ("ILECs") by using combinations of network elements, including the ILEC's shared transport networks, is an important mode of entry provided by the 1996 Act that should increase the speed with which competitors can enter the market. The Commission's Local Competition Order specifically allowed new entrants to "purchase all interoffice facilities on an unbundled basis as part of a competing local network," or "combine its own interoffice facilities with those of the incumbent LEC." ¹⁹ This requires BOCs to provide what has often been referred to as the "network platform." Noting the competitive significance of the "network platform," both the MPSC and the PSCW have rejected Ameritech's refusal to provide common transport. ²⁰

As outlined in Part V, the Department agrees that the "platform" concept provides an important mode of CLEC entry and, as both Ameritech and the CLECs have recognized, this concept is most feasibly based upon the use of common transport. Thus, unless the Commission decides in the pending motion for clarification on this issue that Ameritech is not obligated to provide common transport, Ameritech cannot receive Section 271 authority unless it makes common transport available, in conjunction with both unbundled switching and the "network platform," as both a legal and a practical matter.

2. Ameritech Has Imposed Improper Restrictions on The Ability of Unbundled Local Switching Customers to Collect Access Charges for Calls Carried by Their Unbundled Elements

The Department also concludes that Ameritech has not provided access to the unbundled local switching element in accordance with the Commission's regulations because it has failed to clearly allow ULS purchasers to receive access charges. Like Ameritech's position on the "common transport" issue, Ameritech's legal position here is, in our view, not consistent with the 1996 Act's requirements as interpreted in the Commission's regulations. The Commission has ruled that purchasers of unbundled elements have the right to provide access to the customer served by those unbundled elements. ²¹ 47 C.F.R. § 51.309(b) (1997). Moreover, the Commission's recent decision reforming access charges reaffirmed that ILECs may not collect such interstate access charges where the service is provided by purchasers of unbundled network elements. Access Charge Reform, Second Report and Order, CC Docket No. 96-262, at ¶ 337 (rel. May 21, 1997). ²²

Ameritech describes the conditions under which it would permit purchasers of unbundled switching to collect access charges in the Kocher and Edwards Affidavits. Ameritech's position is that competitors purchasing the Network Combination- Common Transport Service would not be entitled to collect access charges. ²³ This restriction appears to mean that such purchasers of unbundled switching will not be able to collect access charges for traffic originating or terminating on their line ports unless such traffic is also routed to a POP over trunks that do not also carry Ameritech subscribers' traffic. This position is apparently based on Ameritech's theory that the trunk port through which its access calls travel should be exclusively dedicated to Ameritech. ²⁴ Under this approach, competitors are barred from collecting any of the access charges where Ameritech provides the transport segment. ²⁵ This restriction (1) denies to entrants crucial economies of scale in the trunking network between the switch and the POP, and (2) effectively negates the Commission's policy of allowing competitors using unbundled network elements to compete for the provision of exchange access service. Thus, unless the Commission decides that Ameritech's restrictions on the receipt of access charges by ULS purchasers are appropriate, Ameritech must allow the purchasers of ULS to collect access charges without restriction in order to receive Section 271 authority.

As a practical matter, Ameritech's restrictions on the ability of ULS customers to self- provide or collect access charges effectively deter the purchase of ULS. ²⁶ Accordingly, Ameritech cannot point to any actual commercial use to demonstrate that it would be able to provision the ULS element. In the case of ULS, it is important to observe actual commercial use, or at least convincing testing evidence, because this element requires significant network capabilities that are not used in the provision of other network elements. Thus, unless the Commission significantly narrows the ULS element from what the Department and several state regulatory commissions understand it to represent, Ameritech cannot be found to have made the necessary showing that ULS is being "provided" as required by the checklist.

3. Ameritech Has Not Yet Demonstrated the Capability to Provide Unbundled Switching and Transport in a Reliable Manner.

In its application, Ameritech states that if it is ordered by the Commission to provide common transport as a network element it will do so in accordance with billing settlement procedures set forth in the Kocher Affidavit, at ¶¶ 70, 73, 77. These settlement procedures would be necessary because Ameritech has not yet developed the capability to measure and record the call data needed for the provision of common transport or to permit the CLECs to bill access charges. In addition, Ameritech proposes to offer a combination of local switching and transport with the capability to perform a "true up" that would account for the different revenue flows that would occur if the AT&T version of the platform were adopted by the Commission after it approved Ameritech's Section 271 application. Stated simply, this proposal, which would become effective on the date that Ameritech is authorized to provide interLATA services in Michigan, calls for Ameritech to bill CLECs for transport at the wholesale usage rate and collect the access revenue for itself, but to maintain the appropriate records of this usage and the relevant access charges until the Commission rules on the pending motion for clarification and reconsideration of Ameritech's position on interoffice transport. If Ameritech's position were to be rejected by the Commission, it would "true up" its balance of accounts with the CLECs by offering a credit for the access revenue and for the overcharges for transport. Ameritech further states that, at that time, it would begin developing a long-term solution for the appropriate billing systems to allow CLECs to bill the appropriate access charges. Kocher Aff. ¶¶ 75-78. Whatever merits it might otherwise have, this "true-up" proposal still does not deal with the other critical issue here -- i.e., Ameritech's failure to demonstrate its technical ability to provide this element.

In order to provide new entrants with a combination of local switching and transport as required by the Commission's regulations, Ameritech will have to configure its switches and support systems in a manner that is not used for its own services or for the resale of its services. In addition, it will have to establish systems and procedures for the ordering and provisioning of these elements. Ameritech has not yet demonstrated that it possesses the technical capability to do so in a reliable, commercially acceptable manner. Ameritech has, however, begun a technical trial to provide evidence that it can provision these elements.

To demonstrate that it will eventually be in a position to provide shared transport and to allow ULS purchasers to bill access if ordered to do so, Ameritech's application includes an outline of an ongoing technical trial with AT&T. As described in the Affidavit of Daniel J. Kocher, ²⁷ this trial would proceed in two phases. The first phase of the trial would employ a single switch in Chicago and would involve the receipt of orders from AT&T for 20 lines using the EDI interface. ²⁸ The single switch trial is intended to test the ordering process and several functions of the switch which are needed for the platform, such as customized routing and the recording of call detail needed for the platform customer to bill end users but not other carriers.

Ameritech's submission also describes its proposal for the second phase of the trial using multiple switches. ²⁹ In its comments, AT&T proposes a substantially more robust second phase trial designed to determine whether the platform is ready for commercial use. Specifically, AT&T's experts assert that it is necessary to conduct testing which includes, among other features, orders with a larger number of line class codes, and switches located in different states. ³⁰ The Department understands that the parties are still in the process of attempting to agree upon a test plan for the phase two trial, which would obviously be relevant to making a determination of Ameritech's practical ability to provision the network platform. Thus, Ameritech has yet to demonstrate its practical ability to provide these elements as required by the checklist. ³¹

2. Wholesale Support Processes for Provision of Unbundled Network Elements and Resale Services

Efficient wholesale support processes -- those manual and electronic processes, including access to OSS functions, that provide competing carriers with meaningful access to resale services, unbundled elements, and other items required by Section 251 and the checklist of Section 271 -- are of critical importance in opening local markets to competition. Where high volumes of transactions are expected for particular processes, the Department has highlighted two general areas where automation is likely to be necessary to a practical offering: the interfaces between a BOC and competing carriers; and, to a great extent, the interaction of these interfaces with a BOC's OSSs. Experiences in local competition to date make it clear that successful commercial operation is by far the most persuasive evidence that these wholesale support processes provide needed functionality and will operate at forecasted volume levels.

The Department finds that, while Ameritech has clearly made progress in this area, it has not yet fully complied with the competitive checklist's standard for the wholesale support processes necessary to provide adequate resale services and access to unbundled elements. Appendix A to these comments provides a more detailed analysis of Ameritech's wholesale support processes, but we provide below a general overview of that analysis. As an initial matter, the Department agrees that Ameritech has generally followed what we believe to be the appropriate approach for demonstrating that it can provide adequate resale services, unbundled elements, and other checklist items -- i.e., Ameritech has sought to provide concrete evidence, rather than paper promises. Thus, in its application, Ameritech provides detailed internal and carrier-to-carrier test results of automated processes, allowing all interested parties to lend their expertise to the Commission's analysis. In many cases, Ameritech has actively sought out testing with competing carriers and worked through problems as they have inevitably occurred. In particular, Ameritech has identified shortcomings in the operation of its automated and manual processes, the absence of which at this nascent stage would itself raise suspicions, and provided detailed assessments of their causes and proposed solutions.

Ameritech's approach is clearly a desirable, procompetitive way to proceed. The Department would urge other BOCs to adopt the same approach. In order to facilitate competition effectively, complex systems must work in practice, not merely in theory, a point that Ameritech's extensive efforts clearly reflect. Nevertheless, on the basis of the evidence currently in the record, Ameritech has not satisfied its burden of demonstrating the successful operation of its POTS resale preordering, ordering, and provisioning processes. Further commercial use and clearer reporting of the results of such use, when supported by the type of detailed evidence Ameritech has already provided, will be needed to establish that Ameritech has satisfied the competitive checklist with regard to providing adequate resale services.

With respect to its provision of unbundled local loops, Ameritech's performance is the subject of considerable dispute. While Ameritech has been able to provision a significant number of loops, and competitors have been able to compete to a limited degree in a few local markets using such loops, Ameritech's largest loop customer, Brooks Fiber, disputes Ameritech's ability to meet due dates and installation intervals. It is the Department's understanding, however, that Ameritech and Brooks are progressing in establishing a clearer understanding of Ameritech's performance, which should permit a better assessment of Ameritech's performance at a later date.

Finally, as is reflected in the discussion above in Section III.A, the Department believes further testing and operation of Ameritech's ability to provide local switching in combination with other elements is necessary. The results of trials currently underway or planned should shed important light on Ameritech's abilities in this area. Further discussion of these and other remaining issues is provided in Appendix A as well as in Section V.B.

3. Adequacy of Interconnection Trunking Facilities

The competitive checklist requires BOCs to provide "[i]nterconnection in accordance with the requirements of sections 251(c)(2) and 252(d)(1)," which set forth the relevant technical and pricing standards. Section 271(c)(2)(B)(i). In light of the concerns outlined below, we conclude that Ameritech has failed to provide sufficient evidence to demonstrate that it is providing adequate interconnection in accordance with the technical standards set forth in the 1996 Act.

It is undisputed that Ameritech is exchanging significant volumes of traffic with CLECs through end office integration trunks. It is disputed, however, whether Ameritech provides interconnection "that is at least equal in quality to that provided by the local exchange carrier to itself..." (Section 251 (c)(2)(C)) and "on rates, terms and conditions that are just, reasonable, and nondiscriminatory" (Section 251 (c)(3)) as required by the 1996 Act. The MPSC found that Ameritech provides interconnection, in that it exchanges traffic with CLECs pursuant to interconnection agreements, but it made no determination as to whether the interconnection provided satisfied the quality and nondiscrimination requirements of the 1996 Act and the Commission's Local Competition Order. ³² Other relevant regulatory proceedings have similarly failed to resolve whether Ameritech is providing interconnection at parity. ³³

Ameritech's interconnection performance data clearly show that the end office integration (EOI) trunks used by CLECs to interconnect with Ameritech experience higher blocking rates than do the trunks used within Ameritech's own network. During March and April of 1997, 9.4% of the EOI interLATA trunk groups were blocking more than 2% of the traffic routed to the group. Over the same period, 6.6% of the EOI trunk groups used to transport local and intraLATA calls exceeded the 2% threshold that Ameritech reports. ³⁴ The comparable blocking rate for Ameritech retail was 1.5%. Mickens Aff. ¶ 49.

Because the record is clear that the EOI trunk groups are blocked more frequently than Ameritech's retail trunks, the relevant question is whether the difference between the competitors' experience and Ameritech's own retail blocking rate is sufficiently significant as to deviate from Section 251(c)(2)'s mandate that CLECs be afforded interconnection arrangements on "nondiscriminatory" terms. On this point, Ameritech asserts that EOI traffic tends to be more volatile than Ameritech's retail traffic and concludes that because of this volatility, the disparity between EOI trunk blocking rates and Ameritech's retail blocking rates is not a "cause for concern." Id. This response alone does not address our concern, especially in light of the fact that lower target trunk blockage rates have been established through negotiations with CLECs, ³⁵ . cite ³⁶ and that two of the three CLECs that Ameritech relies upon in this proceeding, Brooks Fiber and TCG, have offered specific complaints about excessive trunk blockage. ³⁷ To the extent that Ameritech's characterization of the varying nature of the CLECs' calls or trunk groups might explain the different rates of call blockage, the record currently contains no evidence in support of this claim -- i.e., that Ameritech's internal performance standards vary by the volatility of traffic on the trunk group. Consequently, the Department cannot conclude, based upon the record in this proceeding, that Ameritech has satisfied the checklist standard for providing adequate interconnection.

Ameritech further states that CLECs have been reluctant to provide forecast data and that their failure to do so explains much of the blocking data disparity. The Department agrees that EOI trunk blocking rates could potentially be reduced with improved traffic forecasts, and we would urge CLECs to provide such data to the fullest extent possible. Nonetheless, we recognize that accurate prediction is not always possible, and, in those situations where predictions are unavailable or are inaccurate and blocking occurs, there should be a timely, successful resolution. The Mayer affidavit states that Ameritech's procedures for provisioning EOI trunks are being changed. ³⁸ With only a cursory description of those changes in the record, and no performance data to show a lasting improvement in blocking rates, however, it is too early to determine whether these changes will be sufficient to establish compliance with this checklist item.

IV. Ameritech's Compliance with Section 272

Section 272 prohibits Ameritech from providing in-region interLATA service unless it does so through a separate affiliate for at least three years after entry, and also complies with various nondiscrimination obligations. These requirements are necessary (though not sufficient) conditions to protect against anticompetitive behavior by the BOC upon its entry into the interLATA market. ³⁹

Ameritech asserts that it has complied and will continue to comply fully with the requirements of this section, including both accounting and non-accounting safeguards. Commenters, however, have pointed out apparent inconsistencies between Ameritech's representations in this docket and representations it previously has made in other dockets in Michigan and other states in its region. ⁴⁰ These comments note the lack of information available regarding transactions between Ameritech and its long-distance affiliate, ACI. ⁴¹ This lack of information raises questions about whether Ameritech has sufficiently documented the affiliated transactions to allow detection of discrimination, cross-subsidization, or any other anticompetitive behavior.

With regard to at least one aspect of its relationship with ACI, Ameritech has made a commitment that the Department finds to be significant. In the affidavits of Patrick J. Earley and Paul V. LaSchiazza, Ameritech states that although certain customers have authorized Ameritech Michigan to share Customer Proprietary Network Information (CPNI) with Ameritech affiliates, it has not disclosed any CPNI to ACI and that it will refrain from disclosing CPNI to ACI unless and until (1) ACI has itself obtained customer authorization to receive the information and/or (2) the FCC rules in its pending CC Docket No. 96-115 [CPNI] that such information may be shared. Affidavit of Patrick J. Earley ¶ 48 ("Earley Aff."), attached to Ameritech Brief, Volume 2.2; LaSchiazza Aff. ¶¶ 22, 35. Moreover, Ameritech commits to not using CPNI on any outbound joint marketing it may do for ACI, unless one of the two above conditions apply. ⁴² We support this commitment and believe it to be necessary given the present circumstances.

V. Evaluation under the Department's Standard

The Department has concluded that BOC in-region interLATA entry should be permitted only when the local exchange and exchange access markets in a state have been fully and irreversibly opened to competition. ⁴³ This standard seeks to ensure that the barriers to competition that Congress sought to eliminate in the 1996 Act have in fact been fully eliminated and that there are objective criteria to ensure that barriers are not imposed after BOC entry into in-region interLATA services. The Department will evaluate, among other things, whether a BOC's wholesale support systems will permit the effective provisioning of resale services and unbundled elements, and whether the continued nondiscriminatory operation of these systems can be assured after approval of a Section 271 application. Ameritech itself recognizes that "[o]ne of the goals of the 1996 Act . . . is to open local exchange service to competition." Ameritech Brief at 62.

In applying this standard, the Department will consider whether all three entry paths contemplated by the 1996 Act -- facilities-based entry involving construction of new networks, use of the unbundled elements of the BOC's network, and resale of the BOC's services -- are fully and irreversibly open to competitive entry to serve both business and residential consumers. To do so, the Department will look first to the extent of actual local competition as evidence that local markets are open, and whether such entry is sufficiently broad-based to support a presumption of openness. If broad-based commercial entry involving all three entry paths has not occurred, the Department will examine competitive conditions more carefully, and consider whether significant barriers continue to impede the growth of competition, focusing particularly on the history of actual commercial entry. We will assess the import of such entry as a means of demonstrating whether the market is open and establishing relevant performance benchmarks, but not as a way of requiring any specific level of local competition. Our standard thus seeks to ensure that competitors presently receive -- and regulators can continue to expect (based on established performance benchmarks) -- a meaningful opportunity to compete.

While a limited amount of entry is occurring today under all three entry paths in local exchange markets in Michigan, there is not yet enough local competition in Michigan to warrant a general presumption of openness. Rather, it is necessary to investigate carefully whether any remaining barriers would impede the growth of local competition in Michigan. From the preceding evaluation of checklist compliance, however, it appears that some barriers remain in Michigan. In addition, as discussed below, Ameritech's lack of fully adequate performance measures and enforceable performance benchmarks suggests that any opening to local competition in Michigan may not yet be properly described as being irreversible.

1. Competition Exists in Local Exchange and Exchange Access Markets in Michigan But Is Not Yet Sufficient to Warrant any Presumption that Local Markets are Fully and Irreversibly Open

As Ameritech explains, Michigan took its first steps to authorize local competition in 1991, and in 1995, a year before the passage of the Telecommunications Act, when it substantially amended its own telecommunications laws to open local markets and impose certain unbundling and resale obligations on Ameritech. Mich. Comp. Laws, §§ 484.2103, .2355-60, .2363 (1996). These legal reforms, coupled with the market-opening measures of the 1996 Act and the steps Ameritech has taken, have produced encouraging signs of competitive entry on a small scale, as reviewed in more detail in Appendix B. Twenty-two competitive providers have been certified as local carriers, and other applications are pending. Ameritech Brief at 74. ⁴⁴ The Department has identifed seven firms that are operational competing providers of local exchange service in Michigan, on either a facilities or resale basis, serving business and in some cases residential subscribers. It appears from the evidence provided by Ameritech and its competitors that total lines actually served by competitive providers in Michigan are still no more than 70,000-80,000. A substantial part of this total represents separate facilities of competitors, although most customer lines are served through a combination of the competitors' separate facilities and Ameritech's unbundled elements, or by resale of Ameritech's services. The local competitive entry to date is primarily located in the two largest urban areas, Grand Rapids and Detroit, but competitors have facilities in several other communities, including Lansing, Ann Arbor, and Traverse City.

Ameritech remains, however, by far the dominant provider of local exchange services, with a near monopoly in its service areas. ⁴⁵ Most parts of Michigan still have no local competition, save possibly on a resale basis, since such CLEC competition as exists in Michigan is overwhelmingly concentrated in parts of the cities of Grand Rapids and Detroit and is primarily focused on business customers. The greatest degree of local competition exists in the Grand Rapids metropolitan area, where Brooks Fiber and its predecessor, City Signal, have been operating for several years.

>Given this level of competition, we cannot presume that no barriers to entry exist. At the same time, given the successful small-scale entry that has occurred using all three paths, we cannot presume that the local markets necessarily remain closed either. In such cases, the Department's standard calls for a more careful analysis of opportunities for competitors' future entry and expansion. ⁴⁶

2. Need for Further Measures to Open Local Markets

The competitive entry that has occurred in Michigan, though limited in scope, has been helpful to the process of opening local markets in Michigan. Many of the legal issues that will affect competitive opportunities have been resolved. Ameritech and several of the new entrants have finalized access and interconnection agreements and developed processes through which most of the competitive checklist elements have been furnished to the entrants to some limited extent. The initial experience with competition has also contributed to the development and improvement of the wholesale support processes that will be needed to sustain competition in the future. Indeed, the initial commercial use of Ameritech's wholesale support processes to provide and maintain unbundled elements and resale services has revealed the kind of real-world shortcomings that can be expected to arise in developing the necessary processes, and has allowed Ameritech to make many of the necessary corrections.

Despite this progress, the record submitted by Ameritech does not demonstrate that local markets in Michigan are fully and irreversibly open to competition. The obstacles to competitive entry and expansion that remain could readily impede the growth of competition in Michigan. Specifically, building on our analysis thus far, we identify the following remaining obstacles: (1) the unavailability of unbundled switching and shared transport, which are needed to support entry through the "network platform"; (2) continuing performance problems with respect to some of Ameritech's wholesale support systems, which could limit the ability of entrants to obtain resale services and unbundled elements at reasonably foreseeable levels of demand; (3) inadequate performance measures of some of Ameritech's wholesale support systems, which both preclude a determination that those systems are adequate today, and which will hamper efforts to ensure continued acceptable performance after Section 271 authority has been granted to Ameritech; and (4) troublesome indications of high blockage rates in end office integration trunks, which potentially could impair the quality of service offered by facilities-based competitors.

The Department has already discussed the compliance problems with respect to most of these issues in detail in Part III and Appendix A. It is important to appreciate, however, the competitive significance of the failure to provide these items, which precludes a determination that approval of Ameritech's application would be consistent with the public interest. With respect to unbundled switching and shared transport (as defined by the relevant orders of the Commission and the MPSC), Ameritech's failure to make these checklist requirements practically available to its competitors forecloses an important entry vehicle involving the "network platform." Given the economic and technical opportunities afforded by this entry strategy, the "network platform" provides an important entry vehicle for several potential competitors. ⁴⁷

The Department is also concerned about Ameritech's failure to provide adequate trunking facilities for interconnection, because inadequate interconnection is likely to disproportionately disadvantage CLECs in a competitive market. Only a small fraction of the incumbent's calls require transport through an interconnection trunk, while a much larger fraction of CLEC calls require such transport. Therefore, interconnection performance is of much greater consequence to the business success of CLECs than to the incumbent provider. Absent regulatory requirements, Ameritech has little or no incentive to adequately provision interconnection trunks to CLECs. ⁴⁸ . Mayer Aff. at 22. ⁴⁹ It follows that special emphasis should be placed on establishing satisfactory performance standards for interconnection trunks, and determining that the BOC is able to meet its own standards in actual competitive conditions, before Section 271 authority is granted.

The provisioning of wholesale support systems is central to the 1996 Act's promise of facilitating local competitive entry, since these systems are essential to enable the BOCs' competitors to perform the necessary ordering, repair and billing functions to compete on any significant scale. The competitive significance of Ameritech's failure to demonstrate the adequacy of some of the wholesale support systems that will be required to provide adequate resale services and unbundled elements, at needed volumes and at acceptable levels of quality and timeliness, is, as discussed below, implicitly demonstrated by Ameritech's own competitive analysis.

Ameritech asserts that current market share data understate the competitive significance of CLECs because the existing facilities in Michigan, including the number of collocations in Ameritech end offices, indicate that a large share of Ameritech's customers are already "addressable" by competitors. According to Ameritech, this means that the local market is already sufficiently open to provide meaningful competitive pressure on the BOC. Joint Affidavit of Robert G. Harris and David J. Teece at 38-39 ("Harris and Teece Aff."), attached to Ameritech Brief, Volume 3.3. Ameritech's affiants argue that collocation in an Ameritech end office gives the collocator the ability to compete for every access line served by that end office, id. at 29-39, and based on this assertion, they claim that by the end of July competitors will be collocated in central offices that serve 42% of Ameritech Michigan's business lines (768,269 lines) and 29% of Ameritech Michigan's residential lines (948,221 lines). ⁵⁰

Ameritech's "addressable market" argument assumes that CLECs have the "capacity to serve" all access lines served by collocated offices. Id. at 33. But capacity in this context is dependent not only on the capabilities of the CLECs, but also on the ability of Ameritech to provision unbundled loops in the collocated offices. Ameritech has not yet sufficiently demonstrated its ability to do so reliably and in significant volumes. In short, to establish that a large portion of the market is "addressable," Ameritech must first demonstrate that its processes for provisioning unbundled loops are reliable and scalable to levels substantially greater than current demand. ⁵¹ Ameritech's testimony shows, however, that the vast majority of the unbundled loops provisioned to date were ordered through manual processes, ⁵² which may be able to handle a very small volume of orders, but which are inherently unsuitable for dealing with large-scale competitive demand. At present, Brooks, the principal user of unbundled loops, is using ASR (an electronic interface) to place orders, but it continues to have problems with sending orders and receiving firm order commitments. Thus, the analysis in Part III and Appendix A shows that Ameritech's systems have not yet been proven to be able to meet the levels of customer demand that Ameritech's affiants assume in claiming that the Michigan local markets are "addressable."

Finally, there are two additional issues implicated in the Department's competitive assessment that have not already been considered in Parts III and IV: inadequate performance measures and pricing. We discuss each below in more detail.

1. Inadequate Performance Measures

Performance benchmarks serve two important purposes: (1) demonstrating that the market is currently open to competition, and (2) facilitating meaningful post-entry oversight that ensures that the market opening is irreversible. ⁵³ To serve these twin purposes, the BOC must define the relevant measures, report the appropriate data on a regular basis, and derive the applicable benchmarks from the performance so measured. That is, performance measures must be defined to cover the critical functions and defined with sufficient specificity so that the thing measured can be understood. The benchmarks, or specific levels of performance, can then be derived from a track record of reliable service established by the BOC, from analogy to the BOC's own retail operations, or perhaps from some other alternative that would ensure a consistent level of performance. As Ameritech itself understands, without "concrete, detailed performance standards and benchmarks for measuring Ameritech's compliance with its contractual obligations and impos[ing] penalties for noncompliance," Ameritech's statutory nondiscrimination obligations are only "abstractions." Ameritech Brief at 85.

In its comments to the Commission, the MPSC agreed with the above principles, ⁵⁴ and defined a set of 12 criteria by which performance standards can be developed. MPSC Consultation at 31-32. The MPSC concluded that "complete and appropriate performance standards have not as yet been adopted which would permit determinations to be made regarding nondiscriminatory access to OSS and other unbundled network elements." MPSC Consultation at 33-34. ⁵⁵ Although we agree with the MPSC that Ameritech's progress in this regard is incomplete, it is important to note that Ameritech has proposed and begun reporting a set of performance measures that addresses many of the important criteria covering both the operation of the interfaces and the operation of the OSS and provisioning systems. ⁵⁶ We fully endorse Ameritech's commitment to measuring and reporting its performance and find its efforts to be significant, especially because Ameritech appears to have implemented specific business policies consistent with that commitment. ⁵⁷ Moreover, Ameritech has committed to continuing its measuring and reporting obligations into the indefinite future. Nevertheless, as discussed in Appendix A, there are important gaps in the measures proposed by Ameritech -- namely, (1) a lack of sufficient clarity in certain of the definitions presented, and (2) a failure to measure and report actual installation intervals for resale, installation intervals for unbundled loops, comparative performance information for unbundled elements, and repeat reports for the maintenance and repair of unbundled elements. Thus, although Ameritech's performance measures appear adequate in other respects, Ameritech has yet to establish all of the necessary performance benchmarks to satisfy the Department's competitive assessment. ⁵⁸

2. Lack of Final Cost-Based Pricing

Compliance with the cost-based pricing standards of the Telecommunications Act in Section 252(d) is also relevant to the Section 271 entry process, as Congress's repeated references to Section 252(d) in the checklist items of Section 271(c)(2)(B) makes plain. For the most part Ameritech's prices in Michigan are still interim and have not been finally determined to be cost-based, though a proceeding to set final prices is already well underway and a decision could issue in the near future. ⁵⁹ See MPSC Consultation at 8-9. Ameritech's interim prices determined through arbitration in Michigan are for the most part relatively low compared with those of other BOCs and ILECs, and have not generated the volume of complaints about rate levels encountered in some other regions. ⁶⁰ Questions have been raised, however, about some of Ameritech's prices, including certain non-recurring charges for components of the service platform and charges for physical collocation, ⁶¹ as well as the accuracy and completeness of Ameritech's cost studies. The most important pricing issue raised by numerous commentors, however, is the lack of any final determination of cost-based rates in Michigan. ⁶²

Cost-based pricing for BOC facilities and services needed by competitors, such as interconnection, transport and termination and unbundled elements, is relevant to the Department's evaluation of any BOC entry application under Section 271. We are particularly concerned where only interim prices that have not been found to be cost-based are available. ⁶³ Competitors will be reluctant to commit their resources to enter a state on a large scale if the economic conditions they will face are highly uncertain and there are incentives for backsliding on the part of the BOC once interLATA relief is granted if final prices have not already been set. In the present circumstances, however, this pricing issue need not be resolved. As we have noted, there are other grounds for denying Ameritech's application, and, consequently, the Commission can await the results of the ongoing Michigan pricing docket, which should soon reach a decision, ⁶⁴ and which may resolve the concerns raised with regard to Ameritech's pricing of its wholesale inputs.

Ameritech has not yet fully complied with all of the requirements of the competitive checklist, nor has it taken all measures needed to ensure, consistent with the public interest, that local markets in Michigan are irreversibly open to competition. For these reasons, Ameritech's application for in-region interLATA entry in Michigan under Section 271 of the Telecommunications Act should be denied.

Respectfully submitted,

Joel I. Klein Acting Assistant Attorney General Antitrust Division Andrew S. Joskow Deputy Assistant Attorney General Antitrust Division Lawrence R. Fullerton Deputy Assistant Attorney General Antitrust Division Philip J. Weiser Senior Counsel Antitrust Division June 25, 1997 Carl Willner Katherine E. Brown Stuart H. Kupinsky Luin Fitch Juanita Harris

_______________________________ Donald J. Russell Chief Attorneys Telecommunications Task Force John B. Hayes Economist Competition Policy Section Antitrust Division U.S. Department of Justice 555 4th Street, N.W., Room 8104 Washington, DC 20001 (202) 514-5621

FOOTNOTES

¹ Pub. L. No. 104-104, 110 Stat. 56 (1996)(codified at 47 U.S.C. § 151 et seq.).

² Section 271(d)(2)(A) requires the Commission to consult the Attorney General on any Bell Operating Company ("BOC") application to provide in-region interLATA services under Section 271(c)(1) of the Telecommunications Act and also requires that the Commission give any written evaluation by the Attorney General "substantial weight" in its decision. The submission of this evaluation does not affect the independent enforcement responsibilities of the Department under the antitrust laws. See, e.g., United States v. R.C.A., 358 U.S. 334, 350 n.18 (1959). See also Section 610(b) of the 1996 Act, 110 Stat. 143.

³ Application of SBC Communications Inc. et al., Pursuant to Section 271 of the Telecommunications Act of 1996 to Provide In-Region InterLATA Services in the State of Oklahoma, Evaluation of the United States Department of Justice, CC Docket No. 97-121 (May 16, 1997) ("DOJ Oklahoma Evaluation").

⁴ This affidavit has already been filed with the Commission as an exhibit with the DOJ Oklahoma Evaluation in CC Docket No. 97-121, and so an electronic version is not provided again with this filing.

⁵ See, e.g., Federal Communications Commission, Telecommunications Industry Revenue: TRS Fund Worksheet Data, at Tables 2, 18, and 19 (Dec. 1996) ("FCC 1996 TRS Data"); Federal Communications Commission, Statistics of Communications Common Carriers, at Table 2.9 (1996) ("FCC 1996 Common Carrier Statistics"); and Schwartz Aff. ¶¶ 30-34, 38-39, 89 and Table 1. A more detailed analysis of data on revenues in local markets on a nationwide basis is contained in the DOJ Oklahoma Evaluation at 5 n.8.

⁶ Specifically, Congress required a BOC to show that:

(A) the petitioning Bell operating company has met the requirements of subsection (c)(1) of this section and -
(i) with respect to access and interconnection provided pursuant to subsection (c)(1)(A) of this section, has fully implemented the competitive checklist in subsection (c)(2)(B)of this section; or
(ii) with respect to access and interconnection generally offered pursuant to a statement under subsection (c)(1)(B) of this section, such statement offers all of the items included in the competitive checklist in subsection (c)(2)(B) of this section;
(B) the requested authorization will be carried out in accordance with the requirements of section 272 of this title; and
(C) the requested authorization is consistent with the public interest, convenience, and necessity.

⁷ Ameritech cannot apply for Section 271 authority in Michigan under Track B, as the MPSC has refused to approve its Statement of Generally Available Terms and Conditions ("SGAT"), finding that competitive local exchange providers made timely requests for access and interconnection. Michigan Public Service Commission, In the Matter of the Application of Ameritech Michigan, Pursuant to Section 271 of the Communications Act of 1934, as amended, to Provide In-Region, InterLATA Services in Michigan, CC Docket No. 97-137, Consultation, at 2-4 (June 9, 1997) ("MPSC Consultation").

⁸ Brief in Support of Application by Ameritech Michigan for Provision of In-Region InterLATA Services in Michigan, CC Docket No. 97-137, at 2-3, 8-14 (May 21, 1997) ("Ameritech Brief").

⁹ Both MFS/WorldCom and TCG have stated that they are not providing local exchange service to residential customers in Michigan. Comments of WorldCom, Inc. in Opposition to Ameritech Michigan Application for InterLATA Authority, CC Docket No. 97-137, at 4 (June 9, 1997) ("WorldCom Comments"); Comments of Teleport Communications Group. Inc., CC Docket No. 97-137, at 39 (June 10, 1997) ("TCG Comments"). The MPSC likewise found that "MFS and TCG apparently serve only business customers in Michigan at this time." MPSC Consultation at 10. See also DOJ Oklahoma Evaluation at 20-21 (certification and tariffs not sufficient to establish residential competition in absence of any customers or active marketing). Brooks, in contrast, does serve some residential customers in Grand Rapids and Holland, Michigan. Opposition of Brooks Fiber Communications of Michigan to Ameritech's Application, CC Docket No. 97-137, at 6 n.18 (June 10, 1997) ("Brooks Opposition").

¹⁰ See Ameritech Brief at 10; Brooks Opposition at 7, 9; and MPSC Consultation at 10.

¹¹ Given our conclusion that Track A is satisfied on the basis of Brooks' own facilities, we need not consider Ameritech's suggestion that the leasing of a BOC's unbundled network elements should be considered to be a competitive local exchange carrier's ("CLEC's") facilities for purposes of Track A. See Ameritech Brief at 12-14.

¹² Many of the checklist items expressly require "nondiscriminatory" provision, and in addition the "nondiscriminatory" terms and conditions required by Section 251 apply both to the LECs' treatment of other competitors and to the LECs' treatment of their own affiliates, so that the LECs must provide unbundled elements at the same level of quality as they do for themselves, to the extent technically feasible. See Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, First Report and Order, CC Docket Nos. 96-98 and 95-185, at ¶¶ 217-18 (footnotes omitted) (rel. Aug. 8, 1996) ("Local Competition Order"). Where a BOC relies on the use of "most favored nation" (MFN) clauses to meet checklist requirements and there has been substantial doubt as to what its MFN clauses actually permit, as here, the Commission should carefully scrutinize the BOC's interpretations to ensure both that they are adequate and that they remain fully enforceable after entry authority is granted. See Affidavit of Theodore A. Edwards at Schedule 3 ("Edwards Aff."), attached to Ameritech Brief, Volume 2.3 (construing scope and permitted use of MFN clauses in Ameritech's agreement with TCG); Comments of MCI Telecommunications Corporation, CC Docket No. 97-137, at 9 (June 10, 1997) ("MCI Comments"); and Opposition of the Competitive Telecommunications Association, CC Docket No. 97-137, at 8 (June 10, 1997) ("CompTel Opposition") (arguing Ameritech MFN clauses do not confer true mix and match rights on competing carriers). The MPSC has discussed the difficulties experienced by TCG in seeking to use its MFN clause and Ameritech's further clarification of its present position allowing providers to opt to adopt the rates, terms and conditions of a single contract element rather than only being able to adopt contract sections as a whole, and has said that "application of these clauses will continue to be closely monitored." MPSC Consultation at 7.

¹³ Section 271(d)(3) requires the Commission to deny BOC applications unless "it" finds that the statutory requirements have been satisfied.

¹⁴ Ameritech filed its initial SGAT in Wisconsin on October 16, 1996. The PSCW opened Docket No. 6720-TI-120 in order to analyze the offering. On December 12, 1996, the PSCW issued its First Order finding Ameritech's SGAT deficient in many respects. Ameritech filed revised SGATs in January and March. The PSCW considered all of the issues noted in its First Order and held hearings on some of them, including whether Ameritech's OSS interfaces were "tested and operational." Testimony was submitted by Ameritech, CLECs and other interested parties, and PSCW staff, and cross-examination occurred. Commissioners attended the OSS hearings on March 31-April 1, 1997, heard oral argument on April 2, 1997, and orally decided on April 3, 1997, that Ameritech had not demonstrated that its systems were tested and operational. That decision was later memorialized in the final, written order of May 29, 1997, which rejected Ameritech's March SGATs and all prior SGATs for reasons which included lack of demonstrated OSS and lack of an unbundled common transport offering. Public Service Commission of Wisconsin, Matters Relating to Satisfaction of Conditions for Offering InterLATA Service (Wisconsin Bell, d/b/a Ameritech Wisconsin), Docket No. 6720-TI-120, Findings of Fact, Conclusions of Law and Second Order (May 29, 1997) ("PSCW Second Order"), Exhibit 2 to this Evaluation.

¹⁵ On August 26, 1996, the ICC issued an order establishing Docket No. 96-0404, an investigation into Ameritech's compliance with the requirements of Section 271. The ICC described 30 areas of inquiry, which were addressed by Ameritech, CLECs and other interested parties, and ICC staff in testimony, at hearing, and in briefs. On March 6, 1997, a Hearing Examiner's Proposed Order ("HEPO") was issued, which found Ameritech's compliance deficient in several respects, including the provision of OSS, unbundled transport and unbundled switching. This HEPO also expressed concerns about provisioning delays for unbundled loops. Ameritech then requested the opportunity to supplement the record, which was re-opened in the interests of completeness. Following additional rounds of testimony and hearing, a second HEPO was issued June 18, 1997, and then revised June 20, 1997. See Illinois Commerce Commission, Investigation Concerning Illinois Bell Telephone Company's Compliance with Section 271(c) of the Telecommunications Act of 1996, Docket No. 96-0404, Hearing Examiner's Revised Second Proposed Order (Revised June 20, 1997) ("ICC Second HEPO"), Exhibit 3 to this Evaluation. The only deficiencies cited in this HEPO are that Ameritech has not met the checklist items of unbundled switching and unbundled transport. This second HEPO is subject to briefs on exceptions, after which the matter will be submitted to the ICC.

¹⁶ Questions have been raised by various regulatory authorities in the Ameritech region about whether Ameritech is provisioning poles, ducts and conduits, and E911 services, on an adequate and nondiscriminatory basis. See MPSC Consultation at 34-36, 43-44; Public Utility Commission of Ohio, In the Matter of the Complaint of the Ohio Cable Telecommunications Association et al., Regarding Discriminatory Treatment of Pole Attachments by Cable Television Operators, Case No. 96-1027-TP-CSS, Opinion and Order, at 23, 25 (Apr. 17, 1997); Public Service Commission of Wisconsin, Matters Relating to Satisfaction of Conditions for Offering InterLATA Service (Wisconsin Bell Inc. d/b/a Ameritech Wisconsin), Docket No. 6720-TI-120, Findings of Fact, Conclusions of Law and Order, at 50 (Dec. 12, 1996) ("PSCW First Order"); and PSCW Second Order at 34. The Department does not have sufficient independent information at this time to conclude whether or not these checklist items are being satisfied in Michigan.

¹⁷ See MPSC Consultation at 38.

¹⁸ Local Competition Order at ¶ 441.

¹⁹ Id. In so doing, the Commission explicitly determined that it was necessary for new entrants to be able to take advantage of the economies of scale that exist in the local networks. See id. at ¶ 11.

²⁰ The MPSC also "determined on the issue of shared versus common transport that AT&T's proposal was appropriate and the prices resulting therefrom should apply." MPSC Consultation at 38 (citing November 26, 1996 Order in Case Nos. U-11151 and 11152). The PSCW also determined that "Ameritech's proposal only offers dedicated unbundled transport and does not offer shared unbundled transport as required by 47 CFR §51.319(d). . . . Shared transport must use Ameritech's routing tables and not require engineering or dedicated ports." PSCW Second Order at 44-46. In rejecting the argument that a network element must be a discrete facility that could be dedicated to a user, the PSCW invoked the Commission's concept of "functionality," see Local Competition Order at ¶ 258, explaining that the purchase of "shared facilities such as common transport" is "essentially purchasing access to a functionality of the incumbent's facilities on a minute-by minute basis." PSCW Second Order at 48. Accordingly, the PSCW found Ameritech's transport offering deficient and directed it to "offer shared transport with the meaning of shared transport being that it uses Ameritech's routing tables and it does not require separate engineering or dedicated ports." Id. at 49.

²¹ Local Competition Order at ¶ 363 n.772; Implementation of the Local Competition Provisions in the Telecommunications Act of 1996, Order on Reconsideration, CC Docket Nos. 96-98 and 95-185, FCC 96-325, at ¶ 11 (rel. Sept. 27, 1996) ("Thus, a carrier that purchases the unbundled local switching element to serve an end user effectively obtains the exclusive right to provide all features, functions, and capabilities of the switch, including switching for exchange access and local exchange service, for that end user."). In addition, the Commission's regulations provide that "[a] telecommunications carrier purchasing access to an unbundled network element may use such network element to provide exchange access services to itself in order to provide interexchange services to subscribers." 47 C.F.R. ¶ 51.309(b) (1997). See also 47 C.F.R. ¶ 51.307(c) (1997). This part of the Commission's rules was not subject to the temporary stay issued by the Court of Appeals.

²² In neighboring states where Ameritech has advanced its same arguments against the platform both Illinois and Wisconsin have also rejected these claims and have ordered that Ameritech permit purchasers of network elements to collect the relevant access charges. PSCW Second Order at 43-50; Illinois Commerce Commisssion, Investigation Concerning Illinois Bell Telephone Company's Compliance with Section 271(c) of the Telecommunications Act of 1996, Docket No. 96-0404, Hearing Examiner's Proposed Order, at 36 (Mar. 6, 1997) ("ICC First HEPO"). The second Illinois HEPO concludes that, since the date of the first HEPO in March 1997, the contested issues associated with access have been resolved by the Commission's access charge reform order. ICC Second HEPO at 77.

²³ Kocher Aff. ¶¶ 66, 68; Edwards Aff. ¶ 116.

²⁴ Kocher Aff. ¶¶ 67-69, 77-78. See Affidavit of Robert V. Falcone and Robert A.Sherry ¶ 72, attached to AT&T Comments, Exhibit J. In effect, it appears that Ameritech is asking that the Commission reverse its decision that the local switching element includes the "line side and trunk side facilities plus the features, functions, and capabilities of the switch." Local Competition Order at ¶ 412.

²⁵ Edwards Aff. ¶ 116.

²⁶ As the PSCW observed, "[a]ccess revenues constitute a significant portion of a local exchange carrier's total revenues. If competitors are unable to provide access services, and therefore do not have an opportunity to tap into this revenue stream, the competitor is unlikely to be able to succeed." PSCW Second Order at 59. The PSCW found that Ameritech's proposal for ULS would permit it to get "access revenues in all cases where access services are provided jointly." Id. at 60. Thus, it found this position "unreasonable and discriminatory" and in violation of §251(c)(3) of the 1996 Act. Id.

²⁷ Kocher Aff. ¶¶ 71-74.

²⁸ The test plan for phase one is Attachment 7 to the Kocher Affidavit.

²⁹ Kocher Aff. ¶¶ 72-73.

³⁰ Affidavit of Robert V. Falcone and Maureen E. Gerson ¶¶ 29-30, attached to AT&T Comments, Exhibit I.

³¹ Without a completed trial to review, the Department cannot assess the technical capability of Ameritech's systems or the saliency of other commenters' concerns. See, e.g., Comments of LCI International Telecom Corp. in Opposition to Ameritech Michigan's Section 271 Application, CC Docket 97-137, at 7-9 (June 10, 1997) ("LCI Comments") (noting that Ameritech's technical trial does not allow for full participation of other carriers).

³² Local Competition Order at ¶¶ 221-225. The MPSC specifically noted that Brooks Fiber disputes the quality of the interconnection it is receiving from Ameritech, but it did not provide any evaluation of this dispute. MPSC Consultation at 12. Further, it found that Ameritech's performance measures for interconnection are inadequate because they "do not distinguish things over which Ameritech has control so deviations from the goal can be explained away." Id. at 23-24, 26.

³³ In finding that Ameritech is providing interconnection, the Illinois HEPO provided no discussion of Ameritech's interconnection performance. ICC Second HEPO at 23-24. Likewise, the order from the PSCW evaluating Ameritech's SGAT in that state does not address performance issues. PSCW Second Order at 13-14.

³⁴ Affidavit of Warren Mickens ¶ 49 ("Mickens Aff."), attached to Ameritech Brief, Volume 2.10. The Department notes that the some of the charts and underlying raw data presented in Schedule 17 of Mickens proprietary testimony are inconsistent.

³⁵ The AT&T contract, which Ameritech also relies upon in this proceeding, calls for blocking rates of less than 1%. AT&T Interconnection Agreement at Schedule 3.8-1 ("AT&T/Ameritech-Michigan Interconnection Agreement"), attached to Ameritech Brief, Volume 1.2. Importantly, there is nothing in the contract to suggest that higher blocking rates are acceptable while traffic volumes are low.

³⁶ In fact, the AT&T contract calls for interconnection that is "equal in quality" to that provided by Ameritech to itself, and defines "equal in quality" to mean "the same technical criteria and service standards" that Ameritech uses within its own network. Id. at §3.6. Ameritech has not attempted to demonstrate that the relatively high blocking rates CLECs have experienced satisfy the technical criteria and service standards that Ameritech uses internally.

³⁷ TCG Comments at 4-8; Affidavit of Michael Pelletier ¶¶ 10-24 ("Pelletier Aff."), attached to TCG Comments, Exhibit A; Brooks Opposition at 28-29; and Response to Ameritech Michigan's Submission of Additional Information in MPSC Case No. U-11104 by Brooks Fiber Communications of Michigan, Inc., at 3 (Apr. 15, 1997).

³⁸ Affidavit of John B. Mayer ¶ 40 ("Mayer Aff."), attached to Ameritech Brief, Volume 2.8.

³⁹ See Reply Comments of the United States Department of Justice, CC Docket No. 96-149, FCC 96-489, at 1-4 (Aug. 30, 1996).

⁴⁰ See, e.g., TCG Comments at 27-39; Comments of AT&T in Opposition to Ameritech's Section 271 Application For Michigan, CC Docket 97-137, at 37-39 (June 10, 1997) ("AT&T Comments"); and CompTel Opposition at 31-34.

⁴¹ Affidavit of Lila K. McClelland and Douglas K. Goodrich ¶¶ 24-25 ("McClelland and Goodrich Aff."), attached to AT&T Comments, Exhibit O (quoting Letter from Lynn S. Starr, Ameritech to Regina Keeney, FCC, dated Apr. 21, 1997); id. at ¶¶ 32-33 [citing Affidavit of Paul LaSchiazza ¶ 11 ("LaSchiazza Aff."), attached to Ameritech Brief, Volume 2.7 and Affidavit of Richard E. Shutter ¶ 19, attached to Ameritech Brief, Volume 2.14.]. The business of ACI and all Ameritech telephone operating companies is controlled by Ameritech . Petition to Deny by Sprint Communications Company L.P., CC Docket 97-137, at 25 (June 10, 1997) ("Sprint Petition"); TCG Comments at 31-32, 34.

⁴² Given Ameritech's announced intent to market for ACI, this corollary commitment is necessary in order for the underlying promise to have effective meaning. See McClelland and Goodrich Aff. ¶ 39 (The ACI/Ameritech Michigan Marketing and Sales Agreement "states that Ameritech Michigan may identify potential customers who may benefit from subscribing to and using ACI's products. If Ameritech utilizes its own Customer Proprietary Network Information (CPNI) to identify such potential customers, how does Ameritech intend to establish and charge ACI for the fair market value of this data?").

⁴³ This open market standard and its relationship with the Commission's public interest inquiry is explicated more fully in the DOJ Oklahoma Evaluation at vi-vii and 36-51, and in the Schwartz Affidavit.

⁴⁴ See also MPSC Consultation at 9 ("the MPSC has now authorized twenty-four applicants to provide basic local exchange service").

⁴⁵ Comparative data analyzing Ameritech's market position and that of its competitors in Michigan is contained in Appendix B.

⁴⁶ DOJ Oklahoma Evaluation at 44.

⁴⁷ For example, as the PSCW put it, "[u]nbundled network elements provide a competitive restraint on the incumbents' retail rates. With unbundled network elements priced based on cost, if Ameritech raises its retail rates excessively, competitors can chose to purchase unbundled elements and charge lower rates. In rural areas where facilities-based competition will likely be inefficient, the availability of unbundled network elements based upon cost may serve as an important restraint on retail rate increases." PSCW Second Order at 46.

⁴⁸ Local Competition Order at ¶ 218. Thus, the Department does not assume with Ameritech that "it is in the best interests of both Ameritech and the CLEC to ensure that there are sufficient facilities to handle traffic to and from the interconnected networks." Mayer Aff. ¶ 49.

⁴⁹ On the contrary, poor interconnection performance is likely to make CLECs' services less attractive to consumers, providing a competitive advantage to incumbents such as Ameritech. See Pelletier Aff. ¶ 24.

⁵⁰ Harris and Teece Aff. at 35, Table III.2. As of April 30, 1997, CLECs were collocated in 37 Ameritech end offices and are expected to be in 42 by the end of July. These figures represent virtual collocation only, and the Department is unaware of any physical collocations currently established in Michigan. Harris and Teece also assert that 52% of Ameritech Michigan's customers are addressable from fiber rings. Id. at 41, Table III.4. They reach this estimate by counting the share of access lines that lie within 4 miles of CLEC fiber rings. Harris and Teece's estimate lacks any foundation in actual business practice. Experience shows that extensions to fiber rings are only economically viable for the very largest customers. The decisions of both TCG and MFS (the CLECs with the most extensive networks in Detroit) to concentrate on large customers in on-net buildings provides evidence of the difficulty and expense of extending the reach of a fiber ring. Such high use customers comprise a relatively small share of Ameritech's total access lines.

⁵¹ Without such scaleability, CLECs will be able to serve only a small fraction of the market that Ameritech describes as "addressable." As of March 1997, Ameritech Michigan had provisioned 21,321 unbundled loops, which represents only 2.4% of the 895,458 lines served by offices in which competitors were collocated as of February 1997. Harris and Teece Aff. at 28, Table III.1, and 35, Table III.2. According to Harris and Teece, id. at 28, Table III.1, 2452 unbundled loops were provisioned from January to March 1997, a rate of 1226 per month. At this pace, it would take 23 years (280 months) to cut-over 20% of the 1.7 million lines Harris and Teece identify as "addressable" by the end of July.

⁵² Ameritech's data shows that only about 20% of the loops in service region-wide were ordered using ASR. Mickens Aff. ¶ 23, Tab 25, Section 2, at 6.

⁵³ Application of SBC Communications, Inc., et al. Pursuant to Section 271 of the Telecommunications Act of 1996 to Provide In-Region InterLATA Services in the State of Oklahoma, Addendum to the Evaluation of the U.S. Department of Justice, CC Docket No. 97-121, at 4-5 (May 21, 1997). See also Schwartz Aff. ¶ 70 ("Absent meaningful benchmarks, penalty threats are problematic, because regulators and courts lack the information about what are reasonable implementation lags for new systems"); Id. at ¶ 77 ("[once] a track record is created for what constitutes ‘good performance[,] [p]ost-entry safeguards -- regulatory, antitrust and contractual -- then become more effective at countering BOC attempts to reduce cooperations, since the performance benchmarks can help enforcers to prevent future backsliding and to extend these arrangements to other regions or other entrants.").

⁵⁴ The PSCW, in its recent order rejecting Ameritech's SGAT, also recognized the importance of performance reporting, stating: "The Statement does not, however, yet specify actual performance benchmarks or parity reports. Lack of finality on these items may not in and of itself be sufficient reason to reject a Statement, although significant inadequacies in performance benchmarks and parity reports would be sufficient. The Statement under review is still too vague to meet the Commission's performance benchmark requirement." PSCW Second Order at 26-27.

⁵⁵ Although Ameritech asserts that its "standards, benchmarks and reporting requirements [were] carefully reviewed and approved during Section 252 arbitrations by the MPSC," Ameritech Brief at 85, the MPSC's Consultation makes it clear that the standards, benchmarks and reporting requirements have not been approved for purposes of Section 271. See MPSC Consultation at 33-34.

⁵⁶ Indeed, the Department cited Ameritech's set of measures favorably compared with SBC's in its previous comments on SBC's Oklahoma application. See generally DOJ Oklahoma Evaluation; Affidavit of Michael J. Friduss ("Friduss Aff."), Tab D to DOJ Oklahoma Evaluation.

⁵⁷ See Mickens Aff. ¶ 34 ("As other products and services develop, Ameritech will continue to modify its existing reports to incorporate additional performance measures and tracking reports.").

⁵⁸ In highlighting the need to measure and set appropriate benchmarks for actual installation intervals for resale, installation intervals for unbundled loops, comparative performance information for unbundled elements, and repeat reports for maintenance and repair of unbundled elements, we do not mean to suggest that a particular numerical performance measure is necessary to satisfy our concern. But Ameritech has failed to provide any effective mechanism for measuring levels of performance and establishing benchmarks for some of the critical wholesale support processes that will enable us to conclude that the market has been irreversibly opened.

⁵⁹ Michigan Public Service Commission, On the Commission's Own Motion, to Consider the Total Service Long Run Incremental Costs and to Determine the Prices of Unbundled Network Elements, Interconnection Services, Resold Services, and Basic Local Exchange Services for Ameritech Michigan, Case No. U-11280 (initiated Dec. 12, 1996). See also Permanent Interconnection Arrangements, MPSC Case No. U-10860.

⁶⁰ A comparison with the FCC's proxy prices, though these are stayed on appeal, illustrates the relatively favorable interim prices that have been adopted for some key elements in Michigan. For example, Ameritech's Michigan AT&T agreement has recurring prices for a two-wire analog loop range from $9.31 to $14.67, compared with an FCC loop proxy of $15.27 per month. Rates for end office local termination are .3637 cents per minute, below the FCC's maximum proxy price of .4 cents per minute. See Local Competition Order at Appendix D; AT&T/Ameritech-Michigan Interconnection Agreement at Pricing Schedule - Michigan (AM-1-020258 - 266). Ameritech had proposed substantially higher loop rates, ranging from $15.61 to $21.33, but these were rejected by the Michigan arbitrator in the AT&T arbitration as unreasonably high. Decision of Arbitration Panel at 8 (Oct. 28, 1996), Application Vol. 4.1, AM-4-003637 [cited in Opposition of KMC Telecom, Inc. to Application of Ameritech Michigan to Provide InterLATA Services in Michigan, CC Docket No. 97-137, at 9 n.8 (June 10, 1997) ("KMC Opposition")].

⁶¹ See, e.g., MCI Comments at 24-25.

⁶² See, e.g., Motion to Dismiss by the Association for Local Telecommunications Services, CC Docket No. 97-137, at 19-22 (June 10, 1997); AT&T Comments at 28-29; Brooks Opposition at 10; CompTel Opposition at 14-16; KMC Opposition at 4-9; Comments of the Michigan Consumer Federation in Opposition to Ameritech Michigan's Application, CC Docket No. 97-137, at 9 (June 10, 1997); MCI Comments at 23-25; Sprint Petition at 13-17; TCG Comments at 13-17; Opposition of the Telecommunications Resellers Association, CC Docket No. 97-137, at 36-37 (June 10, 1997); Comments of Time Warner Communications Holdings, Inc., CC Docket No. 97-137, at 4-7 (June 10, 1997); and WorldCom Comments at 42-43.

⁶³ See DOJ Oklahoma Evaluation at 61-63.

⁶⁴ See MCI Comments at 23.

In this Appendix, we examine Ameritech's wholesale support processes—the automated and manual processes required to make resale services and unbundled elements, among other items, meaningfully available to competitors—and performance measures under the criteria outlined in the Department's Evaluation regarding SBC's Section 271 Oklahoma application, filed on May 16, 1997. ¹

1. Wholesale Support Processes Overview

In evaluating BOC applications under Section 271, the Department considers whether a BOC has made resale services and unbundled elements practicably available by providing them via wholesale support processes, including the critical access to OSS functions required by the Commission's rules, that: (1) provide needed functionality; and (2) are demonstrated to operate in a reliable, nondiscriminatory manner at reasonably foreseeable volumes, providing entrants with a meaningful opportunity to compete. ² Ameritech echos this standard in its application, and in particular with reference to OSS access: "Ameritech should be required to show that its OSS interfaces are operational, i.e., that they have undergone sufficient testing or use to provide reasonable assurance that competitors can obtain, upon request, access to the OSS functions they need to enter the marketplace and serve customers successfully at reasonably foreseeable demand levels." Affidavit of Joseph A. Rogers ¶ 15 ("Rogers Aff."), attached to Ameritech Brief, Volume 2.13.

Depending on the volume of orders expected, BOCs will have to automate in two areas to make resale services and unbundled elements meaningfully available at reasonably foreseeable volumes. First, BOCs will have to automate many of the interfaces between a BOC and its competitors through which information is exchanged regarding such services and elements. Application-to-application interfaces in particular allow competing carriers to build their own software for processing transactions with a BOC. In some instances, though, such application-to- application interfaces might be too expensive for smaller carriers who cannot afford such customized software development. In those instances, terminal emulation or graphical user interfaces (GUIs) may be appropriate. SBC, for example, is developing multiple interfaces, for small and large carriers, to support almost every automated wholesale support function. ³

Second, BOCs will need to automate, to varying degrees, the interaction of these interfaces with their internal OSSs. Such automation often will be critical to the meaningful availability of resale services and unbundled elements. The Commission's nondiscrimination requirement obligates BOCs to provide automated interaction between interfaces and OSSs where such access is automated analogously for the BOCs' retail operations, or where the lack of such automation would cause significant barriers to entry, denying competitors a meaningful opportunity to compete. Thus, while we generally concur with Ameritech's "cost-benefit" approach to determining when to mechanize order processing, as the MPSC correctly pointed out, ⁴ we disagree with Ameritech's position that "manual processing of certain orders, after they are received through the appropriate electronic interface, has absolutely no bearing on compliance with the checklist and the Commission's [rules]." Rogers Aff. ¶ 42. Manual processing that results in the practicable unavailability of services or elements at foreseeable demand levels can impede the development of competition, and thus obviously has a direct bearing on compliance with the competitive checklist and the Commission's rules.

In addition to automation in general, adherence to industry standards for interfaces between carriers in particular will generate further economic benefits both for CLECs and incumbents. Committees of the Alliance for Telecommunications Industry Solutions (ATIS) recently finalized standards for ordering resale services and some unbundled elements via electronic data interchange (EDI), and the Department will ordinarily expect BOCs to adhere to such standards following a reasonable period of development in cooperation with competing carriers wishing to use the standardized interface. ⁵

Finally, proper performance measures with which to compare BOC retail and wholesale performance, and to measure exclusively wholesale performance, are a necessary prerequisite to demonstrating compliance with the Commission's "nondiscrimination" and "meaningful opportunity to compete standards." Moreover, without a track record of performance described by comprehensive measures, it will be difficult -- if not impossible -- for competitors and regulators to detect backsliding of performance after in-region interLATA entry is authorized.

2. Ameritech's Wholesale Support Processes

Ameritech has made significant progress in improving the functionality and operability of its wholesale support processes, both manual and automated. Ameritech has generally been forthcoming about early problems with its processes, and has made good faith efforts at finding solutions to many such problems. In addition, Ameritech has attempted to place in this and in state records detailed internal testing results, carrier-to-carrier testing results, commercial performance statistics (including error rates), and, in most cases, internal retail performance results, thereby allowing competitors and regulators to examine and comment on such evidence and compare retail and wholesale performance.

Detailed comments regarding each wholesale support process Ameritech claims to provide are provided below. In each instance, we review the functions Ameritech purports to provide and the testing and operational evidence supporting such functionality. Because Ameritech's processes are generally operated on a regional, rather than state-wide basis, our analysis is not limited to Michigan activities unless there is evidence of state-specific operating problems. Similarly, if a problem exists with Ameritech's processes in another state, we assume that the problem exists in Michigan unless shown otherwise.

1. Obtaining Preordering Information for Resale Services and Unbundled Elements

Ameritech provides CLECs with manual and automated processes for obtaining preordering information. The latter is provided primarily through an EDI interface, and thus Ameritech has generally anticipated the direction ATIS committees have taken in this regard. ⁶ Ameritech provides five primary preordering functions: customer service record retrieval; telephone number selection and reservation; due date selection and reservation; address validation; and feature availability. These functions appear to provide CLECs with at least the basic functionality required to provide competitive POTS services to end users. The first three functions are provided in near-real-time over the EDI interface, while the last two are provided as file downloads and are updated nightly. There is little or no evidence in the record to indicate that this division of functions between real-time and file transfer is competitively unreasonable, particularly in light of the relatively static nature of the address and feature availability data.

Ameritech's EDI preordering interface has undergone significant internal testing, and some, albeit insufficient, carrier-to-carrier testing and commercial use. First, Ameritech asserts that internal testing of the interface by Ameritech alone was completed in November and December 1996, and that the interface has been available since then. Rogers Aff. ¶ 25. Ameritech also presents the details of internal testing at the direction of Andersen Consulting personnel. By analyzing both previous Ameritech testing and current projections of preordering transactions, personnel from Andersen Consulting and Further Inspection, an information technology firm, created a set of benchmark transactions that represented the expected "mix" of preordering transactions. Affidavit of Robert H. Meixner ¶¶ 25-27 ("Meixner Aff."), attached to Ameritech Brief, Volume 2.9. Using these benchmark transactions, Ameritech and Further Inspection personnel then ran tests on the preordering system involving 906 transactions and six simultaneous users. The results are reported in Schedules 9 and 10 of Meixner's affidavit. The reported results claim a capacity of 945 preorder transactions per hour, or 307,000 per month, well above Ameritech's projected volumes for 1997.

The results also claim an average response time for these transactions of approximately 8.2 seconds, roughly corroborated by 9.5 second response times in tests using USN's interface for retrieving CSRs. Ameritech also corroborates these results through submission of a study by Further Inspection comparing Ameritech's retail and wholesale preorder response times further broken out by state. ⁷ It is unclear whether the data depicted is a breakout of the tests described above or separate tests. Meixner Aff. ¶¶ 25-31. The Further Inspection bar graphs indicate that, for Michigan and most other states, wholesale preorder response times are approximately 10 seconds or less and retail response times are approximately 2-4 seconds. While there is limited evidence in the record indicating that such a difference in response time is competitively significant, ⁸ Ameritech does not reveal the source of the retail performance data, the conditions under which it was obtained, or the basis for its goal of providing wholesale access in 10 seconds. ⁹

On cross-examination in the Illinois Corporation Commission hearings, Meixner of Andersen Consulting indicated that he had not examined a series of problem logs associated with Ameritech's EDI interface. ¹⁰ In its application, however, Ameritech reviews the preordering entries in at least one such log, indicating that none of the error entries associated with preordering functions was caused by a deficiency in Ameritech's systems. Some parties, however, assert several other reasons why Meixner's testimony, particularly regarding resale ordering, discussed below, should be discounted, including that Andersen personnel did not consult CLECs regarding their experience using the EDI interface. The Department agrees with some of these criticisms with respect to resale ordering; ¹¹ regarding preordering, however, Andersen Consulting's personnel did consult and test with USN, the only commercial user of the preordering interface, and Ameritech indicates that its inquiries with MFS, the only other carrier to test the interface, went unanswered.

Carrier-to-carrier testing of all three EDI functions (CSR, due dates, and telephone numbers) was performed with USN in January 1997, and with MFS in April 1997. The tests with MFS consisted of 305 transactions involving all three EDI preordering functions, resulting in 44 or 14% "errors" according to Ameritech. While Ameritech indicates that these errors may have been due, at least in part, to MFS' systems, no breakout of the errors is provided, and Ameritech apparently requested feedback from MFS without response. Rogers Aff. ¶ 26. Ameritech does not provide details of the USN testing, although since January USN has employed the CSR retrieval function commercially, accessing about 4,000 CSRs a week, for example, in April. It appears that no other commercial use has been made of the EDI preordering functions. The file transfer functions, however, are apparently in commercial use by several carriers. Rogers Aff. ¶¶ 27, 29.

Finally, Ameritech submits a letter from Telesphere Solutions, an interface software developer, stating that Telesphere was able to build a test interface to Ameritech's preordering interface. Rogers Aff. at Schedule 3. Telesphere now offers CLECs its software in the form of both a GUI and application-to-application interface to transact with Ameritech's EDI preordering interface. Rogers Aff. at Schedule 4.

In all, it appears that Ameritech has made significant progress with its preordering processes. Because of the relationship between due dates or telephone number reservations and ordering functions, however, further evidence that these functions will operate in a nondiscriminatory manner at increased volumes, and in conjunction with the ordering of services or elements, would provide greater assurance of their operation. While actual commercial use of these functions may not be necessary to a demonstration of their proper operation, i.e., if a BOC establishes that no CLEC is interested in using or testing the interface, experience with Ameritech's (and other carriers') EDI ordering interface suggests that it is extremely difficult to ensure such operation even with the significant testing Ameritech has conducted to date. Thus, particularly with regard to EDI-based due date and telephone number functions, further carrier- to-carrier testing and/or commercial use appears necessary to enable Ameritech to make the necessary showing. ¹²

2. Ordering and Provisioning of Resale Services

Ameritech's ordering and provisioning functions have incurred the most commercial use of Ameritech's wholesale support processes. As of its application date, Ameritech had installed over 18,000 resold lines region-wide in 1997. In addition to conventional, manual methods of ordering resale services, Ameritech provides an EDI-based ordering interface which is currently in commercial use by several carriers. ¹³

Orders received by Ameritech via facsimile are manually entered into Ameritech's OSSs for processing. In contrast, orders received through the EDI interface are often processed in a fully automated fashion, requiring immediate, electronic interaction between the interface and Ameritech's OSSs. Some orders received via the EDI interface, however, are either reviewed or edited manually prior to being processed by Ameritech's OSSs.

As would be expected of a new and complex automated process, Ameritech's resale interface and back-office processes encountered some early problems. In view of these initial problems, the PSCW found that, as of April 1, 1997, Ameritech's resale ordering interfaces and processes were not operational. ¹⁴ Based on evidence available as of that date, the PSCW found that Ameritech's ordering processes were not providing predictable, reliable results, and thus were not operating at parity with its retail operations. ¹⁵

Among the main deficiencies discussed, the PSCW pointed to late completion notifications via the EDI interface and double billing problems as a customer-affecting difficulties that required resolution. Other problems relating to the interaction of Ameritech's EDI interface and its back-office systems were cited, including the rate of manual, versus automated processing of orders received via the EDI interface. (The staff of the PSCW correlated manual processing with higher rates of order-completion delays. ¹⁶ ) Since the record closing dates of this decision, Ameritech has initiated fixes for many of these problems and produced evidence that these solutions are improving performance for some such problems. As of Ameritech's application date, however, Ameritech had only days before put in place solutions for the double billing problem discussed below. ¹⁷

Most recently, the MPSC found that, although Ameritech was providing access to OSS functions, the Commission could not determine whether Ameritech was providing such access in a nondiscriminatory manner or in a manner providing CLECs with a meaningful opportunity to compete. In particular, the MPSC found that Ameritech had failed to provide appropriate performance measures and associated retail and wholesale results enabling the commission to accurately determine the parity of Ameritech's retail and wholesale performance. Further, the MPSC pointed out the lack of objective standards, apart from parity determinations, with which to gauge the performance of wholesale functions.

Like the MPSC, the Department has found it extremely difficult to untangle the web of conflicting evidence surrounding Ameritech's resale processes. As we discuss below, with no common language between the participating parties to describe Ameritech's performance, and faltering performance during the last reported and highest volume month, the Department believes that Ameritech has not demonstrated the operability of its processes at this time, under these circumstances.

The most complicating factor, discussed by the MPSC and by the Department, below, is the lack of clarity in the performance results reported by Ameritech and the absence of a common language of measures and standards with which to gauge the operation of these new processes. Clarification in these areas will permit the states, the Department, and the Commission to determine whether Ameritech is satisfying its obligation to provide resale services under Sections 251 and 271. We discuss below specific examples of why such a demonstration is not made in the current application, and improvements necessary to such a demonstration.

1. Meeting Due Dates for Resale Service Installation

Providing resale services in substantially the same time as analogous retail services is probably the most fundamental parity requirement in Section 251. By definition, Ameritech provides at retail the identical services it offers CLECs for resale. The avoided-cost pricing of resale services in Section 252 assumes that the wholesale input to either the BOCs' or requesting carriers' service will be almost identical in quality to the consumer, limiting competition to retailing functions. A CLEC's ability to provide customers with resale services in the same interval or meet the same due dates as a BOC's retail operation is an essential component of such service quality. Yet, because of the complexity of interfacing with the BOC's OSSs that provision such services, parity may be difficult to provide and even more difficult to demonstrate.

For example, because Ameritech has declined to provide actual installation intervals for resale services or elements, choosing instead to emphasize the meeting of due date commitments, particular clarity is required in describing what is included in Ameritech's figures for meeting due dates. Ameritech reports that for the months of March and April, Ameritech "met" 98.3% and 97.7% of resale installation due dates region wide. These figures are comparable to those Ameritech reports for its retail operations. Were Ameritech and CLECs in agreement, or even close to agreement, as to what these figures represented and their accuracy, a demonstration of nondiscriminatory operation would be straight forward.

In contrast to this perhaps overly optimistic scenario, legitimate controversy exists over whether Ameritech is in fact meeting due dates, and whose due da