Joint Application by SBC Communications Inc

BEFORE THE

FEDERAL COMMUNICATIONS COMMISSION

WASHINGTON, D.C. 20554

In the Matter of

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Joint Application by SBC Communications Inc.,

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Southwestern Bell Telephone Company, and

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Southwestern Bell Communications Services,

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CC Docket No. ______

Inc. d/b/a Southwestern Bell Long Distance for

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Provision of In-Region, InterLATA Services in

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Kansas and Oklahoma

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AFFIDAVIT OF SHERRY L. RAMSEY

STATE OF TEXAS)

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CITY OF SAN ANTONIO )

TABLE OF CONTENTS

272 COMPLIANCE AFFIDAVIT

SUBJECT / PARAGRAPH(S)
PROFESSIONAL EXPERIENCE AND EDUCATIONAL BACKGROUND / 1 – 2
EXECUTIVE SUMMARY / 3-5
EXCEPTIONS TO THE APPLICABILITY OF SECTION 272 (b), (c), (e), and (g) / 6
THE SBC ILECS’ COMPLIANCE OF SWBT, PACIFC BELL, NEVADA BELL, AND SNET (“SBC ILECS”) WITH THOSE REQUIREMENTS OF SECTION 272 OF THE ACT APPLICABLE TO THEM UNDER THE MERGER CONDITIONS / 7-8
SECTION 272(b)(1) – REQUIREMENT TO OPERATE INDEPENDENTLY / 9-11
SECTION 272(b)(2) – SEPARATE BOOKS, RECORDS, AND ACCOUNTS / 12-17
SECTION 272(b)(3) – SEPARATE OFFICERS, DIRECTORS, AND EMPLOYEES / 18-21
SECTION 272(b)(4) – SEPARATE CREDIT ARRANGEMENTS / 22-24
SECTION 272(b)(5) – TRANSACTIONS CONDUCTED AT ARM’S LENGTH AND PUBLICLY DISCLOSED / 25-26
SECTION 272(c)-NON-DISCRIMINATION SAFEGUARDS / 27-28
ANNUAL AUDITS / 29-32
SECTION 272(e)-FULFILLMENT OF CERTAIN REQUESTS / 33
SECTION 272(g)-JOINT MARKETING / 34-35
SYSTEMS, PROCESSES, AND PROCEDURES ESTABLISHED BY SBC TO ENSURE COMPLIANCE WITH PARAGRAPH 3 OF THE MERGER CONDITIONS / 36-42
CONCLUSION / 43

PROFESSIONAL EXPERIENCE AND EDUCATIONAL BACKGROUND

1.My name is Sherry L. Ramsey. My current business address is 175 East Houston Street, San Antonio, Texas 78205. I am currently Executive Director-FCC Merger Compliance for SBC Communications, Inc. (“SBC”). I accepted this position effective August 16, 1999. I am signing this affidavit in that capacity.

2.I received a Bachelor of Science degree in Industrial Engineering from Texas A&M University in 1978. In 1997 I received a Masters of Business Administration from Our Lady of the Lake University. I have over 22 years of experience with Southwestern Bell Telephone Company (“SWBT”), SBC Technology Resources, Inc., and SBC. I have held numerous management positions in the network engineering, network planning, technology planning, network staff, and strategic planning organizations of SBC and its affiliated companies. In my current position I am among those responsible for ensuring that SBC and its affiliates comply with all requirements of the SBC/Ameritech Merger Conditions (“Merger Conditions”).[1]

EXECUTIVE SUMMARY

1. The purpose of this affidavit is to demonstrate that SWBT and Advanced Solutions, Inc. (“ASI”) are operating and will continue to operate in accordance with Paragraph 3 of the Merger Conditions. ASI is the structurally separate advanced services affiliate established in accordance with Paragraph 1 of the merger conditions for, inter alia, Oklahoma and Kansas.
2. Paragraph3 of the Merger Conditions is entitled “Section 272 Requirements for the Separate Advanced Services Affiliate.” It provides in part: “Subject to the transitional mechanisms discussed below, the separate Advanced Services affiliate(s) required by this Section I shall operate in accordance with the structural, transactional, and non-discrimination requirements that would apply to a separate affiliate’s relationships with a Bell Operating Company (“BOC”) under 47 U.S.C. §272(b), (c), (e), and (g), as interpreted by the Federal Communications Commission (the “Commission”) as of August 27, 1999, except to the extent those provisions are inconsistent with the provisions of this Paragraph, in which case the provisions of this Paragraph shall apply. Except as provided in Subparagraph 3i below, SBC/Ameritech shall comply with the Commission’s accounting safeguards pursuant to 47 U.S.C. §272 for all transactions (including chaining transactions) between an incumbent LEC and a separate Advanced Services affiliate and shall continue to do so regardless of, and consistent with, the specific accounting method SBC/Ameritech uses.”[2] (footnote omitted.) I will first briefly outline the exceptions to the Section 272 requirements which are specifically provided for in the Merger Conditions, and then describe how SWBT and ASI are complying with the Section 272 requirements. I will then explain the systems, processes, and procedures SBC has established to ensure ongoing compliance with these requirements.
3. I also filed an affidavit in support of SBC’s application for Section 271 relief in Texas, which the FCC approved and which authorized SWBT to provide interLATA long distance service in Texas beginning July 10, 2000.[3] From the standpoint of ASI’s and SWBT’s compliance with Paragraph 3 of the Merger Conditions, there is no material difference between ASI’s and SWBT’s activities and relationship in the state of Texas, on the one hand, and ASI’s and SWBT’s activities and relationship in the states of Oklahoma and Kansas, on the other hand. Accordingly, this affidavit is largely the same in both format and substance as the affidavit I filed for the Texas 271 application.

EXCEPTIONS TO APPLICABILITY OF SECTION 272 (b), (c), (e), and (g)

6.As I noted above, Paragraph 3 of the Merger Conditions provides that the structural, transactional, and non-discrimination requirements of Section 272(b), (c), (e), and (g) shall apply “except to the extent those provisions are inconsistent with the provisions of this Paragraph, in which case the provisions of this Paragraph shall apply.”[4] In this regard, Paragraph3 authorizes the following activities notwithstanding contrary requirements, if any, in Section 272(b), (c), (e), and (g):

1. ASI and SWBT may joint market their services with the services of the other on an exclusive basis (Merger Conditions ¶ 3(a));
2. SWBT may provide billing and collection services to ASI on a non-discriminatory basis (Merger Conditions ¶ 3(b));
3. SWBT may provide certain operations, installation, and maintenance (OI&M) services permitted by Paragraph 4 to ASI on a non-discriminatory basis (Merger Conditions ¶ 3(c));

d.SWBT was allowed to provide network planning, engineering, design, and assignment services to ASI on an exclusive basis during a transition period of not more than 180 days after the Merger Closing Date (Merger Conditions ¶ 3(c)(3));

e.SWBT and ASI may separately own facilities and network equipment used specifically to provide Advanced Services subject to certain transitional rules set forth in the Merger Conditions (Merger Conditions ¶3(d));

f.SWBT was allowed to transfer or sell to ASI, on an exclusive basis, any Advanced Services Equipment, including supporting facilities and personnel, during a Grace Period (Merger Conditions ¶ 3(e));

g.ASI may use SWBT’s name, trademark, or service mark on an exclusive basis (Merger Conditions ¶ 3(f));

h.ASI employees may, on an exclusive basis, be located within the same buildings and on the same floors as employees of SWBT (Merger Conditions ¶3(g));

i.For a transition period of up to 12 months after the Merger Closing Date, SWBT and ASI may receive and process Advanced Services-related trouble reports and perform related trouble isolation on behalf of ASI on an exclusive basis (Merger Conditions ¶ 3(h)); and on a non-discriminatory basis thereafter.

j.Public disclosure of the governing interconnection agreement between SWBT and ASI replaces the transaction disclosure rules that would otherwise apply to SWBT and ASI under Section 272(b)(5) and the Commission’s implementing rules for facilities and services provided pursuant to such agreement (Merger Conditions ¶3(i)).

THE COMPLIANCE OF SWBT, PACIFIC BELL, NEVADA BELL, AND SNET (“SBC ILECS”) WITH THOSE REQUIREMENTS OF SECTION 272 OF THE ACT APPLICABLE TO THEM UNDER THE MERGER CONDITIONS

7.SBC is filing contemporaneously the Affidavits of Linda G. Yohe and Kathleen Larkin in support of this Section 271 application, which demonstrate that in their relationship with Southwestern Bell Communications Services, Inc. and SNET Enhanced Services, Inc., and with any other SBC Section 272 affiliate that carries out the authorization requested in this Section 271 Application (collectively “Section 272 affiliates”), SWBT, Pacific Bell, and Nevada Bell (collectively “SBC BOCs”) are currently operating in accordance with the separate affiliate rules of Section 272 of the Act and with the Commission’s rules implementing that section, and will continue to comply to the extent that these safeguards and rules remain applicable. (App. A, Tabs 22, 20)

8.Likewise, SWBT is operating in accordance with the structural, transactional, and non-discrimination requirements of Paragraphs (b), (c), (e), and (g) of Section272 and the Commission’s rules in its relationship with, except as such requirements are modified by the Merger Conditions.

SECTION 272(b)(1) – REQUIREMENT TO OPERATE INDEPENDENTLY

9.Section272(b)(1) of the Act provides that the separate affiliate “shall operate independently from the Bell operating company.”

10.In its Non-Accounting Safeguards Order, the Commission stated that the “operate independently” language of Section 272(b)(1) “imposes requirements beyond those listed in Sections 272(b)(2)-(5).”[5] The Commission concluded that those specific additional requirements are:

a.The BOC and its Section 272 affiliate are precluded from jointly owning transmission and switching facilities, as well as the land or buildings on which those facilities are located;

b.A Section 272 affiliate is precluded from performing network operating, installation, and maintenance (“OI&M”) functions associated with the BOC’s transmission and switching facilities; and

c.A BOC or any other non-Section 272 affiliate is precluded from performing network operations, installation, and maintenance (“OI&M”) functions associated with the transmission and switching facilities that the Section 272 affiliate owns or leases from a provider other than the BOC with which it is affiliated.”[6]

11.SWBT and ASI “operate independently,” as required by Section 272(b)(1) and the Commission’s related orders, except as modified by the terms of the Merger Conditions. In particular:

a.SWBT and ASI do not and, for as long as the Merger Conditions so require, will not jointly own telecommunications equipment and facilities. In fact, there is no joint ownership of any telecommunications equipment or facilities between ASI and SWBT, and never has been. It is the policy and practice of both ASI and SWBT, as well as SBC, that there will be no joint ownership of equipment between ASI and SWBT for as long as the relevant restriction of the Merger Conditions remains effective. I have verified the accuracy of the preceding paragraph through discussions with individuals responsible for the SBC ILECs’ and ASI’s compliance with the joint ownership restrictions of the Merger Conditions, as well as individuals responsible for ASI’s procurement and cost accounting. In addition, I have confirmed that, since January 1, 1998, SBC’s policy and practice has been that every SBC procurement agreement must contain a clause providing that (a) any SBC affiliate party to the contract is responsible for its own obligations under the contract and (b) no SBC affiliate is responsible for the obligations of any other SBC affiliate’s obligations under the contract. I further note that ASI’s compliance with the property-ownership requirements of the Merger Conditions is subject to an annual audit under paragraph 67 of the Merger Conditions.

b.SWBT and ASI do not and, for as long as the Merger Conditions so require, will not jointly own the land and buildings in which telecommunications equipment and facilities are located.

c.Pursuant to Paragraph 3 of the Merger Conditions, SWBT may provide to ASI those OI&M services permitted under Paragraph 4 of the Merger Conditions on a non-discriminatory basis, provided that the same services made available to ASI are made available to unaffiliated providers of Advanced Services.

SECTION 272(b)(2) – SEPARATE BOOKS, RECORDS, AND ACCOUNTS

12.Section 272(b)(2) of the Act provides that the required separate affiliate “shall maintain books, records, and accounts in the manner prescribed by the Commission which shall be separate from [those] maintained by the Bell operating company of which it is an affiliate.”

13.ASI maintains its own general ledger, accounts payable and fixed assets records on a system that is shared by non-ILEC SBC affiliates. ASI employees and agents create, enter, review, and approve ASI’s journal entries; and enter and maintain fixed asset records.

14.A shared services organization provides certain system administration functions to both the SBC ILECs and ASI in support of their accounting processes. These functions include system administrative support for their general ledger, fixed asset system, and accounts. The shared services organization, however, has security measures which ensure that neither ASI nor the SBC ILECs have access to each other’s accounting records. Moreover, the shared services organization maintains books, records, and accounts for the SBC ILECs separately from the books, records, and accounts maintained by the shared services organization for ASI. The SBC ILECs and ASI have separate financial statements.

15.The SBC ILECs’ budgeting and tracking of expense and capital, analysis of revenue and earnings performance, preparation of business plans, development and administration of cost accounting and pricing models, and development of financial requirements for customer billing systems are performed either by SBC ILEC employees and agents, or the shared services organization, but not ASI.

16.ASI maintains its books, records, and accounts in accordance with Generally Accepted Accounting Principles (“GAAP”). The SBC ILECs maintain their books, records, and accounts in accordance with GAAP and Part 32 Accounting requirements.

17.ASI’s books, records, and accounts are maintained by accounting professionals who are responsible for the accurate and fair presentation of their financial statements, which are subject to internal and external audits. The SBC ILECs’ separate books, records, and accounts are also maintained by accounting professionals who are responsible for the accurate and fair presentation of their financial statements, which are subject to internal and external audits. In addition, SBC is a publicly held corporation, subject to federal securities statutes.

SECTION 272(b)(3) – SEPARATE OFFICERS, DIRECTORS, AND EMPLOYEES

18.Section 272(b)(3) of the Act provides that the required separate affiliate “shall have separate officers, directors, and employees from the Bell operating company of which it is an affiliate.”

19.No officer, director or employee of an SBC ILEC is also an officer, director or employee of ASI. For as long as the Merger Conditions so require, no officer, director or employee of ASI will also be an officer, director or employee of an SBC ILEC.

20.These requirements will continue to be satisfied in all future movement of employees, officers, or directors. For example, if an SBC ILEC director is moved to any position within ASI, that person will not remain on the SBC ILEC’s board. Similarly, if an officer of ASI is placed on an SBC ILEC’s board, that person will cease to be employed by or serve as an officer of ASI while serving as an SBC ILEC director.

21.The SBC ILECs’ officers make independent decisions for the SBC ILECs, under the oversight of their separate board of directors.

SECTION 272(b)(4) – SEPARATE CREDIT ARRANGEMENTS

22.Section 272(b)(4) of the Act provides that the separate affiliate “may not obtain credit under any arrangement that would permit a creditor, upon default, to have recourse to the assets of the Bell operating company.”

23.The Commission interpreted the “any arrangement” language in this section of the Act not only to prohibit a Section 272 affiliate from entering into such an arrangement, but also to prohibit the parent or any non-Section 272 affiliate from co-signing any such arrangement with the Section 272 affiliate.[7]

24.The SBC ILECs have not entered into any contract or made any other arrangement that would allow a creditor to obtain recourse to its assets in the event of a default by ASI. Also, the SBC ILECs have not co-signed any contract or entered into any other arrangement with ASI that would allow a creditor to obtain recourse to the SBC ILECs’ assets in the event of a default by ASI. All funding for ASI is provided directly by its parent, SBC. In addition, the SBC ILECs have not agreed in any way to allow recourse to their assets in the event of default by ASI on a vendor contract. For as long as Section 272 or applicable state or federal regulations remain in effect, the SBC ILECs will not enter into any such arrangements.

SECTION 272(b)(5) – TRANSACTIONS CONDUCTED

AT ARM’S LENGTH AND PUBLICLY DISCLOSED

25.Paragraph 3(I) of the Merger Conditions provides that simple public disclosure of the interconnection agreement between SWBT and ASI shall replace the transaction disclosure requirements (including Internet posting) that apply under section 272(b)(5). Thus, ASI is not required to disclose the terms and conditions of its interconnection agreements on the Internet once it has an approved interconnection agreement with the affiliated BOC on file with the relevant State commission.

26.All affiliate agreements between ASI and SBC ILECs are posted on an Internet website. In addition, ASI’s practice is to post a new affiliate agreement to the Internet within 10 calendar days of the transaction.[8]

SECTION 272(c) – NON-DISCRIMINATION SAFEGUARDS

27.The SBC ILECs do not discriminate between ASI and unaffiliated carriers in the provision or procurement of goods, services, facilities, and information, or in the establishment of standards, except as authorized by the Merger Conditions.

28.The SBC ILECs comply with the requirements of Section 272(c)(2), as they apply to the SBC ILECs in their relationship with ASI, through the accounting safeguards and procedures described or referred to elsewhere in this affidavit.

ANNUAL AUDITS

29.Paragraph 66 of the Merger Conditions requires the engagement of an independent auditor to conduct an annual examination engagement resulting in a positive opinion (with exceptions noted) regarding SBC’s compliance with all the Merger Conditions and the sufficiency of SBC’s internal controls designed to ensure compliance with such Conditions. SBC engaged Ernst & Young LLP as the independent auditor for this annual compliance audit. The auditor’s report for 1999 was filed on September 1, 2000, and is publicly available.[9] Subsequent audit reports also will be publicly filed. The associated supporting materials and working papers of the independent auditor shall be made available to the FCC and state commissions subject to appropriate confidentiality measures.

1. Paragraph 67 of the Merger Conditions requires the engagement of an independent auditor to perform an annual agreed-upon procedures engagement regarding SBC’s compliance with the separate Advanced Services affiliate requirements of Section I of the Merger Conditions. SBC engaged Ernst & Young LLP as the independent auditor for this annual agreed-upon procedures audit. The Commission and SBC shall be the only specified users of this audit. The auditor’s report, however, is publicly available. (The first audit report, for 1999, was filed on September 1, 2000.) The associated supporting materials and the independent auditor’s working papers, shall be made available to the Commission subject to appropriate confidentiality measures.
2. Paragraph 40 of the Merger Conditions requires the engagement of an independent auditor to conduct an examination engagement resulting in a positive opinion (with exceptions noted) regarding SBC’s compliance with the Commission’s collocation requirements for the first 240 days after Merger Closing Date. SBC engaged Ernst & Young LLP as the independent auditor for this collocation audit. The auditor’s report for this audit was filed on or about August 8, 2000, and is publicly available. The associated supporting materials and working papers of the independent auditor shall be made available to the FCC and state commissions subject to appropriate confidentiality measures. SBC’s compliance with the Commission’s collocation requirements subsequent to 240 days after Merger Closing Date will be examined as part of the annual compliance audits described in Paragraph 29 above.

32.SWBT and ASI have and will continue to cooperate with the auditors in meeting these annual compliance audit requirements.