I. DISCUSSION

In D.00-05-023, the Commission approved AT&T's application pursuant to the merger review criteria of Section 854(a). Although we found it appropriate not to apply the provisions of Section 854(b) and (c), our Section 854(a) analysis actually addressed all the public interest criteria of Section 854(c). (D.00-05-023, slip op., at 20-24.) Furthermore, consistent with our public interest assessments in prior merger decisions, we considered whether the proposed transactions raised anticompetitive or antitrust concerns. (D.00-05-023, slip op., at 25-29.)

Based on that analysis, the Commission found that AT&T's acquisition of MediaOne Telecom is in the public interest because it will promote competition in the provision of local exchange and exchange access telephone services to residential consumers and businesses in California.³ GTE's rehearing application does not assert legal error with respect to this essential and dispositive determination in our decision.

Instead, GTE argues that the Commission failed to consider "the merger's effects in the broadband market." (GTE Application for Rehearing, at 2.) We understand that GTE means the national and international market. GTE claims, for example, that the Commission should have looked at "...interstate and foreign effects which the Commission lacks jurisdiction to regulate directly." (GTE Application, at 3.) Also, GTE contends that the Commission "...should consider the anticompetitive effects a merger would have in markets that the Commission does not traditionally regulate." (GTE Application for Rehearing, at 8.)

These assertions are not persuasive. GTE fails to identify elements or components of either the market or services referred to, does not establish jurisdictional lines prescribed by law, and does not tie specific precedent, accurately described, to whatever market or services GTE has in mind. Couching the rehearing request in undefined terms does not present a coherent argument. GTE's request for rehearing consequently lacks the required factual and legal foundations.

GTE's argument, moreover, can only be understood with considerable difficulty where it summarizes its opposition to our decision as follows:

"[T]he decision erroneously conflates a lack of jurisdiction to regulate directly with a lack of power to consider anticompetitive effects of a merger in markets the Commission does not regulate - even when those effects have a close nexus to matters the Commission does regulate." (GTE Application for Rehearing, at 5.)

The fundamental flaw of the rehearing application, therefore, is that it does not establish the impacts on California consumers that GTE believes we should have addressed and that we have the legal mandate to address in connection with the "nascent market for broadband Internet services" or the "Internet backbone market." (GTE Application for Rehearing, at 2 and 4).

We also are not aided by GTE's reference to prior merger decisions. For example, GTE relies on the following statement from a decision in which we denied the merger of Southern California Edison ("SCE") Corporation and San Diego Gas & Electric Company ("SDG&E").

"This Commission's statutory authority to determine whether the proposed merger should be authorized, based upon assessment of competitive impacts and their potential mitigation ..., is meaningfully exercised only if this Commission is free to gauge the full extent of the merger's impacts on California ratepayers." (Re SCE Corp. (1991) 40 CPUC 2d 159, 179. Emphasis added. Quoted in GTE Application for Rehearing, at 3-4.)

It is quite clear that in this statement the Commission relied on its authority to consider all merger impacts on California ratepayers whose rates and services we are statutorily or constitutionally authorized to regulate. There is no indication that the Commission believed its authority extended to national or international impacts of a merger on rates and services that it is not authorized to regulate.

GTE similarly misinterprets our WorldCom/MCI merger decision where it argues that the Commission's approval of the merger depended on considering "...the potential effects of a proposed merger on Internet services even though the Commission concluded that `Internet services...are offered in an arena generally unregulated by this Commission....'" (GTE Application for Rehearing, at 2-3. The reference, without page citation, is to In re Application of WorldCom, Inc. & MCI Communications Corp. D.98-08-068, 1998 Cal. PUC Lexis 912,*45)

GTE fails to note the critical fact that the WorldCom/MCI merger was approved on the basis of the impact on telephone rates and services that the Commission regulates. Moreover, issues regarding the effect of the WorldCom/MCI merger on Internet services had become moot when MCI agreed to divest its wholesale and retail Internet operations as part of a consent decree with the U. S. Department of Justice (DOJ). (WorldCom/MCI, 1998 Cal. PUC Lexis 912, *51-52, and *79.)

GTE, therefore, has misconstrued our prior merger decisions. There is no precedent for GTE to claim that the WorldCom-MCI and SCE Corp. decisions "make clear that the Commission should consider the anticompetitive effects a merger would have in markets that the Commission does not traditionally regulate." (GTE Application for Rehearing, at 8. Emphasis by GTE.) Accordingly, we find no grounds warranting rehearing of our decision.

At present, the Commission's jurisdiction with respect to Internet access over a cable broadband network has not yet been definitively prescribed by statute or by the courts. We indicated in D.00-05-023 that delineating jurisdictional authority is in transition in face of rapid developments in the telecommunications industry and that cooperation among regulatory agencies is necessary. ⁴

We now have for consideration the FCC's order approving the AT&T/MediaOne merger that was issued subsequent to our decision. The FCC determined, as did this Commission, that the merger is "likely to benefit consumers by enhancing the ability of the merged companies to compete more effectively with incumbent local exchange carriers in providing facilities-based local telephony and other new services to residential customers." ("FCC Memorandum and Order," at paragraphs 4, 5, and 7.) The FCC also decided not to condition its approval of the merger with respect to its impact on ISP access having found that there is a growing choice for access to ISPs through DSL, wireless, and satellite technologies, which are effectively competing with cable broadband access. ⁵

The FCC, however, discussed the importance of the DOJ consent decree with AT&T and MediaOne which requires that they divest their cable broadband ISPs, Road Runner and Excite@Home, in December 2000 and June 2002 respectively. (FCC Memorandum and Order, paragraphs 116, 122, 123.) In addition, the FCC expressly recognized the written commitments of AT&T and MediaOne "to open their cable modem platform to unaffiliated ISPs as soon as AT&T's exclusive contract with Excite@Home expires in June 2002 and MediaOne's exclusive contract with Road runner expires in December 2000." (Id., at paragraphs 120,121.) We concur with the FCC in recognizing that it is important to monitor broadband developments and the steps taken by the merged entity to provided unaffiliated ISPs with direct access to its cable broadband systems. (FCC Memorandum and Order, at paragraph 128. See also, paragraph 123.).

The other relevant decision that issued shortly after D.00-05-023 is that of the Ninth Circuit Court of Appeals, City of Portland, 2000 U.S. App. Lexis 14383, regarding the earlier merger of AT&T and Telecommunications, Inc. (TCI), a cable operator. The Ninth Circuit held that communications via cable broadband to an ISP is a form of "telecommunications" as defined in the Communications Act of 1934 [47 U.S.C. §§ 153(43)(44) and (46)] and, therefore, not subject to the provisions of the "Cable Act", which is a subchapter of the Act of 1934. (City of Portland 2000 U.S. App. Lexis 14383, at *24; see also, *18-21.) ⁶

In light of this new holding of the court, we shall delete our reference to the "Cable Act" as prohibiting Commission action with respect to "broadband, cable, or Internet services." (See, D.00-05-023, slip op., at 26.)

We shall also delete as overbroad the following statement:

"We have previously considered and concluded on several occasions that we have no jurisdiction to address or condition the use of broadband, cable, and Internet access." (D.00-05-023, slip op., at 27.)

This statement groups broadband and Internet services with cable services and does not distinguish between the services that are telecommunications pursuant to City of Portland, and those which are subject to the "Cable Act."

The deleted statements, however, were not necessary to our approval of AT&T's acquisition of MediaOne Telecom and our rationale for doing so. Deleting them, therefore, does not require modifying our order. The Ninth Circuit has taken a step in clarifying regulatory parameters, but it has not provided affirmative support for GTE's position that a legal imperative exists for this Commission to have done something (what, exactly, GTE does not make clear) about cable broadband markets in ruling on AT&T's California acquisition.

Under present regulatory circumstances, we correctly noted that at the moment, with respect to cable broadband Internet access:

"...Internet services are offered in an arena unregulated by this Commission or any other State or Federal regulatory body." (D. 00-05-023, slip op., at 27.)

This view is consistent with the observation in City of Portland that the FCC has not yet regulated cable broadband telecommunications:

"Thus far, the FCC has not subjected cable broadband to any regulation, including common carrier telecommunications regulation. We note that the FCC has broad authority to forbear from enforcing the telecommunications provisions if it determines that such action is unnecessary to prevent discrimination and protect consumers, and is consistent with the public interest." (City of Portland, 2000 U.S. App. Lexis, at *24.)

However, as we have indicated, regulatory authority is progressively being clarified, and future circumstances could require that the Commission act to assure California customers reasonable, competitively priced choices for new telecommunications services.