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For a lawyer whose company just got notified that it could receive one of the largest fines in the history of American telecommunications, Paul K. Mancini sounds surprisingly optimistic. “There was no bad faith,” insists Mancini, vice president and assistant general counsel of San Antonio-based SBC Communications Inc. And it’s only a matter of time, he believes, until SBC is off the hook. Mancini’s statement that SBC did not engage in bad faith stands in stark contrast to allegations made in a recent notification issued by the Federal Communications Commission’s Enforcement Division. In January, the FCC proposed levying a record $6 million fine against SBC and issued a notification alleging the company “willfully and repeatedly violated” conditions set by regulators that required the former Baby Bell to share its networks with newcomers to the telecommunications market. Specifically, the FCC alleges that SBC violated the terms that regulators previously had set when they approved a 1999 merger between SBC and Ameritech Corp. The FCC notification alleges that SBC failed to offer startup telecommunications companies in Illinois, Indiana, Michigan, Ohio and Wisconsin fair access to its local telephone network. The FCC contends it had required SBC to provide such access as it had been doing in Texas since state regulators ordered it to do so in 1999. The FCC’s merger approval of the SBC-Ameritech marriage had been contingent on SBC providing that same kind of access, the FCC alleges. SBC was required to file a response within 30 days of the notification, which the FCC issued on Jan. 16, 2002. But the company informally sought and was granted from the FCC an extension of a few weeks, according to company spokesman Selim Bingol. In the response it is scheduled to file, Mancini says, the company will deny the FCC’s allegations that it willfully violated the regulators’ merger approval requirements. “We are confident the full commission will see it our way,” says Mancini. Because the regulatory agency conducts its investigations with closed-door proceedings, Mancini contends, his company wasn’t able to respond to the FCC’s concerns before the proposed fine was announced — and in this case splashed across the business pages. After SBC responds, the full panel of FCC commissioners will review the enforcement division’s proposal, Bingol says. The possible outcomes of such a review are numerous and wide-ranging, Bingol says. The commissioners could flat-out reject SBC’s arguments and impose the fine; they could accept some of them and reduce the fine; they could accept them and reject the fine; or they could reject SBC’s arguments and still opt to lower or eliminate the fine, Bingol says. DIAL-TONE DILEMMAS The FCC’s allegations encompass particularly complex matters, Mancini says, which often are over-simplified by the company’s critics. The origins of the allegations date back to a regulatory battle between SBC and two telecommunications newcomers that took place in Texas in early 1999. At that time, according to the FCC filings, Sage Telecom Inc. and Birch Telecom of Texas Ltd. — both of which have subsidiaries operating in Texas — were using SBC’s network to provide customers with calls between two intrastate calling areas similar to Fort Worth and Dallas. In April 1999, SBC told the companies it intended to reroute those services so they would be charged as long-distance toll calls, the FCC filings allege. Sage and Birch objected and filed complaints that were ultimately reviewed by an arbitration panel of the Public Utility Commission of Texas, according to the FCC filing. In November 1999, the PUC panel rejected SBC’s arguments and ruled that Sage and Birch should get the access without paying long-distance toll rates, the FCC filing states. Representatives of Sage and Birch could not be reached for comment. Shortly after the PUC rejected SBC’s proposal, the company went to the FCC seeking approval for its merger with Ameritech. In its notification, the FCC states that it required as part of its approval of the deal that the newly merged companies offer newcomers to the telecommunication industry the same deal the Texas PUC had insisted SBC give Birch and Sage. The FCC states that it explicitly asked SBC to do so within 12 months of the approval of the merger and to make the access offer to telecommunications companies in the states where Ameritech had previously controlled the local networks. “[W]e find it particularly egregious that SBC refused to make shared transport available in Texas, even after [the PUC] made not only ‘ascertainably certain’ but abundantly clear, what SBC’s obligations under its interconnections agreements were … . SBC’s apparent violations have forced other carriers to expend time and resources in state proceedings trying to obtain what SBC was already obligated to provide,” the FCC regulators alleged in their notification. Many lawyers at telecommunications startup companies, who have battled SBC for access, welcome the strong language and accompanying record-breaking fine the FCC proposed against the telecommunications giant. Tom Koutsky, a vice president and in-house lawyer at Z-Tel Communications, one of the startup telecom companies that filed a complaint last year against SBC with the FCC, alleges the fight boils down to costs. “SBC wanted to charge us as if it was a long-distance call when it was a call similar to [one that could be made] between Dallas and Fort Worth,” he alleges. Koutsky, who used to work as a regulatory lawyer for the FCC, contends SBC adopts the position that it will not comply with the federal rules unless pressed to do so. “Their attitude is unless we [SBC] are forced to do it, we won’t do it,” he says. “It’s like they are draining blood from us [telecom startups] on a consistent basis. The fact that they have been able to get away with it for five years is startling.” But SBC’s Mancini maintains his company already offers access to its networks in the states the regulators named — just as it does in Texas. “We knew the issue was teed up before the FCC,” Mancini says, so SBC began changing the policy. He contends there was no intention on the part of the company to violate the regulators’ rules for the merger approval. “If this issue [SBC's alleged violations] was so clear-cut,” Mancini asks, “why has it taken the FCC a year to look into it?” Since the implementation of the Telecommunications Act of 1996, Mancini says, the FCC often has proposed fines that have never actually been imposed, including at least two in the past year targeting SBC. After the company gets a chance to make its case before the entire commission, Mancini contends, he doubts SBC will be fined. The history of the company with FCC regulators suggests it has offered fair access, Mancini says. For Mancini, the issue of whether SBC offers fair access is a daily one. A graduate of George Mason University School of Law, who started with SBC in 1993, Mancini leads a team of five in-house lawyers who work full time on what are known as “271 issues.” The 271 issues relate to the section of the 1996 telecommunications act that allows all former Baby Bells to provide service in the lucrative long-distance market, provided they, in turn, offer access to their local networks to startups. In addition to outside counsel, Mancini’s team works closely with eight in-house lawyers in SBC’s regulatory office and five lawyers in its antitrust and merger division. Notes Mancini, “It is a responsibility that spills over to a lot of areas.”

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