In re Accounting Safeguards Under Telecommunications Act of 1996
| Decision Date | 05 September 2002 |
| Docket Number | CC 96-150 |
| Court | Federal Communications Commission Decisions |
| Parties | In the Matter of Accounting Safeguards Under the Telecommunications Act of 1996: Section 272(d) Biennial Audit Procedures |
Adopted: August 27, 2002
By the Commission:
I. INTRODUCTION AND BACKGROUND
1. In this Order, we deny SBC Communications Inc.'s (SBC) request for confidential treatment of information contained in its audit report submitted under section 272(d) of the Communications Act of 1934, as amended (the Act).[1] In particular, we reject SBC's arguments that information contained in its audit report is protected by the Commission's confidentiality rules.
2. Section 272 establishes certain structural, transactional and nondiscrimination safeguards that govern the relationship between a Bell Operating Company (BOC) and its affiliate after the BOC receives authorization for providing in-region interLATA telecommunications services pursuant to section 271 of the Act.[2] Section 272(d) requires a BOC, after receiving section 271 authorization, to obtain a joint Federal/State audit conducted by an independent auditor to determine whether the BOC complies with section 272 and the Commission's implementing rules.[3]
3. In a series of orders, the Commission implemented the separate affiliate safeguards mandated by the statute.[4] These regulations are intended to deter conduct that would furnish an unfair competitive advantage to a BOC's newly established in-region interLATA operations over other carriers, such as cost misallocation or discrimination in favor of the BOC's section 272 affiliate.[5] In the Accounting Safeguards Order, the Commission established requirements governing the conduct of the section 272(d) biennial audit, the oversight of the independent auditor, and the filing of the audit report.[6]The audit staff of the Common Carrier Bureau (now the Wireline Competition Bureau) and participating state commissions subsequently developed the general audit program in conjunction with the BOCs and other interested parties. The general audit program has been publicly available since 1997.[7]
4. On December 17, 2001, SBC submitted its first section 272(d) biennial audit report. Consistent with relevant auditing standards, the "final audit report" provides facts concerning the compliance of several SBC affiliates that provided in-region interLATA telecommunications in Texas pursuant to SBC's section 271 authorization.[8] The final audit report also contains information regarding SBC's in-region interLATA telecommunications operations in Kansas, Oklahoma, and the former Ameritech region. With its submission, SBC requested confidential treatment for information on thirty-nine of ninety-three pages in the final audit report.[9] Thus, SBC submitted two versions of its section 272(d) final audit report: (1) a publicly available report with redactions (SBC Redacted Section 272 Audit Report); and (2) a version submitted under seal.
5. On January 10, 2002, the Commission issued the Section 272(d) Audit Order denying Verizon's request for confidential treatment of its section 272(d) audit information based on section 272(d)(2)'s requirement that "the audit results be made public."[10] The Commission also found disclosure consistent with the audit provisions of section 220 of the Act, the Trade Secrets Act and Exemption 4 of the Freedom of Information Act.[11]
6. On February 12, 2002, AT&T Corporation (AT&T) requested access to SBC's redacted audit information, citing the Section 272(d) Audit Order.[12] On March 19, 2002, SBC filed a response to AT&T's request.[13] On April 9, 2002, the Commission denied Verizon's petition for stay and petition for reconsideration of the Section 272(d) Audit Order.[14] On July 30, 2002, the Competitive Telecommunications Association (CompTel) also requested access to SBC's redacted audit information.[15]
II. DISCUSSION
7. Pursuant to section 0.459 of the Commission's rules, we deny SBC's request for confidentiality of the information contained in its final section 272(d) audit report. Specifically, we find that release of the audit information (1) will not impair the flow of audit information in the future; (2) will not cause SBC substantial competitive harm and (3) will serve the public interest.[16]
A. Section 272(d) Audit Order
8. We concluded in the Section 272(d) Audit Order that the plain language and purpose of section 272 require disclosure of a BOC's section 272 audit report.[17] We relied on section 272(d)(2), which requires the independent auditor to "submit the results of the audit to the Commission and to the State commission of each State in which the company audited provides service, which shall make such results available for public inspection."[18] We further noted that the purpose of the audit report is to assist the Commission, the state commissions, and the public in evaluating a BOC's compliance with the section 272 separate affiliate requirements.[19] We also rejected Verizon's claim that the Commission's confidentiality rules protected Verizon's section 272 audit results from release.[20] Specifically, we found that Verizon's audit results were at a summary, not detailed, level, [21] were otherwise required to be disclosed, and were dated. [22] We therefore concluded that release of Verizon's audit information was compelled by both section 272(d)(2) of the Act and consistent with the Commission's confidentiality rules.
9. SBC argues here that our conclusion in the Section 272(d) Audit Order to release Verizon's audit results should not apply to its section 272(d) audit because, inter alia, its audit program contemplates a right to request confidential treatment of certain audit information. According to SBC, because the audit program stated a process for SBC to request confidential treatment pursuant to section 0.459 of the Commission's rules, the Commission cannot under section 272(d)(2) release information SBC claims is confidential. SBC confuses the confidentiality request procedure contemplated in the audit program with an entitlement to confidential treatment. As explained in detail below, SBC has requested confidential treatment of information contained in the audit report. SBC based its request on section 0.459 of the Commission's rules, and as explained below, we deny SBC's request and order release on those grounds.
B. The Commission's Confidentiality Rules
10. The Commission's confidentiality rules regarding requests for information are contained in section 0.459.[23] We base confidentiality determinations under section 0.459 on Exemption 4 of the FOIA, which permits us to withhold "trade secrets and commercial or financial information obtained from a person and privileged or confidential."[24] Exemption 4 protects trade secrets and commercial or financial information obtained from a person that are privileged or confidential.[25] The tests for confidentiality are contained in two seminal cases, National Parks and Critical Mass.[26] If the submitter was obligated to furnish the information at issue, National Parks provides the analytical framework to determine if the information is confidential.[27] If the agency determines that the information was submitted voluntarily, Critical Mass. governs.[28] Under Critical Mass, information is confidential if the information is not "customarily" disclosed to the public by the submitter.[29] Under National Parks, information is confidential (and thus exempt from disclosure) if (1) release of the information would impair the agency's ability to get the information in the future or (2) release of the information would cause the submitter substantial competitive harm.[30] In addition, the Commission has traditionally declined to release audit information unless it determines that release would serve the public interest.[31]
11. The Commission's rules place on the submitter the responsibility to explain the degree to which the information is commercially sensitive (or contains trade secrets) and the manner in which the subject data could be used by competitors to inflict substantial competitive harm.[32] Among other things, the submitter must explain how disclosure could result in substantial competitive harm;[33] identify any measures taken to prevent unauthorized disclosure;[34] and identify whether the information is available to the public and the extent of any previous disclosure of the information to third parties.[35] The Commission's rules prohibit consideration of "casual requests" for confidential treatment that do not comply with these requirements.[36]
1. SBC's Confidentiality Request
12. On December 17, 2001, SBC requested confidential treatment for information on 39 pages of its section 272(d) audit report.[37] On March 19, 2002, SBC supplemented its request for confidential treatment.[38] In its requests, SBC generally argues that, pursuant to the impairment prong of National Parks, the redacted portions of the section 272(d) audit report are exempt from disclosure.[39] In particular, SBC argues that disclosure of the information at issue would impair the Commission's ability to obtain information through the audit process. SBC states that, if disclosure is required here, it "certainly will not willingly agree to any procedures in future audits that would include confidential proprietary information in the audit report."[40] SBC further argues that the redacted information should be treated confidentially because it is competitively sensitive, [41] and because release of certain information would pose a "security risk."[42] Finally, SBC contends that the redacted information is not relevant for evaluating SBC's compliance with section 272 and the Commission's implementing rules.[43]...
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