REGULATORY SCORECARD. Addendum USA

REGULATORY SCORECARD Report on the relative effectiveness of the regulatory frameworks for electronic communications in Belgium, Denmark, France, Germany, Ireland, Italy, the Netherlands, Spain, Sweden and the United Kingdom Addendum USA June 2, 2005

Table of Contents 1 Key Findings...1 2 Introduction...2 3 Summary of Methodology...3 4 Results...4 Figure 1: Scorecard Structure...3 Figure 2: Scorecard Results...4 Figure 3: Scorecard by Criteria Group...5 Annex A: Scorecard Results...7 Annex B: U.S. ANNEX TO EUROPEAN UNION REGULATORY SCORECARD20

1 Key Findings The USA, although having a strong performance on the general powers of the FCC, has poorly implemented regulation. Its overall score is comparable to the two worst performing European countries. The USA scores particularly poorly on criteria related to dispute settlement. ILECs challenge most if not all major decisions and the dispute procedure can be long and drawn out, affecting competitors ability to enter the market effectively. The European regulatory framework is better than the USA at ensuring that competitors have access to key wholesale products, on fair and equitable terms, so that they can compete with ILECs at the retail level. We believe that, in recent years, the USA has taken a backward step with regard to pro-competitive regulation. Although the USA has a good statutory framework in place, recent decisions have meant that competitors find it increasingly difficult to enter the market sustainably. Page 1 of 38

2 Introduction The U.S. Annex is a new addition to the ECTA 1 /Jones Day/SPC Network Regulatory Scorecard. The previous two versions of the Regulatory Scorecard have provided a comparison among the telecommunications regulatory authorities solely within in the European Union, addressing regulatory effectiveness, transparency, and access to competitive markets. The increasing volume of questions raised by European competitive carriers regarding the handling of these matters in the U.S. has resulted in the development of the present addendum to the 2005 Regulatory Scorecard. The purpose of the scorecard is to measure, as objectively as possible, the effectiveness of the national regulatory environment, specifically as it affects the promotion of sustainable and effective competition in the provision of telecommunications networks and services. Despite the differences in regulatory approaches between the U.S. and the Member States of the European Union, this annex provides a valuable insight into the effectiveness of the U.S. Federal Communications Commission and the openness of U.S. telecommunications markets. Where appropriate, the U.S. Annex addresses the application of both state and federal regulation. Accordingly, the U.S. annex has been provided to offer a comparison between U.S. and European telecommunications regulators, and to show the similarities and differences regarding regulatory transparency and competitive access. The U.S. Annex is presented in two sections with two annexes. Section 3 presents a summary of the methodology and Section 4 presents the results of the scorecard including the USA. Annex 1 is the full scorecard including the USA and Annex 2 is the country profile of the USA. 1 European Competitive Telecoms Association Page 2 of 38

3 Summary of Methodology The document should be read in conjunction with the full ECTA Scorecard and especially the Methodology section which sets out the rules for applying scores. The scorecard can be downloaded from www.ectaportal.com The overall scorecard result is derived from applying scores to 61 2 individual criteria measuring important aspects of the regulatory framework for promoting entry and competition. The criteria are grouped into four main, and 19 sub-, groups which bring together key measurements as shown in Figure 1. A maximum score was allocated for each criterion based on the perceived importance of that criterion for promoting market entry and competition. The importance score was decided upon by the consultants working on the scorecard together with ECTA. A total of 375 points is available for the 61 criteria. Figure 1: Scorecard Structure Result NRA General Powers Dispute Settlement Body Access Regulatio n Key Access Products Speed of process Speed of process Cost models Voice Interconnect Transparency Transparency Account Separatio Leased lines Sanctions Sanctions Availability of Information LLU Appeals Appeals Negotiating RO Wholesale DSL Independence Rights of Way 2 The European scorecard has 66 criteria, but five three relating to fixed to mobile interconnection and two relating to the New Regulatory Framework in the EU were deemed to be inappropriate in the USA context and so removed. Results for European countries were adjusted accordingly. Page 3 of 38

4 Results Figure 2 shows the overall results for the scorecard. The USA has the third lowest score (215) of all the countries and is part of the bottom group along with Germany (196) and Belgium (208). Above this group is a group comprising all other countries except the UK, with scores ranging between 242 and 278. The leading country is the UK with 324 points, comfortably ahead of the others. Figure 2: Scorecard Results Regulatory Scorecard Results United Kingdom Ireland Denmark Italy The Netherlands Spain Sweden France USA Belgium Germany 196 215 208 278 275 259 255 248 245 242 324 0 100 200 300 400 Breaking down the scores into each of the four criteria groups (Figure 3), shows that the USA is one of the best countries for General Powers, lying third equal with Ireland, but is let down by the availability of access products and the dispute resolution procedures. This suggests that the USA is brought down by implementation of regulation rather than the structure or the regime. Page 4 of 38

Figure 3: Scorecard by Criteria Group Regulatory Scorecard by Criteria Group United Kingdom Ireland Denmark Italy The Netherlands Spain Sweden Key Access Products Application of Access Regulations Regulator Dispute Settlement Regulator General Functions France USA Belgium Germany 0 20 40 60 80 100 120 Figure 4 presents the scorecard results as a series of traffic lights. The colors have been awarded on the following grounds: a score of 60% or below of the available points for the criteria is colored red, indicating the score is bad for investment; 61 79% amber, neutral for investment; and 80% and over green, good for investment. The USA again scores poorly for group related to dispute settlement and the two criteria groups related to access, despite scoring well for the institution of the FCC. Page 5 of 38

Figure 4: Regulatory Traffic Lights Independance Speed Of Process Effectiveness of appeal procedure Transparency Effectiveness of sanctions and scale of resources Effectiveness Speed Of Appeal Of Process Procedure Effectiveness Due of Sanctions Process Rights Of Way Cost Procedures Orientation satisfying access requests Cost Accounting Separation Availability Of Information Voice Wholesale Interconnection DSL products Local Loop Partial Unbundling private (ULL) circuits offers and leased lines Regulator: General Regulator: Dispute General Access: Regulation Access: Products 2005 Belgium -9 Report on the effectiveness of national regulatory frameworks and investment impact 8th April 2005 Denmark France Germany Ireland Italy 1-4 -9 4-2 Red = Weakness Yellow/Amber = Neutral Green = Strength Netherlands Spain -3-5 Sweden -5 United Kingdom 11 United States -8 Page 6 of 38

Annex A: Scorecard Results Page 7 of 38

A. Regulator - General functions 1. Speed of process Criteria Average timeframe for obtaining reservation of numbers Average timeframe for reviewing standard interconnection offers, assessed over the past three years WeightBelgiumDenmarkFranceGermanyIreland Italy 5 5 5 2 the Netherlands Spain Sweden UK USA 1 4 5 4 2 1 0 1 2 0 2 0 4 5 0 2 4 4 2 5 Average timeframe for negotiation of new 10 4 interconnection services by new entrants TOTAL COUNTRY 20 11 0 4 6 0 8 6 6 0 10 8 3 8 15 9 10 9 10 5 14 13

2. Transparency WeightBelgiumDenmarkFranceGermanyIreland Italy Criteria Recourse to public consultation 5 2.5 5 2.5 2.5 5 5 the Spain Sweden UK USA Netherlands 2.5 2.5 2.5 5 4 Transparency of decision-making process leading to the adoption of the decision 5 2.5 0 0 0 2.5 5 0 5 0 5 5 Explanation of details underlying decisions and effectiveness of appeal in event of failure to provide detailed explanation 5 5 5 5 5 5 5 5 5 4 5 5 General obligation to publish all decisions 5 2.5 Existence of management plan 5 2.5 TOTAL COUNTRY 25 15 5 5 5 5 5 5 5 5 5 5 2.5 2.5 0 2.5 2.5 2.5 2.5 0 5 5 17.5 15 12.5 20 22.5 15 20 11.5 25 24

3. Effectiveness of sanctions and scale of resources Criteria Effectiveness of sanction powers 5 5 Powers of regulator defined by law WeightBelgiumDenmarkFranceGermanyIreland Italy 2.5 1 the Netherlands Spain Sweden UK USA 5 5 0 2.5 2.5 2.5 5 5 5 5 2.5 2.5 2.5 2.5 2.5 1 2.5 2.5 2.5 2.5 Total number of employees used for general regulatory issues (excluding frequency and numbering management) Existence of procedures for selecting employees 5 3 2.5 2.5 3 5 5 3 5 3 5 5 5 5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 2.5 Salaries and benefits able to attract key staff 2.5 1 Access to outside expertise 2.5 1 TOTAL COUNTRY 20 13.5 0 1 1 2.5 2.5 2.5 2.5 2.5 2.5 2.5 1 2.5 2.5 2.5 2.5 2.5 2.5 1 2.5 2.5 14 18.5 13.5 15.5 17.5 14 20 18.5 20 20

4. Effectiveness of appeal procedure Criteria Automatic suspensive effect of appeal 5 5 Standard for suspension and application in practice 5 5 Percentage of decisions appealed 5 2 Timeframe for an appeal procedure 5 3 TOTAL COUNTRY 20 15 WeightBelgiumDenmarkFranceGermanyIreland Italy the Netherlands Spain Sweden UK USA 5 5 5 5 5 5 5 5 5 0 5 5 2.5 5 5 5 5 5 5 5 3 5 0 5 0 1 0 0 5 1 3 4 0 5 2 3 2 4 4 0 16 19 7.5 20 12 14 12 14 19 6 5. Independence the WeightBelgiumDenmarkFranceGermanyIreland Italy Spain Sweden Criteria Netherlands UK USA Absence of intervention from political authority other than through removal 5 5 5 2.5 2.5 2.5 5 5 2.5 5 5 5 Duration of office of NRA management Grounds for removal of NRA management 3 3 4 0 Eligibility requirements for NRA management 4 4 Objectives given to NRA 4 2 Absence of state ownership/control 5 0 TOTAL COUNTRY 25 14 3 3 3 1 3 1 3 2 1 3 4 4 4 4 4 4 4 4 4 4 4 4 3 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 4 1 5 0 2 5 4 4 4 0 5 5 25 17.5 18.5 20.5 24 22 21.5 19 23 22

B. Regulator - Dispute settlement 1. Speed of process Criteria Average timeframe for obtaining a decision Possibility to impose effective interim measures WeightBelgiumDenmarkFranceGermanyIreland Italy 15 4 10 0 the Netherlands Spain Sweden UK USA 4 4 10 2 12 2 15 15 0 0 10 5 5 5 10 10 10 0 5 10 TOTAL COUNTRY 25 4 14 9 15 7 22 12 25 15 5 10 2 Due process Criteria the WeightBelgiumDenmarkFranceGermanyIreland Italy Spain Sweden Netherlands UK USA Right to respond/access to documents 10 10 10 10 10 10 10 10 10 10 10 10 Availability of appeal procedures 20 10 20 20 20 20 20 20 20 20 20 5 TOTAL COUNTRY 30 20 30 30 30 30 30 30 30 30 30 15 3 Effectiveness of sanctions Criteria the WeightBelgiumDenmarkFranceGermanyIreland Italy Spain Sweden Netherlands UK USA Effectiveness of sanction powers 10 5 10 10 5 10 10 5 5 10 10 10 Power to enforce decision 10 5 5 10 5 5 5 10 5 10 5 10 TOTAL COUNTRY 20 10 15 20 10 15 15 15 10 20 15 20

4. Effectiveness of appeal procedure the WeightBelgiumDenmarkFranceGermanyIreland Italy Spain Sweden Criteria Netherlands UK USA Automatic suspensive effect of appeal 5 5 5 5 5 5 5 5 5 5 5 5 Standard for suspension and application in practice 5 5 5 5 0 5 5 5 5 5 5 5 Percentage of decisions appealed 5 5 3 4 2 4 0 1 0 3 5 1 Timeframe for an appeal procedure 5 3 3 5 1 5 2 3 2 4 4 0 TOTAL COUNTRY 20 18 16 19 8 19 12 14 12 17 19 11 C. Application of access regulation 1. Cost orientation Criteria Existence of detailed cost model for SMP operators Specified cost accounting methodology WeightBelgiumDenmarkFranceGermanyIreland Italy 10 5 10 5 the Netherlands Spain Sweden UK USA 10 10 5 10 5 10 5 10 10 3 10 10 10 10 5 10 5 5 10 5 Power of regulator to seek cost orientation of retail tariffs for SMP operators 10 10 TOTAL COUNTRY 30 20 10 0 5 10 10 10 0 10 10 10 30 20 20 30 20 30 10 25 30 18

2. Cost accounting separation Criteria Effective enforcement of cost accounting obligations by regulator 3. Availability of information Criteria Effective disclosure of parameters used for assessing cost accounting (e.g. number of subscribers, key for cost allocation between network components, WACC) WeightBelgiumDenmarkFranceGermanyIreland Italy 15 5 the Netherlands Spain Sweden UK USA 15 5 5 15 5 5 10 10 15 0 WeightBelgiumDenmarkFranceGermanyIreland Italy 10 5 the Netherlands Spain Sweden UK USA 10 0 0 10 5 7.5 10 10 10 2.5 Publication of accounts in accordance with cost accounting separation obligations 10 0 TOTAL COUNTRY 20 5 10 0 0 10 5 0 0 5 10 2.5 20 0 0 20 10 7.5 10 15 20 5

4. Procedures satisfying access requests and interconnection in an effective and timely fashion Criteria WeightBelgiumDenmarkFranceGermanyIreland Italy the Netherlands Spain Sweden UK USA Defined timeline for negotiation of interconnection 5 2.5 Existence of effective procedure for negotiation of new access services in a timely fashion 10 10 TOTAL COUNTRY 15 12.5 0 0 5 5 2.5 2.5 2.5 0 5 2.5 0 5 0 5 0 0 10 5 10 5 0 5 5 10 2.5 2.5 12.5 5 15 7.5 5. Rights of way Criteria Free rights of way over public land 10 5 WeightBelgiumDenmarkFranceGermanyIreland Italy 5 5 10 0 0 the Spain Sweden UK USA Netherlands 10 5 0 10 5

D. Key access products 1. Voice interconnection Criteria Comparison of level of interconnection tariffs for single transit call termination Existence of a detailed cost orientation model WeightBelgiumDenmarkFranceGermanyIreland Italy 10 0 5 2.5 the Netherlands Spain Sweden UK USA 10 3 1 5 5 5 2 5 10 3 5 5 2.5 5 5 5 5 5 5 2.5 Power to apply price squeeze test and review discriminatory access to wholesale services and the way in which the regulator has effectively applied this power 5 2.5 0 2.5 2.5 2.5 5 5 2.5 0 5 2.5 TOTAL COUNTRY 20 5 15 11 6 13 15 15 9.0 10 20 8.0

2. Partial private circuits offers and leased lines Criteria Existence of effective wholesale partial private circuit (ppc) offers WeightBelgiumDenmarkFranceGermanyIreland Italy 4 4 the Netherlands Spain Sweden UK USA 2 4 0 4 4 4 4 0 4 4 Comparison of tariffs for wholesale leased lines offers for 2 Mbits/s on average distance of 2 km 4 2 Existence of cost model 4 2 Power to apply price squeeze test and review discriminatory access to wholesale services and the way in which the regulator has effectively applied this power 4 2 4 2 4 3 0 0 0 4 3 3 4 4 0 4 4 4 0 4 4 2 0 2 0 2 4 2 4 0 4 2 Effective measures to prevent discrimination in provisioning 4 2 TOTAL COUNTRY 20 12 4 2 0 4 4 0 0 4 4 0 14 14 4 17 16 10 8 12 19 11

4. Local loop unbundling (ULL) Criteria Existence of detailed cost orientation model WeightBelgiumDenmarkFranceGermanyIreland Italy 5 0 the Netherlands Spain Sweden UK USA 5 5 5 2.5 5 5 5 5 5 5 Comparison ULL tariffs 5 3.3 Number of unbundled lines as a percentage of total lines 5 0.1 Power to apply price squeeze test and review discriminatory access to wholesale services and the way in which the regulator has effectively applied this power 5 5 4.7 3.1 3.3 0.0 5.0 4.5 4.1 0.5 0.4 4.5 3.7 0.0 5.0 0.0 3.6 4.8 0.6 0.2 0.0 5 0 2.5 0 2.5 5 5 5 0 5 0 TOTAL COUNTRY 20 8.4 13.4 10.6 13.3 5.0 18.6 19.3 14.7 5.7 10.5 14.5

5. Wholesale DSL products Criteria Existence of detailed cost orientation model WeightBelgiumDenmarkFranceGermanyIreland Italy 5 2.5 Is wholesale offer launched to enable launch at same time as the SMP Operator retail offer 2.5 2.5 the Netherlands Spain Sweden UK USA 5 5 0 0 0 0 0 5 0 0 2.5 2.5 0 2.5 0 0 0 2.5 2.5 0 Demonstrably equivalent terms to SMP Operator retail arm No restrictive volume order requirements per site Access option at nearest ATM node i.e., no compulsory ATM backhaul Power to apply price squeeze test and review discriminatory access to SMP wholesale services 2.5 0 2.5 2.5 2.5 2.5 5 5 TOTAL COUNTRY 20 15 0 2.5 0 2.5 2.5 1 2.5 0 2.5 0 2.5 0 0 2.5 0 2.5 2.5 2.5 2.5 2.5 2.5 2.5 0 2.5 2.5 2.5 2.5 2.5 2.5 0 0 2.5 2.5 2.5 2.5 5 1 0 5 2.5 12.5 15 2.5 12.5 7.5 11 8.5 12.5 15 5

Annex B: U.S. ANNEX TO EUROPEAN UNION REGULATORY SCORECARD A. Regulator -General Functions A.1. Speed of process 1. What is the average timeframe for obtaining reservation of numbers? In the United States, the Federal Communications Commission ("FCC") has delegated the responsibility for number assignment to the North American Numbering Plan Administration ("NANPA"), a private, neutral, nongovernment entity, appointed by the FCC for a period of 10 years. Accordingly, applications for number assignments are filed with NANPA. The average time from the date the application is filed with NANPA to the effective date of new numbers and codes falls between 52 and 66 days. 2. What is the average timeframe for reviewing reference interconnection offers (assessed over the past three years)? Pursuant to the Communications Act of 1934, as amended by the Telecommunications Act of 1996 (collectively, the "Federal Telecommunications Act" or "FTA"), interconnection agreements require the approval of state public utilities commissions. Under the Act, negotiated interconnection agreements automatically enter into effect 90 days after filing with the state commission unless the state regulatory authority takes action. Generally, a state commission will not take action unless a third party files an objection or other petition for intervention. 3. In practice, what is the average timeframe for the negotiation of an interconnection agreement for a new entrant which does not have an interconnection agreement with the incumbent operator? Negotiation of an interconnection agreement with an incumbent may take, on average, from a minimum of three weeks for simple collocation to three to four months for negotiation of a full service multi-state interconnection agreement. A.2. Transparency 4. Is your NRA required to make public consultations prior to deciding on issues of general interest? Yes, it is a requirement in almost all cases. The FCC regularly issues notices of inquiry and notices of proposed rulemakings, in which new issues, topics, and services are addressed, as well as the reform or modification of existing regulations. However, there is no timeframe established by statute or regulation within which the FCC must initiate or conclude a rulemaking proceeding. For example, proceedings addressing special access metrics and 20

unbundled network element metrics which were initiated in 2001 are still open and there is no indication when the FCC will issue final rules. 5. Explain how the decision making process works within the NRA. Does it provide at any or some stage of the procedure, some transparency or visibility on the decision making process? Pursuant to the FCC's rules, any interested party may petition the FCC to initiate a rulemaking proceeding. Similarly, the FCC may institute such a proceeding on its own motion. A public notice is issued for each Notice of Proposed Rulemaking ("NPRM"), which includes a statement of the issues under consideration and the questions for which responses are being solicited, and sets forth the deadlines for filing both comments and reply comments. In certain circumstances, requests for extensions of time in filing may be granted. Any person may file comments in such a proceeding. Upon receipt of all comments and reply comments, the Commission deliberates and issues a final rule in a detailed report order, the length and detail of which depend on the complexity of the issues presented. Additional questions and unsolved issues may be the subject of a Further Notice of Proposed Rulemaking ("FNPRM") included in the report and order. The report and order will also state when the new rule(s) will enter into effect. There is generally transparency in the decision-making process. 6. Is your NRA required to effectively motivate its decisions? If so, is there any possibility of appeal in the event of the NRA's violation of its obligation to motivate the decision? Federal regulations require the FCC, in issuing a decision, to incorporate its findings and a brief statement of the reasons therefor. Depending on the complexity of the issue to be decided, a decision of the FCC may range from a few pages, to several hundred. 7. Is your NRA required to publish all its decisions upon their adoption? Yes. 47 U.S.C. 154 of the FTA requires the FCC to publish its reports and decisions in such form and manner as may be best adapted for public information and use. 8. Does your NRA have a "management plan" disclosing its action plan on an annual basis? If yes, is it public? The FTA requires the FCC to conduct a biennial review of all regulations that apply to provision of telecom services to determine their effectiveness and whether they should remain in force, be modified, or be removed. All parties and members of the public may submit comments and reply comments according to the timetable established by the FCC. The latest regulatory review, 2004, is presently under consideration (FCC 04-105; Dockets: 04-175, 04-176, 04-177, 04-178, 04-179, and 04-180). 21

A.3. Effectiveness of sanctions and scale of resources 9. Is your NRA entrusted with the power to impose fines? If so, up to what level? Does it include also the possibility of imposing periodic penalty payments or suspending the commercial launch of services? The FCC has the power to impose sanctions and fines under the FTA and pursuant to its rules governing "forfeiture proceedings." In a forfeiture proceeding, the FCC can levy fines against a telecommunications carrier for each violation of the FCC's Rules. Fines vary depending on the nature and the degree of the violation in question. For the FCC to be able to levy any fines in a forfeiture proceeding, the rules require that the proceeding be initiated within one year of the alleged violation. Pursuant to the FTA, the FCC is required, in relevant part, to take into account "the nature, circumstances, extent, and gravity of the violation." Accordingly, fines levied by the FCC in a forfeiture action can be increased or decreased, depending on the circumstances. If the violation is willful or egregious, the FCC is likely to increase the fines. However, if the company has a history of overall compliance or has acted in good faith by voluntarily disclosing the problem, the FCC may decrease any applicable fines. Furthermore, the FCC also has the authority to apply alternative sanctions. 10. Are the powers of your NRA clearly defined by law? Yes, they are defined throughout the Federal Telecommunications Act and corresponding FCC Rules, in which the Commission's powers and duties are established. See e.g., 47 U.S.C. 151-161; 47 C.F.R. 0.1-0.186. 11. What is the number of employees employed for general regulatory issues (excluding frequency and numbering management)? How many competition economists are included in the staff? Approximately 2000 staff members to cover all functions. No breakdown is available. The general perception is that the FCC is adequately staffed. 12. What are the specific procedures for selecting NRA's personnel (Specific exams / general State recruitment exams) Staff positions are awarded on the basis of matching job descriptions to the best applicants available. There are no recruitment exams. 13. Does your NRA have the financial freedom to set levels of remuneration to attract appropriate staff? Yes, but within bounds of the budget allocated to it and the Federal Government pay scale for the position in question. The FCC has been successful at recruiting from outside government service, suggesting that salary packages are attractive compared to similar positions in other government agencies. 22

14. Can your NRA have recourse to outside expertise such as consultants? Yes. The FCC has used technical and economic/financial consultants on particular projects as needed. A.4. Effectiveness of appeal procedure 15. Does the appeal of an NRA decision suspend the binding efforts of the decision in question? In and of itself, the filing of an appeal of an FCC decision, either with the Commission itself or with Federal Court, does not automatically suspend the binding effects of a decision. However, any party who desires to preserve the right to appeal must file a notice of appeal within 10 days after the FCC's ruling is released. If a notice of appeal is not filed within 10 days, the ruling becomes effective 30 days after the ruling is released. If an appeal is not filed following notice of appeal, the ruling becomes effective 50 days after the day of its release. If an appeal is filed and granted review, or if the Commission reviews the ruling on its own motion, the effect of the ruling is further stayed pending the completion of proceedings on appeal or review. 16. If the appeal does not suspend the binding effects of the decision of the NRA, what is the applicable standard to obtain such suspension and how is it applied in practice? The standard for appealing a decision of the FCC to the United States Court of Appeals for the Federal Circuit is governed by the Administrative Procedures Act under Title 28, Chapter 158 of the U.S. Code. Petitions for review must address the nature of the proceedings as to which review is sought, the facts on which venue is based, the grounds on which relief is sought, and the relief requested. 17. What is the percentage of the decisions that have been appealed? This data is not readily available and has not been compiled to the best of our knowledge. However, it is important to note that several major FCC orders affecting the telecommunications industry, including orders addressing cost accounting, special access, unbundled network elements, and media ownership have been appealed systematically. As the FCC continues to review the regulations affecting this multibillion dollar industry, such as the ongoing intercarrier compensation proceeding, this trend is likely to continue. 18. What is the average timeframe for an appeal procedure? Appeals of decisions and orders of the FCC must be filed with the United States Court of Appeals for the District of Columbia. Accordingly, the timeframe for the appeal depends not only on the complexity of the issue under appeal, but also on the current docket before the Court. 23

A.5. Independence 19. Is your NRA subject to any injunctions from political authority (other than through removal), when it grants authorizations (services/networks licenses, frequency and number authorization) or enforces SMP regulations (e.g. ex ante approval of standard interconnection offers, compliance with cost accounting separation)? No. The FCC is an independent regulatory agency, the decisions of which may only be challenged in a court of law or superseded by an act of Congress. 20. What is the duration of office of your NRA's management. Is there a possibility of reappointment? The Chairman and Commissioners at the FCC are appointed by the President of the United States, with the advice and consent of the Senate, for a term of five (5) years. Reappointment is possible. 21. What are the grounds for removal of your NRA's management? Once appointed and confirmed, the Chairman and Commissioners may be removed only for violation of the FTA, the FCC's rules, or for criminal misconduct under impeachment proceedings. 22. What are the eligibility requirements for your NRA's management? Other than U.S. citizenship, there are no specific eligibility requirements established by law. However, the FTA states that a Commissioner may not be "financially interested" in any company regulated by the FCC, including, but not limited to communications equipment manufacturers, communications service providers, or companies controlling said equipment manufacturers or service providers. Furthermore, a Commissioner may not maintain significant financial holdings in any company regulated by the FCC. These prohibitions may be waived in the case of de minimus financial interests or holdings. 23. Are clear objectives assigned to the NRA for its long term actions? Are such objectives set in the law or defined by the NRA's? A detailed set of objectives, duties, and functions is set forth under the FTA, including jurisdictional authority, the powers and duties of the Chairman and Commissioners of the FCC, and biannual regulatory reform requirements. However, with the continual development of new technology and the blurring of the lines between traditional telecommunications and information services, uncertainty has arisen on several recent occasions concerning the extent of the FCC's jurisdiction for such issues including IP telephony, the "broadcast flag" and digital television, and spam. It remains to be seen the extent to which a proposed re-write of the FTA will address these issues. 24

24. What percentage of the incumbent share capital is held by the Government? None. B. REGULATORY DISPUTE SETTLEMENT NOTE: Inter-carrier dispute resolution and mediation, unless related to an alleged violation of the FTA, generally are addressed and resolved by the state public utilities commissions. In particular, the FTA has ceded authority to the states to address intercarrier disputes related to interconnection agreements, within the parameters established by the FCC governing available UNEs and their pricing methodology. Hence, although the state utilities commissions preside over the dispute settlement process, the FCC exercises significant influence on the scope of those proceedings. Interconnection disputes are the focus of this section. In many states, both mediation and arbitration are possible. Generally, submission of a dispute to mediation does not compromise the legal rights of either carrier to bring subsequent legal action. As a general note to the state-specific responses in this section of the annex, please be advised that the powers and procedures of state public utilities commissions in the resolution of intercarrier disputes may vary to the extent that these powers and procedures are not already established under the FTA. B.1. Speed of process 25. What was, over the past two years, the average timeframe for obtaining a decision from your NRA acting in a capacity as a dispute settlement body? For interconnection disputes, the FTA has established a timeframe of 270 days from the date of a request for interconnection to resolve an intercarrier dispute. This timeframe applies to all state commissions. Of the states researched in this survey (California, Illinois, New York, and Texas), with the exception of Illinois, there are no statistics available on the average timeframe to resolve a post interconnection dispute. In Illinois, a complaint brought by one telecommunications carrier against another for anticompetitive practices must be resolved no later than 60 days after the complaint is filed with the Illinois Commerce Commission ("ICC") pursuant to the Illinois Public Utilities Act. 26. Can your NRA adopt interim measures? California: Yes. The Presiding Officer over a dispute has broad discretion to adopt interim measures and take such actions as may be necessary in resolving the dispute. Illinois: If the alleged violation has a substantial adverse effect on the ability of the complainant to provide service to customers, the Illinois Public Utilities Act provides that the complainant may include in its complaint a request for an 25

order for emergency relief. Furthermore, the Hearing Examiner has the authority to rule upon all matters which do not result in the final determination of the proceeding (83 IL Admin Code 761.40(a)(8)). New York: Yes. The Presiding Officer over a dispute has broad discretion to adopt interim measures and take such actions as may be necessary in resolving the dispute. Texas: Yes. The Presiding Officer over a dispute has broad discretion to adopt interim measures and take such actions as may be necessary in resolving the dispute. FCC: The FCC has principal jurisdiction to address pole attachment disputes between telecommunications service providers, and disputes between a telecommunications service provider and another public utilities. In pole attachment dispute proceedings, it should be noted that a cable TV operator may petition the FCC for a temporary stay of removal of its facilities from a utility pole if it can demonstrate the likelihood of irreparable harm and cessation of cable TV service in the affected area. B.2 Due process 27. Is the dispute settlement process subject to the principle of contradiction? Yes. Under United States law, both sides must have a fair hearing, which may or may not involve oral arguments, depending on the situation, but will normally be a matter of written submissions. 28. What are the possibilities to appeal a decision of the NRA acting as a dispute settlement body? Decisions of the FCC may be appealed to the Federal Circuit Court of Appeals, as described in the response to Question 16. B.3. Effectiveness of sanctions? 29. Is your NRA entitled to impose fines or periodic penalty payments? The FCC has the authority to initiate forfeiture proceedings against a carrier for violation of its regulations, including the imposition of fines where appropriate. 30. Does your NRA have the power to enforce its own decisions? The FCC has the authority and power to enforce its own decisions. 26

B.4. Effectiveness of appeal procedure 31. Does the appeal of an NRA decision suspend the binding efforts of the decision in question? No. An appeal does not automatically suspend the binding efforts of an FCC decision. Please see the responses to Questions 15 and 16 for further information. 32. If the appeal does not suspend the binding efforts of the decision of the NRA, what is the applicable standard to obtain such suspension and how is it applied in practice? The standard for review of a stay in Federal court is a tri-partite test including the party's likelihood of success on the merits, the party's potential to suffer irreparable harm, and the whether a stay is in the public interest. Please also see the response to Question 16 above. 33. What is the percentage of decisions that have been appealed? This data is not readily available and has not been compiled to the best of our knowledge. 34. Average timeframe for an appeal procedure. This data is not readily available and has not been compiled to the best of our knowledge. C. APPLICATION OF ACCESS REGULATION C.1. Cost orientation In the United States, there are specific sections of the FTA and corresponding regulations that address telecommunications carriers with significant market power. These carriers are referred to as "incumbent local exchange carriers" or "ILECs". This section will address both local exchange and interexchange access regulation. 35. Is there a detailed model covering each and every or all regulated services for SMP operators? There are detailed models covering some but not all regulated access services of ILECS. Unbundled Network Elements ("UNE"): The applicable cost model is forward-looking long run incremental costs as measured by the TELRIC methodology. Costs must be forward-looking (i.e., the long-run costs expected to be incurred in providing the network element, not historical costs) 27

and must use the most efficient, least cost technology available (assuming the existing locations of the ILEC s central offices as fixed). 3 DSL: There is no applicable cost model addressing digital subscriber line ("DSL") services. Interexchange access: There are two basic models cost models governing interexchange access: (1) rate-of return and (2) price cap. Under the rate-ofreturn model, which is used primarily by rural LECs, the ILEC calculates specific access charge rates using projected costs and demand for access service. This model allows the ILEC to recover costs plus a prescribed return on investment. The rate-of-return model is further defined under Part 69, Subpart B of the FCC's Rules, which also sets forth the model for special access charge recovery. 4 Because this model limits the profits an ILEC may earn on interstate access, the price cap model was more widely used initially. In general, the larger ILECs are required to employ the price cap model. Under this model, the FCC sets an annual rate adjustment cap, based on market experience, which is unrelated to the performance of the ILEC. The price cap model is further defined under Part 69, Subpart C of the FCC's Rules. Please note, however, that in major metropolitan markets, which the FCC has deemed to be competitive, the ILECs are exempt from price cap regulation and may employ "pricing flexibility." Under this standard, the ILEC may to enter into more individualized relationships with its special access customers, generally at higher prices than would be required under price cap regulation. 5 36. What is the type of cost accounting method used? UNE: The cost accounting methodology used in the United States is Total Element Long Run Incremental Cost or TELRIC, a forward-looking cost model. Although the U.S. Supreme Court upheld the FCC's authority to continue to employ the TELRIC model, the FCC initiated a rulemaking proceeding in September 2003 to assess its effectiveness. An interim rule published in the Federal Register on September 13, 2004 imposed a six month freeze on existing interconnection rates. The final rule is expected to be released sometime in the next few months. Interexchange Access: Please see the response in Question 35. 3 47 C.F.R. 51.505(b). 4 Special access is defined as a class of LEC services that provides the link from the customer's premise to an IXC PoP for non-switched dedicated circuits, whereas switched access is the long distance carrier access method in which a non-local call is carried by a local exchange carrier via a Central Office trunk for the first and last part of the call's journey and on the long distance carrier's network only for the middle part of the journey. 5 The FCC has begun a rulemaking to examine whether pricing flexibility for special access services in these markets was granted prematurely. It states that RBOCs have earned overall interstate special access accounting rates of return of approximately 38, 40 and 44 percent in 2001, 2002 and 2003, respectively, while special access average investment was slightly negative over the same period. Special Access NPRM, FCC, WC Dkt 05-25 at 27. 28

Please note that special access has been deregulated, prematurely, in most major markets. Therefore, no cost model applies in markets where pricing flexibility for special access services has been granted. Additionally, no there is no cost accounting method for DSL services in the United States. 37. Does the NRA have the power to seek cost orientation of retail tariffs? Yes, with respect to some retail services. Local exchange and intrastate interexchange service tariffs are filed with state utilities commissions. Only dominant carriers, generally the ILECs, are required to file interstate interexchange service tariffs with the FCC. The general rule requires dominant carriers whose gross annual revenues exceed $500,000 for the most recent 12 month period of operations or are estimated to exceed $500,000 for a representative 12 month period to file interstate interexchange tariffs with the FCC. These dominant carriers must provide a cost study for all elements in their tariff to justify rates charged to both wholesale and retail customers. Interexchange switched access and special access are generally found in separate tariffs. Please note that special access charges frequently are subject to pricing flexibility in many carrier master service agreements. The rules governing ILEC tariffs are set forth in Part 61, Subpart D. Accordingly, where pricing flexibility has been implemented, there is no applicable cost orientation. Therefore, in a number of instances, because the FCC has concluded that markets were competitive, the FCC has waived its right to seek cost orientation. In other cases, the FCC has a general requirement that rates be just and reasonable, but will not seek a cost orientation regarding the retail tariffs. E.g DSL rates. California: Yes. Cost orientation is required under Section 495.7 of the California Public Utilities Code. Illinois: Yes. Cost orientation is required for ILECs under Chapter 83, Sections 791 and 792 of the Illinois Administrative Code. New York: Yes. Please note, however, that the New York Public Utilities Code authorizes the Department of Public Service to establish different standards for tariffs filed by noncompetitive, or incumbent, and competitive service providers. Texas: Yes. Cost orientation is required for ILEC tariffs under Chapter 26, Subchapter J of the PUC's Rules. C.2 Cost accounting separation 38. Are SMP operators subject to effective cost accounting separation obligations? No. There is no accounting separation between an ILEC s wholesale and retail divisions which would give more visibility into cross-subsidization, price squeeze, and the like. The term "cost accounting separation" is not 29

addressed, as such, in either Federal or State telecommunications regulations. However, all telecommunications carriers are required to maintain financial records pursuant to the Uniform System of Accounts ("USOA") as specified in the Part 32 of the FCC's Rules. The USOA is a historical financial accounting system which reports the results of operational and financial events in a manner which enables both management and regulators to assess these results within a specified accounting period. The USOA also provides the financial community and others with financial performance results. ILECs and operators with significant market power are subject to one set of procedures ("Class A") and competitive operators are subject to different set of procedures ("Class B"). C.3 Availability of information 39. Is there any information available (e.g. number of subscribers, key for cost allocation between network components, WACC) enabling competitors/third parties to understand cost models and assess regulated operators' compliance with their cost orientation and accounting separation obligations? As stated above, there are no equivalent no cost accounting obligations for SMP operators in the United States. ILECs are required to file financial and operating data with the FCC on a regular basis. Compiled reports of this data are compiled in the FCC's Automated Reporting Management Information System ("ARMIS") database, managed by the FCC's Accounting Safeguards Division and available at the FCC's web site at http://www.fcc.gov/wcb/armis/. The ARMIS database includes a variety of mechanized company financial and infrastructure reports in addition to quality-of-service reports. However, the database does not separate wholesale accounting data from retail accounting data. Accordingly, its value to competitive carriers and third parties in assessing compliance with cost orientation and accounting separation is somewhat limited. Additionally, while ILECS provide accounting data to federal and state regulators on TELRIC pricing of UNEs, these cost studies are not made available to competitive carriers, and, accordingly, cannot be contested. With regard to special access, none of this information is available where pricing flexibility is in use. Furthermore, this information is not available with regard to switched access or DSL services. 40. Are the accounts drawn in accordance with cost accounting separation effectively published? Yes, through the ARMIS database, subject to the inherent limitations as described in the response to Question 39. 30

C.4 Procedures satisfying access requests in an effective and timely fashion 41. What is the procedure for negotiation of a reference interconnection agreement or standard interconnection agreement with the incumbent? If there is no standard agreement, please elaborate. What is the timeframe for entering such an agreement - are there any material barriers to entering such an agreement? Although ILECs are required by law to negotiate interconnection agreements with competitive entrants, there is no standard procedure under Federal or applicable state law governing the process of negotiating an interconnection agreement with the ILEC. However, each ILEC has its own standard corporate procedure and standard agreement form. Furthermore, in the event that straight-forward negotiation does not yield an agreement, a competitive entrant may request mediation or arbitration from a State utilities commission. Negotiation of an interconnection agreement generally takes no more than 135 days. Under the FTA, arbitration can be requested between the 135 th and 160 th day, inclusive, from the date negotiation with ILEC was first requested. All interconnection agreements must be approved by the state commission in whose jurisdiction the telecommunications services are to be provided, regardless of whether negotiated, mediated, or arbitrated. If a State commission fails to act, the FCC will issue a preemption order 90 days after submission of agreement by parties to state, after which time FCC will act on the pending agreement. 42. Is there a standard procedure available for operators to negotiate alternative access products/services not explicitly provided for in the standard reference interconnection offers? ILECS do not publish standard reference interconnection offers except with respect to UNEs. There is no standard procedure for negotiating what is not in the ILEC s statement of generally available terms ("SGAT"), although commercial negotiation is possible. An ILEC must meet all reasonable requests for access to those products and UNEs as specified in the FCCs rules. Each ILEC generally has its own basic interconnection agreement and standard negotiation procedure, which, if challenged, must meet the standard of reasonableness set forth in the FCC's rules. The remaining services are tariffed, and it is possible to seek commercial negotiation of alternative rates and terms. If the ILEC reaches a deal that deviates from its tariff, it must publish this special arrangement as an individual case basis or "ICB". Please note that in a related matter, a case is currently pending before the U.S. Supreme Court to determine whether cable companies are required to provide access to their networks to competitive high-speed internet providers. National Cable & Telecommunications Association v. Brand X Internet Services, U.S. 04-277. 31

C.5 Rights of way 43. Are operators entitled to free rights of way on public land? No. The Federal government, as well as State and local governments charge for access to public rights of way under their jurisdiction. Governments have determined that commercial use of government property within their jurisdiction requires fair and equitable compensation. Telecommunications carriers must also pay for access to private rights of way, such as electric utility pole attachments. However, the FTA requires utility companies to provide nondiscriminatory access to their rights-of-way. D. KEY ACCESS PRODUCTS General Note on Interconnection: On December 15, 2004 the FCC approved its revised triennial review order ("TRO"), on remand from the U.S. Court of Appeals of Washington, governing access to unbundled network elements and other access products. The full text of the order was released on February 4, 2005. Under the revised order, the FCC eliminated unbundled access to mass market circuit switching and the availability of the unbundled network element platform ("UNE-P"). The order sets a 12 month transition for competitors losing access to mass market local switching and to unbundled DS1 and DS3 dedicated transport and an 18 month transition for those losing access to dark fiber transport. Noting that IXCs traditionally use special access for origination and termination of traffic, the FCC also held that competitive carrier use of special access has been a necessary precondition to eventual UNE-based competition. Elaborating, the FCC found that even assuming that some competitive LECs are providing services profitably using special access, the record indicates that the availability of UNEs is itself a check on special access pricing, and that elimination of UNE availability to customers using tariffed alternatives might preclude competition using those tariffed services going forward. Accordingly, the FCC chose to continue to protect competitive carriers' access to special access. General Note on Switched Access: Switched access has taken on increased significance with the proliferation of VoIP services. At issue is the compensation VoIP providers must pay to ILECs for originating and terminating traffic over the public switched telephone network. The extent to which switched access will be addressed in the FCC's open proceeding on intercarrier compensation remains to be seen. General Note on DSL: Currently, DSL service, because it is provided over traditional telephone lines, faces regulatory obligations that do not apply to cable modem service. However, in 2003, the 9 th Circuit Court of Appeals ruled that cable modem service should be treated, to a certain extent, as a hybrid telecommunications and information service and regulated in the same manner as ILEC DSL service. The ruling has been appealed to the U.S. Supreme Court. If the ruling stands, it would place DSL service 32

on a more equal footing with cable modem service, which is deregulated and has a greater share of the US market. D.1. Voice interconnection 44. What is the level of interconnection tariffs for call termination with interconnection at the tandem switch level? $0.01 ( 0.01) Simple average of inter and intra state tandem routed call termination. (Source: TMI) Interconnection rates differ depending on the ILEC in question and the jurisdiction in which the ILEC is tariffed. However, interconnection rates must still fall within the guidelines established by the FCC and the applicable state public utilities commission. Under the revised TRO, the new rates for loop and transport unbundled network elements ("UNE") will be the higher of (1) 115% of the rate the requesting carrier paid for the UNE on June 15, 2004, or (2) 15% of a state commission rate established between June 16, 2004 and the effective date of the order. A similar rate provision applies to mass market local switching, except that the referenced rate will be increased by a dollar a month. 45. Do detailed cost models for SMP operators exist? Yes. Very detailed cost models exist. However, many of the applicable regulatory obligations have been lifted as key product access has undergone additional deregulation in recent years. Please see the response to Questions 35 and 36 for additional information. 46. Does the NRA have the power to apply a price squeeze test and the power to review the level of retail tariffs on the basis of alleged discriminatory access at the wholesale level? Has your NRA applied this power effectively? Although the FCC has the power to apply a price squeeze test and review tariffs based on allegations of discriminatory access, such is not an effective tool. Because there are no equivalent cost accounting separation requirements, the FCC has limited visibility into the extent to which price squeeze may have occurred. However, please note that U.S. telecommunications and antitrust regulations prohibit service providers from offering better terms and conditions to their own downstream operations than to independent competitors for access to essential facilities. In principle, the incumbent must provide reasonable and fair terms and conditions to the competitor. A competitive carrier that believes it has been discriminated against may file a complaint with the FCC's Enforcement Bureau. The Enforcement Bureau also has the authority to initiate its own investigations into anticompetitive behavior. 33