[Senate Hearing 109-584]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-584
 
    THE AT&T AND BELLSOUTH MERGER: WHAT DOES IT MEAN FOR CONSUMERS?

=======================================================================

                                HEARING

                               before the

                       SUBCOMMITTEE ON ANTITRUST,
                 COMPETITION POLICY AND CONSUMER RIGHTS

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 22, 2006

                               __________

                          Serial No. J-109-90

                               __________

         Printed for the use of the Committee on the Judiciary



                    U.S. GOVERNMENT PRINTING OFFICE
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                       COMMITTEE ON THE JUDICIARY

                 ARLEN SPECTER, Pennsylvania, Chairman
ORRIN G. HATCH, Utah                 PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona                     JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio                    HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama               DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina    RUSSELL D. FEINGOLD, Wisconsin
JOHN CORNYN, Texas                   CHARLES E. SCHUMER, New York
SAM BROWNBACK, Kansas                RICHARD J. DURBIN, Illinois
TOM COBURN, Oklahoma
           Michael O'Neill, Chief Counsel and Staff Director
      Bruce A. Cohen, Democratic Chief Counsel and Staff Director

   Subcommittee on Antitrust, Competition Policy and Consumer Rights

                      MIKE DeWINE, Ohio, Chairman
ARLEN SPECTER, Pennsylvania          HERBERT KOHL, Wisconsin
ORRIN G. HATCH, Utah                 PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            JOSEPH R. BIDEN, Jr., Delaware
LINDSEY O. GRAHAM, South Carolina    RUSSELL D. FEINGOLD, Wisconsin
SAM BROWNBACK, Kansas                CHARLES E. SCHUMER, New York
        Peter Levitas, Majority Chief Counsel and Staff Director
                Jeffrey Miller, Democratic Chief Counsel


                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

DeWine, Hon. Mike, a U.S. Senator from the State of Ohio.........     1
    prepared statement...........................................    68
Kohl, Herbert, a U.S. Senator from the State of Wisconsin........     3
    prepared statement...........................................    82
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     5
    prepared statement...........................................    83
Specter, Hon. Arlen, a U.S. Senator from the State of 
  Pennsylvania...................................................     4

                               WITNESSES

Ackerman, Duane, Chairman and Chief Executive Officer, BellSouth 
  Corporation, Atlanta, Georgia..................................     8
Geiger, James F., Founder, President, and Chief Executive 
  Officer, Cbeyond Communications, Atlanta, Georgia..............     9
Rubin, Jonathan L., Senior Research Fellow, American Antitrust 
  Institute, Washington, D.C.....................................     9
Whitacre, Edward E., Jr., Chairman and Chief Executive Officer, 
  AT&T Inc., San Antonio, Texas..................................     8

                         QUESTIONS AND ANSWERS

Responses of Duane Ackerman to questions submitted by Senators 
  DeWine, Kohl, and Leahy........................................    18
Responses of James F. Geiger to questions submitted by Senators 
  DeWine, Kohl, and Leahy........................................    34
Responses of Jonathan L. Rubin to questions submitted by Senators 
  DeWine, Kohl, and Leahy........................................    38
Responses of Edward E. Whitacre to questions submitted by 
  Senators DeWine, Kohl, and Leahy...............................    49

                       SUBMISSIONS FOR THE RECORD

Ackerman, Duane, Chairman and Chief Executive Officer, BellSouth 
  Corporation, Atlanta, Georgia, statement.......................    61
Geiger, James F., Founder, President, and Chief Executive 
  Officer, Cbeyond Communications, Atlanta, Georgia, statement...    70
Rubin, Jonathan L., Senior Research Fellow, American Antitrust 
  Institute, Washington, D.C., statement.........................    86
Whitacre, Edward E., Jr., Chairman and Chief Executive Officer, 
  AT&T Inc., San Antonio, Texas, statement.......................    91


    THE AT&T AND BELLSOUTH MERGER: WHAT DOES IT MEAN FOR CONSUMERS?

                              ----------                              


                        THURSDAY, JUNE 22, 2006

                                       U.S. Senate,
Subcommittee on Antitrust, Competition Policy and Consumer 
                        Rights, Committee on the Judiciary,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to notice, at 3:05 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Mike DeWine, 
Chairman of the Subcommittee, presiding.
    Present: Senators DeWine, Specter, Kohl, and Leahy.

OPENING STATEMENT OF HON. MIKE DEWINE, A U.S. SENATOR FROM THE 
                         STATE OF OHIO

    Chairman DeWine. Good afternoon. We welcome all of you 
today. Welcome to our panelists to today's hearing to examine 
the merger between AT&T and BellSouth. This merger is another 
in a series we have seen recently in the telecommunications 
market, and it certainly is significant. This deal will create 
the largest telecom company in the U.S. In fact, with a market 
capitalization over $150 billion, the combined AT&T-BellSouth 
would be one of the largest companies in the world. This merger 
will also bring under one roof the largest cell phone provider 
in the country.
    As we evaluate this deal, we must keep in mind how much the 
market has changed. In 1984, when the Bell monopoly was broken 
up, most of us only had landline phones attached to the wall. 
Cell phones and the Internet were virtually unknown. Today, 
that type of old-fashioned phone service is just one part of a 
larger patchwork of data and communications services. In recent 
years, the cable television companies have started to offer 
high-speed Internet and telephone services, while the telephone 
companies are beginning to roll out video services. It is clear 
that soon data of all types, whether it be Internet traffic, 
phone calls, or television shows, will be delivered via the 
Internet by a wide range of different companies.
    So what does this merger mean for consumers?
    In terms of traditional home-phone consumer service, 
probably not all that much. AT&T and BellSouth both provide 
that type of service in their own areas, but do not compete in 
each other's regions, so nothing in this market will change as 
a result of the deal.
    However, the merger may have an impact on consumers in 
other ways. A combined AT&T-BellSouth will have a unique 
portfolio of assets, which raises questions of how it will use 
those assets. For example, once Cingular comes under the 
ownership of a single company, the way in it is run may change. 
Some have expressed concerns that a Cingular under the 
ownership of a combined AT&T-BellSouth will have the ability 
and incentive to manipulate connection fees in a way that will 
unfairly harm competition. This is an issue that we will 
explore today.
    At the same time, the wireless market is beginning to show 
promise as a medium that can provide new competition in a range 
of consumer services. The development of the so-called WiMax 
service means that cellular companies will be able to provide 
an alternative to traditional phone and cable companies for 
video and Internet offerings. However, there is some concern 
that this merger will consolidate so much wireless spectrum in 
the hands of AT&T that it may hinder the development of WiMax 
and diminish its potential as a competitive alternative.
    This merger will also have competitive implications for the 
future of the Internet. AT&T will become an even bigger 
presence in the so-called Internet backbone market. As 
telecommunications companies get larger, they are looking for 
different ways to manage their parts of the network, to get it 
to function more efficiently. Their potential efforts to do so 
are part of the escalating tensions surround the debate about 
net neutrality, which the full Judiciary Committee began to 
examine in a hearing just last week. I think we need to examine 
and really understand whether this merger will create 
incentives to lessen competition--in markets for content as 
well as the carriage of that content--over networks controlled 
by bigger, more powerful companies, such as the newly merged 
AT&T.
    The deal will impact business customers as well. 
Businesses, for example, find that very few companies can 
currently offer services to fit their complex 
telecommunications needs, and, in fact, there are some 
businesses right now that can only be served by either AT&T or 
BellSouth. For them, this merger means that they will go from a 
market with two options to a monopoly. This is a market sector 
that will require close scrutiny.
    Today, we will hear from the CEOs of AT&T and BellSouth, as 
well as the CEO of Cbeyond, a smaller Internet-based telecom 
company, and an independent analyst. I hope these witnesses can 
give us an accurate and useful picture of what the competitive 
landscape will look like after this proposed merger and what it 
will look like in the next few years, specifically with regard 
to this section of the business market.
    We are also, of course, interested in hearing about the 
potential competitive benefits of this deal. For example, 
expanding the customer base of AT&T may well allow it to roll 
out its video service more quickly, and the greater size and 
scope of the company may enhance other competitive offerings as 
well. We look forward to examining these benefits with our 
witnesses today.
    Finally, of course, we need to continue to investigate some 
of the broader telecommunications issues currently being 
assessed by industry and policymakers, some of which the full 
Judiciary Committee examined last week, and many of which are 
being addressed now in draft bills to rewrite our 
telecommunications laws. Issues such as net neutrality, which I 
referred to previously, and regulations regarding common 
carrier and information services may also be affected by this 
deal, and so we need to consider the possible ramifications of 
the AT&T-BellSouth merger in these areas as well.
    So we have a range of important and very interesting topics 
to cover today. I look forward to hearing from our witnesses on 
all of them as well.
    Let me turn now to Senator Kohl for his opening comments.

 STATEMENT OF HON. HERBERT KOHL, A U.S. SENATOR FROM THE STATE 
                          OF WISCONSIN

    Senator Kohl. I thank you, Mr. Chairman. Today, we return 
to a topic our Antitrust Subcommittee examined a year ago--
continuing consolidation of the telecom industry. The $67 
billion merger between AT&T and BellSouth we consider today 
follows closely on the heels of last year's massive AT&T-SBC 
and Verizon-MCI mergers. These mergers and the rapid pace of 
the technological changes in this industry are fundamentally 
reshaping how Americans communicate in what we pay for these 
services.
    While examining the impact of these deals on competition, 
we must also carefully consider what this consolidation means 
for our fundamental civil liberties and our National security. 
The antitrust laws were written out of a concern with the 
political effects of undue concentrations of economic power, 
not only their effects on consumers' pocketbooks. And the 
disturbing revelations in the last few months of the 
administration's domestic surveillance demonstrate vividly that 
this deal--and the overall telecom consolidation wave of which 
it is but a part--may indeed have a profound effect on our 
civil liberties. It has been reported in the press that the 
NSA, allegedly with the cooperation of some of the Nation's 
largest phone companies, including AT&T, is compiling a massive 
data base of whom nearly every American calls on the telephone. 
While, of course, we all recognize that we need to listen to 
any calls that al Qaeda may try to make into the United States, 
we must do so in a focused manner without trampling on the 
privacy rights of millions of innocent Americans.
    We must realize that the mergers and acquisitions in the 
telecom industry make overbroad domestic surveillance 
considerably easier. As the market consolidates, Government 
eavesdropping is possible merely with the assent of fewer and 
fewer large phone companies than before. Today, just a very few 
telecom giants have an enormous amount of personal information 
on virtually every American's phone calls. As the market 
concentrates, the threat to our privacy grows. These 
considerations should be paramount to all of us who have the 
responsibility to review these mergers.
    We also, of course, must carefully examine the more 
traditional antitrust laws raised by the AT&T-BellSouth deal. 
Both companies defend this merger by pointing out that this is 
a merger of regional phone companies with adjacent territories 
rather than of direct competitors. Further, they argue, 
technological changes and innovation are bringing new forms of 
competition to the market.
    But as we watch as a formerly regional player grows into 
the dominant phone company in nearly half the Nation, we must 
be careful to examine several key questions. Will competitors 
be able to interconnect into the millions of consumers served 
by the AT&T network? Will the new AT&T have the ability to 
charge exorbitant rates for special access lines into its 
network? Will the combined company gain too high a share of 
wireless spectrum needed for new competitive alternatives? More 
fundamentally, how can we ensure this consolidation will not 
decrease the choices and increase the cost to consumers and to 
business customer, both large and small?
    Just as with the AT&T-SBC and the Verizon-MCI mergers, we 
expect that the Justice Department and the FCC will scrutinize 
these mergers very carefully to preserve competition. A good 
place to start would be the imposition of some of the same 
conditions these agencies imposed on last year's deals on this 
one. We must be especially careful to ensure that the combined 
company's broadband Internet services do not interfere with 
consumers' ability to access all Internet content they wish. 
Securing merger conditions such as these will help ensure that 
the tremendous gains in telecom competition over the past 20 
years are not lost in the midst of this industry consolidation.
    Thank you, Mr. Chairman.
    Chairman DeWine. Senator Specter?

STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE 
                        OF PENNSYLVANIA

    Senator Specter. Thank you, Mr. Chairman.
    At the outset, I congratulate you, Chairman DeWine and 
Ranking Member Kohl, for your excellent work in this very, very 
important Subcommittee. Thank you for convening this hearing. 
There are very important antitrust issues raised here. The 
current AT&T is primarily composed of the former SBC 
Communications, a company that was formed through the 
combination of three Bells: Southwestern Bell, Pacific Telesys, 
and Ameritech. And now with the acquisition, if approved, of 
BellSouth, it puts the company one step closer to 
reconstituting the old Ma Bell monopoly.
    I recall being in this room in 1981 or 1982 when Assistant 
Attorney General Baxter, who headed the Antitrust Division, 
testified when there was the break-up of Ma Bell. Senator Leahy 
will remember that. He was here. Senator DeWine and Senator 
Kohl, respectively, joined the Senate in the election of 1994 
and the election of 1988, so they did not have the opportunity 
to participate in those hearings. But it was quite an event.
    I remember it especially because Senator Thurmond left, and 
I was the only Senator present. I had only been in the Senate a 
short time, and I thought it was terrific to be able to 
question the Assistant Attorney General. I spent about an hour 
at it. Nobody was listening, but it was something that I 
thought was worth doing.
    There is another issue which is very much on my mind, and I 
could not let the presence of the Chairman and CEO of AT&T and 
Chairman and CEO of BellSouth come to the Judiciary Committee 
room without my presence and raising an issue which is very 
much on my mind and on the minds of many people, and that 
relates to the question as disclosed by the USA Today report 
about telephone companies turning over identities of callers 
and calls, not content but callers and calls.
    I am not unaware of the position of the U.S. Government on 
this matter with respect to public disclosure, and it is a 
matter where I think there is a substantial public interest and 
the public ought to have an opportunity to know. And it may be 
that the details will come forward in closed session, or it may 
be that there will be another way of finding out exactly what 
is going on.
    The full Committee had considered the possibility on those 
subjects of a closed hearing. We considered the possibility of 
subpoenas, and we have put it on the agenda, but behind the NSA 
electronic surveillance program, which the President confirmed, 
and we are in discussions with the administration about the 
submission of that program to the Foreign Intelligence 
Surveillance Court, and candidly, that comes ahead of the issue 
of the disclosures by the telephone companies because content 
is more important, as I see it, and we are pursuing that on a 
priority basis. But we will return to this issue by the full 
Committee.
    I have seen a publication in the Chicago Sun Times dated 
today which reports from San Antonio: ``AT&T Inc. is changing 
its privacy policy for Internet and television customers to 
specify that account information is a business record the 
company owns and can be disclosed to government and law 
enforcement and to protect the company's `legitimate business 
interests.' AT&T said the account information, including the 
customer's name, address, phone number, and e-mail address, as 
well as information about the customer's service, is owned by 
AT&T. The company said account information doesn't include 
usage information, such as how a person uses the Web or what TV 
programs a person watches.''
    I am very interested to have this assertion of ownership 
interest; what its legal basis is, if any; when it was adopted; 
and what relationship it has, if any, to any prior disclosure 
to the U.S. Government.
    Thank you, Mr. Chairman.
    Chairman DeWine. Well, we--Senator Leahy, I did not see 
you. Senator Leahy?

  STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE 
                        STATE OF VERMONT

    Senator Leahy. Mr. Chairman, I want to thank you and 
Senator Kohl for holding this hearing. I agree with Senator 
Specter that this is very, very timely.
    I was one of only five Senators to vote against the 1996 
Telecom Act. I was concerned about the consequences of that 
bill. I argued that the promise of competition between the long 
distance and local telephone companies would ultimately prove 
to be a myth. I argued that the Act would allow the local 
regional Bells to reunite easily with unregulated local 
monopoly powers.
    Over the last decade, we have seen massive consolidation in 
the industry. Here we are again. Just 6 months ago, two of the 
biggest local phone companies acquired two of the biggest long-
distance companies.
    When the AT&T monopoly was broken up, it was divided into 
seven Bell Operating Companies. Now, after this merger, there 
are going to be three. And the proposed merger would establish 
AT&T as the dominant company in 22 States. It seems it only 
took a few years to go right back and put us right back where 
we were before.
    I wonder what other consolidations this will bring about. 
As soon as AT&T and BellSouth announced the merger, one analyst 
said, ``Clearly, Verizon has to go after Qwest now. Verizon has 
got to keep AT&T from getting it.''
    You wonder where it ends. Six years ago, I introduced a 
bill to limit mergers among the RBOCs. I recalled that at my 
farmhouse in Middlesex, Vermont, and my house here, I had only 
one choice for local telephone service. And I know these never-
ending mergers are not helping rural America, whether it is 
Vermont or Ohio or Pennsylvania or Wisconsin, very much.
    Old monopolies were simply regrouping and getting bigger. 
It was true then. It is true now. I do not think telephone 
companies should be able to gain concentrated control over huge 
percentages of the telephone access lines of this country 
through mergers.
    As President Reagan was wont to say, ``Well, here you go 
again. Here you go again.''
    If Congress does not protect competition, then consumers 
are the ones who are going to suffer by having no choices.
    I know at my own home the choices I have are between 
mediocre and poor service. There is no competition there. Where 
will a consumer, enraged that her phone company is giving the 
Government records of her phone calls, call for an alternative?
    Now, Chairman Specter talked about the AT&T policy report 
today which AT&T asserts that private customer records are AT&T 
property. It was in one of a number of papers, actually, this 
one, USA Today, ``AT&T: New privacy policy not `knee-jerk.''' 
Well, no, it is not knee-jerk. It is pretty amazing moving on 
its own. It would allow AT&T to divulge information to the 
highest bidder or just give it to the Government. It certainly 
would not make me feel very safe as a customer. It would worry 
the hell out of me.
    In the video services market, the telcos argue that 
competition is necessary for innovation and lowering prices for 
consumers. Of course, when it comes to broadband and voice 
services, apparently they do not feel as strongly about having 
to compete.
    So the merger is a lot more than just two of the biggest 
remaining wireline communications companies becoming one 
behemoth.
    It would put Cingular, the Nation's largest wireless 
provider, in the hands of the largest wireline company. That 
takes care of any issue about competition between wireless and 
wireline. You wonder where it is going to end. We were told a 
few years ago, Boy, if we got competition, we are going to be 
in great shape.
    Well, Cingular is currently operating independently of AT&T 
and BellSouth. I thought it was a promising competitor for 
voice services and also the broadband access market. Of course, 
after this merger, it is only going to be part of the largest 
phone and broadband provider.
    When SBC and AT&T merged, AT&T agreed to a number of 
important but temporary conditions, including offering voice 
and Internet services unbundled and providing open access to 
the Internet. Of course, these conditions only remained for 18 
months. It is anyone's guess what happens next.
    Now, AT&T has made clear its intentions. Mr. Whitacre has 
infamously said that he is going to charge online businesses, 
discriminating among services. There goes the Internet as we 
have known it, and an Internet which has grown very well 
because Government has kept its hands off. I guess we should 
have known if you get a large enough monopoly, they can step 
in, but Government was wise enough to stay away.
    The Internet, which has opened windows on the world in one-
room schoolhouses in Vermont or to children from Africa to 
Indonesia, is the ultimate marketplace of ideas, where a better 
idea or a better service wins out because it is better. It is 
not going to be it will win out if it pays more.
    So let's see what AT&T and BellSouth have to say about how 
this helps consumers. And, of course, I have some other 
questions. Chairman Specter has alluded to them, but I had my 
staff warn both companies that I am going to ask about this 
domestic surveillance and whether they act under the guise of 
law or just in an arbitrary fashion. And I can see by your 
expressions you can hardly wait for those questions.
    Thank you, Mr. Chairman.
    Chairman DeWine. We thank you all for joining us. Let me 
ask the first question to all of you. Although the 
telecommunications industry has continued to consolidate, the 
number of phone company competitors has just decreased. We are 
seeing more and more competition from other industries, such as 
cable and Internet companies providing voice service. But at 
the same time, the phone companies are beginning to offer video 
service at the same time. In fact, many different types of 
providers are beginning to compete in providing a bundle of 
services. So we have begun to focus on this type of 
competition, known as intermodal, competition as the best hope 
for providing consumers with more choices.
    But, currently, broadband access is mostly available from 
cable and phone companies, and there is a widespread desire to 
see a so-called third pipe as a new way to deliver broadband 
access. Many in the industry believe that the wireless network 
is the best bet for providing this pipe, and WiMax service 
appears to be the technology for turning wireless into a viable 
broadband alternative.
    According to testimony from some of our witnesses today, 
both AT&T and BellSouth own a substantial amount of spectrum 
which might be suitable for WiMax service. The concern is that 
after this merger, AT&T will not have any incentive to develop 
a WiMax service because it would compete with AT&T's existing 
broadband service. So many people are worried that AT&T will 
just warehouse the spectrum to prevent others from using it to 
compete in a broadband market.
    So I have two questions for all of you about this. One, how 
much spectrum is actually practically useful for WiMax? And of 
that total, how much do AT&T and BellSouth own? And, two, 
should we be concerned that AT&T and BellSouth will warehouse 
the spectrum to keep it from being used?
    Mr. Whitacre, why don't we just start with you just because 
you happen to be to my left. And you need to pull that 
microphone pretty close to you, sir, and make sure it is on. 
The light should be on.
    Mr. Whitacre. Is that better? Is that good?
    Chairman DeWine. Yes, sir.

   STATEMENT OF EDWARD E. WHITACRE, JR., CHAIRMAN AND CHIEF 
        EXECUTIVE OFFICER, AT&T INC., SAN ANTONIO, TEXAS

    Mr. Whitacre. From an AT&T standpoint, we do not have all 
that much spectrum, really a de minimis amount when you 
consider the total. BellSouth does have more, and I will let 
Mr. Ackerman speak to that.
    As far as warehousing spectrum, we use that spectrum. We do 
not warehouse it. WiMax does work. It is in its infancy, as you 
pointed out. It has a great future. There will be another way 
to provide broadband type services. I cannot tell you how far 
away that is, but I think it is months, not years, because we 
have it in trial at the laboratories.
    But as far as warehousing it, we do not warehouse it. We 
use that spectrum. That is our intent when we acquire it, and I 
think Mr. Ackerman has a better handle on what BellSouth has 
than I.
    [The prepared statement of Mr. Whitacre appears as a 
submission for the record.]
    Chairman DeWine. All right. Mr. Ackerman?

   STATEMENT OF DUANE ACKERMAN, CHAIRMAN AND CHIEF EXECUTIVE 
        OFFICER, BELLSOUTH CORPORATION, ATLANTA, GEORGIA

    Mr. Ackerman. Thank you, Senator.
    To address your first question about the percentage of 
WiMax spectrum available and what percent AT&T and BellSouth 
will own, as we look at that, it will be somewhere close to 
approximately 16 percent of the total spectrum available for 
WiMax. So there is a lot of spectrum still out there.
    Having said that, Sprint Nextel has significant coverage. 
Clearwire has significant coverage. XO has significant 
coverage. And so there are a number of players and a lot of 
spectrum that is available for continued competition in this 
market.
    I think that in terms of warehousing versus use, I can only 
say, you know, some of the use that indeed we have put forward, 
for example, in Katrina, we used that spectrum to provide 
broadband services in the Bowl when there was a lack of other 
facilities due to the damage from the flooding that occurred 
during Katrina. We have provided services in rural areas that 
we did not have broadband facilities, so that indeed we could, 
you know, address that market there, places like Palatka. 
Certainly Athens is not rural, but we were looking next to a 
university to see how that would work. There were a number of 
other rural locations where we have provided that service.
    So we are experimenting on delivering this service in rural 
areas and trying to create a robust market there, and indeed, 
there is a great deal of spectrum still available.
    [The prepared statement of Mr. Ackerman appears as a 
submission for the record.]
    Chairman DeWine. Mr. Geiger?

  STATEMENT OF JAMES F. GEIGER, FOUNDER, PRESIDENT, AND CHIEF 
           EXECUTIVE OFFICER, CBEYOND COMMUNICATIONS

    Mr. Geiger. I think that the pressure that comes to bear in 
our industry, in the competitive industry, is that there are 
very few choices. Broadband powerline is maybe an aspiration 
for the future. Cellular is not a substitute. Cable TV 
certainly has a network duopoly with the incumbent AT&T and 
BellSouth.
    I think what you find is, as the pressure for people to--
for us in the industry to answer how do you intend to have your 
own network into these customers, we clearly cannot 
financially. It is not financially feasible to string our own 
networks. You know, it would be the equivalent of putting in 
new highways and railroad tracks.
    So I think what we look at in our industry is a financially 
viable way of doing that is wireless, and that spectrum would 
be very valuable to competitive companies.
    [The prepared statement of Mr. Geiger appears as a 
submission for the record.]
    Chairman DeWine. Mr. Rubin?

    STATEMENT OF JONATHAN L. RUBIN, SENIOR RESEARCH FELLOW, 
         AMERICAN ANTITRUST INSTITUTE, WASHINGTON, D.C.

    Mr. Rubin. Thank you, Mr. Chairman. I am not sure what 
definition you are using for ``warehousing,'' but my 
understanding is that BellSouth has had quite a bit of 
spectrum--
    Chairman DeWine. You have to pull your microphone up, and 
you are going to have to turn it on, sir.
    Mr. Rubin. My mistake. Thank you, Mr. Chairman. I am not 
sure what your definition of ``warehousing'' is. I know that 
BellSouth has had spectrum that is suitable for WiMax in the 
2.5 gigahertz frequency range for about 10 years. To have taken 
10 years to roll out experimental WiMax in Palatka, Florida, 
and Athens, Georgia, to me I think that is warehousing.
    Whether or not in the future this spectrum is warehoused or 
not warehoused, either way it is a bad deal for consumers, and 
the reason is because this is the only hope really, at the 
moment the immediate hope of intermodal competition, that is to 
say, to have a separate, independent company providing 
broadband access. And if the post-merger company is able to 
control wireline broadband access, wireless broadband access, 
then there really will be no alternative but the cable-telco 
duopoly, which is the main problem here.
    [The prepared statement of Mr. Rubin appears as a 
submission for the record.]
    Chairman DeWine. Thank you very much.
    Senator Kohl?
    Senator Kohl. Mr. Whitacre, many of us are concerned about 
recent press reports concerning the NSA domestic surveillance 
program and reports that AT&T and BellSouth have given the NSA 
records of the phone numbers called by millions of Americans. 
While, of course, we realize that there is a need to monitor 
phone calls by al Qaeda into the United States, obviously we 
want to do so in a way that protects Americans' privacy rights 
as well.
    Mr. Whitacre, has AT&T or its predecessor, SBC, turned over 
customer phone records in bulk to the NSA without court order, 
as described by that article in the May 10th USA Today?
    Mr. Whitacre. Thank you, Senator. Privacy of our customers 
is really utmost to AT&T. It has been for many years. Over the 
years, we have fired a lot of people for violating privacy.
    I will tell you that we follow the law, we don't break the 
law, and that's the story.
    Senator Kohl. Well, on May 11th, BellSouth issued a press 
release denying that it had any contact at all with the NSA or 
ever provided NSA with customer data. If AT&T did not supply 
such information to the NSA, why could you not also make the 
same statement that BellSouth made?
    Mr. Whitacre. Senator, all I can say is the privacy of our 
customers is utmost, and we follow the law. That's what we do.
    Senator Kohl. Thank you.
    Mr. Whitacre or Mr. Ackerman, one important consequence of 
all this consolidation in the industry is that it has become 
much easier for the Government to eavesdrop on consumer phone 
calls. There were once seven regional Bell companies and dozens 
of long-distance phone companies. After the merger, we will be 
left with just three regional phone companies--companies that 
have acquired their main long-distance phone company 
competitors and that owned the two largest cell phone 
providers. So now the privacy of consumers is left to the 
judgment of ever fewer and fewer people.
    So what are the implications for citizens' privacy rights 
of concentration of this sort in our telecom system in so few 
hands? Do you believe that we should consider this in deciding 
whether to approve the merger?
    Mr. Whitacre, we will start with you, and then we would 
like to hear from Mr. Ackerman.
    Mr. Whitacre. Well, certainly I can only speak for our 
company, but privacy, again, is utmost. We carefully guard that 
privacy. I don't think that would change at all--in fact, I 
know it wouldn't change with a merger or combining two. And, 
again, we are going to follow the law. The laws of the country 
are pretty plain. We know how to act on those. We have for many 
years. And we would follow the law, and I think it makes no 
difference.
    Senator Kohl. Mr. Ackerman?
    Mr. Ackerman. Yes, certainly in speaking for BellSouth and 
even anticipating the merger, you know, these two companies 
have a very similar history. I think they have a very similar 
culture. And, indeed, protecting the privacy of customers has 
been at the top of the list for a long, long time. And so I 
think as I speak for BellSouth, we are obviously very careful 
about protecting the privacy of our customer base, and I doubt 
seriously that there would be any impact as a result of this 
merger.
    Senator Kohl. Mr. Whitacre, the San Francisco Chronicle 
reported earlier this week that a new privacy policy will go 
into effect at AT&T tomorrow. The policy states that all 
confidential customer information is the property of AT&T and 
customer information can be used to ``safeguard others or 
respond to legal process.'' This is quite different from the 
current policy, which states that customer data can be used 
only ``to respond to subpoenas, court orders, or other legal 
process, to the extent required and/or permitted by law.''
    So what has prompted AT&T to change its privacy policy to 
enable it to share customer data more freely?
    Mr. Whitacre. Senator, that is not correct, but I'd be 
happy to talk about that. Again, we care very much about our 
customers' privacy. We updated our privacy policy for our 
retail customers and our website visitors because of the SBC-
AT&T merger, and we needed to put the two policies of the 
company together.
    We also updated the Yahoo! Internet policy, AT&T Yahoo! 
Internet policy, to include video customers and to reflect the 
fact that we are offering video, which we have not done before.
    The spirit of our policies, privacy policies and practices 
have not changed. We wanted to make our policies easier to read 
and easier to understand for our customers and to reflect the 
changes to our company and our new products. We have 
accomplished this, and we went outside to an organization 
called Trustee, and they give our new policies the thumbs up. 
We hope it is easier for them to read. They are in line with 
and they go in some cases beyond industry standards. I can't 
think of a company--media company, communications company--that 
doesn't have a similar policy. We don't provide personal 
information to third parties for marketing purposes. We use 
customer information in order to prioritize or customize or 
personalize our customers' viewing experience.
    And so we are under obligation to assist law enforcement 
under proper circumstances, but trust with us and the trust our 
customers have in us come No. 1. We have done nothing but 
update our policy. There really is no change. We have made it 
easier to read.
    Senator Kohl. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman DeWine. Senator Specter?
    Senator Specter. Mr. Whitacre, you say you do not provide 
customer data to third parties. Does that include law 
enforcement?
    Mr. Whitacre. I said except under legal circumstances, 
Senator.
    Senator Specter. Well, answer my question. Does that 
include law enforcement?
    Mr. Whitacre. If it's properly asked of us and it's the 
proper documentation and it's legal and it's lawful, we will 
cooperate.
    Senator Specter. Has AT&T provided customer information to 
any law enforcement agency?
    Mr. Whitacre. Senator, we protect the privacy of our 
customers and we follow the law, and that's all I can say about 
that.
    Senator Specter. Are you declining to answer my question, 
Mr. Whitacre?
    Mr. Whitacre. We follow the law, Senator.
    Senator Specter. Does AT&T provide customer information to 
any law enforcement agency?
    Mr. Whitacre. We follow the law, Senator.
    Senator Specter. That is not an answer, Mr. Whitacre. You 
know that.
    Mr. Whitacre. That's all I'm going to say is we follow the 
law. It is an answer. I'm telling you we don't violate the law. 
We follow the law.
    Senator Specter. No, that is a legal conclusion, Mr. 
Whitacre, and you may be right or you may be wrong. But I am 
asking you for a factual matter. Does your company provide 
information to the Federal Government or any law enforcement, 
information about customers?
    Mr. Whitacre. If it's legal and we are requested to do so, 
of course we do.
    Senator Specter. Have you?
    Mr. Whitacre. Senator, all I'm going to say is we follow 
the law.
    Senator Specter. That's not an answer. That's not an 
answer. It's an evasion.
    Mr. Whitacre. It is an answer.
    Senator Specter. If you are under instructions by the 
Federal Government--
    Mr. Whitacre. We follow the law, Senator.
    Senator Specter. You said that. I don't care to hear it 
again.
    Mr. Whitacre. I don't care to repeat it again, either, 
but--
    Senator Specter. Well, then don't.
    Mr. Whitacre.--we do.
    Senator Specter. Then don't. If you are under instructions 
by the Federal Government as a matter of state secrecy not to 
talk, say so.
    Mr. Whitacre. Senator, we follow the law.
    Senator Specter. Well, I think that answer is contemptuous 
of this Committee.
    Mr. Ackerman, does your company provide customer 
information to any law enforcement agency?
    Mr. Ackerman. Where we are given a subpoena, yes, we do. 
But in relationship--
    Senator Specter. Could you speak into the microphone so we 
can hear you, please?
    Mr. Ackerman. Yes. In relationship to the story in USA 
Today, NSA did not ask BellSouth for information. We did not 
provide bulk calling information to NSA, and we do not have a 
contract with NSA.
    Senator Specter. So you provided no information to NSA.
    Mr. Ackerman. No, sir. We have been unable to determine 
that we have. We do indeed provide--
    Senator Specter. You said you have been unable to 
determine?
    Mr. Ackerman. Well, that is proving a negative, but that is 
not--I am not splitting words there. I am simply saying we do 
not have a contract with NSA, they have not asked, and we have 
not provided.
    Senator Specter. OK. That is--
    Mr. Ackerman. But I do, you know, hasten to say that where 
we get a legal subpoena from a law enforcement entity and it is 
court-ordered or any kind of lawful request, we do provide that 
information.
    Senator Specter. Mr. Ackerman, I respect that. That is the 
way the system works. If you get a subpoena or a court order, 
you provide the information.
    Mr. Whitacre, with that precedent in mind, has your company 
gotten a subpoena or a court order to provide any customer 
information?
    Mr. Whitacre. Senator, we get court orders or subpoenas all 
the time to provide that information--
    Senator Specter. Let me rephrase--
    Mr. Whitacre. If it's legal, we do it.
    Senator Specter. Have you gotten any court order or 
subpoena or legal process to provide the information that was 
disclosed in the USA Today story?
    Mr. Whitacre. I assume you are talking about the story that 
appeared several weeks ago.
    Senator Specter. That is a pretty safe assumption.
    Mr. Whitacre. Well, Senator, I am not allowed to answer 
that. That is classified information. We follow the law.
    Senator Specter. Well, now you are saying a little more. 
Has somebody told you you are not allowed to provide that 
information?
    Mr. Whitacre. Well, Senator, I have talked to a lot of 
lawyers on this, and, you know, the answer is just the one I 
have given you, that is, we abide by the law.
    Senator Specter. You were told you could not provide the 
information. You have testified to that. And you have testified 
that you could not provide the information because it is 
classified.
    Mr. Whitacre. Senator, I was advised to say--and I agree--
that we follow the law. We abide by the laws.
    Senator Specter. Well, you have said a little more.
    Mr. Whitacre. I cannot say any more than that.
    Senator Specter. Who told you that you could not provide 
the information because it was classified?
    Mr. Whitacre. I have certainly talked to several attorneys 
in AT&T, and--
    Senator Specter. Who are they?
    Mr. Whitacre. Well, the general counsel, for example. But I 
am not at liberty to talk any more about it other than to 
inform you that we follow the law.
    Senator Specter. My red light is about to go on, and I 
respect the red light, and I respect you, and you and I will 
talk about this further.
    Mr. Whitacre. Fine. That would be fine with me.
    Chairman DeWine. Senator Leahy?
    Senator Leahy. Thank you, Mr. Chairman. I have enjoyed--not 
enjoyed, but I have noted Mr. Whitacre's non-answers to 
Chairman Specter. I still don't know whether NSA got the 
information or not. Mr. Ackerman says they did not. You do not 
respond. It would be interesting if they were able to in one 
and not in the other. It makes you wonder just how important 
the information is if you could leave such big gaps.
    Mr. Whitacre, you have said over and over again that the 
privacy of your customers is paramount. The Washington Post 
this morning reported your company has revised its privacy 
policy to claim--and I was astonished at this--that AT&T owns 
personal customer records and the company has a right to 
disclose those records. In addition, the new policy apparently 
no longer assures customers that AT&T will not access, read, 
upload, or store data from private files without specific 
authorization. It seems to allow AT&T to collect Internet 
navigation and video viewing records.
    I am beginning to wonder if anybody who deals with your 
company, any American who deals with your company, whether they 
have any privacy at all left. The administration claims the 
right to eavesdrop on Americans' telephone calls without a 
warrant. Now the Nation's largest telephone company says that 
they can control these private telephone and Internet records, 
and in this report, you are not asking about any kind of a 
valid order. Your spokeswoman, Tiffany Nels, was quoted as 
saying, ``These changes are principally motivated'' by the 
proposed merger we are examining today. And I know that you 
were reading very carefully the statement in response--and I 
agree with him, the non-response--to Chairman Specter. At least 
you are not exactly taking the Fifth, but you are certainly not 
responding. If that was done to placate Chairman Specter on the 
Republican side or me on the Democratic side, it did not.
    Mr. Ackerman, let me ask you this: This newly announced 
AT&T policy, is that the current policy of BellSouth?
    Mr. Ackerman. Senator, I haven't had an opportunity to 
see--I read that in the newspaper this morning also. You know, 
again, I think that the spirit and the actuality of all this is 
that, you know, our customers are notified in advance. We put 
on our website when they apply for service the conditions under 
which we will share their information. And--
    Senator Leahy. Well, let me go into that a little bit. Both 
Senator Specter and I are former prosecutors. Senator DeWine 
was. We know that you can get a subpoena for such records. I do 
not question that. But would that allow you to just go in and--
do you interpret your company policy that you can just go in 
and sell data to somebody that may want it for advertising 
purposes or anything else?
    Mr. Ackerman. No, sir. As I was about to say, we do not 
disclose this information to third parties for marketing 
purposes or other purposes. We, in fact, do tell them that this 
information can be shared if we are trying to deal with some 
legal issue that, in fact, has had a subpoena or a lawful 
request for that data. And, indeed, we share this information 
with them.
    As far as laying everything down, again, I have not had an 
opportunity to look at that tit-for-tat, but I think in 
general, it is probably fairly similar.
    Senator Leahy. Well, Mr. Whitacre, you--am I pronouncing 
your name correctly?
    Mr. Whitacre. Yes, you are, Senator.
    Senator Leahy. Mr. Whitacre, you said your new privacy 
policy does not represent a change. Apparently, the press 
probably did. But does that mean you have always taken the 
position you had complete control over private customer data?
    Mr. Whitacre. Senator, as Mr. Ackerman just said, we 
carefully guard that information. The conditions are put out up 
front to each customer what that concerns. Those are business 
records. We use those to personalize the services we give. We 
do not market those or give those lists or any of that 
information to third parties. We have just simply tried to make 
the privacy policy more understandable to our customers, and I 
would dare say that every company has a privacy policy that is 
very similar, if different at all, to this one.
    Senator Leahy. Let me ask you specifically about your 
privacy policy. Your privacy policy, if somebody signed a 
contract with you, with your company for your service, does 
that allow you to own the data? I am not talking about a valid 
court order or valid law enforcement subpoena. Does it allow 
you to own, under the contract they sign, does it allow you to 
own their data?
    Mr. Whitacre. Well, it allows us to have information, 
Senator, to, for example, personalize their service, 
installation data, repair data if the problem goes in, but that 
data is held in the strictest of confidence. But it is business 
records of AT&T.
    Senator Leahy. To personalize their--if they have 
broadband, would that include being able to tell companies 
which sites they go on the most?
    Mr. Whitacre. No, sir, we would not do that.
    Senator Leahy. Does it allow it to have people tailor ads 
for that particular customer?
    Mr. Whitacre. No, sir, we would not do that.
    Senator Leahy. My time is up, but I am disturbed by this 
testimony. I would also note, Mr. Chairman, we have votes on. I 
was going to ask Mr. Whitacre about why he opposes network 
neutrality, but I will submit that for the record.
    Chairman DeWine. All right. Mr. Whitacre, members of the 
panel, we have a series of three votes. That is probably good 
news for you all. That means the hearing is going to end in 
just a moment. I am going to ask one question, and we will then 
turn it over to Senator Kohl. I am going to leave after I ask 
my question because I am going to start walking to the vote.
    Mr. Whitacre, it is a question for you, if you could take 
about 2 minutes to answer it, and then that will give Senator 
Kohl time to ask one question, as well, maybe Senator Leahy.
    On several occasions, we have discussed your new video 
service, which you are beginning to roll out throughout the 
country. You have said that in certain areas this merger will 
increase the speed of the rollout. How are you going to--how 
are you doing with regard to your efforts to provide video 
service? What are the biggest problems you have encountered? 
Where are you having the most success? And, specifically, what 
are AT&T's plans to provide video service in Ohio? And will 
this merger make service available any more quickly in Ohio? In 
about 2 minutes, if you can do that.
    Mr. Whitacre. Well, we are doing well in the television 
services called IPTV. We now have it in operation in San 
Antonio. We have a schedule. We will cover 18 million of our 
current AT&T customers in the next 3 years. The BellSouth 
addition to that will make that number go up. I have not had a 
chance, nor can I yet tell you how many.
    There is a plan for Ohio, I am happy to report. I think you 
will like the service very much. I can't tell you the specific 
date, but I can tell you it will be within the next 12 to 14 
months.
    Chairman DeWine. Senator Kohl, for about 2 minutes, and 
then Senator Leahy for 2, and we will be done.
    Senator Kohl. Mr. Whitacre, as part of the approval of the 
SBC-AT&T merger, we recommended and both Justice and the FCC 
approved a number of pro-competition merger conditions. These 
conditions included offering DSL Internet connections to 
consumers without also requiring them to buy phone service, a 
requirement that AT&T divest duplicative, overlapping networks, 
and several others.
    Could you commit to us today to follow similar merger 
conditions as a condition of approval of this merger today? If 
there are any merger conditions that you believe should not be 
applied to this deal, could you identify them and explain why?
    Mr. Whitacre. Senator, I don't believe that there should be 
any conditions applied. The industry has changed drastically. 
There are many competitors. There used to be one; now there are 
hundreds. There is wireless, there are CLECs, there are cable 
companies, there are voice over IP services. I don't believe 
there should be any restrictions.
    In the previous one, we had some on special access where we 
had duplicative facilities and there was no other way to get in 
the building, if you would. Certainly we would agree with that 
this time. Beyond that, I don't think there should be any 
conditions.
    Senator Kohl. Mr. Geiger, do you have any comment on that?
    Mr. Geiger. Well, I think that this combined company is 
vertically integrated beyond which most people understand. You 
know, even in an intermodal environment, companies like Sprint 
and Nextel need to come to these companies for interconnection, 
for special access services. And I would tell you that as far 
as network intermodal--real network competition, there are very 
few. The cable company has real competition in residence but 
not to business, I am here to tell you--because I look for 
alternatives. BellSouth & AT&T are my two biggest suppliers, 
and we constantly are looking for alternatives. There aren't 
any.
    So on a network basis, there isn't much intermodal 
competition at all.
    Chairman DeWine. Senator Leahy?
    Senator Leahy. Thank you, Mr. Chairman.
    Mr. Whitacre, you have been one of the most outspoken 
opponents of network neutrality. You very openly, and I would 
say very honestly, express your intention to charge Internet 
companies for access and for priority in reaching consumers on 
your network. While I disagree with what you want to do, I 
admire your candor. If you are going to pick our pockets, you 
are going to let us know ahead of time.
    But last year, as part of the AT&T-SBC transaction, your 
company made, by the FCC, what they termed certain voluntary 
commitments. One of them was to comply for 2 years with their 
policy statements. That arguably permits broadband access 
providers to charge for better access. I understand you 
currently are not discriminating against providers.
    Why did you make that commitment to the FCC? And what 
circumstances would allow you to back off from it?
    Mr. Whitacre. Senator, the FCC has put out a set of 
principles covering the Internet, which I think cover all 
facets of it. Maybe contrary to popular belief, AT&T is not the 
Internet. There are many other backbone providers to the 
Internet, not just AT&T.
    I really think it is probably a solution looking for a 
problem. We have openly stated, as I will again, we will not 
block, we will not impair anybody's service on the Internet. 
But, Senator, this Internet is growing, and it is growing at an 
astounding rate. The facilities that back up the Internet, the 
backbone, if you will, continually have to be expanded. 
Somebody has to pay for that. You cannot expect any company, my 
company or anyone else, to pour in these billions of dollars 
that are required without some return.
    Senator Leahy. But what you are saying is you could say we 
will charge more if you get this site than if you get this 
site. Is that what you are saying?
    Mr. Whitacre. No, Senator. I am saying we would like to 
offer quality of service, or whatever the customer wants, for a 
fee. The alternative to that is to raise the fees for the end 
users if somebody is going to pay for this, and it has to be 
paid for. I don't think that is a very good solution.
    Chairman DeWine. Mr. Whitacre, I--
    Mr. Whitacre. I think quality of service and those sorts of 
things would be healthy. Sorry, Senator.
    Chairman DeWine. No. I know you have got to answer, but our 
time is up, and we have about 4 minutes to walk over there and 
vote. So we appreciate it. We appreciate all of you coming in.
    We will submit questions for the record, and we will give 
you all a chance to answer some more questions. But we 
appreciate you coming in. Thank you.
    [Whereupon, at 3:55 p.m., the Subcommittee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]
    [Additional material is being retained in the Committee 
files.]

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