[Federal Register Volume 61, Number 169 (Thursday, August 29, 1996)]
[Rules and Regulations]
[Pages 45476-45637]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-21589]
[[Page 45475]]
_______________________________________________________________________
Part II
Federal Communications Commission
_______________________________________________________________________
47 CFR Parts 1, 20, 51, and 90
Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996; Interconnection Between Local Exchange
Carriers and Commercial Mobile Radio Service Providers; Implementation
of Sections 3(n) and 332 of the Communications Act; Final Rule
Federal Register / Vol. 61, No. 169, Thursday, August 29, 1996 /
Rules and Regulations
[[Page 45476]]
FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 1, 20, 51 and 90
[CC Docket No. 96-98, CC Docket No. 95-185, GN Docket No. 93-252; FCC
96-325]
Implementation of the Local Competition Provisions in the
Telecommunications Act of 1996; Interconnection between Local Exchange
Carriers and Commercial Mobile Radio Service Providers; Implementation
of Sections 3(n) and 332 of the Communications Act
AGENCY: Federal Communications Commission.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Report and Order released August 8, 1996 promulgates
national rules and regulations implementing the statutory requirements
of the Telecommunications Act of 1996 (the 1996 Act) intended to
encourage the development of competition in local exchange and exchange
access markets. The Report and Order adopts certain national rules that
are consistent with the terms and goals of the 1996 Act and adopts
minimum requirements which states may augment with their own
requirements that are consistent with the 1996 Act and the Commission's
rules thereunder. The Report and Order also incorporates and resolves
issues regarding interconnection between CMRS providers and LECs, which
initially were raised in a separate docket. The Report and Order
enables the states and the Commission to begin implementing the local
competition provisions of the 1996 Act.
EFFECTIVE DATE: September 30, 1996.
FOR FURTHER INFORMATION CONTACT: Lisa Gelb, Attorney, Common Carrier
Bureau, Policy and Program Planning Division, (202) 418-1580, or David
Sieradzki, Attorney, Common Carrier Bureau, Competitive Pricing
Division, (202) 418-1520. For additional information concerning the
information collections contained in this Report and Order contact
Dorothy Conway at 202-418-0217, or via the Internet at dconway@fcc.gov.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order adopted August 1, 1996, and released August 8, 1996. The full
text of this Report and Order is available for inspection and copying
during normal business hours in the FCC Reference Center (Room 239),
1919 M St., NW., Washington, DC. The complete text also may be obtained
through the World Wide Web, at http://www.fcc.gov/Bureaus/Common
Carrier/Orders/fcc96325.wp, or may be purchased from the Commission's
copy contractor, International Transcription Service, Inc., (202) 857-
3800, 2100 M St., NW., Suite 140, Washington, DC 20037. Pursuant to the
Telecommunications Act of 1996, the Commission released a Notice of
Proposed Rulemaking, Implementation of the Local Competition Provisions
of the Telecommunications Act of 1996, CC Docket No. 96-98 (61 FR 18311
(April 25, 1996)) to seek comment on rules to implement sections 251,
252 and 253 of the 1996 Act.
General
Section 251 of the 1996 Act imposes specific obligations on
telecommunications carriers designed to promote competition in local
exchange markets across the country. Section 251(a) imposes general
obligations on all telecommunications carriers. Section 251(b) imposes
on all LECs certain requirements, including the obligation to provide
resale, access to rights-of-way, and to establish reciprocal
compensation arrangements for transport and termination of traffic.
Section 251(c) requires incumbent LECs to make available to new
entrants interconnection and access to unbundled network elements, and
to offer LEC retail services for resale to telecommunications carriers
at wholesale rates. Access to unbundled elements and resale
opportunities are methods by which telecommunications carriers can
enter the local exchange market.
Interconnection
Section 251(c)(2) of the 1996 Act requires incumbent LECs to
provide interconnection to any requesting telecommunications carrier at
any technically feasible point. The interconnection must be at least
equal in quality to that provided by the incumbent LEC to itself or its
affiliates, and must be provided on rates, terms, and conditions that
are just, reasonable, and nondiscriminatory. The term
``interconnection'' under section 251(c)(2) refers only to the physical
linking of two networks for the mutual exchange of traffic. The
Commission identifies a minimum set of ``technically feasible'' points
of interconnection: (1) the line-side of a local switch; (2) the trunk-
side of a local switch; (3) the trunk interconnection points for a
tandem-switch; (4) central office cross-connect points; and (5) out-of-
band signaling transfer points. In addition, the points of access to
unbundled elements are also technically feasible points of
interconnection. The Commission states that telecommunications carriers
may request interconnection under section 251(c)(2) to provide
telephone exchange service or exchange access service, or both. If the
request is for such purposes, the incumbent LEC must provide
interconnection in accordance with section 251(c)(2) and the
Commission's rules thereunder to any telecommunications carrier,
including interexchange carriers and commercial mobile radio service
(CMRS) providers.
Access to Unbundled Elements
Section 251(c)(3) requires incumbent LECs to provide requesting
telecommunications carriers nondiscriminatory access to network
elements on an unbundled basis at any technically feasible point on
rates, terms, and conditions that are just, reasonable, and
nondiscriminatory. The Commission identifies a minimum set of network
elements that incumbent LECs must provide under this section. States
may require incumbent LECs to provide additional network elements on an
unbundled basis. The Commission identified the seven following network
elements: network interface devices, local loops, local and tandem
switches (including all software features provided by such switches),
interoffice transmission facilities, signalling and call-related
database facilities, operations support systems and information and
operator and directory assistance facilities. Incumbent LECs must
provide requesting carriers nondiscriminatory access to operations
support systems and information. The Order requires incumbent LECs to
provide access to network elements in a manner that allows requesting
carriers to combine such elements as they choose. Incumbent LECs may
not impose restrictions upon the use of network elements.
Methods of Obtaining Interconnection and Access to Unbundled
Elements
Section 251(c)(6) requires incumbent LECs to provide physical
collocation of equipment necessary for interconnection or access to
unbundled network elements at the incumbent LEC's premises, except that
the incumbent LEC may provide virtual collocation if it demonstrates to
the state commission that physical collocation is not practical for
technical reasons or because of space limitations. Incumbent LECs are
required to provide any technically feasible method of interconnection
or access requested by a telecommunications carrier, including
[[Page 45477]]
physical collocation, virtual collocation, and interconnection at meet
points. The Commission adopts, with certain modifications, the physical
and virtual collocation requirements it adopted earlier in the Expanded
Interconnection proceeding. The Commission also establishes rules
interpreting the requirements of section 251(c)(6).
Pricing Methodologies
The 1996 Act requires the states to set prices for interconnection
and unbundled elements that are cost-based, nondiscriminatory, and may
include a reasonable profit. To help the states accomplish this, the
Commission has concluded that the state commissions should set
arbitrated rates for interconnection and access to unbundled elements
pursuant a forward-looking economic cost pricing methodology. The
Commission has concluded that the prices that new entrants pay for
interconnection and unbundled elements should be based on the local
telephone companies Total Element Long-Run Incremental Cost (TELRIC) of
providing a particular network element, plus a reasonable share of
forward-looking joint and common costs. States will determine, among
other things, the appropriate risk-adjusted cost of capital and
depreciation rates. If states are unable to conduct a cost study and
apply an economic costing methodology within the statutory time frame
for arbitrating interconnection disputes, the Commission has
established default ceilings and ranges for the states to apply, on an
interim basis, to interconnection arrangements. The Commission
establishes a default range of 0.2-0.4 cents per minute for switching,
plus access charges as discussed below. For tandem switching, the
Commission establishes a default ceiling of 0.15 cents per minute. The
Order also will establish default ceilings for the other unbundled
network elements. These default provisions might provide an
administratively simpler approach for state establishment of prices,
for a limited interim period, and states, in the exercise of their
discretion, select the specific price within that range, or subject to
that ceiling.
Access Charges for Unbundled Switching
Nothing in the Commission's Order alters the collection of access
charges paid by an interexchange carrier under Part 69 of the
Commission's rules, when the incumbent LEC provides exchange access
service to an interexchange carrier, either directly or through service
resale. Because access charges are not included in the cost-based
prices for unbundled network elements, and because certain portions of
access charges currently support the provision of universal service,
until the access charge reform and universal service proceedings have
been completed, the Commission is continuing to provide for access
charge recovery with respect to use of an incumbent LEC's unbundled
switching element, for a defined period of time. This will minimize the
possibility that the incumbent LEC will be able to ``double recover,''
through access charges, the facility costs that new entrants have
already paid to purchase unbundled elements, while preserving the
status quo with respect to subsidy payments. Under this Order,
incumbent LECs will recover from interconnecting carriers the carrier
common line charge and a charge equal to 75% of the transport
interconnection charge for all interstate minutes traversing the
incumbent LECs local switches for which the interconnecting carriers
pay unbundled network element charges. This aspect of the Order expires
at the earliest of: 1) June 30, 1997; 2) issuance of final decisions by
the Commission in the universal service and access reform proceedings;
or 3) if the incumbent LEC is a Bell Operating Company (BOC), the date
on which that BOC is authorized under section 271 of the Act to provide
in-region interLATA service, for any given state.
Resale
The 1996 Act requires all incumbent LECs to offer for resale any
telecommunications service that the carrier provides at retail to
subscribers who are not telecommunications carriers. Resale will be an
important entry strategy both in the short term for many new entrants
as they build out their own facilities and for small businesses that
cannot afford to compete in the local exchange market by purchasing
unbundled elements or by building their own networks. The 1996 Act's
pricing standard for wholesale rates requires state commissions to
identify what marketing, billing, collection, and other costs will be
avoided or that are avoidable by incumbent LECs when they provide
services wholesale, and calculate the portion of the retail rates for
those services that is attributable to the avoided and avoidable costs.
To define clearly a wholesale service, the Commission has identified
certain avoided costs. The application of this definition is left to
the states. If a state elects not to implement the methodology, it may
elect, on an interim basis, a discount rate from within a default range
of discount rates established by the Commission. The Commission
establishes a default discount range of 17-25% off retail prices,
leaving the states to set the specific rate within that range, in the
exercise of their discretion.
Transport and Termination
The 1996 Act requires that charges for transport and termination of
traffic be cost-based. The Commission concludes that state commissions,
during arbitrations, should set symmetrical prices based on the local
telephone company's forward-looking costs. The state commissions would
also use the TELRIC methodology when establishing rates for transport
and termination. The Commission establishes a default range of 0.2-0.4
cents per minute for end office termination for states which have not
conducted a TELRIC cost study. The Commission finds significant
evidence in the record in support of the lower end of the ranges. In
addition, the Commission finds that additional reciprocal charges could
apply to termination through a tandem switch. The default ceiling for
tandem switching is 0.15 cents per minute, plus applicable charges for
transport from the tandem switch to the end office. Each state opting
for the default approach for a limited period of time, may select a
rate within that range.
Commercial Mobile Radio Service
In the Order, the Commission concludes that CMRS providers are
telecommunications carriers, and therefore are entitled to reciprocal
compensation arrangements under section 251(b)(5). The Commission also
concludes that under section 251(b)(5) a LEC may not charge a CMRS
provider, including a paging company, or any other carrier for
terminating LEC-originated traffic. The Commission also states that
CMRS providers (specifically cellular, broadband PCS, and covered
specialized mobile radio (SMR) providers) offer telephone exchange
services, and such providers therefore may request interconnection
under section 251(c)(2). The Commission determines that CMRS providers
should not be classified as LECs at this time. In this decision, the
Commission applied sections 251 and 252 to LEC-CMRS interconnection.
The Commission acknowledges that section 332 is also a basis for
jurisdiction over LEC-CMRS interconnection, but declined to define the
precise extent of that jurisdiction at this time.
[[Page 45478]]
Access to Rights of Way
The Commission also amends its rules to implement the pole
attachment provisions of the 1996 Act. Specifically, the Commission
establishes procedures for nondiscriminatory access by cable television
systems and telecommunications carriers to poles, ducts, conduits, and
rights-of-way owned by utilities or LECs. The Order includes several
specific rules as well as a number of more general guidelines designed
to facilitate the negotiation and mutual performance of fair, pro-
competitive access agreements without the need for regulatory
intervention. Additionally, an expedited dispute resolution is provided
when good faith negotiations fail, as are requirements concerning
modifications to poles, ducts, conduits, and rights-of-way and the
allocation of the costs of such modifications.
Exemptions, Suspensions, and Modifications of Section 251 Requirements
for Rural and Small Telephone Companies
Section 251(f)(1) of the 1996 Act provides for exemption of the
requirements in section 251(c) for rural telephone companies (as
defined by the 1996 Act) under certain circumstances. Section 251(f)(2)
permits LECs with fewer than 2 percent of the nation's subscriber lines
to petition for suspension or modification of the requirements in
sections 251(b) or (c).
States are primarily responsible for interpreting the provisions of
section 251(f) through rulemaking and adjudicative proceedings, and are
responsible for determining whether a LEC in a particular instance is
entitled to exemption, suspension, or modification of section 251
requirements.
The Commission establishes a very limited set of rules interpreting
the requirements of section 251(f):
--LECs bear the burden of proving to the state commission that a
suspension or modification of the requirements of section 251(b) or (c)
is justified.
--Rural LECs bear the burden of proving that continued exemption of the
requirements of section 251(c) is justified, once a bona fide request
has been made by a carrier under to section 251.
--Only LECs that, at the holding company level, have fewer than 2
percent of the nation's subscriber lines are entitled to petition for
suspension or modification of requirements under section 251(f)(2).
Regulatory Flexibility Analysis
As required by the Regulatory Flexibility Act, the Report and Order
contains a Final Regulatory Flexibility Analysis which is set forth in
Appendix C to the Report and Order. A brief description of the analysis
follows.
Pursuant to Section 604 of the Regulatory Flexibility Act, the
Commission performed a comprehensive analysis of the Report and Order
with regard to small entities and small incumbent LECs. This analysis
includes: (1) a succinct statement of the need for, and objectives of,
the Commission's decisions in the Report and Order; (2) a summary of
the significant issues raised by the public comments in response to the
initial regulatory flexibility analysis, a summary of the Commission's
assessment of these issues, and a statement of any changes made in the
Report and Order as a result of the comments; (3) a description of and
an estimate of the number of small entities and small incumbent LECs to
which the Report and Order will apply; (4) a description of the
projected reporting, recordkeeping and other compliance requirements of
the Report and Order, including an estimate of the classes of small
entities and small incumbent LECs which will be subject to the
requirement and the type of professional skills necessary for
compliance with the requirement; (5) a description of the steps the
Commission has taken to minimize the significant economic impact on
small entities and small incumbent LECs consistent with the stated
objectives of applicable statutes, including a statement of the
factual, policy, and legal reasons for selecting the alternative
adopted in the Report and Order and why each one of the other
significant alternatives to each of the Commission's decisions which
affect the impact on small entities and small incumbent LECs was
rejected.
The rules adopted in this Report and Order are necessary to
implement the provisions of the Telecommunications Act of 1996.
Paperwork Reduction Act
Public reporting burden for the collection of information is
estimated as follows:
OMB Approval Number: 3060-0710.
Title: Policy and rules concernng the implementation of the local
competition provisions in the Telecommunications Act of 1996.
Form No.: N/A.
Type of Review: New collection.
------------------------------------------------------------------------
Annual hour Total
No. of burden per annual
Information collection respondents response burden
(approx.) (hours) (hours)
------------------------------------------------------------------------
Submission of information
necessary to reach agreement.... 51 500 25,500
Submission of agreements to the
state commission................ ........... ........... 835
New and modified............. 51 5
Class A carrier.............. 16 5
Other preexisting............ 500 1
Burden of proof regarding
interconnection and access
to unbundled network
elements.................... 100 250 25,000
Collocation...................... 100 250 25,000
Notification that state
commission has failed to act.... 30 1 30
Rural and small carriers......... 500 10 5,000
Pole attachment modifications:
private electric utilities and
telephone utilities............. 1,400 375 525,000
Maintenance practices
modifications: cable operators,
utilities and others............ 12,250 .5 6,125
Pole attachment access requests.. 2,500 1 2,500
Pole attachment denials of access 250 3 750
Dispute resolution process for
denials of access: using in-
house assistance................ 250 25 6,250
Dispute resolution process for
denials of access: using outside
legal counsel................... 250 4 1,000
Preparation of forward-looking
economic cost studies to
determine rates for
interconnection and unbundled
network elements during
arbitration proceedings......... 100 1,216 121,600
Preparation of a cost study on
avoidable costs to determine
resale discounts................ 200 480 96,000
Preparation of forward-looking
economic cost studies to
determine reciprocal rates for
transport and termination of
telecommunications traffic...... 100 1,216 121,600
[[Page 45479]]
Measurement of traffic for
purposes of determining whether
transport and termination
traffic flows are symmetrical... 550 700 385,000
Filing required for arbitration.. 200 2 400
Determination of rates for
interconnection, unbundled
network elements, and transport
and termination of
telecommunications traffic--
state commission review of
forward-looking economic cost
studies......................... 50 2,160 108,000
Determination of resale discount
percentage--state commission
review of avoided cost studies.. 50 640 32,000
Petition for incumbent LEC status 30 1 30
Use of proxies by state
commissions--articulating
written reasons for choice...... 50 120 6,000
Preparation of forward-looking
economic cost studies to
establish rates for transport
and termination for paging and
radiotelephone service,
narrowband personal
communications services, and
paging operation in the private
land mobile radio services...... 50 720 36,000
------------------------------------------------------------------------
Total Annual Burden: 1,529,620 hours.
Respondents: Business or other for-profit.
Estimated costs per respondent: $0.
Needs and Uses: The Report and Order implements parts of section
251 of the Telecommunications Act requiring that: incumbent local
exchange carriers (LECs) offer interconnection, unbundled network
elements, transport and termination, and wholesale rates for retail
services to new entrants; incumbent LECs price such services at rates
that are cost-based and just and reasonable; and incumbent LECs provide
access to rights-of-way, as well as establish reciprocal compensation
arrangements for the transport and termination of telecommunications
traffic.
Synopsis of First Report and Order
I. Introduction, Overview, and Executive Summary
A. The Telecommunications Act of 1996--A New Direction
1. The Telecommunications Act of 1996, (Telecommunications Act of
1996, Public Law No. 104-104, 110 Stat. 56, to be codified at 47 U.S.C.
Secs. 151 et seq. Hereinafter, all citations to the 1996 Act will be to
the 1996 Act as codified in the United States Code), fundamentally
changes telecommunications regulation. In the old regulatory regime
government encouraged monopolies. In the new regulatory regime, we and
the states remove the outdated barriers that protect monopolies from
competition and affirmatively promote efficient competition using tools
forged by Congress. Historically, regulation of this industry has been
premised on the belief that service could be provided at the lowest
cost to the maximum number of consumers through a regulated monopoly
network. State and federal regulators devoted their efforts over many
decades to regulating the prices and practices of these monopolies and
protecting them against competitive entry. The 1996 Act adopts
precisely the opposite approach. Rather than shielding telephone
companies from competition, the 1996 Act requires telephone companies
to open their networks to competition.
2. The 1996 Act also recasts the relationship between the FCC and
state commissions responsible for regulating telecommunications
services. Until now, we and our state counterparts generally have
regulated the jurisdictional segments of this industry assigned to each
of us by the Communications Act of 1934. The 1996 Act forges a new
partnership between state and federal regulators. This arrangement is
far better suited to the coming world of competition in which
historical regulatory distinctions are supplanted by competitive
forces. As this Order demonstrates, we have benefitted enormously from
the expertise and experience that the state commissioners and their
staffs have contributed to these discussions. We look forward to the
continuation of that cooperative working relationship in the coming
months as each of us carries out the role assigned by the 1996 Act.
3. Three principal goals established by the telephony provisions of
the 1996 Act are: (1) opening the local exchange and exchange access
markets to competitive entry; (2) promoting increased competition in
telecommunications markets that are already open to competition,
including the long distance services market; and (3) reforming our
system of universal service so that universal service is preserved and
advanced as the local exchange and exchange access markets move from
monopoly to competition. In this rulemaking and related proceedings, we
are taking the steps that will achieve the pro-competitive,
deregulatory goals of the 1996 Act. The Act directs us and our state
colleagues to remove not only statutory and regulatory impediments to
competition, but economic and operational impediments as well. We are
directed to remove these impediments to competition in all
telecommunications markets, while also preserving and advancing
universal service in a manner fully consistent with competition.
4. These three goals are integrally related. Indeed, the
relationship between fostering competition in local telecommunications
markets and promoting greater competition in the long distance market
is fundamental to the 1996 Act. Competition in local exchange and
exchange access markets is desirable, not only because of the social
and economic benefits competition will bring to consumers of local
services, but also because competition eventually will eliminate the
ability of an incumbent local exchange carrier to use its control of
bottleneck local facilities to impede free market competition. Under
section 251, incumbent local exchange carriers (LECs), including the
Bell Operating Companies (BOCs), are mandated to take several steps to
open their networks to competition, including providing
interconnection, offering access to unbundled elements of their
networks, and making their retail services available at wholesale rates
so that they can be resold. Under section 271, once the BOCs have taken
the necessary steps, they are allowed to offer long distance service in
areas where they provide local telephone service, if we find that entry
meets the specific statutory requirements and is consistent with the
public interest. Thus, under the 1996 Act, the opening of one of the
last monopoly bottleneck strongholds in telecommunications--the local
exchange and exchange access markets--to competition is intended to
pave the way for enhanced competition in all telecommunications
markets, by allowing all providers to enter all
[[Page 45480]]
markets. The opening of all telecommunications markets to all providers
will blur traditional industry distinctions and bring new packages of
services, lower prices and increased innovation to American consumers.
The world envisioned by the 1996 Act is one in which all providers will
have new competitive opportunities as well as new competitive
challenges.
5. The Act also recognizes, however, that universal service cannot
be maintained without reform of the current subsidy system. The current
universal service system is a patchwork quilt of implicit and explicit
subsidies. These subsidies are intended to promote telephone
subscribership, yet they do so at the expense of deterring or
distorting competition. Some policies that traditionally have been
justified on universal service considerations place competitors at a
disadvantage. Other universal service policies place the incumbent LECs
at a competitive disadvantage. For example, LECs are required to charge
interexchange carriers a Carrier Common Line charge for every minute of
interstate traffic that any of their customers send or receive. This
exposes LECs to competition from competitive access providers, which
are not subject to this cost burden. Hence, section 254 of the Act
requires the Commission, working with the states and consumer advocates
through a Federal/State Joint Board, to revamp the methods by which
universal service payments are collected and disbursed. Federal-State
Joint Board on Universal Service, CC Docket No. 96-45, Notice of
Proposed Rulemaking and Order Establishing Joint Board, FCC 96-93, 61
FR 10499 (March 14, 1996) (Universal Service NPRM). The present
universal service system is incompatible with the statutory mandate to
introduce efficient competition into local markets, because the current
system distorts competition in those markets. For example, without
universal service reform, facilities-based entrants would be forced to
compete against monopoly providers that enjoy not only the technical,
economic, and marketing advantages of incumbency, but also subsidies
that are provided only to the incumbents.
B. The Competition Trilogy: Section 251, Universal Service Reform and
Access Charge Reform
6. The rules that we adopt to implement the local competition
provisions of the 1996 Act represent only one part of a trilogy. In
this Report and Order, we adopt initial rules designed to accomplish
the first of the goals outlined above--opening the local exchange and
exchange access markets to competition. The steps we take today are the
initial measures that will enable the states and the Commission to
begin to implement sections 251 and 252. Given the dynamic nature of
telecommunications technology and markets, it will be necessary over
time to review proactively and adjust these rules to ensure both that
the statute's mandate of competition is effectuated and enforced, and
that regulatory burdens are lifted as soon as competition eliminates
the need for them. Efforts to review and revise these rules will be
guided by the experience of states in their initial implementation
efforts.
7. The second part of the trilogy is universal service reform. In
early November, the Federal/State Universal Service Joint Board,
including three members of this Commission, will make its
recommendations to the Commission. These recommendations will serve as
the cornerstone of universal service reform. The Commission will act on
the Joint Board's recommendations and adopt universal service rules not
later than May 8, 1997, and, we hope, even earlier. Our universal
service reform order, consistent with section 254, will rework the
subsidy system to guarantee affordable service to all Americans in an
era in which competition will be the driving force in
telecommunications. By reforming the collection and distribution of
universal service funds, the states and the Commission will also ensure
that the goals of affordable service and access to advanced services
are met by means that enhance, rather than distort, competition.
Universal service reform is vitally connected to the local competition
rules we adopt today.
8. The third part of the trilogy is access charge reform. It is
widely recognized that, because a competitive market drives prices to
cost, a system of charges which includes non-cost based components is
inherently unstable and unsustainable. It also well-recognized that
access charge reform is intensely interrelated with the local
competition rules of section 251 and the reform of universal service.
We will complete access reform before or concurrently with a final
order on universal service.
9. Only when all parts of the trilogy are complete will the task of
adjusting the regulatory framework to fully competitive markets be
finished. Only when our counterparts at the state level complete
implementing and supplementing these rules will the complete blueprint
for competition be in place. Completion of the trilogy, coupled with
the reduction in burdensome and inefficient regulation we have
undertaken pursuant to other provisions of the 1996 Act, will unleash
marketplace forces that will fuel economic growth. Until then,
incumbents and new entrants must undergo a transition process toward
fully competitive markets. We will, however, act quickly to complete
the three essential rulemakings. We intend to issue a notice of
proposed rulemaking in 1996 and to complete the access charge reform
proceeding concurrently with the statutory deadline established for the
section 254 rulemaking. This timetable will ensure that actions taken
by the Joint Board in November and this Commission by not later than
May 1997 in the universal service reform proceeding will be coordinated
with the access reform docket.
C. Economic Barriers
10. As we pointed out in our Notice of Proposed Rulemaking in this
docket, Implementation of the Local Competition Provisions of the
Telecommunications Act of 1996, CC Docket No. 96-98, Notice of Proposed
Rulemaking, FCC 96-182 (April 19, 1996), 61 FR 18311 (April 25, 1996)
(NPRM), the removal of statutory and regulatory barriers to entry into
the local exchange and exchange access markets, while a necessary
precondition to competition, is not sufficient to ensure that
competition will supplant monopolies. An incumbent LEC's existing
infrastructure enables it to serve new customers at a much lower
incremental cost than a facilities-based entrant that must install its
own switches, trunking and loops to serve its customers. Furthermore,
absent interconnection between the incumbent LEC and the entrant, the
customer of the entrant would be unable to complete calls to
subscribers served by the incumbent LEC's network. Because an incumbent
LEC currently serves virtually all subscribers in its local serving
area, an incumbent LEC has little economic incentive to assist new
entrants in their efforts to secure a greater share of that market. An
incumbent LEC also has the ability to act on its incentive to
discourage entry and robust competition by not interconnecting its
network with the new entrant's network or by insisting on
supracompetitive prices or other unreasonable conditions for
terminating calls from the entrant's customers to the incumbent LEC's
subscribers.
11. Congress addressed these problems in the 1996 Act by mandating
that the most significant economic impediments to efficient entry into
the monopolized local market must be
[[Page 45481]]
removed. The incumbent LECs have economies of density, connectivity,
and scale; traditionally, these have been viewed as creating a natural
monopoly. As we pointed out in our NPRM, the local competition
provisions of the Act require that these economies be shared with
entrants. We believe they should be shared in a way that permits the
incumbent LECs to maintain operating efficiency to further fair
competition, and to enable the entrants to share the economic benefits
of that efficiency in the form of cost-based prices. Congress also
recognized that the transition to competition presents special
considerations in markets served by smaller telephone companies,
especially in rural areas. We are mindful of these considerations, and
know that they will be taken into account by state commissions as well.
12. The Act contemplates three paths of entry into the local
market--the construction of new networks, the use of unbundled elements
of the incumbent's network, and resale. The 1996 Act requires us to
implement rules that eliminate statutory and regulatory barriers and
remove economic impediments to each. We anticipate that some new
entrants will follow multiple paths of entry as market conditions and
access to capital permit. Some may enter by relying at first entirely
on resale of the incumbent's services and then gradually deploying
their own facilities. This strategy was employed successfully by MCI
and Sprint in the interexchange market during the 1970's and 1980's.
Others may use a combination of entry strategies simultaneously--
whether in the same geographic market or in different ones. Some
competitors may use unbundled network elements in combination with
their own facilities to serve densely populated sections of an
incumbent LEC's service territory, while using resold services to reach
customers in less densely populated areas. Still other new entrants may
pursue a single entry strategy that does not vary by geographic region
or over time. Section 251 neither explicitly nor implicitly expresses a
preference for one particular entry strategy. Moreover, given the
likelihood that entrants will combine or alter entry strategies over
time, an attempt to indicate such a preference in our section 251 rules
may have unintended and undesirable results. Rather, our obligation in
this proceeding is to establish rules that will ensure that all pro-
competitive entry strategies may be explored. As to success or failure,
we look to the market, not to regulation, for the answer.
13. We note that an entrant, such as a cable company, that
constructs its own network will not necessarily need the services or
facilities of an incumbent LEC to enable its own subscribers to
communicate with each other. A firm adopting this entry strategy,
however, still will need an agreement with the incumbent LEC to enable
the entrant's customers to place calls to and receive calls from the
incumbent LEC's subscribers. Sections 251 (b)(5) and (c)(2) require
incumbent LECs to enter into such agreements on just, reasonable, and
nondiscriminatory terms and to transport and terminate traffic
originating on another carrier's network under reciprocal compensation
arrangements. In this item, we adopt rules for states to apply in
implementing these mandates of section 251 in their arbitration of
interconnection disputes, as well as their review of such arbitrated
arrangements, or a BOC's statement of generally available terms. We
believe that our rules will assist the states in carrying out their
responsibilities under the 1996 Act, thereby furthering the Act's goals
of fostering prompt, efficient, competitive entry.
14. We also note that many new entrants will not have fully
constructed their local networks when they begin to offer service.
Joint Managers' Statement, S. Conf. Rep. No. 104-230, 104th Cong., 2d
Sess. 113 (1996) (``Joint Explanatory Statement'') at 121. Although
they may provide some of their own facilities, these new entrants will
be unable to reach all of their customers without depending on the
incumbent's facilities. Hence, in addition to an arrangement for
terminating traffic on the incumbent LEC's network, entrants will
likely need agreements that enable them to obtain wholesale prices for
services they wish to sell at retail and to use at least some portions
of the incumbents' facilities, such as local loops and end office
switching facilities.
15. Congress recognized that, because of the incumbent LEC's
incentives and superior bargaining power, its negotiations with new
entrants over the terms of such agreements would be quite different
from typical commercial negotiations. As distinct from bilateral
commercial negotiation, the new entrant comes to the table with little
or nothing the incumbent LEC needs or wants. The statute addresses this
problem by creating an arbitration proceeding in which the new entrant
may assert certain rights, including that the incumbent's prices for
unbundled network elements must be ``just, reasonable and
nondiscriminatory.'' We adopt rules herein to implement these
requirements of section 251(c)(3).
D. Operational Barriers
16. The statute also directs us to remove the existing operational
barriers to entering the local market. Vigorous competition would be
impeded by technical disadvantages and other handicaps that prevent a
new entrant from offering services that consumers perceive to be equal
in quality to the offerings of incumbent LECs. Our recently-issued
number portability Report and Order addressed one of the most
significant operational barriers to competition by permitting customers
to retain their phone numbers when they change local carriers.
Telephone Number Portability, CC Docket No. 95-116, First Report and
Order and Further Notice of Proposed Rulemaking, FCC 96-286 (July 2,
1996) (61 FR 38605 (July 25, 1996)) (Number Portability Order).
Consistent with the 1996 Act, 47 U.S.C. Sec. 251(b)(2), we required
LECs to implement interim and long-term measures to ensure that
customers can change their local service providers without having to
change their phone number. Number portability promotes competition by
making it less expensive and less disruptive for a customer to switch
providers, thus freeing the customer to choose the local provider that
offers the best value.
17. Closely related to number portability is dialing parity, which
we address in a companion order. Dialing parity enables a customer of a
new entrant to dial others with the convenience an incumbent provides,
regardless of which carrier the customer has chosen as the local
service provider. The history of competition in the interexchange
market illustrates the critical importance of dialing parity to the
successful introduction of competition in telecommunications markets.
Equal access enabled customers of non-AT&T providers to enjoy the same
convenience of dialing ``1'' plus the called party's number that AT&T
customers had. Prior to equal access, subscribers to interexchange
carriers (IXCs) other than AT&T often were required to dial more than
20 digits to place an interstate long-distance call. Industry data show
that, after equal access was deployed throughout the country, the
number of customers using MCI and other long-distance carriers
increased significantly. Federal Communications Commission, Statistics
of Communications Common Carriers 1994-95, at 344, Table 8.8; Federal
Communications Commission, Report on Long Distance Market Share, Second
Quarter 1995, at 14, table 6 (Oct. 1995). Thus, we believe that equal
access had a substantial pro-competitive
[[Page 45482]]
impact. Dialing parity should have the same effect.
18. This Order addresses other operational barriers to competition,
such as access to rights of way, collocation, and the expeditious
provisioning of resale and unbundled elements to new entrants. The
elimination of these obstacles is essential if there is to be a fair
opportunity to compete in the local exchange and exchange access
markets. As an example, customers can voluntarily switch from one
interexchange carrier to another extremely rapidly, through automated
systems. This has been a boon to competition in the interexchange
market. We expect that moving customers from one local carrier to
another rapidly will be essential to fair local competition.
19. As competition in the local exchange market emerges,
operational issues may be among the most difficult for the parties to
resolve. Thus, we recognize that, along with the state commissions and
the courts, we will be called upon to enforce provisions of arbitrated
agreements and our rules relating to these operational barriers to
entry. Because of the critical importance of eliminating these barriers
to the accomplishment of the Act's pro-competitive objectives, we
intend to enforce our rules in a manner that is swift, sure, and
effective. To this end we will review, with the states, our enforcement
techniques during the fourth quarter of 1996.
20. We recognize that during the transition from monopoly to
competition it is vital that we and the states vigilantly and
vigorously enforce the rules that we adopt today and that will be
adopted in the future to open local markets to competition. If we fail
to meet that responsibility, the actions that we take today to
accomplish the 1996 Act's pro-competitive, deregulatory objectives may
prove to be ineffective.
E. Transition
21. We consider it vitally important to establish a ``pro-
competitive, deregulatory national policy framework'' for local
telephony competition, but we are acutely mindful of existing common
carrier arrangements, relationships, and expectations, particularly
those that affect incumbent LECs. In light of the timing issues
described above, we think it wise to provide some appropriate
transitions.
22. In this regard, this Order sets minimum, uniform, national
rules, but also relies heavily on states to apply these rules and to
exercise their own discretion in implementing a pro-competitive regime
in their local telephone markets. On those issues where the need to
create a factual record distinct to a state or to balance unique local
considerations is material, we ask the states to develop their own
rules that are consistent with general guidance contained herein. The
states will do so in rulemakings and in arbitrating interconnection
arrangements. On other issues, particularly those related to pricing,
we facilitate the ability of states to adopt immediate, temporary
decisions by permitting the states to set proxy prices within a defined
range or subject to a ceiling. We believe that some states will find
these alternatives useful in light of the strict deadlines of the law.
For example, section 252(b)(4)(C) requires a state commission to
complete the arbitration of issues that have been referred to it,
pursuant to section 252(b)(1), within nine months after the incumbent
local exchange carrier received the request for negotiation. Selection
of the actual prices within the range or subject to the ceiling will be
for the state commission to determine. Some states may use proxies
temporarily because they lack the resources necessary to review cost
studies in rulemakings or arbitrations. Other states may lack adequate
resources to complete such tasks before the expiration of the
arbitration deadline. However, we encourage all states to complete the
necessary work within the statutory deadline. Our expectation is that
the bulk of interconnection arrangements will be concluded through
arbitration or agreement, by the beginning of 1997. Not until then will
we be able to determine more precisely the impact of this Order on
promoting competition. Between now and then, we are eager to continue
our work with the states. In this period, as set forth earlier, we
should be able to take major steps toward implementing a new universal
service system and far-reaching reform of interstate access. These
reforms will reflect intensive dialogue between us and the states.
23. Similarly, as states implement the rules that we adopt in this
order as well as their own decisions, they may find it useful to
consult with us, either formally or informally, regarding particular
aspects of these rules. We encourage and invite such inquiries because
we believe that such consultations are likely to provide greater
certainty to the states as they apply our rules to specific arbitration
issues and possibly to reduce the burden of expensive judicial
proceedings on states. A variety of formal and informal procedures
exist under our rules for such consultations, and we may find it
helpful to fashion others as we gain additional experience under the
1996 Act.
F. Executive Summary
1. Scope of Authority of the FCC and State Commissions
24. The Commission concludes that sections 251 and 252 address both
interstate and intrastate aspects of interconnection, resale services,
and access to unbundled elements. The 1996 Act moves beyond the
distinction between interstate and intrastate matters that was
established in the 1934 Act, and instead expands the applicability of
national rules to historically intrastate issues, and state rules to
historically interstate issues. In the Report and Order, the Commission
concludes that the states and the FCC can craft a partnership that is
built on mutual commitment to local telephone competition throughout
the country, and that under this partnership, the FCC establishes
uniform national rules for some issues, the states, and in some
instances the FCC, administer these rules, and the states adopt
additional rules that are critical to promoting local telephone
competition. The rules that the FCC establishes in this Report and
Order are minimum requirements upon which the states may build. The
Commission also intends to review and amend the rules it adopts in this
Report and Order to take into account competitive developments, states'
experiences, and technological changes.
2. Duty to Negotiate in Good Faith
25. In the Report and Order, the Commission establishes some
national rules regarding the duty to negotiate in good faith, but
concludes that it would be futile to try to determine in advance every
possible action that might be inconsistent with the duty to negotiate
in good faith. The Commission also concludes that, in many instances,
whether a party has negotiated in good faith will need to be decided on
a case-by-case basis, in light of the particular circumstances. The
Commission notes that the arbitration process set forth in section 252
provides one remedy for failing to negotiate in good faith. The
Commission also concludes that agreements that were negotiated before
the 1996 Act was enacted, including agreements between neighboring
LECs, must be filed for review by the state commission pursuant to
section 252(a).
[[Page 45483]]
If the state commission approves such agreements, the terms of those
agreements must be made available to requesting telecommunications
carriers in accordance with section 252(i).
3. Interconnection
26. Section 251(c)(2) requires incumbent LECs to provide
interconnection to any requesting telecommunications carrier at any
technically feasible point. The interconnection must be at least equal
in quality to that provided by the incumbent LEC to itself or its
affiliates, and must be provided on rates, terms, and conditions that
are just, reasonable, and nondiscriminatory. The Commission concludes
that the term ``interconnection'' under section 251(c)(2) refers only
to the physical linking of two networks for the mutual exchange of
traffic. The Commission identifies a minimum set of five ``technically
feasible'' points at which incumbent LECs must provide interconnection:
(1) the line side of a local switch (for example, at the main
distribution frame); (2) the trunk side of a local switch; (3) the
trunk interconnection points for a tandem switch; (4) central office
cross-connect points; and (5) out-of-band signalling facilities, such
as signalling transfer points, necessary to exchange traffic and access
call-related databases. In addition, the points of access to unbundled
elements (discussed below) are also technically feasible points of
interconnection. The Commission finds that telecommunications carriers
may request interconnection under section 251(c)(2) to provide
telephone exchange or exchange access service, or both. If the request
is for such purpose, the incumbent LEC must provide interconnection in
accordance with section 251(c)(2) and the Commission's rules thereunder
to any telecommunications carrier, including interexchange carriers and
commercial mobile radio service (CMRS) providers.
4. Access to Unbundled Elements
27. Section 251(c)(3) requires incumbent LECs to provide requesting
telecommunications carriers nondiscriminatory access to network
elements on an unbundled basis at any technically feasible point on
rates, terms, and conditions that are just, reasonable, and
nondiscriminatory. In the Report and Order, the Commission identifies a
minimum set of network elements that incumbent LECs must provide under
this section. States may require incumbent LECs to provide additional
network elements on an unbundled basis. The minimum set of network
elements the Commission identifies are: local loops, local and tandem
switches (including all vertical switching features provided by such
switches), interoffice transmission facilities, network interface
devices, signalling and call-related database facilities, operations
support systems and information, and operator and directory assistance
facilities. The Commission concludes that incumbent LECs must provide
nondiscriminatory access to operations support systems and information
by January 1, 1997. The Commission concludes that access to such
operations support systems is critical to affording new entrants a
meaningful opportunity to compete with incumbent LECs. The Commission
also concludes that incumbent LECs are required to provide access to
network elements in a manner that allows requesting carriers to combine
such elements as they choose, and that incumbent LECs may not impose
restrictions upon the uses to which requesting carriers put such
network elements.
5. Methods of Obtaining Interconnection and Access to Unbundled
Elements
28. Section 251(c)(6) requires incumbent LECs to provide physical
collocation of equipment necessary for interconnection or access to
unbundled network elements at the incumbent LEC's premises, except that
the incumbent LEC may provide virtual collocation if it demonstrates to
the state commission that physical collocation is not practical for
technical reasons or because of space limitations. The Commission
concludes that incumbent LECs are required to provide for any
technically feasible method of interconnection or access requested by a
telecommunications carrier, including physical collocation, virtual
collocation, and interconnection at meet points. The Commission adopts,
with certain modifications, some of the physical and virtual
collocation requirements it adopted earlier in the Expanded
Interconnection proceeding. The Commission also establishes rules
interpreting the requirements of section 251(c)(6).
6. Pricing Methodologies
29. The 1996 Act requires the states to set prices for
interconnection and unbundled elements that are cost-based,
nondiscriminatory, and may include a reasonable profit. To help the
states accomplish this, the Commission concludes that the state
commissions should set arbitrated rates for interconnection and access
to unbundled elements pursuant a forward-looking economic cost pricing
methodology. The Commission concludes that the prices that new entrants
pay for interconnection and unbundled elements should be based on the
local telephone companies Total Element Long-Run Incremental Cost
(TELRIC) of providing a particular network element, plus a reasonable
share of forward-looking joint and common costs. States will determine,
among other things, the appropriate risk-adjusted cost of capital and
depreciation rates. For states that are unable to conduct a cost study
and apply an economic costing methodology within the statutory time
frame for arbitrating interconnection disputes, the Commission
establishes default ceilings and ranges for the states to apply, on an
interim basis, to interconnection arrangements. The Commission
establishes a default range of 0.2-0.4 cents per minute for switching,
plus access charges as discussed below. For tandem switching, the
Commission establishes a default ceiling of 0.15 cents per minute. The
Order also establishes default ceilings for the other unbundled network
elements.
7. Access Charges for Unbundled Switching
30. Nothing in this Report and Order alters the collection of
access charges paid by an interexchange carrier under Part 69 of the
Commission's rules, when the incumbent LEC provides exchange access
service to an interexchange carrier, either directly or through service
resale. Because access charges are not included in the cost-based
prices for unbundled network elements, and because certain portions of
access charges currently support the provision of universal service,
until the access charge reform and universal service proceedings have
been completed, the Commission continues to provide for access charge
recovery with respect to use of an incumbent LEC's unbundled switching
element, for a defined period of time. This will minimize the
possibility that the incumbent LEC will be able to ``double recover,''
through access charges, the facility costs that new entrants have
already paid to purchase unbundled elements, while preserving the
status quo with respect to subsidy payments. Incumbent LECs will
recover from interconnecting carriers the carrier common line charge
and a charge equal to 75% of the transport interconnection charge for
all interstate minutes traversing the incumbent LECs local switches for
which the interconnecting carriers pay unbundled network element
charges. This aspect of the Order expires at the earliest of: (1)
[[Page 45484]]
June 30, 1997; (2) issuance of final decisions by the Commission in the
universal service and access reform proceedings; or (3) if the
incumbent LEC is a Bell Operating Company (BOC), the date on which that
BOC is authorized under section 271 of the Act to provide in-region
interLATA service, for any given state.
8. Resale
31. The 1996 Act requires all incumbent LECs to offer for resale
any telecommunications service that the carrier provides at retail to
subscribers who are not telecommunications carriers. Resale will be an
important entry strategy both in the short term for many new entrants
as they build out their own facilities and for small businesses that
cannot afford to compete in the local exchange market by purchasing
unbundled elements or by building their own networks. State commissions
must identify marketing, billing, collection, and other costs that will
be avoided or that are avoidable by incumbent LECs when they provide
services wholesale, and calculate the portion of the retail rates for
those services that is attributable to the avoided and avoidable costs.
The Commission identifies certain avoided costs, and the application of
this definition is left to the states. If a state elects not to
implement the methodology, it may elect, on an interim basis, a
discount rate from within a default range of discount rates established
by the Commission. The Commission establishes a default discount range
of 17-25% off retail prices, leaving the states to set the specific
rate within that range, in the exercise of their discretion.
9. Requesting Telecommunications Carriers
32. The Commission concludes that, to the extent that a carrier is
engaged in providing for a fee local, interexchange, or international
basic services directly to the public or to such classes of users as to
be effectively available directly to the public, the carrier is a
``telecommunications carrier,'' and is thus subject to the requirements
of section 251(a) and the benefits of section 251(c). The Commission
concludes that CMRS providers are telecommunications carriers, and that
private mobile radio service (PMRS) providers generally are not
telecommunications carriers, except to the extent that a PMRS provider
uses excess capacity to provide local, interexchange, or international
services for a fee directly to the public. The Commission also
concludes that, if a company provides both telecommunications services
and information services, it must be classified as a telecommunications
carrier.
10. Commercial Mobile Radio Service
33. The Commission concludes that LECs are obligated, pursuant to
section 251(b)(5) and the corresponding pricing standards of section
252(d)(2) to enter into reciprocal compensation arrangements with CMRS
providers, including paging providers, for the transport and
termination of traffic on each other's networks. The Commission
concludes that many CMRS providers (specifically cellular, broadband
PCS and covered specialized mobile radio (SMR) providers) offer
telephone exchange service and exchange access, and that incumbent LECs
therefore must make interconnection available to these CMRS providers
in conformity with sections 251(c) and 252. The Commission concludes
that CMRS providers should not be classified as LECs at this time. The
Commission also concludes that it may apply section 251 and 252 to LEC-
CMRS interconnection. By opting to proceed under sections 251 and 252,
the Commission is not finding that section 332 jurisdiction over
interconnection has been repealed by implication, and the Commission
acknowledges that section 332, in tandem with section 201, is a basis
for jurisdiction over LEC-CMRS interconnection.
11. Transport and Termination
34. The 1996 Act requires that charges for transport and
termination of traffic be cost-based. The Commission concludes that
state commissions, during arbitrations, should set symmetrical prices
based on the local telephone company's forward-looking costs. The state
commissions would also use the TELRIC methodology when establishing
rates for transport and termination. The Commission establishes a
default range of 0.2-0.4 cents per minute for end office termination
for states which have not conducted a TELRIC cost study. The Commission
finds significant evidence in the record in support of the lower end of
the ranges. In addition, the Commission finds that additional
reciprocal charges could apply to termination through a tandem switch.
The default ceiling for tandem switching is 0.15 cents per minute, plus
applicable charges for transport from the tandem switch to the end
office. Each state opting for the default approach for a limited period
of time, may select a rate within that range.
12. Access to Rights of Way
35. The Commission amends its rules to implement the pole
attachment provisions of the 1996 Act. Specifically, the Commission
establishes procedures for nondiscriminatory access by cable television
systems and telecommunications carriers to poles, ducts, conduits, and
rights-of-way owned by utilities or LECs. The Order includes several
specific rules as well as a number of more general guidelines designed
to facilitate the negotiation and mutual performance of fair, pro-
competitive access agreements without the need for regulatory
intervention. Additionally, an expedited dispute resolution is provided
when good faith negotiations fail, as are requirements concerning
modifications to poles, ducts, conduits, and rights-of-way and the
allocation of the costs of such modifications.
13. Obligations Imposed on non-incumbent LECs
36. The Commission concludes that states generally may not impose
on non-incumbent LECs the obligations set forth in section 251(c)
entitled, ``Additional Obligations on Incumbent Local Exchange
Carriers.'' Section 251(h)(2) sets forth a process by which the
Commission may decide to treat LECs as incumbent LECs, and state
commissions or other interested parties may ask the Commission to issue
a rule, in accordance with section 251(h)(2), providing for the
treatment of a LEC as an incumbent LEC. In addition to this Report and
Order, the Commission addresses in separate proceedings some of the
obligations, such as dialing parity and number portability, that
section 251(b) imposes on all LECs.
14. Exemptions, Suspensions, and Modifications of Section 251
Requirements
37. Section 251(f)(1) provides for exemption from the requirements
in section 251(c) for rural telephone companies (as defined by the 1996
Act) under certain circumstances. Section 251(f)(2) permits LECs with
fewer than 2 percent of the nation's subscriber lines to petition for
suspension or modification of the requirements in sections 251(b) or
(c). In the Report and Order, the Commission establishes a very limited
set of rules interpreting the requirements of section 251(f). For
example, the Commission finds that LECs bear the burden of proving to
the state commission that a suspension or modification of the
requirements of section 251(b) or (c) is justified. Rural LECs bear the
burden of proving that
[[Page 45485]]
continued exemption of the requirements of section 251(c) is justified,
once a bona fide request has been made by a carrier under section 251.
The Commission also concludes that only LECs that, at the holding
company level, have fewer than 2 percent of the nation's subscriber
lines are entitled to petition for suspension or modification of
requirements under section 251(f)(2). For the most part, however, the
states will interpret the provisions of section 251(f) through
rulemaking and adjudicative proceedings, and will be responsible for
determining whether a LEC in a particular instance is entitled to
exemption, suspension, or modification of section 251 requirements.
15. Commission Responsibilities Under Section 252
38. Section 252(e)(5) requires the Commission to assume the state's
responsibilities under section 252 if the state ``fails to act to carry
out its responsibility'' under that section. In the Report and Order,
the Commission adopts a minimum set of rules that will provide notice
of the standards and procedures that the Commission will use if it has
to assume the responsibility of a state commission under section
252(e)(5). The Commission concludes that, if it arbitrates agreements,
it will use a ``final offer'' arbitration method, under which each
party to the arbitration proposes its best and final offer, and the
arbitrator chooses among the proposals. The arbitrator could choose a
proposal in its entirety, or could choose different parties' proposals
on an issue-by-issue basis. In addition, the parties could continue to
negotiate an agreement after they submit their proposals and before the
arbitrator makes a decision.
39. Section 252(i) of the 1996 Act requires that incumbent LECs
make available to any requesting telecommunications carrier any
individual interconnection, service, or network element on the same
terms and conditions as contained in any agreement approved under
Section 252 to which they are a party. The Commission concludes that
section 252(i) entitles all carriers with interconnection agreements to
``most favored nation'' status regardless of whether such a clause is
in their agreement. Carriers may obtain any individual interconnection,
service, or network element under the same terms and conditions as
contained in any publicly filed interconnection agreement without
having to agree to the entire agreement. Additionally, carriers seeking
interconnection, network elements, or services pursuant to section
252(i) need not make such requests pursuant to the procedures for
initial section 251 requests, but instead may obtain access to
agreement provisions on an expedited basis.
II. Scope of the Commission's Rules
40. In implementing section 251, we conclude that some national
rules are necessary to promote Congress's goals for a national policy
framework and serve the public interest, and that states should have
the major responsibility for prescribing the specific terms and
conditions that will lead to competition in local exchange markets. Our
approach in this Report and Order has been a pragmatic one, consistent
with the Act, with respect to this allocation of responsibilities. We
believe that the steps necessary to implement section 251 are not
appropriately characterized as a choice between specific national rules
on the one hand and substantial state discretion on the other. We adopt
national rules where they facilitate administration of sections 251 and
252, expedite negotiations and arbitrations by narrowing the potential
range of dispute where appropriate to do so, offer uniform
interpretations of the law that might not otherwise emerge until after
years of litigation, remedy significant imbalances in bargaining power,
and establish the minimum requirements necessary to implement the
nationwide competition that Congress sought to establish. This is
consistent with our obligation to ``complete all actions necessary to
establish regulations to implement the requirements'' of section 251.
Some of these rules will be relatively self-executing. In many
instances, however, the rules we establish call on the states to
exercise significant discretion and to make critical decisions through
arbitrations and development of state-specific rules. Over time, we
will continue to review the allocation of responsibilities, and we will
reallocate them if it appears that we have inappropriately or
inefficiently designated the decisionmaking roles.
41. The decisions in this Report and Order, and in this Section in
particular, benefit from valuable insights provided by states based on
their experiences in establishing rules and taking other actions
intended to foster local competition. Through formal comments, ex parte
meetings, and open forums, state commissioners and their staffs
provided extensive, detailed information to us regarding difficult or
complex issues that they have encountered, and the various approaches
they have adopted to address those issues. Information from the states
highlighted both differences among communities within states, as well
as similarities among states. Recent state rules and orders that take
into account the local competition provisions of the 1996 Act have been
particularly helpful to our deliberations about the types of national
rules that will best further the statute's goal of encouraging local
telephone competition. See, e.g, Petition of AT&T for the Commission to
Establish Resale Rules, Rates, Terms and Condition and the Initial
Unbundling of Services, Docket No. 6352-U (Georgia Commission May 29,
1996); AT&T Communications of Illinois, Inc. et al., Petition for a
Total Local Exchange Wholesale Service Tariff from Illinois Bell
Telephone Company, Nos. 95-0458 and 95-0531 (consol.) (Illinois
Commission June 26, 1996); Hawaii Administrative Rules, Ch. 6-80,
``Competition in Telecommunications Services,'' (Hawaii Commission May
17, 1996); Public Utilities Commission of Ohio Case No. 95-845-TP-COI
(Local Competition) (Ohio Commission June 12, 1996) and Implementation
of the Mediation and Arbitration Provisions of the Federal
Telecommunications Act of 1996, Case No. 96-463-TP-UNC (Ohio Commission
May 30, 1996); Proposed Rules regarding Implementation of Secs. 40-15-
101 et seq. Requirements relating to Interconnection and Unbundling,
Docket No. 95R-556T (Colorado Commission April 25, 1996) (one of a
series of Orders adopted by the Colorado Commission in response to the
local competition provisions of the 1996 Act); Washington Utilities and
Transportation Commission, Fifteenth Supplemental Order, Decision and
Order Rejecting Tariff Revisions, Requiring Refiling, Docket No. UT-
950200 (Washington Commission April 1996). These state decisions also
offered useful insights in determining the extent to which the
Commission should set forth uniform national rules, and the extent to
which we should ensure that states can impose varying requirements. Our
contact with state commissioners and their staffs, as well as recent
state actions, make clear that states and the FCC share a common
commitment to creating opportunities for efficient new entry into the
local telephone market. Our experience in working with state
commissions since passage of the 1996 Act confirms that we will achieve
that goal most effectively and quickly by working cooperatively with
one another now and in the future as the country's emerging competition
policy presents new difficulties and opportunities.
[[Page 45486]]
42. We also received helpful advice and assistance from other
government agencies, including the National Telecommunications and
Information Administration (NTIA), the Department of Justice, and the
Department of Defense about how national rules could further the public
interest. In addition, comments from industry members and consumer
advocacy groups helped us understand better the varying and competing
concerns of consumers and different representatives of the
telecommunications industry. We benefitted as well by discovering that
there are certain matters on which there is substantial agreement about
the role the Commission should play in establishing and enforcing
provisions of section 251.
A. Advantages and Disadvantages of National Rules
1. Background
43. Section 251(d)(1) instructs the Commission, within six months
after the enactment of the 1996 Act (that is, by August 8, 1996), to
``establish regulations to implement the requirements of [section
251].'' The Commission's implementing rules should be designed ``to
accelerate rapidly private sector deployment of advanced
telecommunications and information technologies and services to all
Americans by opening all telecommunications markets to competition.''
Joint Explanatory Statement at 1. In addition, section 253 requires the
Commission to preempt the enforcement of any state or local statute,
regulation, or legal requirement that ``prohibit[s] or [has] the effect
of prohibiting the ability of any entity to provide any interstate or
intrastate telecommunications service.''
44. In the NPRM, we stated our belief that we should implement
Congress's goal of a pro-competitive, de-regulatory, national policy
framework by adopting national rules that are designed to secure the
full benefits of competition for consumers, with due regard to work
already done by the states. We sought comment on the extent to which we
should adopt explicit national rules, and the extent to which
permitting variations among states would further Congress's pro-
competitive goals. We anticipated that we would rely on actions some
states have already taken to address interconnection and other issues
related to opening local markets to competition. In the NPRM, we set
forth some of the benefits that would likely result from implementing
explicit national rules, and some of the benefits that would likely
result from allowing variations among states.
2. Discussion
45. Comments and ex parte discussions with state commission
representatives have convinced us that we share with states a common
goal of promoting competition in local exchange markets. We conclude
that states and the FCC can craft a working relationship that is built
on mutual commitment to local service competition throughout the
country, in which the FCC establishes uniform, national rules for some
issues, the states and the FCC administer these rules, and the states
adopt other critically important rules to promote competition. In
implementing the national rules we adopt in this Report and Order,
states will help to illuminate and develop innovative solutions
regarding many complex issues for which we have not attempted to
prescribe national rules at this time, and states will adopt specific
rules that take into account local concerns. In this Report and Order,
and in subsequent actions we intend to take, we have and will continue
to seek guidance from various states that have taken the lead in
establishing pro-competitive requirements. We also expect to rely
heavily on state input and experience in other FCC proceedings, such as
access reform and petitions concerning BOC entry into in-region
interLATA markets. Virtually every decision in this Report and Order
borrows from decisions reached at the state level, and we expect this
close association with and reliance on the states to continue in the
future. We therefore encourage states to continue to pursue their own
pro-competitive policies. Indeed, we hope and expect that this Report
and Order will foster an interactive process by which a number of
policies consistent with the 1996 Act are generated by states.
46. We find that certain national rules are consistent with the
terms and the goals of the statute. Section 251 sets forth a number of
rights with respect to interconnection, resale services, and unbundled
network elements. We conclude that the Commission should define at
least certain minimum obligations that section 251 requires,
respectively, of all telecommunications carriers, LECs, or incumbent
LECs. For example, as discussed in more detail below, we conclude that
it is reasonable to identify a minimum number of network elements that
incumbent LECs must unbundle and make available to requesting carriers
pursuant to the standards set forth in sections 251 (c) and (d), while
also permitting states to go beyond that minimum list and impose
additional requirements that are consistent with the 1996 Act and the
FCC's implementing rules. We find no basis for permitting an incumbent
LEC in some states not to make available these minimum technically
feasible network elements that are provided by incumbent LECs in other
states. We point out, however, that a uniform rule does not necessarily
mean uniform results. For example, a national pricing methodology takes
into account local factors and inputs, and thus may lead to different
prices in different states, and different regions within states. In
addition, parties that voluntarily negotiate agreements need not comply
with the requirements we establish under sections 251 (b) and (c),
including any pricing rules we adopt. We intend to review on an ongoing
basis the rules we adopt herein in light of competitive developments,
states' experiences, and technological changes.
47. We find that incumbent LECs have no economic incentive,
independent of the incentives set forth in sections 271 and 274 of the
1996 Act, to provide potential competitors with opportunities to
interconnect with and make use of the incumbent LEC's network and
services. Negotiations between incumbent LECs and new entrants are not
analogous to traditional commercial negotiations in which each party
owns or controls something the other party desires. Under section 251,
monopoly providers are required to make available their facilities and
services to requesting carriers that intend to compete directly with
the incumbent LEC for its customers and its control of the local
market. Therefore, although the 1996 Act requires incumbent LECs, for
example, to provide interconnection and access to unbundled elements on
rates, terms, and conditions that are just, reasonable, and
nondiscriminatory, incumbent LECs have strong incentives to resist such
obligations. The inequality of bargaining power between incumbents and
new entrants militates in favor of rules that have the effect of
equalizing bargaining power in part because many new entrants seek to
enter national or regional markets. National (as opposed to state)
rules more directly address these competitive circumstances.
48. We emphasize that, under the statute, parties may voluntarily
negotiate agreements ``without regard to'' the rules that we establish
under sections 251 (b) and (c). However, fair negotiations will be
expedited by the promulgation of national rules. Similarly, state
arbitration of interconnection agreements now and in
[[Page 45487]]
the future will be expedited and simplified by a clear statement of
terms that must be included in every arbitrated agreement, absent
mutual consent to different terms. Such efficiency and predictability
should facilitate entry decisions, and in turn enhance opportunities
for local exchange competition. In addition, for new entrants seeking
to provide service on a national or regional basis, minimum national
requirements may reduce the need for designing costly multiple network
configurations and marketing strategies, and allow more efficient
competition. More efficient competition will, in turn, benefit
consumers. Further, national rules will reduce the need for competitors
to revisit the same issue in 51 different jurisdictions, thereby
reducing administrative burdens and litigation for new entrants and
incumbents.
49. We also believe that some explicit national standards will be
helpful in enabling the Commission and the states to carry out other
responsibilities under the 1996 Act. For example, national standards
will enable the Commission to address issues swiftly if the Commission
is obligated to assume section 252 responsibilities because a state
commission has failed to act. In addition, BOCs that seek to offer long
distance service in their service areas must satisfy, inter alia, a
``competitive checklist'' set forth in section 271(c)(2)(B). Many of
the competitive checklist provisions require compliance with specific
provisions of section 251. For example, the checklist requires BOCs to
provide ``nondiscriminatory access to network elements in accordance
with the requirements of sections 251(c)(3) and 252(d)(1).'' Some
national rules also will help the states, the DOJ, and the FCC carry
out their responsibilities under section 271, and assist BOCs in
determining what steps must be taken to meet the requirements of
section 271(c)(2)(B), the competitive checklist. In addition, national
rules that establish the minimum requirements of section 251 will
provide states with a consistent standard against which to conduct the
fact-intensive process of verifying checklist compliance, the DOJ will
have standards against which to evaluate the applications, and we will
have standards to apply in adjudicating section 271 petitions in an
extremely compressed time frame. Moreover, we believe that establishing
minimum requirements that arbitrated agreements must satisfy will
assist states in arbitrating and reviewing agreements under section
252, particularly in light of the relatively short time frames for such
state action. While some states reject the idea that national rules
will help the state commissions to satisfy their obligations under
section 252 to mediate, arbitrate, and review agreements, other states
have welcomed national rules, at least with respect to certain matters.
50. A broad range of parties urge the Commission to adopt minimum
requirements that would permit states to impose additional, pro-
competitive requirements that are consistent with the 1996 Act to
address local or state-specific circumstances. We agree generally that
many of the rules we adopt should establish non-exhaustive
requirements, and that states may impose additional pro-competitive
requirements that are consistent with the purposes and terms of the
1996 Act, including our regulations established pursuant to section
251. In contrast, we conclude that the 1996 Act limits the obligations
states may impose on non-incumbent carriers. See infra, Section XI.C.
We also anticipate that the rules we adopt regarding interconnection,
services, and access to unbundled elements will evolve to accommodate
developments in technology and competitive circumstances, and that we
will continue to draw on state experience in applying our rules and in
addressing new or additional issues. We recognize that it is vital that
we reexamine our rules over time in order to reflect developments in
the dynamic telecommunications industry. We cannot anticipate all of
the changes that will occur as a result of technological advancements,
competitive developments, and practical experience, particularly at the
state level. Therefore, ongoing review of our rules is inevitable.
Moreover, we conclude that arbitrated agreements must permit parties to
incorporate changes to our national rules, or to applicable state rules
as such changes may be effective, without abrogating the entire
contract. This will ensure that parties, regardless of when they enter
into arbitrated agreements, will be able to take advantage of all
applicable Commission and state rules as they evolve.
51. Some parties contend that even minimum requirements may impede
the ability of state commissions to take varying approaches to address
particular circumstances or conditions. We agree with the contention
that, although there are different market conditions from one area to
another, such distinct areas do not necessarily replicate state
boundaries. For example, virtually all states include both more
densely-populated areas and sparsely populated rural areas, and all
include both business and residential areas. Although each state is
unique in many respects, demographic and other differences among states
do not suggest that national rules are inappropriate. Moreover, even
though it may not be appropriate to impose identical requirements on
carriers with different network technologies, our rules are intended to
accommodate such differences. See infra, Section IV.E. (concluding that
successful interconnection or access to an unbundled element at a
particular point in the network creates a rebuttable presumption that
such interconnection or access is technically feasible at networks that
employ substantially similar facilities). We agree with parties, such
as the Ohio Consumers' Counsel, that physical networks are not designed
on a state-by-state basis. Ohio Consumers' Counsel comments at 4. Some
parties have argued that explicit national standards will delay the
emergence of local telephone competition, but none has offered
persuasive evidence to substantiate that claim, and new entrants
overwhelmingly favor strong national rules. We conclude, for the
reasons set forth above, that some national rules will enhance
opportunities for local competition, and we have chosen to adopt
national rules where necessary to establish the minimum requirements
for a nationwide pro-competitive policy framework.
52. We disagree with those parties that claim we are trying to
impose a uniformity that Congress did not intend. Variations among
interconnection agreements will exist, because parties may negotiate
their own terms, states may impose additional requirements that differ
from state to state, and some terms are beyond the scope of this Report
and Order. We conclude, however, that establishing certain rights that
are available, through arbitration, to all requesting carriers, will
help advise parties of their minimum rights and obligations, and will
help speed the negotiation process. In effect, the Commission's rules
will provide a national baseline for terms and conditions for all
arbitrated agreements. Our rules also may tend to serve as a useful
guide for negotiations by setting forth minimum requirements that will
apply to parties if they are unable to reach agreement. This is
consistent with the broad delegation of authority that Congress gave
the Commission to implement the requirements set forth in section 251.
53. We also believe that national rules will assist smaller
carriers that seek to
[[Page 45488]]
provide competitive local service. As noted above, national rules will
greatly reduce the need for small carriers to expend their limited
resources securing their right to interconnection, services, and
network elements to which they are entitled under the 1996 Act. This is
particularly true with respect to discrete geographic markets that
include areas in more than one state. We agree with the Small Business
Administration that national rules will reduce delay and lower
transaction costs, which impose particular hardships for small entities
that are likely to have less of a financial cushion than larger
entities. In addition, even a small provider may wish to enter more
than one market, and national rules will create economies of scale for
entry into multiple markets. We reject the position advocated by some
parties that we should not adopt national rules because such rules will
be particularly burdensome for small or rural incumbent LECs. We note,
however, that section 251(f) provides relief from some of our rules.
54. We recognize the concern of many state commissions that the
Commission not undermine or reverse existing state efforts to foster
local competition. We believe that Congress did not intend for us
needlessly to disrupt the pro-competitive actions some states already
have taken that are both consistent with the 1996 Act and our rules
implementing section 251. We believe our rules will in many cases be
consistent with pro-competitive actions already taken by states, and in
fact, many of the rules we adopt are based directly on existing state
commission actions. We also intend to continue to reflect states'
experiences as we revise our rules. We also recognize, however, that in
at least some instances existing state requirements will not be
consistent with the statute and our implementing rules. It will be
necessary in those instances for the subject states to amend their
rules and alter their decisions to conform to our rules. In our
judgment, national rules are highly desirable to achieve Congress's
goal of a pro-competitive national policy framework for the
telecommunications industry.
B. Suggested Approaches for FCC Rules
1. Discussion
55. We intend to adopt minimum requirements in this proceeding;
states may impose additional pro-competitive requirements that are
consistent with the Act and our rules. We decline to adopt a
``preferred outcomes'' approach, because such an approach would fail to
establish explicit national standards for arbitration, and would fail
to provide sufficient guidance to the parties' options in negotiations.
To the extent that parties advocate ``preferred outcomes'' from which
the parties could deviate in arbitrated agreements, we reject such a
proposal, because we conclude that it would not provide the benefits
conferred by establishing ``default'' requirements. To the extent that
commenters advocate a regulatory approach that would require parties to
justify a negotiated result different from the preferred outcomes, we
believe that such an approach would impose greater constraints on
voluntarily negotiated agreements than the 1996 Act permits. Under the
1996 Act, parties may freely negotiate any terms without justifying
deviation from ``preferred outcomes.'' The only restriction on such
negotiated agreements is that they must be deemed by the state
commission to be nondiscriminatory and consistent with the public
interest, under the standards set forth in section 252(e)(2)(A). In
response to the Illinois Commission's suggestion that we adopt a
process by which states may seek waivers of our rules, we note that
Commission rules already provide for waiver of our rules under certain
circumstances. We decline to adopt a special waiver process in this
proceeding.
56. We intend our rules to give guidance to the parties regarding
their rights and obligations under section 251. The specificity of our
rules varies with respect to different issues; in some cases, we
identify broad principles and leave to the states the determination of
what specific requirements are necessary to satisfy those principles.
In other cases, we find that local telephone competition will be better
served by establishing specific requirements. In each of the sections
below, we discuss the basis for adopting particular national principles
or rules.
57. We also believe that we should periodically review and amend
our rules to take into account experiences of carriers and states,
technological changes, and market developments. The actions we take
here are fully responsive to Congress's mandate that we complete all
actions necessary to establish regulations to implement the
requirements of section 251 by August 8, 1996. We nevertheless retain
authority to refine or augment our rules, or to follow a different
course, after developing some practical experience with the rules
adopted herein. It is beyond doubt that the Commission has ongoing
rulemaking authority. For example, section 4(i) provides that the
Commission ``may perform any and all acts, make such rules and
regulations, and issue such orders, not inconsistent with the Act, as
may be necessary in the execution of its functions.'' Section 4(j)
provides that the Commission ``may conduct its proceedings in such
manner as will best conduce to the proper dispatch and to the ends of
justice.'' We agree with Sprint, the Illinois Commission, and other
parties that we should address in this rulemaking the most important
issues, and continue to refine our rules on an ongoing basis to address
additional or unanticipated issues, and especially to learn from the
decisions and experiences of the states. We also reject the argument of
Margaretville Telephone Company that the 1996 Act constitutes an
unconstitutional taking because it seeks to deprive incumbent LECs of
their ``reasonable, investment-backed expectation to hold competitive
advantages over new market entrants.''
C. Legal Authority of the Commission to Establish Rules Applicable to
Intrastate Aspects of Interconnection, Services, and Unbundled Network
Elements
1. Background
58. In the NPRM, we tentatively concluded that Congress intended
sections 251 and 252 to apply, and that our rules should apply, to both
interstate and intrastate aspects of interconnection, services, and
access to network elements. We stated in the NPRM that it would seem to
make little sense, in terms of economics or technology, to distinguish
between interstate and intrastate components for purposes of sections
251 and 252. We also believed that such a distinction would appear to
be inconsistent with Congress's desire to establish a national policy
framework for interconnection and other issues critical to achieving
local competition. We sought comment on these tentative conclusions.
59. We further tentatively concluded in the NPRM that section 2(b)
of the 1934 Act does not require a contrary conclusion. Section 2(b)
states that, except as provided in certain enumerated sections not
including sections 251 and 252, ``nothing in [the 1934] Act shall be
construed to apply or to give to the Commission jurisdiction with
respect to * * * charges, classifications, practices, services,
facilities, or regulations for or in connection with intrastate
communication service by wire or radio of any carrier * * *.'' We noted
in the NPRM that sections 251 and 252 do not alter the jurisdictional
division of authority with respect to matters falling outside the scope
of these provisions. For example, rates charged to end users for local
exchange service have
[[Page 45489]]
traditionally been subject to state authority, and will continue to be.
2. Discussion
60. We conclude that, in enacting sections 251, 252, and 253,
Congress created a regulatory system that differs significantly from
the dual regulatory system it established in the 1934 Act. According to
Senator Pressler, ``Progress is being stymied by a morass of regulatory
barriers which balkanize the telecommunications industry into
protective enclaves. We need to design a national policy framework--a
new regulatory paradigm for telecommunications--which accommodates and
accelerates technological change and innovation.'' 141 Cong. Rec.
S7881-2, S7886 (June 7, 1995) (emphasis added). According to
Representative Fields, ``[Congress] is decompartmentalizing segments of
the telecommunications industry, opening the floodgates of competition
through deregulation, and most importantly, giving consumers choice * *
* '', 142 Cong. Rec. H1149 (Feb. 1, 1996). That Act generally gave
jurisdiction over interstate matters to the FCC and over intrastate
matters to the states. The 1996 Act alters this framework, and expands
the applicability of both national rules to historically intrastate
issues, and state rules to historically interstate issues. For example,
section 253(a) suggests that states may establish regulations regarding
interstate as well as intrastate matters. Indeed, many provisions of
the 1996 Act are designed to open telecommunications markets to all
potential service providers, without distinction between interstate and
intrastate services.
61. For the reasons set forth below, we hold that section 251
authorizes the FCC to establish regulations regarding both interstate
and intrastate aspects of interconnection, services, and access to
unbundled elements. We also hold that the regulations the Commission
establishes pursuant to section 251 are binding upon states and
carriers and section 2(b) does not limit the Commission's authority to
establish regulations governing intrastate matters pursuant to section
251. Similarly, we find that the states' authority pursuant to section
252 also extends to both interstate and intrastate matters. Although we
recognize that these sections do not contain an explicit grant of
intrastate authority to the Commission or of interstate authority to
the states, we nonetheless find that this interpretation is the only
reasonable way to reconcile the various provisions of sections 251 and
252, and the statute as a whole. As we indicated in the NPRM, it would
make little sense in terms of economics or technology to distinguish
between interstate and intrastate components for purposes of sections
251 and 252. We believe that this interpretation is the most reasonable
one in light of our expectation that marketing and product offerings by
telecommunications carriers will diminish or eliminate the significance
of interstate-intrastate distinctions.
62. We view sections 251 and 252 as creating parallel jurisdiction
for the FCC and the states. These sections require the FCC to establish
implementing rules to govern interconnection, resale of services,
access to unbundled network elements, and other matters, and direct the
states to follow the Act and those rules in arbitrating and approving
arbitrated agreements under sections 251 and 252. Among other things,
the fact that the Commission is required to assume the state
commission's responsibilities if the state commission fails to carry
out its section 252 responsibilities gives rise to the inevitable
inference that both the states and the FCC are to address the same
matters through their parallel jurisdiction over both interstate and
intrastate matters under sections 251 and 252.
63. The only other possible interpretations would be that: (1)
sections 251 and 252 address only interstate aspects of
interconnection, services, and access to unbundled elements; (2) the
provisions address only the intrastate aspects of those issues; or (3)
the FCC's role is to establish rules for interstate aspects, and the
states' role is to arbitrate and approve agreements on intrastate
aspects. As explained below, none of these interpretations withstands
examination. Accordingly, we conclude that sections 251 and 252 address
both interstate and intrastate aspects of interconnection services and
access to unbundled elements.
64. Some parties have argued that our authority under section 251
is limited by section 2(b). Ordinarily, in light of section 2(b), we
would interpret a provision of the Communications Act as addressing
only the interstate jurisdiction unless the provision (as well as
section 2(b) itself) provided otherwise. That interpretation is
contradicted in this case, however, by strong evidence in the statute
that the local competition provisions of the 1996 Act are directed to
both intrastate and interstate matters. For example, section 251(c)(2),
the interconnection requirement, requires LECs to provide
interconnection ``for the transmission and routing of telephone
exchange service and exchange access.'' Because telephone exchange
service is a local, intrastate service, section 251(c)(2) plainly
addresses intrastate service, but it also addresses interstate exchange
access. In addition, we note that in section 253, the statute
explicitly authorizes the Commission to preempt intrastate and
interstate barriers to entry.
65. More generally, if these sections are read to address only
interstate services, the grant of substantial responsibilities to the
states under section 252 is incongruous. A statute designed to develop
a national policy framework to promote local competition cannot
reasonably be read to reduce significantly the FCC's traditional
jurisdiction over interstate matters by delegating enforcement
responsibilities to the states, unless Congress intended also to
implement its national policies by enhancing our authority to encompass
rulemaking authority over intrastate interconnection matters. The
legislative history is replete with statements indicating that Congress
meant to address intrastate local exchange competition. For instance,
Senator Lott stated that ``[i]n addressing local and long distance
issues, creating an open access and sound interconnection policy was
the key objective * * * '' 141 Cong. Rec. S7906 (June 7, 1995)
(emphasis added). Representative Markey noted that ``we take down the
barriers of local and long distance and cable company, satellite,
computer software entry into any business they want to get in.'' 142
Cong. Rec. H1151 (Feb. 1, 1996) (emphasis added).
66. Some parties argue that section 251 addresses solely intrastate
matters. We do not find this argument persuasive. Under this narrow
view, section 251(c)(6) requiring incumbent LECs to offer physical
collocation would apply only to equipment used for intrastate services,
while new entrants would be limited to the use of virtual collocation
for equipment used in the provision of interstate services, pursuant to
the decision in Bell Atlantic. Bell Atlantic Telephone Companies v.
FCC, 24 F.3d 1441 (D.C. Cir. 1994) (Bell Atlantic) (holding that the
Commission did not have authority to require physical collocation for
the provision of interstate services). Such an interpretation would
force new entrants to use different methods of collocation based on the
jurisdictional nature of the traffic involved, and would thereby
greatly increase new entrants' costs. Moreover, such an interpretation
would fail to give effect to Congress's intent in
[[Page 45490]]
enacting section 251(c)(6) to reverse the result reached in Bell
Atlantic. The language in the House bill which closely matches the
language that appears in section 251(c)(6), noted that a provision
requiring physical collocation was necessary ``because a recent court
decision indicates that the Commission lacks authority under the
Communications Act to order physical collocation.'' H.R. Rep. No. 204,
pt. I, 104th Cong., 1st Sess., at 73 (1995).
67. Another factor that makes clear that sections 251 and 252 did
not address exclusively intrastate matters is the provision in section
251(g), ``Continued Enforcement of Exchange Access and Interconnection
Requirements.'' That section provides that BOCs must follow the
Commission's ``equal access and nondiscriminatory interconnection
restrictions (including receipt of compensation)'' until they are
explicitly superseded by Commission regulations after the date of
enactment of the 1996 Act. This provision refers to existing Commission
rules governing interstate matters, and therefore it contradicts the
argument that section 251 addresses intrastate matters exclusively.
68. Nor does the savings clause of section 251(i) require us to
conclude that sections 251 and 252 address only intrastate issues.
Section 251(i) provides that ``[n]othing in this section shall be
construed to limit or otherwise affect the Commission's authority under
section 201.'' This subsection merely affirms that the Commission's
preexisting authority under section 201 continues to apply for purely
interstate activities. It does not act as a limitation on the agency's
authority under section 251.
69. As to the third possible interpretation, the FCC's role is to
establish rules for only the interstate aspects of interconnection, and
the states' role is to arbitrate and approve only the intrastate
aspects of interconnection agreements. No commenters support this
position, and we find that it would be inconsistent with the 1996 Act
to read into sections 251 and 252 such a distinction. The statute
explicitly contemplates that the states are to comply with the
Commission's rules, and the Commission is required to assume the state
commission's responsibilities if the state commission fails to act to
carry out its section 252 responsibilities. Thus, we believe the only
logical conclusion is that the Commission and the states have parallel
jurisdiction. We conclude, therefore, that these sections can only
logically be read to address both interstate and intrastate aspects of
interconnection, services, and access to unbundled network elements,
and thus to grant the Commission authority to establish regulations
under 251, binding on both carriers and states, for both interstate and
intrastate aspects.
70. Section 2(b) of the Act does not require a different
conclusion. Section 2(b) provides that, except as provided in certain
enumerated sections not including sections 251 and 252, ``nothing in
[the 1934] Act shall be construed to apply or to give to the Commission
jurisdiction with respect to * * * charges, classifications, practices,
services, facilities, or regulations for or in connection with
intrastate communication service by wire or radio of any carrier * *
*''. As stated above, however, we have found that sections 251 and 252
do apply to ``charges, classifications, practices, services,
facilities, or regulations for or in connection with intrastate
communication service.'' In enacting sections 251 and 252 after section
2(b), and squarely addressing therein the issue of interstate and
intrastate jurisdiction, we find that Congress intended for sections
251 and 252 to take precedence over any contrary implications based on
section 2(b). We note also, that in enacting the 1996 Act, there are
other instances where Congress indisputably gave the Commission
intrastate jurisdiction without amending section 2(b). For instance,
section 251(e)(1) provides that ``[t]he Commission shall have exclusive
jurisdiction over those portions of the North American Numbering Plan
that pertain to the United States.'' Section 253 directs the FCC to
preempt state regulations that prohibit the ability to provide
intrastate services. Section 276(b) directs the Commission to
``establish a per call compensation plan to ensure that payphone
service providers are fairly compensated for each and every completed
intrastate and interstate call.'' Section 276(d) provides that ``[t]o
the extent that any State requirements are inconsistent with the
Commission's regulations, the Commission's regulations on such matters
shall preempt such State requirements.'' None of these provisions is
specifically excepted from section 2(b), yet all of them explicitly
give the FCC jurisdiction over intrastate matters. Thus, we believe
that the lack of an explicit exception in section 2(b) should not be
read to require an interpretation that the Commission's jurisdiction
under sections 251 and 252 is limited to interstate services. A
contrary holding would nullify several explicit grants of authority to
the FCC, noted above, and would render parts of the statute
meaningless.
71. Some parties find significance in the fact that earlier drafts
of the legislation would have amended section 2(b) to make an exception
for Part II of Title II, including section 251, but the enacted version
did not include that exception. These parties argue that this change in
drafting demonstrates an intention by Congress that the limitations of
section 2(b) remain fully in force with regard to sections 251 and 252.
We find this argument unpersuasive.
72. Parties that attach significance to the omission of the
proposed amendment of section 2(b) rely on a rule of statutory
construction providing that, when a provision in a prior draft is
altered in the final legislation, Congress intended a change from the
prior version. This rule of statutory construction has been rejected,
however, when changes from one draft to another are not explained. In
this instance, the only statement from Congress regarding the meaning
of the omission of the section 2(b) amendment appears in the Joint
Explanatory Statement of the Conference Report. According to the Joint
Explanatory Statement, all differences between the Senate Bill, the
House Amendment, and the substitute reached in conference are noted
therein ``except for clerical corrections, conforming changes made
necessary by agreements reached by the conferees, and minor drafting
and clerical changes.'' Because the Joint Explanatory Statement did not
address the removal of the section 2(b) amendment from the final bill,
the logical inference is that Congress regarded the change as an
inconsequential modification rather than a significant alteration.
Moreover, it seems implausible that, by selecting the final version,
Congress intended a radical alteration of the Commission's authority
under section 251, given the total lack of legislative history to that
effect. We conclude that elimination of the proposed amendment of
section 2(b) was a nonsubstantive change because, as AT&T contends,
such amendment was unnecessary in light of the grants of authority
under sections 251 and 252, and would have had no practical effect.
73. Some parties have argued that, to the extent that sections 251
and 252 address intrastate matters, the Commission's rulemaking
authority under those sections is limited to those instances where
Commission action regarding intrastate matters is specifically
mandated, such as number administration. We disagree. There is no
language limiting the Commission's
[[Page 45491]]
authority to establish rules under section 251. To the contrary,
section 251(d)(1) affirmatively requires Commission rules, stating that
``the Commission shall complete all actions necessary to implement the
requirements of this section.'' Pursuant to sections 4(i), 201(b), and
303(r) of the Act, the Commission generally has rulemaking authority to
implement all provisions of the Communications Act. Courts have held
that the Commission, pursuant to its general rulemaking authority, has
``expansive'' rather than limited powers. Further, where Congress has
expressly delegated to the Commission rulemaking responsibility with
respect to a particular matter, such delegation constitutes ``something
more than the normal grant of authority permitting an agency to make
ordinary rules and regulations * * *''. Indeed, to read these
provisions otherwise would negate the requirement that states ensure
that arbitrated agreements are consistent with the Commission's rules.
Thus, the explicit rulemaking requirements pointed out by some of the
parties is best read as giving the Commission more jurisdiction than
usual, not less. We believe that the delegation of authority set forth
in section 251(d)(1) is ``expansive'' and not limited. We therefore
reject assertions that the Commission has authority to establish
regulations regarding intrastate matters only with respect to certain
provisions of section 251, such as number administration.
74. Moreover, the Court in Louisiana PSC does not suggest a
different result. The reasoning in Louisiana PSC applies to the dual
regulatory system of the 1934 Act. As set forth above, however, in
sections 251-253, Congress amended the dual regulatory system that the
Court addressed in Louisiana PSC. As a result, preemption in this case
is governed by the usual rule, also recognized in Louisiana PSC, that
an agency, acting within the scope of its delegated authority, may
preempt inconsistent state regulation. As discussed above, Congress
here has expressed an intent that our rules apply to intrastate
interconnection, services, and access to network elements. Therefore,
Louisiana PSC does not foreclose our adoption of regulations under
section 251 to govern intrastate matters.
75. Parties have raised other arguments suggesting that the
Commission lacks authority over intrastate matters. We are not
persuaded by the argument that sections 256(c) and 261, as well as
section 601(c) of the 1996 Act, evince an intent by Congress to
preserve states' exclusive authority over intrastate matters. In fact,
section 261 supports the finding that the Commission may establish
regulations regarding intrastate aspects of interconnection, services
and access to unbundled elements that the states may not supersede.
Section 261(b) generally permits states to enforce regulations
prescribed prior to the date of enactment of the 1996 Act, and to
prescribe regulations after such date, if such regulations are not
inconsistent with the provisions of Part II of Title II. Section 261(c)
specifically provides that nothing in Part II of Title II ``precludes a
State from imposing requirements on a telecommunications carrier for
intrastate services that are necessary to further competition in the
provision of telephone exchange service or exchange access, as long as
the State's requirements are not inconsistent with this part or the
Commission's regulations to implement this part.'' We conclude that
state access and interconnection obligations referenced in section
251(d)(3) fall within the scope of section 261(c). Section 261(c), as
the more specific provision, controls over section 261(b) for matters
that fall within its scope. We note, too, that section 261(c)
encompasses all state requirements. It is not limited to requirements
that were prescribed prior to the enactment of the 1996 Act. By
providing that state requirements for intrastate services must be
consistent with the Commission's regulations, section 261(c) buttresses
our conclusion that the Commission may establish regulations regarding
intrastate aspects of interconnection, services, and access to
unbundled elements.
76. Section 601 of the 1996 Act and section 256 also are consistent
with our conclusion. Section 601(c) of the 1996 Act provides that the
Act and its amendments ``shall not be construed to modify, impair, or
supersede Federal, State, or local law unless expressly so provided in
such Act or amendments.'' We conclude that section 251(d)(1), which
requires the Commission to ``establish regulations to implement the
requirements of this section,'' and section 261(c), were expressly
intended to modify federal and state law and jurisdictional authority.
77. Section 256, entitled ``Coordination for Interconnectivity,''
has no direct bearing on the issue of the Commission's authority under
section 251, because it provides only that ``[n]othing in this section
shall be construed as expanding or limiting any authority that the
Commission may have under law in effect before the date of enactment of
the Telecommunications Act of 1996.'' That provision is relevant,
however, as a contrast to section 251, which does not contain a similar
statement that the scope of the Commission's authority is unchanged by
section 251. Russello v. United States, 464 U.S. 16, 23 (1983); Cramer
v. Internal Revenue Service, 64 F.3d 1406, 1412 (9th Cir. 1995) (where
Congress includes a provision in one section of statute but omits it in
another section of the same Act, it should not be implied where it is
excluded).
78. We further conclude that the Commission's regulations under
section 251 are binding on the states, even with respect to intrastate
issues. Section 252 provides that the agreements state commissions
arbitrate must comply with the Commission's regulations established
pursuant to section 251. In addition, section 253 requires the
Commission to preempt state or local regulations or requirements that
``prohibit or have the effect of prohibiting the ability of any entity
to provide any interstate or intrastate telecommunications service.''
As discussed above, section 261(c) provides further support for the
conclusion that states are bound by the regulations the Commission
establishes under section 251.
79. We disagree with claims that section 251(d)(3) ``grandfathers''
existing state regulations that are consistent with the 1996 Act, and
that such state regulations need not comply with the Commission's
implementing regulations. Section 251(d)(3) only specifies that the
Commission may not preclude enforcement of state access and
interconnection requirements that are consistent with section 251, and
that do not substantially prevent implementation of the requirements of
section 251 or the purposes of Part II of Title II. In this Report and
Order, we set forth only such rules that we believe are necessary to
implement fully section 251 and the purposes of Part II of Title II.
Thus, state regulations that are inconsistent with our rules may
``substantially prevent implementation of the requirements of this
section and the purposes of [Part II of Title II].''
80. We are not persuaded by arguments that, because other
provisions of the 1996 Act specifically require states to comply with
the Commission's regulations, the absence of such requirement in
section 251(d)(3) indicates that Congress did not intend such
compliance. Section 251(d)(3) permits states to prescribe and to
enforce access and interconnection requirements only to the extent that
such requirements ``are consistent with the requirements'' of section
251 and do not ``substantially prevent
[[Page 45492]]
implementation'' of the requirements of section 251 and the purposes of
Part II of Title II. The Commission is required to establish
regulations to ``implement the requirements of the section.''
Therefore, in order to be consistent with the requirements of section
251 and not ``substantially prevent'' implementation of section 251 or
Part II of Title II, state requirements must be consistent with the
FCC's implementing regulations.
D. Commission's Legal Authority and the Adoption of National Pricing
Rules
1. Background
81. In the NPRM, we sought comment on our tentative conclusion that
sections 251 (c)(2), (c)(3), and (c)(6) establish the Commission's
legal authority under section 251(d) to adopt pricing rules to ensure
that the rates, terms, and conditions for interconnection, access to
unbundled network elements, and collocation are just, reasonable, and
nondiscriminatory. We also sought comment on our tentative conclusion
that sections 251(b)(5) and 251(c)(4) establish our authority to define
``wholesale rates'' for purposes of resale, and ``reciprocal
compensation arrangements'' for purposes of transport and termination
of telecommunications services. In addition, we asked parties to
comment on our tentative conclusion that the Commission's statutory
duty to implement the pricing requirements of section 251, as
elaborated in section 252, requires that we establish pricing rules
interpreting and further explaining the provisions of section 252(d).
The states would then apply these rules in establishing rates pursuant
to arbitrations and in reviewing BOC statements of generally available
terms and conditions.
82. We further sought comment on our tentative conclusion that
national pricing rules would likely reduce or eliminate inconsistent
state regulatory requirements, increase the predictability of rates,
and facilitate negotiation, arbitration, and review of agreements
between incumbent LECs and competitive providers. We also sought
comment on the potential consequences of the Commission not
establishing specific pricing rules.
2. Discussion
83. In adopting sections 251 and 252, we conclude that Congress
envisioned complementary and significant roles for the Commission and
the states with respect to the rates for section 251 services,
interconnection, and access to unbundled elements. We interpret the
Commission's role under section 251 as ensuring that rates are just,
reasonable, and nondiscriminatory: in doing so, we believe it to be
within our discretion to adopt national pricing rules in order to
ensure that rates will be just, reasonable, and nondiscriminatory. The
Commission is also responsible for ensuring that interconnection,
collocation, access to unbundled elements, resale services, and
transport and termination of telecommunications are reasonably
available to new entrants. The states' role under section 252(c) is to
establish specific rates when the parties cannot agree, consistent with
the regulations prescribed by the Commission under sections 251(d)(1)
and 252(d).
84. While we recognize that sections 201 and 202 create a very
different regulatory regime from that envisioned by sections 251 and
252, we observe that Congress used terms in section 251, such as the
requirement that rates, terms, and conditions be ``just, reasonable,
and nondiscriminatory,'' that are very similar to language in sections
201 and 202. This lends additional support for the proposition that
Congress intended to give us authority to adopt rules regarding the
justness and reasonableness of rates pursuant to section 251,
comparable in some respects to the authority Congress gave us pursuant
to sections 201 and 202.
85. We believe that national pricing rules are a critical component
of the interconnection regime set out in sections 251 and 252. Congress
intended these sections to promote opportunities for local competition,
and directed us to establish regulations to ensure that rates under
this regime would be economically efficient. This, in turn, should
reduce potential entrants' capital costs, and should facilitate entry
by all types of service providers, including small entities. Further,
we believe that national rules will help states review and arbitrate
contested agreements in a timely fashion. From August to November and
beyond, states will be carrying the tremendous burden of setting
specific rates for interconnection and network elements, for resale,
and for transport and termination when parties bring these issues
before them for arbitration. As discussed in more detail below, we are
setting forth default proxies for states to use if they are unable to
set these rates using the necessary cost studies within the statutory
time frame. After that, both we and the states will need to review the
level of competition, revise our rules as necessary, and reconcile
arbitrated interconnection arrangements to those revisions on a going-
forward basis.
86. We believe that national rules should reduce the parties'
uncertainty about the outcome that may be reached by different states
in their respective regulatory proceedings, which will reduce
regulatory burdens for all parties including small incumbent LECs and
small entities. A national regime should also help to ensure consistent
federal court decisions on review of specific state orders under
sections 251 and 252. In addition, under the national pricing rules
that we adopt for interconnection and unbundled network elements,
states will retain the flexibility to consider local technological,
environmental, regulatory, and economic conditions. Failure to adopt
national pricing rules, on the other hand, could lead to widely
disparate state policies that could delay the consummation of
interconnection arrangements and otherwise hinder the development of
local competition. Lack of national rules could also provide
opportunities for incumbent LECs to inhibit or delay the
interconnection efforts of new competitors, and create great
uncertainty for the industry, capital markets, regulators, and courts
as to what pricing policies would be pursued by each of the individual
states, frustrating the potential entrants' ability to raise capital.
In sum, we believe that the pricing of interconnection, unbundled
elements, resale, and transport and termination of telecommunications
is important to ensure that opportunities to compete are available to
new entrants.
87. As we observed in the NPRM, section 251 explicitly sets forth
certain requirements regarding rates for interconnection, access to
unbundled elements, and related offerings. Sections 251 (c)(2) and
(c)(3) require that incumbent LECs' ``rates, terms, and conditions''
for interconnection and unbundled network elements be ``just,
reasonable, and nondiscriminatory in accordance with * * * the
requirements of sections 251 and 252.'' Section 251(c)(4) requires that
incumbent LECs offer ``for resale at wholesale rates any
telecommunications service that the carrier provides at retail to
subscribers who are not telecommunications carriers,'' without
unreasonable conditions or limitations. Section 251(c)(6) provides that
all LECs must provide physical collocation of equipment, ``on rates,
terms, and conditions that are just, reasonable, and
nondiscriminatory.'' Section 251(b)(5) requires that all LECs
``establish reciprocal compensation arrangements for the transport and
termination of telecommunications.'' Section 251(d)(1) further
expressly directs the
[[Page 45493]]
Commission, without limitation, to ``complete all actions necessary to
implement the requirements of [section 251].''
88. Section 252 generally sets forth the procedures that state
commissions, incumbent LECs, and new entrants must follow to implement
the requirements of section 251 and establish specific interconnection
arrangements. Section 252(c)(1) provides that ``in resolving by
arbitration * * * any open issues and imposing conditions upon the
parties to the agreement, a State commission shall * * * ensure that
such resolution and conditions meet the requirements of section 251,
including the regulations prescribed by the Commission pursuant to
section 251.''
89. We conclude that, under section 251(d)(1), Congress granted us
broad authority to complete all actions necessary to implement the
requirements of section 251, including actions necessary to ensure that
rates for interconnection, access to unbundled elements, and
collocation are ``just, reasonable, and nondiscriminatory.'' We also
determine that the statute grants us the authority to define reasonable
``wholesale rates'' for purposes of services to be resold, and
``reciprocal compensation'' for purposes of transport and termination
of telecommunications. The argument advanced by the New York
Commission, NARUC, and others that the Commission's implementing
authority under section 251(d)(1) is limited to those provisions in
section 251 that mandate specific Commission rules, such as prescribing
regulations for number portability, unbundling, and resale, reads into
section 251(d)(1) limiting language that the section does not contain.
Congress did not confine the Commission's rulemaking authority to only
those matters identified in sections 251(b)(2), 251(c)(4)(B), and
251(d)(2), and there is no basis for inferring such an implicit
limitation. A narrow reading of section 251(d)(1), as proposed by the
New York Commission, NARUC, and others, would require the Commission to
neglect its statutory duty to implement the provisions of section 251
and to promote rapid competitive entry into local telephone markets.
90. We also reject the arguments raised by several state
commissions that the language in section 252(c) indicates Congress'
intent for the Commission to have little or no authority with respect
to pricing of interconnection, access to unbundled elements, and
collocation. We do not believe that the statutory directive that state
commissions establish rates according to section 252(d) restricts our
authority under section 251(d)(1). States must comply with both the
statutory standards under section 252(d) and the regulations prescribed
by the Commission pursuant to section 251 when arbitrating rate
disputes or when reviewing BOC statements of generally available terms.
Section 252(c) enumerates three requirements that states must follow in
arbitrating issues. These requirements are not set forth in the
alternative; rather, states must comply with all three.
91. We further reject the argument that section 251(d)(3) restricts
the Commission's authority to establish national pricing regulations.
Section 251(d)(3) provides that the Commission shall not preclude the
enforcement of any regulation, order, or policy of a state commission
that, inter alia, is consistent with the requirements of section 251
and does not substantially prevent implementation of the requirements
of section 251. This subsection, as discussed in section II.C., supra,
is intended to allow states to adopt regulations that are not
inconsistent with the Commission's rules; it does not address state
policies that are inconsistent with the pricing rules established by
the Commission.
92. We also address the impact of our rules on small incumbent
LECs. For example, Rural Tel. Coalition argues that rigid rules, based
on the properties of large urban LECs, cannot blindly be applied to
small and rural LECs. As discussed above, however, we believe that
states will retain sufficient flexibility under our rules to consider
local technological, environmental, regulatory, and economic
conditions. We also note that section 251(f) may provide relief to
certain small carriers.
E. Authority To Take Enforcement Action
1. Background
93. The Commission's implementation of section 251 must be given
full effect in arbitrated agreements and incorporated into all such
agreements. There is judicial review of such arbitrated agreements, and
one issue surely will be the adherence of these agreements to our
rules. The Commission will have the opportunity to participate, upon
request by a party or a state or by submitting an amicus filing, in the
arbitration or the judicial review thereof. To clarify our potential
role, we consider the extent of the Commission's authority to review
and enforce agreements entered into pursuant to section 252. Section
252(e)(6) provides that, in ``any case in which a State commission
makes a determination under this section, any party aggrieved by such
determination may bring an action in an appropriate Federal district
court to determine whether the agreement or statement meets the
requirements of section 251 and this section.''
94. In the NPRM, we sought comment on the relationship between
sections 251 and 252 and the Commission's existing authority under
section 208(a), which allows any person to file a complaint with the
Commission regarding ``anything done or omitted to be done by any
common carrier subject to this Act, in contravention of the provisions
thereof * * *'' We asked whether section 208 gives the Commission
authority over complaints alleging violations of requirements set forth
in sections 251 or 252. We also sought comment on the relationship
between sections 251 and 252 and any other applicable Commission
enforcement authority. We further sought comment on how we might
increase the effectiveness of the Commission's enforcement mechanisms.
Specifically, we asked for comment on how private rights of action
might be used under the Act, and the Commission's role in speeding
dispute resolution in forums used by private parties.
2. Discussion
95. Consistent with our decision in Telephone Number Portability
and the views of most commenters, we conclude that parties have several
options for seeking relief if they believe that a carrier has violated
the standards under section 251 or 252. Pursuant to section 252(e)(6),
a party aggrieved by a state commission arbitration determination under
section 252 has the right to bring an action in federal district court.
Commenters also suggest that the statute's provision for federal
district court review of state public utility commission decisions is
inconsistent with the 11th Amendment. That issue is not properly before
the Commission since it is the federal courts that will have to
determine the scope of their jurisdiction and in any case ``regulatory
agencies are not free to declare an act of Congress unconstitutional.''
See Meredith Corp. versus FCC, 809 F.2d 863, 873 (D.C. Cir. 1987).
Federal district courts may choose to stay or dismiss proceedings
brought pursuant to section 252(e)(6), and refer issues of compliance
with the substantive requirements of sections 251 and 252 to the
Commission under the primary jurisdiction doctrine. We find, however,
that federal court review is not the exclusive remedy regarding state
determinations under section 252. The
[[Page 45494]]
1996 Act is clear when it intends for a remedy to be exclusive. For
example, section 252(e)(6) provides that, if a state commission fails
to act, as described in section 252(e)(5), ``the proceeding by the
Commission under [section 252(e)(5)] and any judicial review of the
Commission's actions shall be the exclusive remedies for a State
commission's failure to act.'' In contrast, the succeeding sentence in
section 252(e)(6) provides that any party aggrieved by a state
commission determination under section 252 ``may bring an action in an
appropriate Federal district court * * *''
96. The Commission also stands ready to provide guidance to states
and other parties regarding the statute and our rules. In addition to
the informal consultations that we hope to continue with state
commissions, they or other parties may at any time seek a declaratory
ruling where necessary to remove uncertainty or eliminate a
controversy. See 47 CFR Sec. 1.2 (the Commission, in accordance with
section 5(d) of the Administrative Procedures Act, 5 U.S.C.
Sec. 554(e), may issue a declaratory ruling terminating a controversy
or removing uncertainty). Because section 251 is critical to the
development of competitive local markets, we intend to act
expeditiously on such requests for declaratory rulings.
97. We further conclude that section 252(e)(6) does not divest the
Commission of jurisdiction, in whole or in part, over complaints that a
common carrier violated section 251 or 252 of the Act. Section
601(c)(1) of the 1996 Act provides that the 1996 Act ``shall not be
construed to modify, impair or supersede'' existing federal law--which
includes the section 208 complaint process--``unless expressly so
provided.'' Sections 251 and 252 do not divest the Commission of its
section 208 complaint authority.
98. An aggrieved party could file a section 208 complaint with the
Commission, alleging that the incumbent LEC or requesting carrier has
failed to comply with the requirements of sections 251 and 252,
including Commission rules thereunder, even if the carrier is in
compliance with an agreement approved by the state commission.
Alternatively, a party could file a section 208 complaint alleging that
a common carrier is violating the terms of a negotiated or arbitrated
agreement. We plan to initiate a proceeding to adopt expedited
procedures for resolving complaints filed pursuant to section 208.
99. We note that, in acting on a section 208 complaint, we would
not be directly reviewing the state commission's decision, but rather,
our review would be strictly limited to determining whether the common
carrier's actions or omissions were in contravention of the
Communications Act. While we would have authority to review such
complaints, we note that we might decline, at least in some instances,
to impose financial penalties upon a common carrier that is acting
pursuant to state requirements or authorization, even if we sustain the
allegations in the complaint. Thus, consistent with our past decisions
in analogous contexts (See Number Portability Order, supra; Freemon
versus AT&T, 59 FR 43125 (August 22, 1994) (provision permitting
persons aggrieved by violation of prohibition against unauthorized
publication of certain communications to ``bring a civil action in
United States district court or any other court of competent
jurisdiction'' did not bar a complaint under section 208 of the
Communications Act); see also Policies Governing the Provision of
Shared Telecommunications Service, 54 FR 478 (January 6, 1989) (the
section 208 complaint process is available to resolve any specific
problems that might arise regarding shared telecommunications service
regulation by a state that impinges upon a federal interest)), we
conclude that a person aggrieved by a state determination under
sections 251 and 252 of the Act may elect to either bring an action for
federal district court review or a section 208 complaint to the
Commission against a common carrier. Such a person could, as a further
alternative, pursuant to section 207, file a complaint against a common
carrier with the Commission or in federal district court for the
recovery of damages. We are unlikely, in adjudicating a complaint, to
examine the consistency of a state decision with sections 251 and 252
if a judicial determination has already been made on the issues before
us.
100. Finally, we clarify, as one commenter requested, that nothing
in sections 251 and 252 of our implementing regulations is intended to
limit the ability of persons to seek relief under the antitrust laws,
other statutes, or common law. In addition, in appropriate
circumstances, the Commission could institute an inquiry on its own
motion, 47 U.S.C. Sec. 403, initiate a forfeiture proceeding, 47 U.S.C.
Sec. 503(b), initiate a cease-and-desist proceeding, 47 U.S.C.
Sec. 312(b), or in extreme cases, consider initiating a revocation
proceeding for violators with radio licenses, 47 U.S.C. Sec. 312(a), or
referring violations to the Department of Justice for possible criminal
prosecution under 47 U.S.C. Sec. 501, 502 & 503(a).
F. Regulations of BOC Statements of Generally Available Terms
101. We noted in the NPRM that section 251 and our implementing
regulations govern the states' review of BOC statements of generally
available terms and conditions, as well as arrangements reached through
compulsory arbitration pursuant to section 252(b). We tentatively
concluded that we should adopt a single set of standards with which
both arbitrated agreements and BOC statements of generally available
terms must comply.
102. Only a few commenters addressed this issue, and most concurred
with the tentative conclusion that we should apply the same
requirements to both arbitrated agreements and BOC statements of
generally available terms. The Illinois Commission, for example,
asserts that, ``[s]ince the generally available terms could be viewed
as a baseline against which to craft arbitrated arrangements, it is
reasonable to hold both arbitrated agreements and the BOC statements of
generally available terms to the same standards.'' CompTel asserts
that, particularly if states require incumbent LECs to tariff the terms
and conditions in agreements that are subject to arbitration, there
will be few if any distinctions between arbitrated agreements and
generally available terms and conditions.
103. We hereby find that our tentative conclusion that we should
apply a single set of standards to both arbitrated agreements and BOC
statements of generally available terms is consistent with both the
text and purpose of the 1996 Act. BOC statements of generally available
terms are relevant where a BOC seeks to provide in-region interLATA
service, and the BOC has not negotiated or arbitrated an agreement.
Therefore, such statements are to some extent a substitute for an
agreement for interconnection, services, or access to unbundled
elements. We also find no basis in the statute for establishing
different requirements for arbitrated agreements and BOC statements of
generally available terms. Moreover, a single set of requirements will
substantially ease the burdens of state commissions and the FCC in
reviewing agreements and statements of generally available terms
pursuant to sections 252 and 271.
[[Page 45495]]
G. States' Role in Fostering Local Competition Under Sections 251 and
252
104. As already referenced, states will play a critical role in
promoting local competition, including by taking a key role in the
negotiation and arbitration process. We believe the negotiation/
arbitration process pursuant to section 252 is likely to proceed as
follows. Initially, the requesting carrier and incumbent LEC will seek
to negotiate mutually agreeable rates, terms, and conditions governing
the competing carrier's interconnection to the incumbent's network,
access to the incumbent's unbundled network elements, or the provision
of services at wholesale rates for resale by the requesting carrier.
Either party may ask the relevant state commission to mediate specific
issues to facilitate an agreement during the negotiation process.
105. Because the new entrant's objective is to obtain the services
and access to facilities from the incumbent that the entrant needs to
compete in the incumbent's market, the negotiation process contemplated
by the 1996 Act bears little resemblance to a typical commercial
negotiation. Indeed, the entrant has nothing that the incumbent needs
to compete with the entrant, and has little to offer the incumbent in a
negotiation. Consequently, the 1996 Act provides that, if the parties
fail to reach agreement on all issues, either party may seek
arbitration before a state commission. The state commission will
arbitrate individual issues specified by the parties, or conceivably
may be asked to arbitrate the entire agreement. In the event that a
state commission must act as arbitrator, it will need to ensure that
the arbitrated agreement is consistent with the Commission's rules. In
reviewing arbitrated and negotiated agreements, the state commission
may ensure that such agreements are consistent with applicable state
requirements.
106. Under the statutory scheme in sections 251 and 252, state
commissions may be asked by parties to define specific terms and
conditions governing access to unbundled elements, interconnection, and
resale of services beyond the rules the Commission establishes in this
Report and Order. Moreover, the state commissions are responsible for
setting specific rates in arbitrated proceedings. For example, state
commissions in an arbitration would likely designate the terms and
conditions by which the competing carrier receives access to the
incumbent's loops. The state commission might arbitrate a description
or definition of the loop, the term for which the carrier commits to
the purchase of rights to exclusive use of a specific network element,
and the provisions under which the competing carrier will order loops
from the incumbent and the incumbent will provision an order. The state
commission may establish procedures that govern should the incumbent
refurbish or replace the element during the agreement period, and the
procedures that apply should an end user customer decide to switch from
the competing carrier back to the incumbent or a different provider. In
addition, the state commission will establish the rates an incumbent
charges for loops, perhaps with volume and term discounts specified, as
well as rates that carriers may charge to end users.
107. State commissions will have similar responsibilities with
respect to other unbundled network elements such as the switch,
interoffice transport, signalling and databases. State commissions may
identify network elements to be unbundled, in addition to those
elements identified by the Commission, and may identify additional
points at which incumbent LECs must provide interconnection, where
technically feasible. State commissions are responsible for determining
when virtual collocation may be provided instead of physical
collocation, pursuant to section 251(c)(6). States also will determine,
in accordance with section 251(f)(1), whether and to what extent a
rural incumbent LEC is entitled to continued exemption from the
requirements of section 251(c) after a telecommunications carrier has
made a bona fide request under section 251. Under section 251(f)(2),
states will determine whether to grant petitions that may be filed by
certain LECs for suspension or modification of the requirements in
sections 251 (b) or (c).
108. The foregoing is a representative sampling of the role that
states will have in steering the course of local competition. State
commissions will make critical decisions concerning a host of issues
involving rates, terms, and conditions of interconnection and
unbundling arrangements, and exemption, suspension, or modification of
the requirements in section 251. The actions taken by a state will
significantly affect the development of local competition in that
state. Moreover, actions in one state are likely to influence other
states, and to have a substantial impact on steps the FCC takes in
developing a pro-competitive national policy framework.
III. Duty to Negotiate in Good Faith
A. Background
109. Section 251(c)(1) of the statute imposes on incumbent LECs the
``duty to negotiate in good faith in accordance with section 252 the
particular terms and conditions of agreements to fulfill the duties
described'' in sections 251(b) and (c), and further provides that
``(t)he requesting telecommunications carrier also has the duty to
negotiate in good faith the terms and conditions of such agreements.''
In the NPRM, we asked parties to comment on the extent to which the
Commission should establish national rules defining the requirements of
the good faith negotiation obligation.
B. Advantages and Disadvantages of National Rules
1. Discussion
110. We conclude that establishing some national standards
regarding the duty to negotiate in good faith could help to reduce
areas of dispute and expedite fair and successful negotiations, and
thereby realize Congress' goal of enabling swift market entry by new
competitors. In order to address the balance of the incentives between
the bargaining parties, however, we believe that we should set forth
some minimum requirements of good faith negotiation that will guide
parties and state commissions. As discussed above, the requirements in
section 251 obligate incumbent LECs to provide interconnection to
competitors that seek to reduce the incumbent's subscribership and
weaken the incumbent's dominant position in the market. Generally, the
new entrant has little to offer the incumbent. Thus, an incumbent LEC
is likely to have scant, if any, economic incentive to reach agreement.
In addition, incumbent LECs argue that requesting carriers may have
incentives to make unreasonable demands or otherwise fail to act in
good faith. The fact that an incumbent LEC has superior bargaining
power does not itself demonstrate a lack of good faith, or ensure that
a new entrant will act in good faith.
111. We agree with commenters that it would be futile to try to
determine in advance every possible action that might be inconsistent
with the duty to negotiate in good faith. As discussed more fully
below, determining whether or not a party's conduct is consistent with
its statutory duty will depend largely on the specific facts of
individual negotiations. Therefore, we believe that it is appropriate
to identify factors or practices that may be evidence of failure to
negotiate in good faith, but
[[Page 45496]]
that will need to be considered in light of all relevant circumstances.
112. Consistent with our discussion in Section II, above, we
believe that the Commission has authority to review complaints alleging
violations of good faith negotiation pursuant to section 208. We
previously have held that parties may raise allegations regarding good
faith negotiation pursuant to section 208. Cellular Interconnection
Proceeding, 4 FCC Rcd 2369 (1989). The Commission also held in that
case that ``the conduct of good faith negotiations is not
jurisdictionally severable.'' Id. at 2371. Penalties may be imposed
under sections 501, 502 and 503 for failure to negotiate in good faith.
In addition, we believe that state commissions have authority, under
section 252(b)(5), to consider allegations that a party has failed to
negotiate in good faith. We also reserve the right to amend these rules
in the future as we obtain more information regarding negotiations
under section 252.
C. Specific Practices That May Constitute a Failure to Negotiate in
Good Faith
1. Discussion
113. The Uniform Commercial Code defines ``good faith'' as
``honesty in fact in the conduct of the transaction concerned.'' U.C.C.
Sec. 1-201(19) (1981); see also Black's Law Dictionary at 353 (Abridged
ed. 1983) (``Good faith is an intangible and abstract quality with no
technical meaning or statutory definition, and it encompasses, among
other things, an honest belief, the absence of malice, and the absence
of design to defraud or to seek an unconscionable advantage * * *'').
When looking at good faith, the question ``is a narrow one focused on
the subjective intent with which the person in question has acted.''
U.C.C. Sec. 1-201 (84). Even where there is no specific duty to
negotiate in good faith, certain principles or standards of conduct
have been held to apply. Steven J. Burton and Eric G. Anderson,
Contractual Good Faith, Sec. 8.2.2 at 332 (1995). For example, parties
may not use duress or misrepresentation in negotiations. Thus, the duty
to negotiate in good faith, at a minimum, prevents parties from
intentionally misleading or coercing parties into reaching an agreement
they would not otherwise have made. We conclude that intentionally
obstructing negotiations also would constitute a failure to negotiate
in good faith, because it reflects a party's unwillingness to reach
agreement.
114. Because section 252 permits parties to seek mediation ``at any
point in the negotiation,'' and also allows parties to seek arbitration
as early as 135 days after an incumbent LEC receives a request for
negotiation under section 252, we conclude that Congress specifically
contemplated that one or more of the parties may fail to negotiate in
good faith, and created at least one remedy in the arbitration process.
Section 252(b)(4)(C) requires state commissions to ``conclude the
resolution of any unresolved issues not later than 9 months after the
date on which the local exchange carrier received the request under
this section.'' 47 U.S.C. Sec. 252(b)(4)(C). The possibility of
arbitration itself will facilitate good faith negotiation. For example,
parties seeking to avoid a legitimate accusation of breach of the duty
of good faith in negotiation will work to provide their negotiating
adversary all relevant information--given that section 252(b)(4)(B)
authorizes the state commission to require the parties ``to provide
such information as may be necessary for the State commission to reach
a decision on the unresolved issues.'' That provision also states that,
if either party ``fails unreasonably to respond on a timely basis to
any reasonable request from the State commission, then the State
commission may proceed on the basis of the best information available
to it from whatever source derived.'' The likelihood that an arbitrator
will review the positions taken by the parties during negotiations also
should discourage parties from refusing unreasonably to provide
relevant information to each other or to delay negotiations.
115. We believe that determining whether a party has acted in good
faith often will need to be decided on a case-by-case basis by state
commissions or, in some instances the FCC, in light of all the facts
and circumstances underlying the negotiations. This is consistent with
earlier Commission decisions. See Amendment to the Commission's Rules
Regarding a Plan for Sharing the Costs of Microwave Relocation, WT
Docket 95-157, First Report and Order, FCC 96-196, at para. 20, 61 FR
24470 (May 15, 1996). In light of these considerations, we set forth
some minimum standards that will offer parties guidance in determining
whether they are acting in good faith, but leave specific
determinations of whether a party has acted in good faith to be decided
by a state commission, court, or the FCC on a case-by-case basis.
116. We find that there may be pro-competitive reasons for parties
to enter into nondisclosure agreements. A broad range of commenters,
including IXCs, state commissions, and incumbent LECs, support this
view. We conclude that there can be nondisclosure agreements that would
not constitute a violation of the good faith negotiation duty, but we
caution that overly broad, restrictive, or coercive nondisclosure
requirements may well have anticompetitive effects. We therefore will
not prejudge whether a party has demonstrated a failure to negotiate in
good faith by requesting another party to sign a nondisclosure
agreement, or by failing to sign a nondisclosure agreement; such
demands by incumbents, however, are of concern and any complaint
alleging such tactics should be evaluated carefully. Agreements may
not, however, preclude a party from providing information requested by
the FCC, a state commission, or in support of a request for arbitration
under section 252(b)(2)(B).
117. We reject the general contention that a request by a party
that another party limit its legal remedies as part of a negotiated
agreement will in all cases constitute a violation of the duty to
negotiate in good faith. A party may voluntarily agree to limit its
legal rights or remedies in order to obtain a valuable concession from
another party. In some circumstances, however, a party may violate this
statutory provision by demanding that another waive its legal rights.
For example, we agree with ALTS' contention that an incumbent LEC may
not demand that the requesting carrier attest that the agreement
complies with all provisions of the 1996 Act, federal regulations, and
state law, because such a demand would be at odds with the provisions
of sections 251 and 252 that are intended to foster opportunities for
competition on a level playing field. In addition, we find that it is a
per se failure to negotiate in good faith for a party to refuse to
include in an agreement a provision that permits the agreement to be
amended in the future to take into account changes in Commission or
state rules. Refusing to permit a party to include such a provision
would be tantamount to forcing a party to waive its legal rights in the
future.
118. We decline to find that other practices identified by parties
constitute per se violations of the duty to negotiate in good faith.
Time Warner contends that we should find that a party is not
negotiating in good faith under section 252 if it seeks to tie
resolution of issues in that negotiation to the resolution of other,
unrelated disputes between the parties in another proceeding. On its
face, the hypothetical practice raises concerns. Time Warner, however,
did
[[Page 45497]]
not present specific examples of how linking two independent
negotiation proceedings would undermine good faith negotiations. We
believe that requesting carriers have certain rights under sections 251
and 252, and those rights may not be derogated by an incumbent LEC
demanding quid pro quo concessions in another proceeding. Parties,
however, could mutually agree to link section 252 negotiations to
negotiations on a separate matter. In fact, to the extent that
concurrent resolution of issues could offer more potential solutions or
may equalize the bargaining power between the parties, such action may
be pro-competitive. For example, an incumbent LEC that offers video
programming may be negotiating for the right to use video programming
owned by a cable company while the cable company is negotiating terms
for interconnecting with the incumbent LEC. Addressing some or all of
the issues in the two negotiations collectively could expand the
options for reaching agreement, and would equalize the parties'
bargaining power, because each has something that the other party
desires.
119. We agree with parties contending that actions that are
intended to delay negotiations or resolution of disputes are
inconsistent with the statutory duty to negotiate in good faith. The
Commission will not condone any actions that are deliberately intended
to delay competitive entry, in contravention of the statute's goals. We
agree with SCBA that small entities seeking to enter the market may be
particularly disadvantaged by delay. However, whether a party has
failed to negotiate in good faith by employing unreasonable delaying
tactics must be determined on a specific, case-by-case basis. For
example, a party may not refuse to negotiate with a requesting
telecommunications carrier, and a party may not condition negotiation
on a carrier first obtaining state certification. A determination based
upon the intent of a party, however, is not susceptible to a
standardized rule. If a party refuses throughout the negotiation
process to designate a representative with authority to make binding
representations on behalf of the party, and thereby significantly
delays resolution of issues, such action would constitute failure to
negotiate in good faith. The Commission has reached a consistent
conclusion in other instances. See, e.g., Application of Gross
Telecasting, Inc., 57 FR 18857 (May 1, 1992); Public Notice, FCC Asks
for Comments Regarding the Establishment of an Advisory Committee to
Negotiate Proposed Regulations, 57 FR 18857 (May 1, 1992). In
particular, we believe that designating a representative authorized to
make binding representations on behalf of a party will assist small
entities and small incumbent LECs by centralizing communications and
thereby facilitating the negotiation process. On the other hand, it is
unreasonable to expect an agent to have authority to bind the principal
on every issue--i.e., a person may reasonably be an agent of limited
authority.
120. We agree with incumbent LECs and new entrants that contend
that the parties should be required to provide information necessary to
reach agreement. See National Labor Relations Board v. Truitt Mfg Co.,
351 U.S. 149, 153 (1956) (the trier of fact can reasonably conclude
that a party lacks good faith if it raises assertions about inability
to pay without making the slightest effort to substantiate that claim);
see also Microwave Facilities Operating in 1850-1990 MHz (2GHz) Band,
61 FR 29679, 29689 (June 12, 1996). Parties should provide information
that will speed the provisioning process, and incumbent LECs must prove
to the state commission, or in some instances the Commission or a
court, that delay is not a motive in their conduct. Review of such
requests, however, must be made on a case-by-case basis to determine
whether the information requested is reasonable and necessary to
resolving the issues at stake. It would be reasonable, for example, for
a requesting carrier to seek and obtain cost data relevant to the
negotiation, or information about the incumbent's network that is
necessary to make a determination about which network elements to
request to serve a particular customer. It would not appear to be
reasonable, however, for a carrier to demand proprietary information
about the incumbent's network that is not necessary for such
interconnection. This is consistent with previous FCC determinations.
See, e.g., Amendment of Rules and Policies Governing the Attachment of
Cable Television Hardware to Utility Poles, 4 FCC Rcd 468 (1989) (good
faith negotiations necessitate that, at a minimum, one party must
approach the other with a specific request). We conclude that an
incumbent LEC may not deny a requesting carrier's reasonable request
for cost data during the negotiation process, because we conclude that
such information is necessary for the requesting carrier to determine
whether the rates offered by the incumbent LEC are reasonable. We find
that this is consistent with Congress' intention for parties to use the
voluntary negotiation process, if possible, to reach agreements. On the
other hand, the refusal of a new entrant to provide data about its own
costs does not appear on its face to be unreasonable, because the
negotiations are not about unbundling or leasing the new entrants'
networks.
121. We also find that incumbent LECs may not require requesting
carriers to satisfy a ``bona fide request'' process as part of their
duty to negotiate in good faith. Some of the information that incumbent
LECs propose to include in a bona fide request requirement may be
legitimately demanded from the requesting carrier; some of the proposed
requirements, on the other hand, exceed the scope of what is necessary
for the parties to reach agreement, and imposing such requirements may
discourage new entry. For example, parties advocate that a ``bona fide
request'' requirement should require requesting carriers to commit to
purchase services or facilities for a specified period of time. We
believe that forcing carriers to make such a commitment before critical
terms, such as price, have been resolved is likely to impede new entry.
Moreover, we note that section 251(c) does not impose any bona fide
request requirement. In contrast, section 251(f)(1) provides that a
rural telephone company is exempt from the requirements of 251(c)
until, among other things, it receives a ``bona fide request'' for
interconnection, services, or network elements. This suggests that, if
Congress had intended to impose a ``bona fide request'' requirement on
requesting carriers as part of their duty to negotiate in good faith,
Congress would have made that requirement explicit.
D. Applicability of Section 252 to Preexisting Agreements
1. Background
122. Section 252(a)(1) provides that, ``[u]pon receiving a request
for interconnection, services, or network elements pursuant to section
251, an incumbent local exchange carrier may negotiate and enter into a
binding agreement with the requesting telecommunications carrier or
carriers without regard to the standards set forth in subsections (b)
and (c) of section 251. * * * The agreement, including any
interconnection agreement negotiated before the date of enactment of
the Telecommunications Act of 1996, shall be submitted to the State
commission under subsection (e) of this section.''
[[Page 45498]]
123. In the NPRM, we sought comment on whether sections 252(a)(1)
and 252(e) require parties that have negotiated agreements for
interconnection, services or network elements prior to the passage of
the 1996 Act to submit such agreements to state commissions for
approval. We also asked whether one party to such an existing agreement
could compel renegotiation and arbitration in accordance with the
procedures set forth in section 252.
2. Discussion
124. We conclude that the 1996 Act requires all interconnection
agreements, ``including any interconnection agreement negotiated before
the date of enactment of the Telecommunications Act of 1996,'' to be
submitted to the state commission for approval pursuant to section
252(e). The 1996 Act does not exempt certain categories of agreements
from this requirement. When Congress sought to exclude preexisting
contracts from provisions of the new law, it did so expressly. For
example, section 276(b)(3) provides that ``nothing in this section
shall affect any existing contracts between location providers and
payphone service providers or interLATA or intraLATA carriers that are
in force and effect as of the date of enactment of the
Telecommunications Act of 1996.'' Nothing in the legislative history
leads us to a contrary conclusion. Congress intended, in enacting
sections 251 and 252, to create opportunities for local telephone
competition. We believe that this pro-competitive goal is best effected
by subjecting all agreements to state commission review.
125. The first sentence in section 252(a)(1) refers to requests for
interconnection ``pursuant to section 251.'' The final sentence in
section 252(a)(1) requires submission to the state commission of all
negotiated agreements, including those negotiated before the enactment
of the 1996 Act. Some parties have asserted that there is a tension
between those two sentences. We conclude that the final sentence of
section 252(a)(1), which requires that any interconnection agreement
must be submitted to the state commission, can and should be read to be
independent of the prior sentences in section 252(a)(1). The
interpretation suggested by some commenters that preexisting contracts
need only be filed if they are amended subsequent to the 1996 Act, or
incorporated by reference into agreements negotiated pursuant to the
1996 Act, would force us to impose conditions that were not intended by
Congress.
126. As a matter of policy, moreover, we believe that requiring
filing of all interconnection agreements best promotes Congress' stated
goals of opening up local markets to competition, and permitting
interconnection on just, reasonable, and nondiscriminatory terms. State
commissions should have the opportunity to review all agreements,
including those that were negotiated before the new law was enacted, to
ensure that such agreements do not discriminate against third parties,
and are not contrary to the public interest. In particular, preexisting
agreements may include provisions that violate or are inconsistent with
the pro-competitive goals of the 1996 Act, and states may elect to
reject such agreements under section 252(e)(2)(A). Requiring all
contracts to be filed also limits an incumbent LEC's ability to
discriminate among carriers, for at least two reasons. First, requiring
public filing of agreements enables carriers to have information about
rates, terms, and conditions that an incumbent LEC makes available to
others. Second, any interconnection, service or network element
provided under an agreement approved by the state commission under
section 252 must be made available to any other requesting
telecommunications carrier upon the same terms and conditions, in
accordance with section 252(i). In addition, we believe that having the
opportunity to review existing agreements may provide state commissions
and potential competitors with a starting point for determining what is
``technically feasible'' for interconnection.
127. Conversely, excluding certain agreements from public
disclosure could have anticompetitive consequences. For example, such
contracts could include agreements not to compete. In addition, if we
exempt agreements between neighboring non-competing LECs, those parties
might have a disincentive to compete with each other in the future, in
order to preserve the terms of their preexisting agreements. Such a
result runs counter to the goal of the 1996 Act to encourage local
service competition. Moreover, preserving such ``non-competing''
agreements could effectively insulate those parties from competition by
new entrants. For example, if a new entrant seeking to provide
competitive local service in a rural community is unable to obtain from
a neighboring BOC interconnection or transport and termination on terms
that are as favorable as those the BOC offers to the incumbent LEC in
the rural area, the new entrant cannot effectively compete. This
analysis does not address the separate question of whether an incumbent
LEC in a rural area must offer interconnection, resale services, or
unbundled network elements. As discussed infra, Section XII, Congress
provided rural carriers with an exemption from section 251(c)
requirements until the state commission removes such exemption. 47
U.S.C. Sec. 251(f)(1). This is because the new entrant will have to
charge its subscribers higher rates than the incumbent LEC charges to
place calls to subscribers of the neighboring BOC.
128. We find that section 259 does not compel us to reach a
different conclusion regarding the application of section 252 to
agreements between neighboring LECs. Section 259 requires the
Commission to prescribe, within one year after the date of enactment of
the 1996 Act, regulations that require incumbent LECs ``to make
available to any qualifying carrier such public switched network
infrastructure, technology, information, and telecommunications
facilities and functions as may be requested by such qualifying carrier
to provide telecommunications services, or to provide access to
information services * * *'' 47 U.S.C. Sec. 259(a). A ``qualifying
carrier'' is a telecommunications carrier that ``lacks economies of
scale or scope,'' and that offers telephone exchange service, exchange
access, and any other service included in universal service to all
consumers in the service area without preference. 47 U.S.C.
Sec. 259(d). Section 259 is limited to agreements for infrastructure
sharing between incumbent LECs and telecommunications carriers that
lack ``economies of scale or scope,'' as determined in accordance with
regulations prescribed by the Commission. We conclude that the purpose
and scope of section 259 differ significantly from the purpose and
scope of section 251. The Commission plans to initiate a proceeding to
establish regulations pursuant to section 259. Section 259 is a limited
and discrete provision designed to bring the benefits of advanced
infrastructure to additional subscribers, in the context of the pro-
competitive goals and provisions of the 1996 Act. Moreover, section
259(b)(7) requires LECs to file with the Commission or the state ``any
tariffs, contracts or other arrangements showing the rates, terms, and
conditions under which such carrier is making available public switched
network infrastructure and functions under this
[[Page 45499]]
section.'' We believe that this language further supports our
conclusion that Congress intended agreements between neighboring LECs
to be filed and available for public inspection. Commenters also have
failed to persuade us that universal service is jeopardized by our
finding that agreements between neighboring LECs are subject to section
252 filing and review provisions. Concerns regarding universal service
should be addressed by the Federal-State Joint Board, empaneled
pursuant to section 254 of the 1996 Act. The Joint Board has initiated
a comprehensive review of universal service issues and is considering,
among other matters, access to telecommunications and information
services in rural and high cost areas. In addition, as discussed in
Section XII, infra, the 1996 Act provides for exemptions, suspension,
or modification of some of the requirements in section 251 for rural or
smaller carriers.
129. Some parties have suggested that we provide parties an
opportunity to renegotiate preexisting contracts. Parties, of course,
may mutually agree to renegotiate agreements, but we decline to mandate
that parties renegotiate existing contracts. In addition, as discussed
below, commercial mobile radio service (CMRS) providers that are party
to preexisting agreements with incumbent LECs that provide for non-
mutual compensation have the option of renegotiating such agreements
with no termination liabilities or contract penalties. We believe that
generally requiring renegotiation of preexisting contracts is
unnecessary, however, because state commissions will review preexisting
agreements, and may reject any negotiated agreement that
``discriminates against a telecommunications carrier not a party to the
agreement,'' or that ``is not consistent with the public interest,
convenience, and necessity.'' We recognize that preexisting agreements
were negotiated under very different circumstances, and may not provide
a reasonable basis for interconnection agreements under the 1996 Act.
For example, non-competing neighboring LECs may have negotiated terms
that simply are not viable in a competitive market. It would not foster
efficient long-term competition to force parties to make available to
all requesting carriers interconnection on terms not sustainable in a
competitive environment. In such circumstances, a state commission
would have authority to reject a preexisting agreement as inconsistent
with the public interest. If a state commission approves a preexisting
agreement, that agreement will be available to other parties in
accordance with section 252(i). Contrary to NYNEX's assertion, once a
state approves an agreement under section 252(e), that agreement is
``approved under'' section 252.
130. We decline to require immediate filing of preexisting
agreements. States should establish procedures and reasonable time
frames for requiring filing of preexisting agreements in a timely
manner. We leave these procedures largely in the hands of the states in
order to ensure that we do not impair some states' ability to carry out
their other duties under the 1996 Act, especially if a large number of
such agreements must be filed and approved by the state commission. We
believe, nevertheless, that we should set an outer time period to file
with the appropriate state commission agreements that Class A carriers
have with other Class A carriers that predate the 1996 Act. Class A
companies are defined as companies ``having annual revenues from
regulated telecommunications operations of $100,000,000 or more.'' 47
CFR Sec. 32.11(a)(1). We conclude that setting such a time limit will
ensure that third parties are not prevented indefinitely from reviewing
and taking advantage of the terms of preexisting agreements. We are
concerned, however, about the burden that a national filing deadline
might impose on small telephone companies that have preexisting
agreements with Class A carriers or with other small carriers. We
therefore limit the filing deadline requirement to preexisting
agreements between Class A carriers. We encourage all carriers to file
preexisting contracts with the appropriate state commission no later
than June 30, 1997, but impose this as a requirement only with respect
to agreements between Class A carriers. We find that requiring
preexisting agreements between Class A carriers to be filed no later
than June 30, 1997 is unlikely to burden state commissions unduly, and
will give parties a reasonable opportunity to renegotiate agreements if
they so choose, while at the same time, establishing this outer time
limit ensures that third parties will have access to the terms of such
agreements, under section 252(i), within a reasonable period. We expect
to have completed proceedings on universal service and access charges
by this filing deadline. States may impose a shorter time period for
filing preexisting agreements.
IV. Interconnection
131. This section of the Report and Order, and the three sections
that follow it, address the interconnection and unbundling obligations
that the Act imposes on incumbent LECs. Beyond the resale of incumbent
LEC services, it is these obligations that pave the way for the
introduction of facilities-based competition with incumbent LECs. The
interconnection obligation of section 251(c)(2), discussed in this
section, allows competing carriers to choose the most efficient points
at which to exchange traffic with incumbent LECs, thereby lowering the
competing carriers' costs of, among other things, transport and
termination of traffic. The unbundling obligation of section 251(c)(3)
further permits new entrants, where economically efficient, to
substitute incumbent LEC facilities for some or all of the facilities
the new entrant would have had to obtain in order to compete. Finally,
both the interconnection and unbundling sections of the Act, in
combination with the collocation obligation imposed on incumbents by
section 251(c)(6), allow competing carriers to choose technically
feasible methods of achieving interconnection or access to unbundled
elements.
132. Section 251(c)(2) imposes upon incumbent LECs ``the duty to
provide, for the facilities and equipment of any requesting
telecommunications carrier, interconnection with the local exchange
carrier's network * * * for the transmission and routing of telephone
exchange service and exchange access.'' Such interconnection must be:
(1) provided by the incumbent LEC at ``any technically feasible point
within [its] network;'' (2) ``at least equal in quality to that
provided by the local exchange carrier to itself or * * * [to] any
other party to which the carrier provides interconnection;'' and (3)
provided on rates, terms, and conditions that are ``just, reasonable,
and nondiscriminatory, in accordance with the terms and conditions of
the agreement and the requirements of this section and section 252.''
A. Relationship Between Interconnection and Transport and Termination
1. Background
133. In the NPRM, we sought comment on the relationship between the
obligation of incumbent LECs to provide ``interconnection'' under
section 251(c)(2) and the obligation of all LECs to establish
reciprocal compensation arrangements for the ``transport and
termination'' of
[[Page 45500]]
telecommunications pursuant to section 251(b)(5). We stated that the
term ``interconnection'' might refer only to the physical linking of
two networks or to both the linking of facilities and the transport and
termination of traffic. We noted in the NPRM that section 252(d) sets
forth different pricing standards for interconnection and transport and
termination.
2. Discussion
134. We conclude that the term ``interconnection'' under section
251(c)(2) refers only to the physical linking of two networks for the
mutual exchange of traffic. Including the transport and termination of
traffic within the meaning of section 251(c)(2) would result in reading
out of the statute the duty of all LECs to establish ``reciprocal
compensation arrangements for the transport and termination of
telecommunications,'' under section 251(b)(5). In addition, in setting
the pricing standard for section 251(c)(2) interconnection, section
252(d)(1) states it applies when state commissions make determinations
``of the just and reasonable rate for interconnection of facilities and
equipment for purposes of subsection (c)(2) of section 251.'' Because
section 251(d)(1) states that it only applies to the interconnection of
``facilities and equipment,'' if we were to interpret section 251(c)(2)
to refer to transport and termination of traffic as well as the
physical linking of equipment and facilities, it would still be
necessary to find a pricing standard for the transport and termination
of traffic apart from section 252(d)(1). We also reject CompTel's
argument that reading section 251(c)(2) to refer only to the physical
linking of networks implies that incumbent LECs would not have a duty
to route and terminate traffic. That duty applies to all LECs and is
clearly expressed in section 251(b)(5). We note that because
interconnection refers to the physical linking of two networks, and not
the transport and termination of traffic, access charges are not
affected by our rules implementing section 251(c)(2).
B. National Interconnection Rules
1. Background
135. In the NPRM, we tentatively concluded that national
interconnection rules would facilitate swift entry by competitors in
multiple states by eliminating the need to comply with a multiplicity
of state variations in technical and procedural requirements. NPRM at
para. 40, 61 FR 18311 (April 25, 1996). We sought comment on this
tentative conclusion.
2. Discussion
136. As discussed more fully above, we conclude that national rules
regarding interconnection pursuant to section 251(c)(2) are necessary
to further Congress's goal of creating conditions that will facilitate
the development of competition in the telephone exchange market.
Uniform rules will permit all carriers, including small entities and
small incumbent LECs, to plan regional or national networks using the
same interconnection points in similar networks nationwide. Uniform
rules will also guarantee consistent, minimum nondiscrimination
safeguards and ``equal in quality'' standards in every state. Such
rules will also avoid relitigating, in multiple states, the issue of
whether interconnection at a particular point is technically feasible.
137. We believe, however, that inflexible or overly detailed
national rules implementing section 251(c)(2) may inhibit the ability
of the states or the parties to reach arrangements that reflect
technological and market advances and regional differences. We also
believe that, on several issues, the record is not adequate at this
time to justify the establishment of national rules. Therefore, as
required by section 251(d)(3) and as discussed in section II.C. above,
our rules will permit states to go beyond the national rules discussed
below, and impose additional procompetitive interconnection
requirements, as long as such requirements are otherwise consistent
with the 1996 Act and the Commission's regulations. We believe that we
can benefit from state experience in our ongoing review of these
issues.
C. Interconnection for the Transmission and Routing of Telephone
Exchange Service and Exchange Access
1. Background
138. Section 251(c)(2) imposes a duty upon incumbent LECs to
provide ``interconnection with the [LEC's] network * * * for the
transmission and routing of telephone exchange service and exchange
access.'' In the NPRM, we sought comment on whether a carrier could
request interconnection pursuant to subsection (c)(2) for purposes of
transmitting and routing telephone exchange service, exchange access,
or both, or whether this provision requires that such a request be
solely for purposes of providing both telephone exchange service and
exchange access.
2. Discussion
139. We conclude that the phrase ``telephone exchange service and
exchange access'' imposes at least three obligations on incumbent LECs:
an incumbent must provide interconnection for purposes of transmitting
and routing telephone exchange traffic or exchange access traffic or
both. We believe that this interpretation is consistent with both the
language of the statute and Congress's intent to foster entry by
competitive providers into the local exchange market. As the U.S. Court
of Appeals for the Fifth Circuit stated in Peacock v. Lubbock Compress
Company, ``the word `and' is not a word with a single meaning, for
chameleonlike, it takes its color from its surroundings.'' The court
held that ``[i]n the construction of statutes, it is the duty of the
Court to ascertain the clear intention of the legislature. In order to
do this, Courts are often compelled to construe `or' as meaning `and,'
and again `and' as meaning `or'.'' Peacock v. Lubbock Compress Company,
252 F.2d 892, 893 (5th Cir. 1958) (citing United States v. Fisk, 70
U.S. 445, 448). Moreover, the term ``local exchange carrier'' is
defined in the Act as ``any person that is engaged in the provision of
telephone exchange service or exchange access.'' Thus, we believe that
Congress intended to facilitate entry by carriers offering either
service. In imposing an interconnection requirement under section
251(c)(2) to facilitate such entry, however, we believe that Congress
did not want to deter entry by entities that seek to offer either
service, or both, and, as a result, section 251(c)(2) requires
incumbent LECs to interconnect with carriers providing ``telephone
exchange service and exchange access.'' Congress made clear that
incumbent LECs must provide interconnection to carriers that seek to
offer telephone exchange service and to carriers that seek to offer
exchange access. This interpretation is consistent with section
251(c)(2), which imposes an obligation on incumbent LECs, but not
requesting carriers. Thus, for example, an analogous requirement might
be that incumbent LECs must provide interconnection for the
transmission and routing of ``electrical and optical signals.'' Such a
hypothetical requirement could not rationally be read to obligate
requesting carriers to provide both electrical and optical signals.
140. We also conclude that requiring new entrants to make available
both local exchange service and exchange access as a prerequisite to
obtaining interconnection to the incumbent LEC's network under
subsection (c)(2) would unduly restrict potential competitors. For
example, CAPs often enter the
[[Page 45501]]
telecommunications market as exchange access providers prior to
offering telephone exchange services. Further, applying separate
regulatory regimes (i.e., section 251 related-rules for providers of
telephone exchange and exchange access services and section 201
related-rules for providers of only exchange access services) with
divergent requirements to parties using essentially the same equipment
to transmit and route traffic, is undesirable in light of the new
procompetitive paradigm created by section 251. We see no convincing
justification for treating providers of exchange access services that
offer telephone exchange services differently from access providers who
do not offer telephone exchange services. We therefore conclude that
parties offering only exchange access are permitted to seek
interconnection pursuant to section 251(c)(2).
D. Interexchange Service is Not Telephone Exchange Service or Exchange
Access
1. Background
141. Sections 251(c)(2) and 251(c)(3) impose duties upon incumbent
LECs to provide interconnection and nondiscriminatory access to
unbundled network elements to ``any requesting telecommunications
carrier.'' In the NPRM, we tentatively concluded that carriers
providing interexchange services are ``telecommunications carriers''
and thus may seek interconnection and unbundled elements under
subsections (c)(2) and (c)(3). We also tentatively concluded, however,
that with respect to section 251(c)(2), the statute imposes limits on
the purposes for which any telecommunications carrier, including IXCs,
may request interconnection pursuant to that section. Section 251(c)(2)
imposes an obligation upon incumbent LECs to provide requesting
carriers with interconnection if the purpose of the interconnection is
for the ``transmission and routing of telephone exchange service and
exchange access.'' We tentatively concluded in the NPRM that
interexchange service does not appear to constitute either ``telephone
exchange service'' or ``exchange access.'' ``Exchange access'' is
defined in section 3(16) as ``the offering of access to telephone
exchange services or facilities for the purpose of the origination or
termination of telephone toll services.'' We stated that an IXC that
requests interconnection to originate or terminate an interexchange
toll call is not ``offering'' access services, but rather is
``receiving'' access services.
2. Discussion
142. We conclude that IXCs are telecommunications carriers under
the 1996 Act, because they provide telecommunications services (i.e.,
``offer telecommunications for a fee directly to the public'') by
originating or terminating interexchange traffic. IXCs are permitted
under the statute to obtain interconnection pursuant to section
251(c)(2) for the ``transmission and routing of telephone exchange
service and exchange access.'' Moreover, traditional IXCs are a
significant potential new local competitor and we conclude that denying
them the right to obtain section 251(c)(2) interconnection lacks any
legal or policy justification. Thus, all carriers (including those
traditionally classified as IXCs) may obtain interconnection pursuant
to section 251(c)(2) for the purpose of terminating calls originating
from their customers residing in the same telephone exchange (i.e.,
non-interexchange calls).
143. We conclude, however, that an IXC that requests
interconnection solely for the purpose of originating or terminating
its interexchange traffic, not for the provision of telephone exchange
service and exchange access to others, on an incumbent LEC's network is
not entitled to receive interconnection pursuant to section 251(c)(2).
Section 251(c)(2) states that incumbent LECs have a duty to
interconnect with telecommunications providers ``for the transmission
and routing of telephone exchange service and exchange access.'' A
telecommunications carrier seeking interconnection only for
interexchange services is not within the scope of this statutory
language because it is not seeking interconnection for the purpose of
providing telephone exchange service. Nor does a carrier seeking
interconnection of interstate traffic only--for the purpose of
providing interstate services only--fall within the scope of the phrase
``exchange access.'' Such a would-be interconnector is not ``offering''
access to telephone exchange services. As we stated in the NPRM, an IXC
that seeks to interconnect solely for the purpose of originating or
terminating its own interexchange traffic is not offering access, but
rather is only obtaining access for its own traffic. Thus, we disagree
with CompTel's position that IXCs are offering exchange access when
they offer and provide exchange access as a part of long distance
service. We conclude that a carrier may not obtain interconnection
pursuant to section 251(c)(2) for the purpose of terminating
interexchange traffic, even if that traffic was originated by a local
exchange customer in a different telephone exchange of the same carrier
providing the interexchange service, if it does not offer exchange
access services to others. As we stated above, however, providers of
competitive access services are eligible to receive interconnection
pursuant to section 251(c)(2). Thus, traditional IXCs that offer access
services in competition with an incumbent LEC (i.e., IXCs that offer
access services to other carriers as well as to themselves) are also
eligible to obtain interconnection pursuant to section 251(c)(2). For
example, when an IXC interconnects at a local switch, bypassing the
incumbent LECs' transport network, that IXC may offer access to the
local switch in competition with the incumbent. In such a situation,
the interconnection point may be considered a section 251(c)(2)
interconnection point.
E. Definition of ``Technically Feasible''
1. Background
144. In addition to specifying the purposes for which carriers may
request interconnection, section 251(c)(2) obligates incumbent LECs to
provide interconnection within their networks at any ``technically
feasible point.'' Similarly, section 251(c)(3) obligates incumbent LECs
to provide access to unbundled elements at any ``technically feasible
point.'' Thus our interpretation of the term ``technically feasible''
applies to both sections.
145. In the NPRM, we sought comment on a ``dynamic'' definition of
``technically feasible'' that would provide flexibility for negotiating
parties and the states in determining interconnection and unbundling
points as network technology evolves. We requested comment on the
extent to which network reliability concerns should be included in a
technical feasibility analysis, and tentatively concluded that, if such
concerns were involved, the incumbent LEC had the burden to support
such a claim with detailed information. We also sought comment on the
role of other considerations, such as economic burden, in determining
technical feasibility under sections 251(c)(2) and 251(c)(3).
146. We also tentatively concluded that interconnection or access
at a particular point in one LEC network evidences the technical
feasibility of providing the same or similar interconnection or access
in another, similarly structured LEC network. Finally, we tentatively
concluded that incumbent LECs have the burden of
[[Page 45502]]
proving the technical infeasibility of providing interconnection or
access at a particular point.
2. Discussion
147. We conclude that the term ``technically feasible'' refers
solely to technical or operational concerns, rather than economic,
space, or site considerations. We further conclude that the obligations
imposed by sections 251(c)(2) and 251(c)(3) include modifications to
incumbent LEC facilities to the extent necessary to accommodate
interconnection or access to network elements. Specific, significant,
and demonstrable network reliability concerns associated with providing
interconnection or access at a particular point, however, will be
regarded as relevant evidence that interconnection or access at that
point is technically infeasible. We also conclude that preexisting
interconnection or access at a particular point evidences the technical
feasibility of interconnection or access at substantially similar
points. Finally, we conclude that incumbent LECs must prove to the
appropriate state commission that a particular interconnection or
access point is not technically feasible.
148. We find that the 1996 Act bars consideration of costs in
determining ``technically feasible'' points of interconnection or
access. In the 1996 Act, Congress distinguished ``technical''
considerations from economic concerns. Section 251(f), for example,
exempts certain rural LECs from ``unduly economically burdensome''
obligations imposed by section 251(c) even where satisfaction of such
obligations is ``technically feasible.'' Similarly, section
254(h)(2)(A) treats ``technically feasible'' and ``economically
reasonable'' as separate requirements. Finally, we note that the House
committee that considered H.R. 1555 (which was combined with Senate
Bill S.652 to form the 1996 Act) dropped the term ``economically
reasonable'' from its unbundling provision. The House committee
explicitly addressed this substantive change, reporting that ``this
requirement could result in certain unbundled * * * elements * * * not
being made available.'' H. Rep. 104-204, 71 (1995). Thus, the
deliberate and explained substantive omission of explicit economic
requirements in sections 251(c)(2) and 251(c)(3) cannot be undone
through an interpretation that such considerations are implicit in the
term ``technically feasible.'' Of course, a requesting carrier that
wishes a ``technically feasible'' but expensive interconnection would,
pursuant to section 252(d)(1), be required to bear the cost of that
interconnection, including a reasonable profit.
149. USTA and SBC cite the Commission's 900 Service order (Policies
and Rules Concerning Interstate 900 Telecommunications Services, Report
and Order, 56 FR 56160 (November 1, 1991)) as support for the
contention that costs must be considered in a technical feasibility
analysis. In that order, the Commission concluded that ``[i]n defining
`technically feasible,' we balance both technical and economic
considerations with a view toward providing [900] blocking capability
to consumers without imposing undue economic burdens on LECs.'' Our 900
Service order, however, has little bearing on our interpretation of the
term ``technically feasible'' in the 1996 Act. As stated above, the
1996 Act distinguishes technical considerations from the ``undue
economic burdens'' considered in the 900 Service order. Indeed,
Congress used virtually the same language--``unduly economically
burdensome''--in drawing the distinction. If, as SBC contends, we are
to presume that Congress was aware of the Commission's analysis of the
technical feasibility of 900 call blocking, the 1996 Act appears
squarely to reject that view of technical feasibility. Moreover, unlike
the costs of providing 900 call blocking, which we imposed largely on
LECs in the 900 Service order, as noted above, to the extent incumbent
LECs incur costs to provide interconnection or access under sections
251(c)(2) or 251(c)(3), incumbent LECs may recover such costs from
requesting carriers.
150. In addition to economic considerations, section 251(c)(6)
distinguishes considerations of ``space limitations'' from those of
``technical reasons,'' and thus, in general, we believe existing space
or site restrictions should not be included within a technical
feasibility analysis. Of course, under section 251(c)(6) ``space''
restrictions are expressly considered along with ``technical''
considerations in determining whether an incumbent LEC must provide for
physical collocation. Where physical collocation is not practical
because of ``space limitations,'' however, incumbent LECs must provide
for virtual collocation. Section 251 is silent as to whether an
incumbent LEC's duty to provide for virtual collocation or other
methods of interconnection or access to unbundled elements is dependent
on space constraints. We conclude, as a practical matter, that space
limitations at a particular network site, without any possibility of
expansion, may render interconnection or access at that point
infeasible, technically or otherwise. Where such expansion is possible,
however, we conclude that, in light of the distinction drawn in section
251(c)(6), site restrictions do not represent a ``technical'' obstacle.
Again, however, the requesting party would bear the cost of any
necessary expansion. Nor do we believe the term ``technical,'' when
interpreted in accordance with its ordinary meaning as referring to
engineering and operational concerns in the context of sections
251(c)(2) and 251(c)(3), includes consideration of accounting or
billing restrictions.
151. Several parties also attempt to draw a distinction between
what is ``feasible'' under the terms of the statute, and what is
``possible.'' The words ``feasible'' and ``possible,'' however, are
used synonymously. Feasible is defined as ``capable of being
accomplished or brought about; possible.'' The statute itself provides
a more meaningful distinction. Unlike the ``technically feasible''
terminology included in sections 251(c)(2) and 251(c)(3), section
251(c)(6) uses the term ``practical for technical reasons'' in
determining the scope of an incumbent LEC's obligation to provide for
physical collocation. ``Practical'' is defined as ``manifested in
practice or action * * * not theoretical or ideal'' or ``adapted or
designed for actual use; useful,'' and connotes similarity to ordinary
usage. Thus, it is reasonable to interpret Congress' use of the term
``feasible'' in sections 251(c)(2) and 251(c)(3) as encompassing more
than what is merely ``practical'' or similar to what is ordinarily
done. That is, use of the term ``feasible'' implies that
interconnecting or providing access to a LEC network element may be
feasible at a particular point even if such interconnection or access
requires a novel use of, or some modification to, incumbent LEC
equipment. This interpretation is consistent with the fact that
incumbent LEC networks were not designed to accommodate third-party
interconnection or use of network elements at all or even most points
within the network. If incumbent LECs were not required, at least to
some extent, to adapt their facilities to interconnection or use by
other carriers, the purposes of sections 251(c)(2) and 251(c)(3) would
often be frustrated. For example, Congress intended to obligate the
incumbent to accommodate the new entrant's network architecture by
requiring the incumbent to provide interconnection ``for the facilities
and equipment'' of the new entrant.
[[Page 45503]]
Consistent with that intent, the incumbent must accept the novel use
of, and modification to, its network facilities to accommodate the
interconnector or to provide access to unbundled elements.
152. We also conclude, however, that legitimate threats to network
reliability and security must be considered in evaluating the technical
feasibility of interconnection or access to incumbent LEC networks.
Negative network reliability effects are necessarily contrary to a
finding of technical feasibility. Each carrier must be able to retain
responsibility for the management, control, and performance of its own
network. Thus, with regard to network reliability and security, to
justify a refusal to provide interconnection or access at a point
requested by another carrier, incumbent LECs must prove to the state
commission, with clear and convincing evidence, that specific and
significant adverse impacts would result from the requested
interconnection or access. The reports of the Commission's Network
Reliability Council discuss network reliability considerations, and
establish templates that list activities that need to occur when
service providers connect their networks pursuant to defined
interconnection specifications or when they are attempting to define a
new network interface specification.
153. We further conclude that successful interconnection or access
to an unbundled element at a particular point in a network, using
particular facilities, is substantial evidence that interconnection or
access is technically feasible at that point, or at substantially
similar points in networks employing substantially similar facilities.
In comparing networks for this purpose, the substantial similarity of
network facilities may be evidenced, for example, by their adherence to
the same interface or protocol standards. We also conclude that
previous successful interconnection at a particular point in a network
at a particular level of quality constitutes substantial evidence that
interconnection is technically feasible at that point, or at
substantially similar points, at that level of quality. Although most
parties agree with this conclusion, some LECs contend that such
comparisons are all but impossible because of alleged variability in
network technologies, even where the ultimate services offered by
separate networks are the same. We believe that, if the facilities are
substantially similar, the LECs' contention is adequately addressed.
154. Finally, because sections 251(c)(2) and 251(c)(3) impose
duties upon incumbent LECs, we conclude that incumbent LECs must prove
to the appropriate state commission that interconnection or access at a
point is not technically feasible. Incumbent LECs possess the
information necessary to assess the technical feasibility of
interconnecting to particular LEC facilities. Further, incumbent LECs
have a duty to make available to requesting carriers general
information indicating the location and technical characteristics of
incumbent LEC network facilities. Without access to such information,
competing carriers would be unable to make rational network deployment
decisions and could be forced to make inefficient use of their own and
incumbent LEC facilities, with anticompetitive effects.
155. We have considered the economic impact of our rules in this
section on small incumbent LECs. For example, the Rural Telephone
Coalition argues that the Commission should set interconnection points
in a flexible manner to recognize the differences between carriers and
regions. We do not adopt the Rural Telephone Coalition's position
because we believe that, in general, the Act does not permit incumbent
LECs to deny interconnection or access to unbundled elements for any
reason other than a showing that it is not technically feasible. We
believe that this interpretation will advance the procompetitive goals
of the statute. We also note, however, that section 251(f) of the 1996
Act provides relief to certain small LECs from our regulations
implementing section 251.
F. Technically Feasible Points of Interconnection
1. Background
156. In the NPRM, we requested comment on which points within an
incumbent LEC's network constitute ``technically feasible'' points for
purposes of section 251(c)(2). Having defined the phrase ``technically
feasible'' above, we now determine a minimum set of technically
feasible points of interconnection.
2. Discussion
157. We conclude that we should identify a minimum list of
technically feasible points of interconnection that are critical to
facilitating entry by competing local service providers. Section
251(c)(2) gives competing carriers the right to deliver traffic
terminating on an incumbent LEC's network at any technically feasible
point on that network, rather than obligating such carriers to
transport traffic to less convenient or efficient interconnection
points. Section 251(c)(2) lowers barriers to competitive entry for
carriers that have not deployed ubiquitous networks by permitting them
to select the points in an incumbent LEC's network at which they wish
to deliver traffic. Moreover, because competing carriers must usually
compensate incumbent LECs for the additional costs incurred by
providing interconnection, competitors have an incentive to make
economically efficient decisions about where to interconnect.
158. We conclude that, at a minimum, incumbent LECs must provide
interconnection at the line-side of a local switch (at, for example,
the main distribution frame), the trunk-side of a local switch; the
trunk interconnection points for a tandem switch; and central office
cross-connect points in general. This requirement includes
interconnection at those out-of-band signaling transfer points
necessary to exchange traffic and access call related databases. All of
these points of interconnection are used today by competing carriers,
noncompeting carriers, or LECs themselves for the exchange of traffic,
and thus we conclude that interconnection at such points is technically
feasible.
159. A varied group of commenters, including Bell Atlantic and
AT&T, agree that interconnection at the line-side of the switch is
technically feasible. Interconnection at this point is currently
provided to some commercial mobile radio service (CMRS) carriers and
may be necessary for other competitors that have their own distribution
plant, but seek to interconnect to the incumbent's switch. We also
agree with numerous commenters that claim that interconnection at the
trunk-side of a switch is technically feasible and should be available
upon request. Interconnection at this point is currently used by
competing carriers to exchange traffic with incumbent LECs.
Interconnection to tandem switching facilities is also currently used
by IXCs and competing access providers, and is thus technically
feasible. Finally, central office cross-connect points, which are
designed to facilitate interconnection, are natural points of
technically feasible interconnection to, for example, interoffice
transmission facilities. There may be rare circumstances where there
are true technical barriers to interconnection at the line- or trunk-
side of the switch or at central office cross-connect points, however,
the parties have not presented us with any such circumstances. Thus,
[[Page 45504]]
incumbent LECs must prove to the state commissions that such points are
not technically feasible interconnection points.
160. We also note that the points of access to unbundled elements
discussed below may also serve as points of interconnection (i.e.,
points in the network that may serve as places where potential
competitors may wish to exchange traffic with the incumbent LEC other
than for purposes of gaining access to unbundled elements), and thus we
incorporate those points by reference here. Finally, as noted above, we
have identified a minimum list of technically feasible interconnection
points: (1) The line-side of a local switch; (2) the trunk-side of a
local switch; (3) the trunk interconnection points for a tandem switch;
(4) central office cross-connect points; (5) out-of-band signaling
transfer points; and (6) the points of access to unbundled elements. In
addition, we anticipate and encourage parties and the states, through
negotiation and arbitration, to identify additional points of
technically feasible interconnection. We believe that the experience of
the parties and the states will benefit our ongoing review of
interconnection.
G. Just, Reasonable, and Nondiscriminatory Rates, Terms, and Conditions
of Interconnection
1. Background
161. Section 251(c)(2)(D) requires that incumbent LECs provide
interconnection ``on rates, terms, and conditions that are just,
reasonable, and nondiscriminatory.'' In the NPRM, we sought comment on
whether we should adopt national requirements governing the terms and
conditions of providing interconnection. We also sought comment on how
we should determine whether the terms and conditions for
interconnection arrangements are just, reasonable, and
nondiscriminatory, and how we should enforce such rules. In particular,
we sought comment on whether we should adopt national guidelines
governing installation, service, maintenance, and repair of the
incumbent LEC's portion of interconnection facilities.
2. Discussion
162. We conclude that minimum national standards for just,
reasonable, and nondiscriminatory terms and conditions of
interconnection will be in the public interest and will provide
guidance to the parties and the states in the arbitration process and
thereafter. We believe that national standards will tend to offset the
imbalance in bargaining power between incumbent LECs and competitors
and encourage fair agreements in the marketplace between parties by
setting minimum requirements that new entrants are guaranteed in
arbitrations. Negotiations between an incumbent and a new entrant
differ from commercial negotiations in a competitive market because new
entrants are dependent solely on the incumbent for interconnection.
163. Section 202(a) of the Act states that ``[i]t shall be unlawful
for any common carrier to make any unjust or unreasonable
discrimination in charges, practices, * * * facilities, or services for
or in connection with like communication service * * * by any means or
device, or to make or give any undue or unreasonable preference or
advantage to any particular person.'' By comparison, section 251(c)(2)
creates a duty for incumbent LECs ``to provide * * * any requesting
telecommunications carrier, interconnection with a LEC's network on
rates, terms, and conditions that are just, reasonable, and
nondiscriminatory.'' The nondiscrimination requirement in section
251(c)(2) is not qualified by the ``unjust or unreasonable'' language
of section 202(a). We therefore conclude that Congress did not intend
that the term ``nondiscriminatory'' in the 1996 Act be synonymous with
``unjust and unreasonable discrimination'' used in the 1934 Act, but
rather, intended a more stringent standard.
164. Given that the incumbent LEC will be providing interconnection
to its competitors pursuant to the purpose of the 1996 Act, the LEC has
the incentive to discriminate against its competitors by providing them
less favorable terms and conditions of interconnection than it provides
itself. Permitting such circumstances is inconsistent with the
procompetitive purpose of the Act. Therefore, we reject for purposes of
section 251, our historical interpretation of ``nondiscriminatory,''
which we interpreted to mean a comparison between what the incumbent
LEC provided other parties in a regulated monopoly environment. We
believe that the term ``nondiscriminatory,'' as used throughout section
251, applies to the terms and conditions an incumbent LEC imposes on
third parties as well as on itself. In any event, by providing
interconnection to a competitor in a manner less efficient than an
incumbent LEC provides itself, the incumbent LEC violates the duty to
be ``just'' and ``reasonable'' under section 251(c)(2)(D). Also,
incumbent LECs may not discriminate against parties based upon the
identity of the carrier (i.e., whether the carrier is a CMRS provider,
a CAP, or a competitive LEC). As long as a carrier meets the statutory
requirements, as discussed in this section, it has a right to obtain
interconnection with the incumbent LEC pursuant to section 251(c)(2).
165. We identify below specific terms and conditions for
interconnection in discussing physical or virtual collocation (i.e.,
two methods of interconnection). We conclude here, however, that where
a carrier requesting interconnection pursuant to section 251(c)(2) does
not carry a sufficient amount of traffic to justify separate one-way
trunks, an incumbent LEC must accommodate two-way trunking upon request
where technically feasible. Refusing to provide two-way trunking would
raise costs for new entrants and create a barrier to entry. Thus, we
conclude that if two-way trunking is technically feasible, it would not
be just, reasonable, and nondiscriminatory for the incumbent LEC to
refuse to provide it.
166. Finally, as discussed below, we reject Bell Atlantic's
suggestion that we impose reciprocal terms and conditions on incumbent
LECs and requesting carriers pursuant to section 251(c)(2). Section
251(c)(2) does not impose on non-incumbent LECs the duty to provide
interconnection. The obligations of LECs that are not incumbent LECs
are generally governed by sections 251 (a) and (b), not section 251(c).
Also, the statute itself imposes different obligations on incumbent
LECs and other LECs (i.e., section 251(b) imposes obligations on all
LECs while section 251(c) obligations are imposed only on incumbent
LECs). We do note, however, that 251(c)(1) imposes upon a requesting
telecommunications carrier a duty to negotiate the terms and conditions
of interconnection agreements in good faith. We also conclude that
MCI's POI proposal, permitting interconnecting carriers, both
competitors and incumbent LECs, to designate points of interconnection
on each other's networks, is at this time best addressed in
negotiations and arbitrations between parties. We believe that the
record on this issue is not sufficiently persuasive to justify
Commission action at this time. As market conditions evolve, we will
continue to review and revise our rules as necessary.
H. Interconnection that is Equal in Quality
1. Background
167. Section 251(c)(2)(C) requires that the interconnection
provided by an
[[Page 45505]]
incumbent LEC be ``at least equal in quality to that provided by the
[incumbent LEC] to itself or to any subsidiary, affiliate, or any other
party to which the carrier provides interconnection.'' In the NPRM, we
sought comment on how to determine whether interconnection is ``equal
in quality.''
2. Discussion
168. We conclude that the equal in quality standard of section
251(c)(2)(C) requires an incumbent LEC to provide interconnection
between its network and that of a requesting carrier at a level of
quality that is at least indistinguishable from that which the
incumbent provides itself, a subsidiary, an affiliate, or any other
party. We agree with MFS that this duty requires incumbent LECs to
design interconnection facilities to meet the same technical criteria
and service standards, such as probability of blocking in peak hours
and transmission standards, that are used within their own networks.
Contrary to the view of some commenters, we further conclude that the
equal in quality obligation imposed by section 251(c)(2) is not limited
to the quality perceived by end users. The statutory language contains
no such limitation, and creating such a limitation may allow incumbent
LECs to discriminate against competitors in a manner imperceptible to
end users, but which still provides incumbent LECs with advantages in
the marketplace (e.g., the imposition of disparate conditions between
carriers on the pricing and ordering of services).
169. We also note that section 251(c)(2) requires interconnection
that is ``at least'' equal in quality to that enjoyed by the incumbent
LEC itself. This is a minimum requirement. Moreover, to the extent a
carrier requests interconnection of superior or lesser quality than an
incumbent LEC currently provides, the incumbent LEC is obligated to
provide the requested interconnection arrangement if technically
feasible. Requiring incumbent LECs to provide upon request higher
quality interconnection than they provide themselves, subsidiaries, or
affiliates will permit new entrants to compete with incumbent LECs by
offering novel services that require superior interconnection quality.
We also conclude that, as long as new entrants compensate incumbent
LECs for the economic cost of the higher quality interconnection,
competition will be promoted.
V. Access to Unbundled Network Elements
A. Commission Authority to Identify Unbundled Network Elements
1. Background
170. Section 251(c)(3) imposes a duty on incumbent LECs to
``provide, to any requesting telecommunications carrier for the
provision of a telecommunications service, nondiscriminatory access to
network elements on an unbundled basis at any technically feasible
point on rates, terms, and conditions that are just, reasonable, and
nondiscriminatory in accordance with the terms and conditions of the
agreement and the requirements of this section and section 252.'' This
section also requires incumbent LECs to provide these elements ``in a
manner that allows requesting carriers to combine such elements in
order to provide such telecommunications service.''
171. Section 251(d)(1) provides that ``the Commission shall
complete all actions necessary to establish regulations to implement
the requirements of'' section 251 by August 8, 1996. Section 251(d)(2)
further provides that, ``[i]n determining what network elements should
be made available for purposes of subsection (c)(3), the Commission
shall consider, at a minimum, whether (A) Access to such network
elements as are proprietary in nature is necessary; and (B) the failure
to provide access to such network elements would impair the ability of
the telecommunications carrier seeking access to provide the services
that it seeks to offer.''
172. In the NPRM, we sought comment on our tentative conclusion
that the 1996 Act requires the Commission to identify network elements
that incumbent LECs are required to make available to requesting
carriers on an unbundled basis under section 251(c)(3).
2. Discussion
173. We affirm our tentative conclusion in the NPRM that the 1996
Act requires the Commission to identify network elements that incumbent
LECs must offer requesting carriers on an unbundled basis under section
251(c)(3). Section 251(d)(1) directs the Commission to establish rules
implementing the requirements of section 251(c)(3). Further, section
251(d)(2) contemplates that, pursuant to this direction, the Commission
will identify unbundled network elements. We conclude that neither the
language in section 251(d), nor any other part of the 1996 Act, is
reasonably susceptible to the interpretation advanced by BellSouth that
our obligation to identify unbundled network elements arises only when
we act under section 252(e)(5).
B. National Requirements for Unbundled Network Elements
1. Background
174. In the NPRM, we noted Congress' view that, when new entrants
begin providing services in local telephone markets, it is unlikely
they will own network facilities that completely duplicate those of
incumbent LECs because of the significant investment and time required
to build such facilities. The statutory requirement imposed on
incumbent LECs to provide access to unbundled network elements will
permit new entrants to offer competing local services by purchasing
from incumbents, at cost-based prices, access to elements which they do
not already possess, unbundled from those elements that they do not
need.
175. It is possible that there will be sufficient demand in some
local telephone markets to support the construction of competing local
exchange facilities that duplicate most or even all of the elements of
an incumbent LEC's network. In these markets new entrants will be able
to use unbundled elements from the incumbent LEC to provide services
until such time as they complete the construction of their own
networks, and thus, no longer need to rely on the facilities of an
incumbent to provide local exchange and exchange access services. It is
also possible, however, that other local markets, now and even into the
future, may not efficiently support duplication of all, or even some,
of an incumbent LEC's facilities. Access to unbundled elements in these
markets will promote efficient competition for local exchange services
because, under the scheme set out in the 1996 Act, such access will
allow new entrants to enter local markets by obtaining use of the
incumbent LECs' facilities at prices that reflect the incumbents'
economies of scale and scope.
176. In the NPRM, we tentatively concluded that the Commission
should identify a minimum number of elements that incumbent LECs must
make available to requesting carriers on an unbundled basis. We further
tentatively concluded that section 252(e)(3) preserves a state's
authority, during arbitration, to impose additional unbundling
requirements beyond those we specify, as long as such requirements are
consistent with the 1996 Act and our
[[Page 45506]]
regulations. Section 252(e) discusses a state commission's obligations
regarding the approval or rejection of agreements between incumbent
LECs and requesting telecommunications carriers for interconnection,
services or network elements. Subparagraph (3) of this section
specifically provides that a state commission is not prohibited ``from
establishing or enforcing other requirements of State law in its review
of an agreement,'' as long as such requirements do not violate the
terms of the statute. 47 U.S.C. Sec. 252(e)(3). We further note that
under section 252(f)(2) states may impose additional unbundling
requirements during review of BOC statements of generally available
terms and conditions. Section 252(f)(2) states that ``(e)xcept as
provided in section 253, nothing in this section shall prohibit a State
commission from establishing or enforcing other requirements of State
law in its review of such statement * * *'' 47 U.S.C. Sec. 252(f)(2).
Finally, we tentatively concluded that we have authority to identify
additional or different unbundling requirements in the future, as we
learn about changes in technology, the innovation of new services, and
the necessities of competition.
2. Discussion
177. We adopt our tentative conclusion and identify a minimum list
of unbundled network elements that incumbent LECs must make available
to new entrants upon request. We believe the procompetitive goals of
section 251(c)(3) will best be achieved through the adoption of such a
list. As discussed above, we believe that negotiations and arbitrations
will best promote efficient, rapid, and widespread new entry if we
establish certain minimum national unbundling requirements. As the
Department of Justice argues, there is ``no basis in economic theory or
in experience to expect incumbent monopolists to quickly negotiate
arrangements to facilitate disciplining entry by would-be competitors,
absent clear legal requirements to do so.'' Ad Hoc Telecommunications
Users Committee notes that ``[h]istorically, the [incumbent LECs] have
had strong incentives to resist, and have actively resisted, efforts to
open their networks to users, competitors, or new technology-driven
applications of network technology.''
178. National requirements for unbundled elements will allow new
entrants, including small entities, seeking to enter local markets on a
national or regional scale to take advantage of economies of scale in
network design. If fifty states were to establish different unbundling
requirements, new entrants, including small entities, could be denied
the benefits of scale economies in obtaining access to unbundled
elements. National requirements will also: reduce the number of issues
states must consider in arbitrations, thereby facilitating the states'
ability to conduct such proceedings; reduce the likelihood of
litigation regarding the requirements of section 251(c)(3) and the
costs associated with such litigation; and provide financial markets
with greater certainty in assessing new entrants' business plans, thus
enhancing the ability of new entrants, including small entities, to
raise capital. In addition, to the extent the Commission assumes a
state's arbitration authority under section 252(e)(5), national
requirements for unbundled elements will help the Commission to
conclude such proceedings expeditiously.
179. We reject the alternative option of developing an exhaustive
list of required unbundled elements, to which states could not add
additional elements, on the grounds that such a list would not
necessarily accommodate changes in technology, and it would not provide
states the flexibility they need to deal with local conditions.
180. We also reject the proposal advanced by several parties that
we should adopt non-binding national guidelines for unbundled elements
that states would not be required to enforce. The parties asserting
that differences between incumbent LEC networks militate against the
adoption of national standards provide few, if any, specific examples
of what those differences are. In addition, they fail to articulate
persuasively why those differences are significant enough to weigh
against the adoption of national requirements. Accordingly, and as
previously discussed, we conclude that any differences that may exist
among states are not sufficiently great to overcome the procompetitive
benefits that would result from establishing a minimum set of binding
national rules. Moreover, we believe the authority granted the states
in section 252(e)(3), as well as our existing rules which set forth a
process by which incumbent LECs can request a waiver of the
requirements we adopt here, will provide the necessary flexibility in
our rules to permit states and parties to accommodate any truly unique
state conditions that might exist. We further observed in the NPRM that
under the voluntary negotiation paradigm set out in section 252,
parties to such negotiations can agree to provide unbundled network
elements that differ from those identified by the Commission. See NPRM
at para. 78 (citing 47 U.S.C. Sec. 252(a)). Accordingly, we adopt our
tentative conclusion that states may impose additional unbundling
requirements pursuant to section 252(e)(3), as long as such
requirements are consistent with the 1996 Act and our regulations. This
conclusion is consistent with the statement in section 252(e)(3) that
``nothing in this section shall prohibit a State commission from
establishing or enforcing other requirements of State law in its review
of an agreement.''
181. We find the arguments presented by parties opposing national
rules for unbundled elements unpersuasive especially in light of the
1996 Act's strong procompetitive goals. For example, in light of the
incumbent LECs' disincentives to negotiate with potential competitors,
we believe national rules will promote competition by making the
bargaining strength of potential competitors, including small entities,
more equal. We are not persuaded that national rules will discourage
incumbent LECs from developing new technologies and services; to the
contrary, based on our experience in other telecommunications markets,
we believe that competition will stimulate innovation by incumbent
LECs. We also believe that any failure of incumbent LECs to develop new
technologies or services would have a less significant adverse effect
on competition in local exchange markets than a failure to adopt
national rules. Nor is it likely that new entrants will seek
unnecessary elements merely to raise incumbents' costs because such new
entrants must pay the costs associated with unbundling. In addition,
the pricing standard of section 252(d)(1)(B), which allows incumbent
LECs to receive not only their costs but also a reasonable profit on
the provision of unbundled elements, should further alleviate concerns
regarding sham requests.
182. We adopt our tentative conclusion that, in addition to
identifying unbundled network elements that incumbent LECs must make
available now, we have authority to identify additional, or perhaps
different, unbundling requirements that would apply to incumbent LECs
in the future. The rapid pace and ever changing nature of technological
advancement in the telecommunications industry makes it essential that
we retain the ability to revise our rules as circumstances change.
Otherwise, our rules might impede technological change and frustrate
the 1996 Act's overriding goal of bringing the benefits
[[Page 45507]]
of competition to consumers of local phone services. For the same
reasons that we believe we should adopt national unbundling
requirements, as discussed above, we reject the proposal that future
unbundling requirements should be determined solely by the parties to
voluntary negotiations.
183. Finally, we have considered the economic impact of our rules
in this section on small incumbent LECs. For example, we have
considered the argument advanced by the Rural Telephone Coalition that
national unbundling requirements would be unworkable because of
technological, demographic and geographic variations between states. We
do not adopt the Rural Telephone Coalition's position, however, because
we believe that the minimum list we adopt can be applied to a broad
range of networks across geographic regions and any differences between
incumbent LEC networks in different states are not sufficiently great
to overcome the procompetitive benefits of a minimum list of required
unbundled network elements. We have also considered the argument
advanced by GVNW that unbundling requirements imposed on small
incumbent LECs should differ from those imposed on large, urban
incumbent LECs because of differences in networks and operational
procedures. We reject GVNW's proposal for two reasons. First, some
small incumbent LECs may not experience any problems complying with our
unbundling rules. Second, we note that section 251(f) of the 1996 Act
provides relief to certain small LECs from our regulations implementing
section 251.
184. Although we have concluded in this proceeding that we can best
achieve the procompetitive aims of the 1996 Act by adopting minimum
national unbundling requirements for arbitrated agreements, the 1996
Act envisions that the states will administer those requirements
through approval of negotiated agreements and arbitrations. Through
arbitrations and review of negotiated agreements the states will add to
their significant expertise on issues relating to the provision of
access to unbundled network elements. We encourage state commissions to
take an active role in evaluating the success or difficulties in
implementing any of our requirements. The Commission intends to draw on
the expertise developed by the states when we review and revise our
rules as necessary.
C. Network Elements
1. Background
185. Section 3(29) of the Communications Act defines the term
``network element'' to mean both ``a facility or equipment used in the
provision of a telecommunications service'' and ``features, functions,
and capabilities that are provided by means of such facility or
equipment.'' Such features, functions, and capabilities include
``subscriber numbers, databases, signaling systems, and information
sufficient for billing and collection or used in the transmission,
routing, or other provision of a telecommunications service.'' The
Joint Explanatory Statement explains that ``[t]he term `network
element' was included to describe the facilities, such as local loops,
equipment, such as switching, and the features, functions, and
capabilities that a local exchange carrier must provide for certain
purposes under other sections of the conference agreement.''
186. In the NPRM, we noted that we could identify ``network
elements'' in two ways. First, we could identify a single ``network
element,'' and then further subdivide it into additional ``elements.''
Alternatively, we could provide that, once we identify a particular
``network element,'' it cannot be further subdivided. In the NPRM, we
asked for comment on these two approaches.
187. We observed in the NPRM that the statutory definition of a
``network element'' draws a distinction between a ``facility or
equipment used in the provision of a telecommunications service,'' and
the ``service'' itself. We asked for comment on the meaning of this
distinction in general, with respect to requirements for unbundling,
and in connection with specific unbundled elements. We noted that the
definition of a network element, i.e., a facility, function, or
capability, is not dependent on the particular types of services that
are provided by means of the element (e.g., interstate access,
intrastate local exchange), and asked whether a carrier purchasing
access to an element is obligated, pursuant to the definition, to
provide all services typically carried or provided by that element.
2. Discussion
188. We adopt the concept of unbundled elements as physical
facilities of the network, together with the features, functions, and
capabilities associated with those facilities. Carriers requesting use
of unbundled elements within the incumbent LEC's network seek in effect
to purchase the right to obtain exclusive access to an entire facility,
or use of some feature, function or capability of that element. For
some elements, especially the loop, the requesting carrier will
purchase exclusive access to the element for a specific period, such as
on a monthly basis. Carriers seeking other elements, especially shared
facilities such as common transport, are essentially purchasing access
to a functionality of the incumbent's facilities on a minute-by-minute
basis. This concept of network elements, as discussed infra at section
V.G., does not alter the incumbent LEC's physical control or ability or
duty to repair and maintain network elements.
189. We conclude that we should identify a particular facility or
capability, for example, as a single network element, but allow
ourselves and the states (where appropriate) the discretion to further
identify, within that single facility or capability, additional
required network elements. Thus, for example, in this proceeding, we
identify the local loop as a single network element. We also ask the
states to evaluate, on a case-by-case basis, whether to require access
to subloop elements, which can be facilities or capabilities within the
local loop. We agree with those commenters that argue that identifying
a particular facility or capability as single network element, but
allowing such elements to be further subdivided into additional
elements, will allow our rules (as well as the states) to accommodate
changes in technology, and thus better serve the interests of new
entrants and incumbent LECs, and the procompetitive purposes of the
1996 Act. We are not persuaded by PacTel's argument that it is
unnecessary for our rules to permit the identification of additional
elements, beyond those specifically referenced in parts of the 1996
Act, because our rules must conform to the definition of a network
element, and they must accommodate changes in technology. Nor are we
persuaded by BellSouth that identification of network elements should
be left solely to the parties. We reject this approach for the same
reasons that led us to adopt national unbundling requirements. Finally,
we agree with NYNEX and others that we should not identify elements in
rigid terms, but rather by function.
190. We agree with MCI and MFS that the definition of the term
network element includes physical facilities, such as a loop, switch,
or other node, as well as logical features, functions, and capabilities
that are provided by, for example, software located in a physical
facility such as a switch. We further agree with MCI that the embedded
features and functions within a network element are part of the
characteristics of that element and may not be removed from it.
Accordingly, incumbent LECs
[[Page 45508]]
must provide network elements along with all of their features and
functions, so that new entrants may offer services that compete with
those offered by incumbents as well as new services.
191. The only limitation that the statute imposes on the definition
of a network element is that it must be ``used in the provision of a
telecommunications service.'' Incumbent LECs provide telecommunications
services not only through network facilities that serve as the basis
for a particular service, or that accomplish physical delivery, but
also through information (such as billing information) that enables
incumbents to offer services on a commercial basis to consumers. Our
interpretation of the term ``provision'' finds support in the
definition of the term ``network element.'' That definition provides
that the type of information that may constitute a feature or function
includes information ``used in the transmission, routing or other
provision of a telecommunications service.'' Since ``transmission'' and
``routing'' refer to physical delivery, the phrase ``or other provision
of a telecommunications service'' goes beyond mere physical delivery.
192. We conclude that the definition of the term ``network
element'' broadly includes all ``facilit[ies] or equipment used in the
provision of a telecommunications service,'' and all ``features,
functions, and capabilities that are provided by means of such facility
or equipment, including subscriber numbers, databases, signaling
systems, and information sufficient for billing and collection or used
in the transmission, routing, or other provision of a
telecommunications service.'' This definition thus includes, but is not
limited to, transport trunks, call-related databases, software used in
such databases, and all other unbundled elements that we identify in
this proceeding. The definition also includes information that
incumbent LECs use to provide telecommunications functions
commercially, such as information required for pre-ordering, ordering,
provisioning, billing, and maintenance and repair services. (The term
``provisioning'' includes installation.) This interpretation of the
definition of the term ``network element'' will serve to guide both the
Commission and the states in evaluating further unbundling requirements
beyond those we identify in this proceeding.
193. We disagree with those incumbent LECs which argue that
features that are sold directly to end users as retail services, such
as vertical features, cannot be considered elements within incumbent
LEC networks. If we were to conclude that any functionality sold
directly to end users as a service, such as call forwarding or caller
ID, cannot be defined as a network element, then incumbent LECs could
provide local service to end users by selling them unbundled loops and
switch elements, and thereby entirely evade the unbundling requirement
in section 251(c)(3). We are confident that Congress did not intend
such a result. We further reject Ameritech's argument that we should
not permit carriers to use unbundled elements to provide services that
are priced above cost at retail. We agree with those parties that argue
that competition will not develop if we find that supracompetitive
pricing is protected by the 1996 Act.
194. Moreover, we agree with those commenters that argue that
network elements are defined by facilities or their functionalities or
capabilities, and thus, cannot be defined as specific services. A
single network element could be used to provide many different
services. For example, a local loop can be used to provision inter- and
intrastate exchange access services, as well as local exchange
services. We conclude, consistent with the findings of the Ohio and
Oregon Commissions, that the plain language of section 251(c)(3) does
not obligate carriers purchasing access to network elements to provide
all services that an unbundled element is capable of providing or that
are typically offered over that element. Section 251(c)(3) does not
impose any service-related restrictions or requirements on requesting
carriers in connection with the use of unbundled elements.
D. Access to Network Elements
1. Background
195. In the NPRM, we observed that section 251(c)(3) requires
incumbent LECs to provide ``access'' to network elements ``on an
unbundled basis.'' We interpreted these terms to mean that incumbent
LECs must provide carriers with the functionality of a particular
element, separate from the functionality of other elements, and must
charge a separate fee for each element. We sought comment on this
interpretation and any alternative interpretations.
2. Discussion
196. We conclude that we should adopt our proposed interpretation
that the terms ``access'' to network elements ``on an unbundled basis''
mean that incumbent LECs must provide the facility or functionality of
a particular element to requesting carriers, separate from the facility
or functionality of other elements, for a separate fee. We further
conclude that a telecommunications carrier purchasing access to an
unbundled network facility is entitled to exclusive use of that
facility for a period of time, or when purchasing access to a feature,
function, or capability of a facility, a telecommunications carrier is
entitled to use of that feature, function, or capability for a period
of time. The specified period may vary depending on the terms of the
agreement between the incumbent LEC and the requesting carrier. The
ability of other carriers to obtain access to a network element for
some period of time does not relieve the incumbent LEC of the duty to
maintain, repair, or replace the unbundled network element. We clarify
that title to unbundled network elements will not shift to requesting
carriers. We reject PacTel's interpretation of the terms quoted above
because it is inconsistent with our definition of the term network
element (i.e., an element includes all features and functions embedded
in it). Moreover, to the extent that PacTel's argument suggests that
the 1996 Act does not require unbundled elements to be provisioned in a
way that would make them useful, we find that its statutory
interpretation is inconsistent with the statute's goal of providing new
entrants with realistic means of competing against incumbents.
197. We further conclude that ``access'' to an unbundled element
refers to the means by which requesting carriers obtain an element's
functionality in order to provide a telecommunications service. Just as
section 251(c)(2) requires ``interconnection * * * at any technically
feasible point,'' section 251(c)(3) requires ``access * * * at any
technically feasible point.'' We conclude, based on the terms of
sections 251 (c)(2), 251(c)(3), and 251(c)(6), that an incumbent LEC's
duty to provide ``access'' constitutes a duty to provide a connection
to a network element independent of any duty imposed by subsection
(c)(2). Thus, such ``access'' must be provided under the rates, terms,
and conditions that apply to unbundled elements.
198. Specifically, section 251(c)(6) provides that incumbent LECs
must provide ``physical collocation of equipment necessary for
interconnection or access to unbundled network elements.'' The use of
the term ``or'' in this phrase means that interconnection is different
from ``access'' to unbundled elements. The text of sections 251(c)(2)
and (c)(3) leads to the same conclusion. Section 251(c)(2) requires
that interconnection be provided for ``the transmission and
[[Page 45509]]
routing of telephone exchange service and exchange access.'' Section
251(c)(3), in contrast, requires the provision of access to unbundled
elements to allow requesting carriers to provide ``a telecommunications
service.'' The term ``telecommunications service'' by definition
includes a broader range of services than the terms ``telephone
exchange service and exchange access.'' Subsection (c)(3), therefore,
allows unbundled elements to be used for a broader range of services
than subsection (c)(2) allows for interconnection. If we were to
conclude that ``access'' to unbundled elements under subsection (c)(3)
could only be achieved by means of interconnection under subsection
(c)(2), we would be limiting, in effect, the uses to which unbundled
elements may be put, contrary to the plain language of section
251(c)(3) and standard canons of statutory construction.
E. Standards Necessary To Identify Unbundled Network Elements
1. Background
199. In the NPRM, we raised a number of issues concerning the
meaning of technical feasibility in connection with unbundled elements.
We also sought comment on the extent to which the Commission should
consider the standards set forth in section 251(d)(2) in identifying
required unbundled elements, and on how we ought to interpret these
standards. Subsection (d)(2) provides that ``(i)n determining what
network elements should be made available for purposes of subsection
(c)(3), the Commission shall consider, at a minimum'' the following two
standards, ``whether (A) access to such network elements as are
proprietary in nature is necessary; and (B) the failure to provide
access to such network elements would impair the ability of the
telecommunications carrier seeking access to provide the services that
it seeks to offer.'' We further asked about the relationship between
the latter standard and the requirement in section 251(c)(3) that
carriers be able to use unbundled elements to provide a
telecommunications service.
2. Discussion
200. Sections 251(c)(3) and 251(d)(2) set forth standards the
Commission must consider in identifying unbundled network elements that
incumbent LECs must make available in connection with arbitrations
before state commissions and BOC statements of generally available
terms and conditions. These standards guide the unbundling requirements
we issue today as well as any different or additional unbundling
requirements we may issue in the future. Similarly, the States must
follow our interpretation of these standards to the extent they impose
additional unbundling requirements during arbitrations or subsequent
rulemaking proceedings.
201. Section 251(c)(3) requires incumbent LECs to provide
requesting carriers with ``nondiscriminatory access to network elements
on an unbundled basis at any technically feasible point.'' We find that
this clause imposes on an incumbent LEC the duty to provide all network
elements for which it is technically feasible to provide access on an
unbundled basis. Because section 251(d)(1) requires us to ``establish
regulations to implement the requirements of'' section 251(c)(3), we
conclude that we have authority to establish regulations that are
coextensive with the duty section 251(c)(3) imposes on incumbent LECs.
202. Section 251(d)(2), however, sets forth standards that do not
depend on technical feasibility. More specifically, section 251(d)(2)
provides that, in identifying unbundled elements, the Commission shall
``consider, at a minimum,'' whether access to proprietary elements is
necessary (the ``proprietary standard''), and whether requesting
carriers' ability to provide services would be impaired if the desired
elements were not provided by an incumbent LEC (the ``impairment
standard.'') Thus, section 251(d)(2) gives us the authority to decline
to require incumbent LECs to provide access to unbundled network
elements at technically feasible points if, for example, we were to
conclude that access to a particular proprietary element is not
necessary. To give effect to both sections 251(c)(3) and 251(d)(2), we
conclude that the proprietary and impairment standards in section
251(d)(2) grant us the authority to refrain from requiring incumbent
LECs to provide all network elements for which it is technically
feasible to provide access on an unbundled basis. The authority we
derive from section 251(d)(2) is limited, however, by our
interpretation of these standards, and this section, as set forth
below.
203. We agree with BellSouth, SBC, and others that the plain import
of the ``at minimum'' language in section 251(d)(2) requires us, in
identifying unbundled network elements, to ``consider'' the standards
enumerated there, as well as other standards we believe are consistent
with the objectives of the 1996 Act. We conclude that the word
``consider'' means we must weigh the standards enumerated in section
251(d)(2) in evaluating whether to require the unbundling of a
particular element.
204. We further conclude that, in evaluating whether to impose
additional unbundling requirements during the arbitration process,
States must apply our definition of technical feasibility, discussed
above in section IV.D. A determination of technical feasibility would
then create a presumption in favor of requiring an incumbent LEC to
provide the element. If providing access to an unbundled element is
technically feasible, a State must then consider the standards set
forth in section 251(d)(2), as we interpret them below. Similarly, the
Commission will apply this analysis where we must arbitrate specific
unbundling issues, under section 252(e)(5), and in future rulemaking
proceedings that may consider additional or possibly different
unbundling requirements.
205. Section 251(d)(2)(A) requires the Commission and the States to
consider whether access to proprietary elements is ``necessary.''
``Necessary'' means, in this context, that an element is a prerequisite
for competition. We believe that, in some instances, it will be
``necessary'' for new entrants to obtain access to proprietary elements
(e.g., elements with proprietary protocols or elements containing
proprietary information), because without such elements, their ability
to compete would be significantly impaired or thwarted. As noted supra,
a number of commenters argue that section 251(d)(2)(A) requires us to
protect proprietary information, such as CPNI information, contained in
network elements. We intend to treat issues regarding CPNI in our
rulemaking proceeding on CPNI information. Telecommunications Carriers'
Use of Customer Proprietary Network Information and Other Customer
Information, CC Docket No. 96-115, Notice of Proposed Rulemaking, FCC
96-221, 61 FR 26483 (May 28, 1996). Thus, as an initial matter, we
decline to adopt a general rule, as suggested by some incumbents, that
would prohibit access to such elements, or make access available only
upon a carrier demonstrating a heavy burden of need. We acknowledge
that prohibiting incumbents from refusing access to proprietary
elements could reduce their incentives to offer innovative services. We
are not persuaded, however, that this is a sufficient reason to
prohibit generally the unbundling of proprietary elements, because the
threat to competition from any such prohibition would far exceed any
costs to
[[Page 45510]]
consumers resulting from reduced innovation by the incumbent LEC. In
this proceeding, for example, we are requiring incumbent LECs to
provide the local switching element which includes vertical features
that some carriers contend are proprietary. See infra, Section V.J.
Moreover, the procompetitive effects of our conclusion generally will
stimulate innovation in the market, offsetting any hypothetical
reduction in innovation by the incumbent LECs.
206. We further conclude that, to the extent new entrants seek
additional elements beyond those we identify herein, section
251(d)(2)(A) allows the Commission and the states to require the
unbundling of such elements unless the incumbent can prove to a state
commission that: (1) The element is proprietary, or contains
proprietary information that will be revealed if the element is
provided on an unbundled basis; and (2) a new entrant could offer the
same proposed telecommunications service through the use of other,
nonproprietary unbundled elements within the incumbent's network. We
believe this interpretation of section 251(d)(2)(A) will best advance
the procompetitive purposes of the 1996 Act. It allows new entrants to
obtain proprietary elements from incumbent LECs where they are
necessary to offer a telecommunications service, and, at the same time,
it gives incumbents the opportunity to argue, before the states or the
Commission, against unbundling proprietary elements where a new entrant
could offer the same service using other unbundled elements in the
incumbent's network. We decline to adopt the interpretation of section
251(d)(2)(A) advanced by some incumbents that incumbent LECs need not
provide proprietary elements if requesting carriers can obtain the
requested proprietary element from a source other than the incumbent.
Requiring new entrants to duplicate unnecessarily even a part of the
incumbent's network could generate delay and higher costs for new
entrants, and thereby impede entry by competing local providers and
delay competition, contrary to the goals of the 1996 Act.
207. We further conclude that, to the extent new entrants do not
need access to all the proprietary information contained within an
element in order to provide a telecommunications service, the
Commission and the states may take action to protect the proprietary
information. For example, to provide a telecommunications service, a
new entrant might need access to information about a particular
customer that is in an incumbent LEC database. The database to which
the new entrant requires access, however, may contain proprietary
information about all of the incumbent LECs' customers. In this
circumstance, the new entrant should not have access to proprietary
information about the incumbent LEC's other customers where it is not
necessary to provide service to the new entrant's particular customer.
Accordingly, we believe the Commission and the states have the
authority to protect the confidentiality of proprietary information in
an unbundled network element, such as a database, where that
information is not necessary to enable a new entrant to offer a
telecommunications service to its particular customer.
208. Section 251(d)(2)(B) requires us to consider whether the
failure to provide access to an element would ``impair'' the ability of
a new entrant to provide a service it seeks to offer. The term
``impair'' means ``to make or cause to become worse; diminish in
value.'' We believe, generally, that an entrant's ability to offer a
telecommunications service is ``diminished in value'' if the quality of
the service the entrant can offer, absent access to the requested
element, declines and/or the cost of providing the service rises. We
believe we must consider this standard by evaluating whether a carrier
could offer a service using other unbundled elements within an
incumbent LEC's network. Accordingly, we interpret the ``impairment''
standard as requiring the Commission and the states, when evaluating
unbundling requirements beyond those identified in our minimum list, to
consider whether the failure of an incumbent to provide access to a
network element would decrease the quality, or increase the financial
or administrative cost of the service a requesting carrier seeks to
offer, compared with providing that service over other unbundled
elements in the incumbent LEC's network.
209. We decline to adopt the interpretation of the ``impairment''
standard advanced by most BOCs and GTE. Under their interpretation,
incumbent LECs must provide unbundled elements only when the failure to
do so would prevent a carrier from offering a service. We also reject
the related interpretations that carriers are not impaired in their
ability to provide a service if they can obtain elements from another
source, or if they can provide the proposed service by purchasing the
service at wholesale rates from a LEC. In general, and as discussed
above, section 251(c)(3) imposes on incumbent LECs the obligation to
offer on an unbundled basis all network elements for which it is
technically feasible to provide access. We believe the plain language
of section 251(d)(2), and the standards articulated there, give us the
discretion to limit the general obligation imposed by subsection
251(c)(3), but they do not require us to do so. The standards set forth
in section 251(d)(2) are minimum considerations that the Commission
shall take into account in evaluating unbundling requirements.
Accordingly, we conclude that the statute does not require us to
interpret the ``impairment'' standard in a way that would significantly
diminish the obligation imposed by section 251(c)(3).
210. The interpretation advanced by most of the BOCs and GTE,
described above, means that, if a requesting carrier could obtain an
element from a source other than the incumbent, then the incumbent need
not provide the element. We agree with the reasoning advanced by some
of the commenters that this interpretation would nullify section
251(c)(3) because, in theory, any new entrant could provide all of the
elements in the incumbents' networks. Congress made it possible for
competitors to enter local markets through the purchase of unbundled
elements because it recognized that duplication of an incumbent's
network could delay entry, and could be inefficient and unnecessary.
The interpretation proffered by the BOCs and GTE would inhibit new
entry and thus restrict the potential for meaningful competition, which
would undermine the procompetitive goals of the 1996 Act. As a
practical matter, if it is more efficient and less costly for new
entrants to obtain network elements from a source other than an
incumbent LEC, new entrants will likely pursue the more efficient and
less costly approach. Additionally, as discussed above at section IV.C,
we believe that allowing incumbent LECs to deny access to unbundled
elements on the grounds that an element is equivalent to a service
available at resale would lead to impractical results, because
incumbents could completely avoid section 251(c)(3)'s unbundling
obligations by offering unbundled elements to end users as retail
services.
211. Finally, we decline at this time to adopt any of the
additional criteria proposed by commenters. We conclude that none of
the additional factors suggested by commenters enhances our ability to
identify unbundled network elements consistent with the procompetitive
goals of the 1996 Act. These additional considerations would limit
unbundling requirements or make it administratively more difficult for
[[Page 45511]]
new entrants to obtain additional unbundled elements beyond those
identified in our minimum list of required elements. For example, we
believe that the proposal that new entrants must provide detailed
estimates regarding projected market demand is not necessary for
incumbent LECs to efficiently plan for network growth.
F. Provision of a Telecommunications Service Using Unbundled Network
Elements
1. Background
212. Section 251(c)(3) provides that an incumbent LEC must provide
access to ``unbundled network elements in a manner that allows
requesting carriers to combine such elements in order to provide'' a
telecommunications service. In the NPRM, we sought comment on the
meaning of this requirement.
2. Discussion
213. Under section 251(c)(3), incumbent LECs must provide access to
``unbundled network elements in a manner that allows requesting
carriers to combine such elements in order to provide'' a
telecommunications service. We agree with the Illinois Commission, the
Texas Public Utility Counsel, and others that this language bars
incumbent LECs from imposing limitations, restrictions, or requirements
on requests for, or the sale or use of, unbundled elements that would
impair the ability of requesting carriers to offer telecommunications
services in the manner they intend. For example, incumbent LECs may not
restrict the types of telecommunications services requesting carriers
may offer through unbundled elements, nor may they restrict requesting
carriers from combining elements with any technically compatible
equipment the requesting carriers own. We also conclude that section
251(c)(3) requires incumbent LECs to provide requesting carriers with
all of the functionalities of a particular element, so that requesting
carriers can provide any telecommunications services that can be
offered by means of the element. We believe this interpretation
provides new entrants with the requisite ability to use unbundled
elements flexibly to respond to market forces, and thus is consistent
with the procompetitive goals of the 1996 Act.
214. We agree with AT&T and Comptel that the quoted text in section
251(c)(3) bars incumbent LECs from separating elements that are ordered
in combination, unless a requesting carrier specifically asks that such
elements be separated. We also conclude that the quoted text requires
incumbent LECs, if necessary, to perform the functions necessary to
combine requested elements in any technically feasible manner either
with other elements from the incumbent's network, or with elements
possessed by new entrants, subject to the technical feasibility
restrictions discussed below. We adopt these conclusions for two
reasons. First, in practice it would be impossible for new entrants
that lack facilities and information about the incumbent's network to
combine unbundled elements from the incumbents' network without the
assistance of the incumbent. If we adopted NYNEX's proposal, we believe
requesting carriers would be seriously and unfairly inhibited in their
ability to use unbundled elements to enter local markets. We therefore
reject NYNEX's contention that the statute requires requesting
carriers, rather than incumbents, to combine elements. We do not
believe it is possible that Congress, having created the opportunity to
enter local telephone markets through the use of unbundled elements,
intended to undermine that opportunity by imposing technical
obligations on requesting carriers that they might not be able to
readily meet.
215. Second, given the practical difficulties of requiring
requesting carriers to combine elements that are part of the incumbent
LEC's network, we conclude that section 251(c)(3) should be read to
require incumbent LECs to combine elements requested by carriers. More
specifically, section 251(c)(3) provides that incumbent LECs must
provide unbundled elements ``in a manner that allows requesting
carriers to combine them'' to provide a telecommunications service. We
believe this phrase means that incumbents must provide unbundled
elements in a way that enables requesting carriers to combine them to
provide a service. The phrase ``allows requesting carriers to combine
them,'' does not impose the obligation of physically combining elements
exclusively on requesting carriers. Rather, it permits a requesting
carrier to combine the elements if the carrier is reasonably able to do
so. If the carrier is unable to combine the elements, the incumbent
must do so. In this context, we conclude that the term ``combine''
means connecting two or more unbundled network elements in a manner
that would allow a requesting carrier to offer the telecommunications
service it seeks to offer.
216. Our conclusion that incumbent LECs must combine unbundled
elements when so requested is consistent with the method we have
adopted to identify unbundled network elements. Under our method,
incumbents must provide, as a single, combined element, facilities that
could comprise more than one element. This means, for example, that, if
the states require incumbent LECs to provision subloop elements,
incumbent LECs must still provision a local loop as a single, combined
element when so requested, because we identify local loops as a single
element in this proceeding.
217. We decline to adopt the view proffered by some parties that
incumbents must combine network elements in any technically feasible
manner requested. This proposal necessarily means that carriers could
request incumbent LECs to combine elements that are not ordinarily
combined in the incumbent's network. We are concerned that, in some
instances, this could potentially affect the reliability and security
of the incumbent's network, and the ability of other carriers to obtain
interconnection, or request and use unbundled elements. Accordingly,
incumbent LECs are required to perform the functions necessary to
combine those elements that are ordinarily combined within their
network, in the manner in which they are typically combined. Incumbent
LECs are also required to perform the functions necessary to combine
elements, even if they are not ordinarily combined in that manner, or
they are not ordinarily combined in the incumbent's network, provided
that such combination is technically feasible, and such combination
would not undermine the ability of other carriers to access unbundled
elements or interconnect with the incumbent LEC's network. As discussed
in Section IV, effects on network reliability and security are factors
to be considered in determining technical feasibility. Incumbent LECs
must prove to state commissions that a request to combine particular
elements in a particular manner is not technically feasible, or that
the request would undermine the ability of other carriers to access
unbundled elements and interconnect because they have the information
to support such a claim.
218. We agree with Sprint and the Florida Commission, respectively,
that in some cases incumbent LECs may be required to provision a
particular element in different ways, depending on the service a
requesting carrier seeks to offer; and, in other instances, where a new
entrant needs a particular variant of an element to offer a service,
that element should be treated as distinct from other variants of the
element. This means, for example, that we will treat
[[Page 45512]]
local loops with a particular type of conditioning as distinct elements
that are different from loops with other types of conditioning. As
discussed below, we agree with CompTel that incumbent LECs must provide
the operational and support systems necessary for requesting carriers
to purchase and combine network elements. Incumbent LECs use these
systems to provide services to their own end users, and new entrants
similarly must have access to them to provide telecommunications
services using unbundled elements. Finally, we agree with BellSouth
that requesting carriers must specify to incumbent LECs the network
elements they seek before they can obtain such elements on an unbundled
basis. We do not believe, however, that it will always be possible for
new entrants to do this either before negotiations (or arbitrations)
begin, or before they end, because new entrants will likely lack
knowledge about the facilities and capabilities of a particular
incumbent LEC's network. We further believe that incumbent LECs must
work with new entrants to identify the elements the new entrants will
need to offer a particular service in the manner the new entrants
intend.
G. Nondiscriminatory Access to Unbundled Network Elements and Just,
Reasonable and Nondiscriminatory Terms and Conditions for the Provision
of Unbundled Network Elements
1. Background
219. Section 251(c)(3) requires incumbent LECs to provide
requesting carriers ``nondiscriminatory access to network elements on
an unbundled basis * * * on rates, terms, and conditions that are just,
reasonable, and nondiscriminatory.'' In the NPRM, we sought comment on
whether we should adopt minimum national requirements governing the
terms and conditions for the provision of unbundled network elements.
We further asked what rules could ensure that the terms and conditions
for access to unbundled network elements are just, reasonable and
nondiscriminatory, and how we should enforce such rules. In particular,
we sought comment on whether we should adopt uniform national rules
governing provisioning, service, maintenance, technical standards and
nondiscrimination safeguards in connection with the provision of
unbundled network elements. We also asked whether we should consider
any of the terms and conditions applicable to the provision of access
to unbundled elements in evaluating BOC applications to provide in-
region interLATA services under section 271(b).
2. Discussion
220. We agree with those commenters, including the Florida,
Illinois and Washington Commissions, that to achieve the procompetitive
goals of the 1996 Act, it is necessary to establish rules that define
the obligations of incumbent LECs to provide nondiscriminatory access
to unbundled network elements, and to provide such elements on terms
and conditions that are just, reasonable and nondiscriminatory. As
discussed above at sections II.A, II.B and V.B, we believe that
incumbent LECs have little incentive to facilitate the ability of new
entrants, including small entities, to compete against them and, thus,
have little incentive to provision unbundled elements in a manner that
would provide efficient competitors with a meaningful opportunity to
compete. We are also cognizant of the fact that incumbent LECs have the
incentive and the ability to engage in many kinds of discrimination.
For example, incumbent LECs could potentially delay providing access to
unbundled network elements, or they could provide them to new entrants
at a degraded level of quality.
221. Consistent with arguments advanced by the Florida and
Washington Commissions, incumbent LECs, and potential competitors, and
as more fully discussed in the specific sections below, we adopt
general, national rules defining ``nondiscriminatory access'' to
unbundled network elements, and ``just, reasonable, and
nondiscriminatory'' terms and conditions for the provision of such
elements. We have chosen this approach, rather than allowing states
exclusively to consider these issues, because we believe that some
national rules regarding nondiscriminatory access will reduce the costs
of entry and speed the development of competition.
222. We conclude, for example, that national rules defining the
1996 Act's requirements regarding nondiscriminatory access to, and
provision of, unbundled elements will reduce costs associated with
potential litigation over these issues, and will enable states to
conduct arbitrations more quickly by reducing the number of issues they
must consider. Such rules will also facilitate the ability of the
Commission to conduct arbitrations, should we assume a state's
responsibilities under section 252(e)(5). We conclude further that such
rules will create some uniformity across states in connection with the
terms under which new entrants may obtain access to network elements,
thus facilitating the ability of potential competitors, including small
entities, to enter local markets on a regional or national scale.
Accordingly, for all of these reasons, we reject the arguments of
PacTel and USTA that we should not adopt national rules relating to
incumbent LEC obligations to provide access to, and provision,
unbundled elements in a nondiscriminatory manner.
223. The record compiled in this proceeding supports the adoption
of uniform general rules that rely on states to develop more specific
requirements in arbitrations and other state proceedings. More
significantly, however, we agree with the California and Florida
Commissions that the states are best situated to issue specific rules
because of their existing knowledge regarding incumbent LEC networks,
capabilities, and performance standards in their separate jurisdictions
and because of the role they will play in conducting mediations,
arbitrations, and approving agreements. We expect that the states will
implement the general nondiscrimination rules set forth herein by
adopting, inter alia, specific rules determining the timing in which
incumbent LECs must provision certain elements, and any other specific
conditions they deem necessary to provide new entrants, including small
competitors, with a meaningful opportunity to compete in local exchange
markets. The states will continue to gain expertise in connection with
issues relating to just, reasonable, and nondiscriminatory access and
provision of unbundled network elements. We expect to turn to the
states, and rely on the expertise they develop in this area, when we
review and revise our rules as necessary.
224. We agree with those commenters that argue that incumbent LECs
should be required to fulfill some type of reporting requirement to
ensure that they provision unbundled elements in a nondiscriminatory
manner. We believe the record is insufficient at this time to adopt
such requirements, and we may reexamine this issue in the future. We
encourage the states, however, to adopt reporting requirements. We
decline to address whether the Commission should consider any of the
terms and conditions adopted here in evaluating BOC applications to
provide in-region long distance services. We will consider this issue,
as it arises, when we evaluate individual BOC applications.
a. Nondiscriminatory Access to Unbundled Network Elements
225. We conclude that the obligation to provide ``nondiscriminatory
access to
[[Page 45513]]
network elements on an unbundled basis'' refers to both the physical or
logical connection to the element and the element itself. In
considering how to implement this obligation in a manner that would
achieve the 1996 Act's goal of promoting local exchange competition, we
recognize that new entrants, including small entities, would be denied
a meaningful opportunity to compete if the quality of the access to
unbundled elements provided by incumbent LECs, as well as the quality
of the elements themselves, were lower than what the incumbent LECs
provide to themselves. Thus, we conclude it would be insufficient to
define the obligation of incumbent LECs to provide ``nondiscriminatory
access'' to mean that the quality of the access and unbundled elements
incumbent LECs provide to all requesting carriers is the same. As
discussed above with respect to interconnection, an incumbent LEC could
potentially act in a nondiscriminatory manner in providing access or
elements to all requesting carriers, while providing preferential
access or elements to itself. Accordingly, we conclude that the phrase
``nondiscriminatory access'' in section 251(c)(3) means at least two
things: first, the quality of an unbundled network element that an
incumbent LEC provides, as well as the access provided to that element,
must be equal between all carriers requesting access to that element;
second, where technically feasible, the access and unbundled network
element provided by an incumbent LEC must be at least equal-in-quality
to that which the incumbent LEC provides to itself. We note that
providing access or elements of lesser quality than that enjoyed by the
incumbent LEC would also constitute an ``unjust'' or ``unreasonable''
term or condition.
226. We believe that Congress set forth a ``nondiscriminatory
access'' requirement in section 251(c)(3), rather then an absolute
equal-in-quality requirement, such as that set forth in section
251(c)(2)(C), because, in rare circumstances, it may be technically
infeasible for incumbent LECs to provide requesting carriers with
unbundled elements, and access to such elements, that are equal-in-
quality to what the incumbent LECs provide themselves. According to
some commenters, this problem arises in connection with one variant of
one of the unbundled network elements we identify in this order. These
commenters argue that a carrier purchasing access to a 1AESS local
switch may not be able to receive, for example, the full measure of
customized routing features that such a switch may afford the
incumbent. In the rare circumstances where it is technically infeasible
for an incumbent LEC to provision access or elements that are equal-in-
quality, we believe disparate access would not be inconsistent with the
nondiscrimination requirement. Accordingly, we require incumbent LECs
to provide access and unbundled elements that are at least equal-in-
quality to what the incumbent LECs provide themselves, and allow for an
exception to this requirement only where it is technically infeasible
to meet. The exception described here does not excuse incumbent LECs
from the obligation to modify elements within their networks to allow
requesting carriers to obtain access to such elements where this is
technically feasible. See supra, Section IV.D. We expect incumbent LECs
to fulfill this requirement in nearly all instances where they
provision unbundled elements because we believe the technical
infeasibility problem will arise rarely. We further conclude, however,
that the incumbent LEC must prove to a state commission that it is
technically infeasible to provide access to unbundled elements, or the
unbundled elements themselves, at the same level of quality that the
incumbent LEC provides to itself.
227. Our conclusion that an incumbent LEC must provide unbundled
elements, as well as access to them, that is ``at least'' equal in
quality to that which the incumbent provides itself, does not excuse
incumbent LECs from providing, when requested and where technically
feasible, access or unbundled elements of higher quality. An incumbent
LEC, in accommodating a carrier's request for a particular unbundled
element, may ultimately provision an element that is higher in quality
than what the incumbent provides to itself. See infra, Section V.J.1.
As we discuss below, we do not believe that this obligation is unduly
burdensome to incumbent LECs because the 1996 Act requires a requesting
carrier to pay the costs of unbundling, and thus incumbent LECs will be
fully compensated for any efforts they make to increase the quality of
access or elements within their own network. (See infra, Section V.J.
We require, for example, that incumbent LECs provide local loops
conditioned to enable the provision of digital services (where
technically feasible) even if the incumbent does not itself provide
such digital services.) Moreover, to the extent this obligation allows
new entrants, including small entities, to offer services that are
different from those offered by the incumbent, we believe it is
consistent with Congress's goal to promote local exchange competition.
We note that, to the extent an incumbent LEC provides an element with a
superior level of quality to a particular carrier, the incumbent LEC
must provide all other requesting carriers with the same opportunity to
obtain that element with the equivalent higher level of quality. We
further note that where a requesting carrier specifically requests
access or unbundled elements that are lower in quality to what the
incumbent LECs provide themselves, incumbent LECs may offer such
inferior quality if it is technically feasible. Finally, we conclude
that the incumbent LEC must prove to a state commission that it is
technically infeasible to provide access to unbundled elements, or the
unbundled elements themselves, at a level of quality that is superior
to or lower than what the incumbent LEC provides to itself.
b. Just, Reasonable and Nondiscriminatory Terms and Conditions for the
Provision of Unbundled Network Elements
228. The duty to provide unbundled network elements on ``terms, and
conditions that are just, reasonable, and nondiscriminatory'' means, at
a minimum, that whatever those terms and conditions are, they must be
offered equally to all requesting carriers, and where applicable, they
must be equal to the terms and conditions under which the incumbent LEC
provisions such elements to itself. We also conclude that, because
section 251(c)(3) includes the terms ``just'' and ``reasonable,'' this
duty encompasses more than the obligation to treat carriers equally.
Interpreting these terms in light of the 1996 Act's goal of promoting
local exchange competition, and the benefits inherent in such
competition, we conclude that these terms require incumbent LECs to
provide unbundled elements under terms and conditions that would
provide an efficient competitor with a meaningful opportunity to
compete. Such terms and conditions should serve to promote fair and
efficient competition. This means, for example, that incumbent LECs may
not provision unbundled elements that are inferior in quality to what
the incumbent provides itself because this would likely deny an
efficient competitor a meaningful opportunity to compete. We reach this
conclusion because providing new entrants, including small entities,
with a
[[Page 45514]]
meaningful opportunity to compete is a necessary precondition to
obtaining the benefits that the opening of local exchange markets to
competition is designed to achieve.
229. As is more fully discussed below, to enable new entrants,
including small entities, to share the economies of scale, scope, and
density within the incumbent LECs' networks, we conclude that incumbent
LECs must provide carriers purchasing access to unbundled network
elements with the pre-ordering, ordering, provisioning, maintenance and
repair, and billing functions of the incumbent LECs operations support
systems. (The term ``provisioning'' includes installation.) Moreover,
the incumbent must provide access to these functions under the same
terms and conditions that they provide these services to themselves or
their customers. We discuss specific terms and conditions applicable to
the unbundled elements identified in this order below, in Section V.J.
H. The Relationship Between Sections 251(c)(3) and 251(c)(4)
1. Background
230. Section 251(c)(4) provides that incumbent LECs must offer
``for resale at wholesale rates any telecommunications service that the
carrier provides at retail to subscribers that are not
telecommunications carriers.'' In the NPRM, we asked for comment on the
relationship between this provision and section 251(c)(3).
Specifically, we asked whether carriers can order and combine network
elements to offer the same services that incumbent LECs offer for
resale under section 251(c)(4). We observed that different pricing
standards under section 252(d) apply to unbundled elements under
section 251(c)(3) and resold services under section 251(c)(4), and that
section 251(c)(3) contemplates the purchase of unseparated facilities
(i.e., facilities that can be used for either inter- or intrastate
services) while subsection (c)(4) does not necessarily contemplate
this. We asked for comment on the implications or significance of these
differences.
2. Discussion
231. The language of section 251(c)(3) is cast exclusively in terms
of obligations imposed on incumbent LECs, and it does not discuss,
reference, or suggest a limitation or requirement in connection with
the right of new entrants to obtain access to unbundled elements. We
conclude, therefore, that Congress did not intend section 251(c)(3) to
be read to contain any requirement that carriers must own or control
some of their own local exchange facilities before they can purchase
and use unbundled elements to provide a telecommunications service. We
note that the Illinois Commission has reached the same conclusion.
232. We reject the arguments advanced by Bell Atlantic and NYNEX
that the language of section 251(c)(3) requires carriers seeking access
to unbundled elements to own some local exchange facilities, and that
this serves to distinguish section 251(c)(3) from section 251(c)(4).
The ``at any technically feasible point'' language in section 251(c)(3)
refers to points in an incumbent LEC's network where new entrants may
obtain access to elements. It does not, however, require that new
entrants interconnect local exchange facilities which they own or
control at that technically feasible access point. If we were to
conclude otherwise, then new entrants would be prohibited from
requesting two network elements that are connected to each other
because the new entrant would be required to connect a single network
element to a facility of its own. The 1996 Act, however, does not
impose any limitations on carriers' ability to obtain access to
unbundled network elements. Moreover, we conclude that Congress did not
intend to limit access to unbundled elements in this manner because
such a limit would seriously inhibit the ability of potential
competitors to enter local markets through the use of unbundled
elements, and thus would retard the development of local exchange
competition. We also reject NYNEX's argument that the phrase ``such
telecommunications service'' excludes services provided by the
incumbent. This interpretation is inconsistent with the 1996 Act's
definition of a telecommunications service, which includes all
telecommunications services provided by an incumbent.
233. We also reject the argument that language in the Joint
Explanatory Statement requires us to conclude that carriers must own
facilities to obtain access to unbundled elements. Congress may have
recognized that carriers that own some of their own facilities will
more likely benefit by entering local markets through unbundled
elements rather than resale, but this consideration does not imply that
carriers must own their own facilities to obtain access to unbundled
elements.
234. We are not persuaded that, in order to give meaning and effect
to section 251(c)(4), we must require new entrants to own some local
exchange facilities in order to obtain access to unbundled elements. We
disagree with the premise that no carrier would consider entering local
markets under the terms of section 251(c)(4) if it could use recombined
network elements solely to offer the same or similar services that
incumbents offer for resale. We believe that sections 251(c)(3) and
251(c)(4) present different opportunities, risks, and costs in
connection with entry into local telephone markets, and that these
differences will influence the entry strategies of potential
competitors. We therefore find that it is unnecessary to impose a
limitation on the ability of carriers to enter local markets under the
terms of section 251(c)(3) in order to ensure that section 251(c)(4)
retains functional validity as a means to enter local phone markets.
235. The principal distinction between sections 251(c)(3) and
251(c)(4), in terms of the opportunities each section presents to new
entrants, is that carriers using solely unbundled elements, compared
with carriers purchasing services for resale, will have greater
opportunities to offer services that are different from those offered
by incumbents. More specifically, carriers reselling incumbent LEC
services are limited to offering the same service an incumbent offers
at retail. This means that resellers cannot offer services or products
that incumbents do not offer. The only means by which a reseller can
distinguish the services it offers from those of an incumbent is
through price, billing services, marketing efforts, and to some extent,
customer service. The ability of a reseller to differentiate its
products based on price is limited, however, by the margin between the
retail and wholesale price of the product.
236. In contrast, a carrier offering services solely by recombining
unbundled elements can offer services that differ from those offered by
an incumbent. For example, some incumbent LECs have capabilities within
their networks, such as the ability to offer Centrex, which they do not
use to offer services to consumers. Carriers purchasing access to
unbundled elements can offer such services. Additionally, carriers
using unbundled elements can bundle services that incumbent LECs sell
as distinct tariff offerings, as well as services that incumbent LECs
have the capability to offer, but do not, and can market them as a
bundle with a single price. The ability to package and market services
in ways that differ from the incumbent's existing service offerings
increases the requesting carrier's ability to compete against the
incumbent and is likely to
[[Page 45515]]
benefit consumers. Additionally, carriers solely using unbundled
network elements can offer exchange access services. These services,
however, are not available for resale under section 251(c)(4) of the
1996 Act.
237. If a carrier taking unbundled elements may have greater
competitive opportunities than carriers offering services available for
resale, they also face greater risks. A carrier purchasing unbundled
elements must pay for the cost of that facility, pursuant to the terms
and conditions agreed to in negotiations or ordered by states in
arbitrations. It thus faces the risk that end-user customers will not
demand a sufficient number of services using that facility for the
carrier to recoup its cost. (Many network elements can be used to
provide a number of different services.) A carrier that resells an
incumbent LEC's services does not face the same risk. This distinction
in the risk borne by carriers entering local markets through resale as
opposed to unbundled elements is likely to influence the entry
strategies of various potential competitors. Some new entrants will be
unable or unwilling to bear the financial risks of entry by means of
unbundled elements and will choose to enter local markets under the
terms of section 251(c)(4) irrespective of the fact that they can
obtain access to unbundled elements without owning any of their own
facilities. Moreover, some markets may never support new entry through
the use of unbundled elements because new entrants seeking to offer
services in such markets will be unable to stimulate sufficient demand
to recoup their investment in unbundled elements. Accordingly, in these
markets carriers will enter through the resale of incumbent LEC
services, irrespective of the fact that they could enter exclusively
through the use of unbundled elements.
238. We are not persuaded by the argument set forth by Ameritech,
NYNEX, and MFS that allowing carriers to use solely recombined network
elements would eviscerate the joint marketing restriction in section
271(e)(1). It is true that the terms of section 271(e) do not restrict
joint marketing through the use of unbundled elements pursuant to
section 251(c)(3). As discussed above, differences in opportunities and
risk will cause some new entrants to consider entering local telephone
markets through resale of incumbent LEC services, even if they could
enter solely through the use of unbundled elements. Thus, we conclude
that section 271(e)(1) will impose a meaningful limitation on joint
marketing.
239. We note, moreover, that the 1996 Act does not prohibit all
forms of joint marketing. For example, it does not prohibit carriers
who own local exchange facilities from jointly marketing local and
interexchange service. Nor does it prohibit joint marketing by carriers
who provide local exchange service through a combination of local
facilities which they own or possess, and unbundled elements. Because
the 1996 Act does not prohibit all forms of joint marketing, we see no
principled basis for reading into section 271(e)(1) a further
limitation on the ability of carriers to jointly market local and long
distance services without concluding that this section prohibits all
forms of joint marketing. In other words, we see no basis upon which we
could conclude that section 271(e)(1) restricts joint marketing of long
distance services, and local services provided solely through the use
of unbundled network elements, without also concluding that the section
restricts the ability of carriers to jointly market long distance
services and local services that are provided through a combination of
a carriers' own facilities and unbundled network elements. Moreover, we
do not believe that we have the discretion to read into the 1996 Act a
restriction on competition which is not required by the plain language
of any of its sections.
240. We also reject the argument advanced by BellSouth and
Ameritech that allowing carriers to use solely unbundled elements to
provide services available through resale would allow carriers to evade
a possible prohibition, which is reserved to the discretion of the
states, on the sale of certain services to certain categories of
consumers. Under section 251(c)(4)(B) states are permitted to restrict
resellers from offering certain services to certain consumers, in the
same manner that states restrict incumbent LECs. For example, states
that prohibit incumbent LECs from selling to business consumers
residential services priced below cost have the ability to restrict
resellers from selling such services to business consumers.
241. We do not believe, however, that carriers using solely
unbundled elements to provide local exchange services will be able to
evade any potential restrictions states may impose under section
251(c)(4)(B). In this section Congress granted the states the
discretion to impose certain limited restrictions on the sale of
services available for resale. It did not, however, grant states, in
section 251(c)(3), the same discretion to impose similar restrictions
on the use of unbundled elements. Accordingly, we are not persuaded
that allowing carriers to use solely unbundled elements to provide
services that incumbent LECs offer for resale would allow competing
carriers to evade a possible marketing restriction that Congress
intended to reserve to the discretion of the states.
242. We agree with those commenters who argue that it would be
administratively impossible to impose a requirement that carriers must
own some of their own local exchange facilities in order to obtain
access to unbundled elements, and they must use these facilities, in
combination with unbundled elements, for the purpose of providing local
services. We conclude that it would not be possible to identify the
elements carriers must own without creating incentives to build
inefficient network architectures that respond not to marketplace
factors, but to regulation. We further conclude that such a requirement
could delay possible innovation. These effects would diminish
competition for local telephone services, and thus any local exchange
facilities requirement would be inconsistent with the 1996 Act's goals
of promoting competition. Moreover, if we imposed a facilities
ownership requirement that attempted to avoid these competitive
pitfalls, it would likely be so easy to meet it would ultimately be
meaningless.
243. We reject the argument that requiring carriers to own some
local exchange facilities would promote competition for local exchange
services, or that we should impose such a requirement for other policy
reasons. To the contrary, we conclude that allowing carriers to use
unbundled elements as they wish, subject only to the maintenance of the
key elements of the access charge regime, described below at section
VII, will lead to more efficient competition in local phone markets. If
we were to limit access to unbundled network elements to those markets
where carriers already own, or could efficiently build, some local
exchange facilities, we would limit the ability of carriers to enter
local markets under the pricing standard for unbundled elements to
those markets that could efficiently support duplication of some or all
of the incumbent LECs' networks. We believe that such a result could
diminish competition, and that allowing new entrants to take full
advantage of incumbent LECs' scale and scope economies will promote
more rapid and efficient entry and will result in more robust
competition.
244. Finally, we conclude that a new entrant may offer services to
one group of consumers using unbundled network elements, and it may
offer services to a
[[Page 45516]]
separate group of consumers by reselling an incumbent LEC's services.
With the exception noted in Section VII, infra, we do not address the
issue of whether the 1996 Act permits a new entrant to offer services
to the same set of consumers through a combination of unbundled
elements and services available for resale.
I. Provision of Interexchange Services Through The Use of Unbundled
Network Elements
1. Background
245. In the NPRM, we tentatively concluded that interexchange
carriers are telecommunications carriers, and thus such carriers are
entitled to access to unbundled elements under the terms of section
251(c)(3). We also tentatively concluded that carriers may request
unbundled elements for purposes of originating and terminating toll
services, in addition to any other services they seek to provide,
because section 251(c)(3) provides that carriers may request unbundled
elements to provide a ``telecommunications service,'' and interexchange
services are a telecommunications service.
246. In the NPRM, we sought comment on whether the 1996 Act permits
carriers to use unbundled elements to provide exchange access services
only, or whether carriers seeking to provide exchange access services
using unbundled elements must provide local exchange service as well.
We premised the latter view on the definition of the term ``network
element,'' as a facility and not a service, and on the pricing standard
under section 252(d)(1) that requires network elements to be priced
based on economic costs (rather than jurisdictionally separated costs.)
We also sought comment on whether allowing carriers to purchase
unbundled elements to provide exchange access services exclusively
would be inconsistent with the terms of sections 251(i) and 251(g) and,
further, whether this would result in a fundamental jurisdictional
shift of the administration of interstate access charges to state
jurisdictions.
247. Finally, in the NPRM, we tentatively concluded that, if
carriers purchase unbundled elements to provide exchange access
services to themselves, irrespective of whether they provide such
services alone or in connection with local exchange services, incumbent
LECs cannot assess Part 69 access charges in addition to charges for
the cost of the unbundled elements. We based this tentative conclusion
on the view that the imposition of access charges in addition to cost-
based charges for unbundled elements would depart from the statutory
mandate of cost-based pricing of elements.
2. Discussion
248. We confirm our tentative conclusion in the NPRM that section
251(c)(3) permits interexchange carriers and all other requesting
telecommunications carriers, to purchase unbundled elements for the
purpose of offering exchange access services, or for the purpose of
providing exchange access services to themselves in order to provide
interexchange services to consumers. Although we conclude below that we
have discretion under the 1934 Act, as amended by the 1996 Act, to
adopt a limited, transitional plan to address public policy concerns
raised by the bypass of access charges via unbundled elements, we
believe that our interpretation of section 251(c)(3) in the NPRM is
compelled by the plain language of the 1996 Act. As we observed in the
NPRM, section 251(c)(3) provides that requesting telecommunications
carriers may seek access to unbundled elements to provide a
``telecommunications service,'' and exchange access and interexchange
services are telecommunications services. Moreover, section 251(c)(3)
does not impose restrictions on the ability of requesting carriers ``to
combine such elements in order to provide such telecommunications
service[s].'' Thus, we find that there is no statutory basis upon which
we could reach a different conclusion for the long term.
249. We also confirm our conclusion in the NPRM that, for the
reasons discussed below in section V.J, carriers purchase rights to
exclusive use of unbundled loop elements, and thus, as the Department
of Justice and Sprint observe, such carriers, as a practical matter,
will have to provide whatever services are requested by the customers
to whom those loops are dedicated. This means, for example, that, if
there is a single loop dedicated to the premises of a particular
customer and that customer requests both local and long distance
service, then any interexchange carrier purchasing access to that
customer's loop will have to offer both local and long distance
services. That is, interexchange carriers purchasing unbundled loops
will most often not be able to provide solely interexchange services
over those loops.
250. We reject the argument advanced by a number of incumbent LECs
that section 251(i) demonstrates that requesting carriers using
unbundled elements must continue to pay access charges. Section 251(i)
provides that nothing in section 251 ``shall be construed to limit or
otherwise affect the Commission's authority under section 201.'' We
conclude, however, that our authority to set rates for these services
is not limited or affected by the ability of carriers to obtain
unbundled elements for the purpose of providing interexchange services.
Our authority to regulate interstate access charges remains unchanged
by the 1996 Act. What has potentially changed is the volume of access
services, in contrast to the number of unbundled elements,
interexchange carriers are likely to demand and incumbent LECs are
likely to provide. When interexchange carriers purchase unbundled
elements from incumbents, they are not purchasing exchange access
``services.'' They are purchasing a different product, and that product
is the right to exclusive access or use of an entire element. Along
this same line of reasoning, we reject the argument that our conclusion
would place the administration of interstate access charges under the
authority of the states. When states set prices for unbundled elements,
they will be setting prices for a different product than ``interstate
exchange access services.'' Our exchange access rules remain in effect
and will still apply where incumbent LECs retain local customers and
continue to offer exchange access services to interexchange carriers
who do not purchase unbundled elements, and also where new entrants
resell local service. The application of our exchange access rules in
the circumstances described will continue beyond the transition period
described at infra, Section VII.
251. We also reject the incumbent LECs' arguments that language
contained in bills that were not enacted, or legislative history
connected to such bills, demonstrates that carriers cannot purchase
access to unbundled elements to provide exchange access services to
themselves, for the purpose of providing long distance services to
consumers. The incumbent LECs are arguing in effect, that we should
read into the current statute a limitation on the ability of carriers
to use unbundled network elements, despite the fact that no such
limitation survived the Conference Committee's amendments to the 1996
Act. We conclude, however, that the language of section 251(c)(3),
which provides that telecommunications carriers may purchase unbundled
elements in order to provide a telecommunications service is not
ambiguous. Accordingly, we must
[[Page 45517]]
interpret it pursuant to its plain meaning and not by referencing
earlier versions of the statute that were ultimately not adopted by
Congress.
252. Moreover, we do not believe that the Joint Explanatory
Statement, which describes the House and Senate versions of the
statute, and the 1996 Act as enacted, compels a different conclusion.
The Joint Explanatory Statement states that the statute incorporates
provisions from the Senate Bill and the House Amendment in connection
with the interconnection model adopted in section 251. It notes that
the provision in the Senate Bill relating to interconnection did not
apply to interconnection arrangements between local and long distance
carriers for the purpose of providing long distance services. The text
of section 251 of the Senate Bill is consistent with this comment
because it states that a local exchange carrier must offer
interconnection to other carriers to allow such carriers to provide
telephone exchange or exchange access services. The Joint Explanatory
Statement, however, does not describe any restriction in the House
Amendment regarding the ability of carriers to use unbundled elements
to provide long distance service. Indeed, the House Amendment
specifically states that carriers may obtain access to unbundled
elements to offer ``a telecommunications service,'' which is not
limited to telephone exchange and exchange access services. We observe
that the Conference Committee incorporated language from the House
Amendment and not the Senate Bill in describing in section 251(c)(3)
the services carriers may offer using unbundled elements. Accordingly,
we do not believe that the Joint Explanatory Statement's description of
the provision in the Senate Bill controls our interpretation of section
251(c)(3) as enacted.
253. We also reject the argument that allowing carriers to use
unbundled elements to provide originating and terminating toll services
is inconsistent with the purposes of the 1996 Act. Congress intended
the 1996 Act to promote competition for not only telephone exchange
services and exchange access services, but also for toll services.
Section 251(b)(3), for example, imposes a duty on LECs to provide
dialing parity for telephone toll service.
254. We disagree with the incumbent LECs which argue that section
251(g) requires requesting carriers using unbundled elements to
continue to pay federal and state access charges indefinitely. Section
251(g) provides that the federal and state equal access rules
applicable before enactment, including the ``receipt of compensation,''
will continue to apply after enactment, ``until such restrictions and
obligations are explicitly superseded by regulations prescribed by the
Commission after such date of enactment.'' We believe this provision
does not apply to the exchange access ``services'' requesting carriers
may provide themselves or others after purchasing unbundled elements.
Rather, the primary purpose of section 251(g) is to preserve the right
of interexchange carriers to order and receive exchange access services
if such carriers elect not to obtain exchange access through their own
facilities or by means of unbundled elements purchased from an
incumbent.
255. We affirm our tentative conclusion in the NPRM that,
telecommunications carriers purchasing unbundled network elements to
provide interexchange services or exchange access services are not
required to pay federal or state exchange access charges except as
described in section VII, infra, for a temporary period. As we
explained in the NPRM, if we were to require indefinitely carriers
purchasing unbundled elements to also pay access charges, then
incumbent LECs would receive compensation in excess of their underlying
network costs. This result would be inconsistent with the pricing
standard for unbundled elements set forth in section 252(d)(1). In
addition, we believe this conclusion is consistent with Congress's
overriding goal of promoting efficient competition for local telephony
services, because it will allow, in the long term, new entrants using
unbundled elements to compete on the basis of the economic costs
underlying the incumbent LECs' networks. The facilities used to provide
exchange access services are the same as those used to provide local
exchange services. We note, however, as discussed below, (see infra,
Section VII, discussing an interim mechanism addressing near-term
access charge bypass) that certain additional charges are necessary for
a specific, limited duration to smooth the transition to a competitive
marketplace. We also note that where new entrants purchase access to
unbundled network elements to provide exchange access services, whether
or not they are also offering toll services through such elements, the
new entrants may assess exchange access charges to IXCs originating or
terminating toll calls on those elements. In these circumstances,
incumbent LECs may not assess exchange access charges to such IXCs
because the new entrants, rather than the incumbents, will be providing
exchange access services, and to allow otherwise would permit incumbent
LECs to receive compensation in excess of network costs in violation of
the pricing standard in section 252(d). See 47 U.S.C. Sec. 252. We
further note, however, that in these same circumstances the new entrant
purchasing access to an unbundled switch element must pay to the
incumbent LEC the charges included in the transitional mechanism,
described infra, at Section VII, for a temporary period.
256. We further conclude that when a carrier purchases a local loop
for the purpose of providing interexchange services or exchange access
services, incumbent LECs may not recover the subscriber line charge
(SLC) now paid by end users. (As discussed at infra, Section VIII, a
different result will occur when interconnecting carriers purchase LEC
retail services at wholesale rates under section 251(c)(4).) The SLC
recovers the portion of loop costs allocated to the interstate
jurisdiction, but as discussed in Section II.C, supra, we conclude that
the 1996 Act creates a new jurisdictional regime outside of the current
separations process. The unbundled loop charges paid by new entrants
under section 251(c)(3) will therefore recover the unseparated cost of
the loop, including the interstate component now recovered through the
SLC. If end users or carriers purchasing access to local loops were
required to pay the SLC in this situation, LECs would enjoy double
recovery, and the effective price of unbundled loops would exceed the
cost-based levels required under section 251(d)(1).
257. Finally, we have considered the economic impact on small
incumbent LECs of our conclusion that carriers purchasing access to
unbundled network elements to provide interexchange or exchange access
services are not required to pay federal or state access charges,
except as described in Section VII, infra, for a temporary period. For
example, the Rural Telephone Coalition argues that rural ratepayers
could be subject to higher local service rates if interexchange
carriers are allowed to bypass access charges through the purchase of
unbundled elements before proceedings regarding access reform and
universal service are completed. We reject the Rural Telephone
Coalition's argument, however, because our rules, as discussed in
Section VII, infra, provide for a limited, transitional plan to address
public policy concerns raised by the bypass of access charges through
unbundled network elements.
[[Page 45518]]
J. Specific Unbundling Requirements
258. Having interpreted the standards set forth in the 1996 Act for
the unbundling of network elements, we now apply those standards to
incumbent LECs' networks. Based on the information developed in this
proceeding, we require incumbent LECs to provide unbundled access to
local loops, network interface devices, end office and tandem
switching, and various interoffice facilities, as described below.
These network elements represent a minimum set of elements that must be
unbundled by incumbent LECs. State commissions, as previously noted,
are free to prescribe additional elements, and parties may agree on
different or additional network elements in the voluntary negotiation
process.
1. Local Loops
(a) Background
259. In the NPRM, we tentatively concluded that incumbent LECs
should be required to unbundle local loops. We sought comment on
appropriate requirements for loop unbundling that would promote entry
and build upon existing state initiatives, and whether we should adopt
specific provisioning requirements for loop unbundling. We also sought
comment on our tentative conclusion that incumbent LECs should make
available as individual network elements various subloop elements such
as the feeder, distribution, and concentration equipment.
(b) Discussion
260. We conclude that incumbent LECs must provide local loops on an
unbundled basis to requesting carriers. We note that the Joint
Explanatory Statement lists local loops as an example of an unbundled
network element. As discussed below, the record demonstrates that it is
technically feasible for incumbent LECs to provide access to unbundled
local loops, and that such access is critical to encouraging market
entry. Further, the competitive checklist contained in section 271
requires BOCs to offer unbundled loops separate from switching as a
precondition to entry into the in-region, interLATA services market.
261. Requiring incumbent LECs to make available unbundled local
loops will facilitate market entry and improve consumer welfare.
Without access to unbundled local loops, new entrants would need to
invest immediately in duplicative facilities in order to compete for
customers. Such investment and building would likely delay market entry
and postpone the benefits of local telephone competition for consumers.
Moreover, without access to unbundled loops, new entrants would be
required to make a large initial sunk investment in loop facilities
before they had a customer base large enough to justify such an
expenditure. As of year end 1995, Class A carriers reported $268
billion of total plant in service, of which $229 billion was classified
as network plant. Local loop plant comprises approximately $109 billion
of total plant in service, which represents 41 percent of total plant
in service and 48 percent of network plant. See 1995 ARMIS Report 43-
04. This would increase the risk of entry and raise the new entrant's
cost of capital. By contrast, the ability of a new entrant to purchase
unbundled loops from the incumbent LEC allows the new entrant to build
facilities gradually, and to deploy loops for its customers where it is
efficient to do so. Moreover, in some areas, the most efficient means
of providing competing service may be through the use of unbundled
loops. In such cases, preventing access to unbundled loops would either
discourage a potential competitor from entering the market in that
area, thereby denying those consumers the benefits of competition, or
cause the competitor to construct unnecessarily duplicative facilities,
thereby misallocating societal resources.
262. Section 251(c)(3) requires incumbent LECs to provide access to
unbundled elements ``at any technically feasible point.'' The vast
majority of commenters, including incumbent LECs, agree with our
tentative conclusion that it is technically feasible to provide access
to unbundled local loops, and a number of commenters identify the main
distribution frame in a LEC central office as an appropriate access
point. Moreover, access to unbundled loops is currently provided by
several LECs pursuant to state unbundling requirements. Thus, we
conclude that it is technically feasible for incumbent LECs to provide
access to unbundled local loops at, for example, a central office
distribution frame.
263. We further conclude that the local loop element should be
defined as a transmission facility between a distribution frame, or its
equivalent, in an incumbent LEC central office, and the network
interface device at the customer premises. This definition includes,
for example, two-wire and four-wire analog voice-grade loops, and two-
wire and four-wire loops that are conditioned to transmit the digital
signals needed to provide services such as ISDN, ADSL, HDSL, and DS1-
level signals. ISDN (Integrated Services Digital Network) at the Basic
Rate Interface level permits the transmission of digital signals over
the loop at the rate of 144 kbps, which provides two standard 64 kbps
voice or data channels and a 16 kbps data channel. ISDN at the Primary
Rate Interface permits 23 standard 64 kbps channels plus one 16 kbps
data channel. ADSL (Asynchronous Digital Subscriber Line) is a
transmission path that facilitates 6 Mbps digital signal downstream and
640 kbps digital signal upstream, while simultaneously carrying an
analog voice signal. Two-wire HDSL (High-bit-rate Digital Subscriber
Line) permits the transmission of a 768 kbps digital signal over a
copper loop, while four-wire HDSL allows the transmission of 1.544 Mbps
over two two-wire pairs. We note that a number of parties proposed
definitions of the local loop that encompassed some or all of these
loop types. In addition, we agree with ITIC that the ability to offer
various digital loop functions in competition with incumbent LECs may
be particularly beneficial to small entities by allowing them to serve
niche markets.
264. Incumbent LECs are required to provide access to these
transmission facilities only to the extent technically feasible. That
is, if it is not technically feasible to condition a loop facility to
support a particular functionality, the incumbent LEC need not provide
unbundled access to that loop so conditioned. For example, a local loop
that exceeds the maximum length allowable for the provision of a high-
bit rate digital service could not feasibly be conditioned for such
service. Such loop conditioning may involve removing load coils or
bridged taps that interfere with the transmission of digital signals.
Such a situation may necessitate a request for subloop elements.
Nevertheless, section 251(c)(3) does not limit the types of
telecommunications services that competitors may provide over unbundled
elements to those offered by the incumbent LEC.
265. Our definition of loops will in some instances require the
incumbent LEC to take affirmative steps to condition existing loop
facilities to enable requesting carriers to provide services not
currently provided over such facilities. For example, if a competitor
seeks to provide a digital loop functionality, such as ADSL, and the
loop is not currently conditioned to carry digital signals, but it is
technically feasible to condition the facility, the incumbent LEC must
condition the loop to permit the transmission of digital signals. Thus,
we reject BellSouth's position that requesting carriers ``take the LEC
networks as they find them''
[[Page 45519]]
with respect to unbundled network elements. As discussed above, some
modification of incumbent LEC facilities, such as loop conditioning, is
encompassed within the duty imposed by section 251(c)(3). The
requesting carrier would, however, bear the cost of compensating the
incumbent LEC for such conditioning.
266. We further conclude that incumbent LECs must provide
competitors with access to unbundled loops regardless of whether the
incumbent LEC uses integrated digital loop carrier technology, or
similar remote concentration devices, for the particular loop sought by
the competitor. IDLC technology allows a carrier to aggregate and
multiplex loop traffic at a remote concentration point and to deliver
that multiplexed traffic directly into the switch without first
demultiplexing the individual loops. If we did not require incumbent
LECs to unbundle IDLC-delivered loops, end users served by such
technologies would not have the same choice of competing providers as
end users served by other loop types. Further, such an exception would
encourage incumbent LECs to ``hide'' loops from competitors through the
use of IDLC technology.
267. We find that it is technically feasible to unbundle IDLC-
delivered loops. One way to unbundle an individual loop from an IDLC is
to use a demultiplexer to separate the unbundled loop(s) prior to
connecting the remaining loops to the switch. Commenters identify a
number of other methods for separating out individual loops from IDLC
facilities, including methods that do not require demultiplexing.
Again, the costs associated with these mechanisms will be recovered
from requesting carriers.
268. We decline to define a loop element in functional terms,
rather than in terms of the facility itself. Some parties advocate
defining a loop element as merely a functional piece of a shared
facility, similar to capacity purchased on a shared transport trunk.
According to these parties, this definition would enable an IXC to
purchase a loop element solely for purposes of providing interexchange
service. While such a definition, based on the types of traffic
provided over a facility, may allow for the separation of costs for a
facility dedicated to one end user, we conclude that such treatment is
inappropriate. Giving competing providers exclusive control over
network facilities dedicated to particular end users provides such
carriers the maximum flexibility to offer new services to such end
users. In contrast, a definition of a loop element that allows
simultaneous access to the loop facility would preclude the provision
of certain services in favor of others. For example, carriers wishing
to provide solely voice-grade service over a loop would preclude
another carrier's provision of a digital service, such as ISDN or ADSL,
over that same loop. Digital services such as ISDN and ADSL occupy the
same frequency spectrum on a loop as ordinary voice-grade services. We
note that these two types of services could be provided by different
carriers over, for example, separate two-wire loop elements to the same
end user.
269. Incumbent LECs must provide cross-connect facilities, for
example, between an unbundled loop and a requesting carrier's
collocated equipment, in order to provide access to that loop. As we
conclude in section IV.D, above, an incumbent LEC must take the steps
necessary to allow a competitor to combine its own facilities with the
incumbent LEC's unbundled network elements. We highlight this
requirement for unbundled loops because of allegations by competitive
providers that incumbent LECs have imposed unreasonable rates, terms,
and conditions for such cross-connect facilities in the past. Incumbent
LECs may recover the cost of providing such facilities in accordance
with our rules on the costs of interconnection and unbundling. Charges
for all such facilities must meet the cost-based standard provided in
section 252(d)(1), and the terms and conditions of providing these
facilities must be reasonable and nondiscriminatory under section
251(c)(3).
270. At this time, we decline to adopt additional terms and
conditions, such as the five-minute loop cutover requirement proposed
by MFS, for loop provisioning. We agree with commenters who contend
that the provisioning of unbundled local loops must be subject to close
scrutiny to ensure that incumbent LECs do not delay loop cutover or
otherwise complicate the acquisition of loops by a competitor. We
conclude, however, that the rules we adopt in the Access to Unbundled
Network Elements section that require nondiscriminatory terms and
conditions for provisioning, billing, testing, and repair of unbundled
elements, and the availability of electronic ordering systems,
adequately address these concerns. We will continue to review and
revise our rules in this area as necessary.
271. Section 251(d)(2)(A) requires the Commission to consider
whether ``access to such network elements as are proprietary in nature
is necessary.'' Most parties did not identify any proprietary concerns
associated with providing unbundled access to local loops. Ericsson
notes that some ``active'' loop equipment, such as channel banks and
remote terminal equipment, is often proprietary in nature, and that
manufacturers would require time to modify such equipment to create
end-to-end network compatibility on a national basis. Ericsson does not
contend, however, that any proprietary information would be revealed if
loops using such equipment were unbundled, or that use of such
equipment should prevent loop unbundling in general. Thus, we conclude
that loop elements are, in general, not proprietary in nature under our
interpretation of section 251(d)(2)(A). Even if loop elements were
proprietary in nature, however, Ericsson does not meet the second
consideration in our section 251(d)(2)(A) standard, which requires a
showing that a new entrant can offer the proposed telecommunications
service through the use of other, nonproprietary elements in the
incumbent LEC's network. Ericsson merely contends that manufacturers
may need time to establish compatibility between its proprietary
equipment and equipment of other manufacturers. Therefore, we find that
Ericsson's concerns do not justify withholding unbundled loops from
requesting carriers pursuant to section 251(d)(2)(A).
272. Section 251(d)(2)(B) directs the Commission to consider
whether ``the failure to provide access to such network elements would
impair the ability of the telecommunications carrier seeking access to
provide the services that it seeks to offer.'' We have interpreted the
term ``impair'' to mean either increased cost or decreased service
quality that would result from using network elements of the incumbent
LEC other than the one sought. Commenters do not identify alternative
facilities that would fulfill requesting carriers' need for
transmission between the central office and the customer premises at
the same cost and same quality of service. Accordingly, we conclude
that competitors' ability to provide telephone exchange, exchange
access, or other telecommunications services would be significantly
impaired if they did not have the opportunity to purchase unbundled
loops from incumbent LECs.
273. As a general matter, we believe that subloop unbundling could
give competitors flexibility in deploying some portions of loop
facilities, while relying on the incumbent LEC's facilities where
convenient. For example, a competitor may seek to minimize its reliance
on the LEC's
[[Page 45520]]
facilities by combining its own feeder plant with the incumbent LEC's
distribution plant. In addition, some high bandwidth services, such as
ADSL, cannot be provided over long loop lengths. ITIC, Compaq, and
Intel assert that subloop unbundling would lead to innovative new data
services. In these situations, carriers would need access at points
along the loop closer to the customer premises. The record presents
evidence primarily of logistical, rather than technical, impediments to
subloop unbundling. Several LECs and USTA, for example, assert that
incumbent LECs would need to create databases for identifying,
provisioning, and billing for subloop elements. Further, incumbent LECs
argue that there is insufficient space at certain possible subloop
interconnection points. We note that these concerns do not represent
``technical'' considerations under our interpretation of the term
``technically feasible.''
274. Nonetheless, we decline at this time to identify the feeder,
feeder/distribution interface (FDI), and distribution components of the
loop as individual network elements. We find that proponents of subloop
unbundling do not address certain technical issues raised by incumbent
LECs concerning subloop unbundling. Incumbent LECs contend that access
by a competitor's personnel to loop equipment necessary to provide
subloop elements, such as the FDI, raise network reliability concerns
for customers served through that FDI. SBC, for example, asserts that
access to its loop concentration points by competitors would increase
the risk of error by a competitor's technicians that may disrupt
service to customers of one or both carriers. U S West contends that
the potential for poor technical implementation of subloop
interconnection and the lack of overall responsibility for loop
performance is very likely to degrade overall service quality.
Proponents of subloop unbundling do not adequately respond to these
arguments by incumbent LECs. As discussed above, we have determined
that we must take into account specific, demonstrable claims regarding
network reliability in determining whether to identify any particular
component as an element that must be unbundled. Therefore, we believe
that, at this stage, based on the current record evidence, the
technical feasibility of subloop unbundling is best addressed at the
state level on a case-by-case basis at this time. We encourage states
to pursue subloop unbundling in response to requests for subloop
elements by competing providers. Information developed by the parties
in the context of a specific request for subloop unbundling will
provide a useful framework for addressing the loop maintenance and
network reliability matters that we have identified. Based on actions
taken by the states or other future developments, and on the importance
of subloop unbundling in light of technological advancements, we intend
to revisit the specific issue of subloop unbundling sometime in 1997.
275. We require incumbent LECs to offer unbundled access to the
network interface device (NID), as a network element, as described
below. The NID is a cross-connect device used to connect loop
facilities to inside wiring. When a competitor deploys its own loops,
the competitor must be able to connect its loops to customers' inside
wiring in order to provide competing service, especially in multi-
tenant buildings. In many cases, inside wiring is connected to the
incumbent LEC's loop plant at the NID. In order to provide service, a
competitor must have access to this facility. Therefore, we conclude
that a requesting carrier is entitled to connect its loops, via its own
NID, to the incumbent LEC's NID.
276. Pursuant to section 251(c)(3), we find that this arrangement
clearly is technically feasible. Ameritech notes that it currently
maintains such connections with competitors that have deployed their
own loop facilities. This is persuasive evidence that unbundled access
at the NID, in this manner, does not raise network reliability
concerns. Under section 251(d)(2)(A), the record contains no evidence
of proprietary concerns with unbundled access to the NID. In addition,
under our interpretation of the ``impair'' test of section
251(d)(2)(B), commenters do not contend that new entrants could obtain
the same functionality at the same cost and service quality through
other network elements of the incumbent LEC. Moreover, the record
indicates that certain network architectures used by new entrants, such
as fiber rings, can most efficiently connect end users to the new
entrant's switching office without use of the incumbent LEC's
facilities. Thus, we conclude that the unavailability of access to
incumbent LECs' NIDs would impair the ability of carriers deploying
their own loops to provide service. Further, we believe that unbundled
access to the NID will facilitate entry strategies premised on the
deployment of loops. As discussed in section VII, above, the new
entrant bears the costs connecting its NID to the incumbent LEC's NID.
277. We do not require an incumbent LEC to permit a new entrant to
connect its loops directly to the incumbent LEC's NID. MCI contends
that directly connecting its loops to incumbent LEC's NIDs is ``[t]he
only practical solution'' for gaining access to inside wiring.
According to MCI, there is no extra wiring to connect the incumbent
LEC's NID to the new entrant's NID. Ameritech demonstrates, however,
that it currently provides access to inside wiring through the type of
arrangement that MCI asserts is not practical--that is, by connecting a
new entrant's loops to inside wiring via the new entrant's NID and
Ameritech's NID. MCI does not demonstrate that its ability to provide
competing service is unreasonably limited by the arrangements explained
by Ameritech.
278. The record contains conflicting evidence on the technical
feasibility of requiring incumbent LECs to permit competitors to
connect their loops directly to incumbent LECs' NIDs. Ameritech asserts
that such a direct connection would leave Ameritech's unused loops
without overvoltage protection. MCI argues that overvoltage protection
is provided through the incumbent LEC's ``protector module'' that is
separate from the NID. Ameritech responds that its NIDs are integrated
units providing both overvoltage protection and a demarcation point,
and that these two functions of the NID are ``inseverable.'' AT&T
contends direct access to incumbent LECs NIDs is technically feasible.
According to AT&T, if a competitor connects its loops directly to the
incumbent LEC's NID, the incumbent LEC's loops remain connected to the
grounding equipment that protects against overvoltage. According to
AT&T, when the competitor does not use spare terminals on the NID, the
competitor would be required to ground the incumbent LEC's unused loops
to protect against overvoltage.
279. We find that the record in this proceeding does not permit a
determination on the technical feasibility of the direct connection of
a competitor's loops to the incumbent LEC's NID. Our requirement of a
NID-to-NID connection addresses the most critical need of competitors
that deploy their own loops--obtaining access to the inside wiring of
the building. We recognize, however, that competitors may benefit by
directly connecting their loops to the incumbent LEC's NID, for
example, by avoiding the cost of deploying NIDs. States should
determine whether direct connection to the NID can be achieved in a
technically feasible manner in the context of
[[Page 45521]]
specific requests by competitors for direct access to incumbent LECs'
NIDs.
2. Switching
(a) Background
280. In the NPRM, we tentatively concluded that incumbent LECs
should be required to make available local switching capability as an
unbundled network element. We sought comment on how a local switching
element should be defined, and we identified two possible models: the
switch ``platform'' approach, which would entitle and require a
requesting carrier to purchase all of the features and functions of the
switch on a per-line basis and the port approach used by the New York
Commission, which offers local switching capability through the
purchase of a port at a retail rate. We also sought comment on other
definitions of a local switching element. In addition, we requested
that commenters address whether vertical switching functions, such as
those enabling the provision of custom local area signaling service
(CLASS) features and call waiting, should be considered individual
network elements separate from the basic switching functionality.
(b) Discussion
(i) Local Switching
281. We conclude that incumbent LECs must provide local switching
as an unbundled network element. The record supports a finding that it
is technically feasible for incumbent LECs to provide access to an
unbundled local switching element, and that denying access to a local
switching element would substantially impair the ability of many
competing carriers to provide switched telecommunications services. We
also note that section 271 requires BOCs to offer or provide ``[l]ocal
switching unbundled from transport, local loop transmission, or other
services'' as a precondition to providing in-region interLATA services.
As discussed below, we identify a local switching element that includes
the basic function of connecting lines and trunks as well as vertical
switching features, such as custom calling and CLASS features. We agree
with the Illinois Commission that defining the switching element in
this way will permit competitors to compete more effectively by
designing new packages and pricing plans.
282. In the United States, there are over 23,000 central office
switches, the vast majority of which are operated by incumbent LECs. It
is unlikely that consumers would receive the benefits of competition
quickly if new entrants were required to replicate even a small
percentage of incumbent LECs' existing switches prior to entering the
market. The Illinois Commission staff presented evidence in a recent
proceeding indicating that it takes between nine months and two years
for a carrier to purchase and install a switch. We find this to be
persuasive evidence of the entry barrier that would be created if new
entrants were unable to obtain unbundled local switching from the
incumbent LEC. The ability to purchase unbundled switching will also
promote competition in an area until the new entrant has built up a
sufficient customer base to justify investing in its own switch. We
expect that the availability of unbundled local switching is likely to
increase the number of carriers that will successfully enter the
market, and thus should accelerate the development of local
competition.
283. We define the local switching element to encompass line-side
and trunk-side facilities plus the features, functions, and
capabilities of the switch. The NPRM used the terms ``switch platform''
and ``port,'' as they had been developed by the Illinois and New York
Commissions, respectively, to describe two possible approaches to
establishing an unbundled local switching element. Parties commenting
on the unbundled switching element attributed a variety of
functionalities to each of these terms. To avoid confusion, we will not
use these terms in discussing the unbundled local switching element.
Instead, we will address commenters' proposals according to the
functionality that they recommend be included in the definition of an
unbundled local switching element. The line-side facilities include the
connection between a loop termination at, for example, a main
distribution frame (MDF), and a switch line card. Trunk-side facilities
include the connection between, for example, trunk termination at a
trunk-side cross-connect panel and a trunk card. The ``features,
functions, and capabilities'' of the local switch include the basic
switching function of connecting lines to lines, lines to trunks,
trunks to lines, trunks to trunks. It also includes the same basic
capabilities that are available to the incumbent LEC's customers, such
as a telephone number, directory listing, dial tone, signaling, and
access to 911, operator services, and directory assistance. Purchasing
the local switching element does not entitle a requesting carrier to
connect its own AIN call processing database to the incumbent LEC's
switch, either directly or via the incumbent LEC's signal transfer
point or database. Section V.I.4, which discusses the unbundling of
incumbent LECs' signaling systems and databases. We also note that E911
and operator services are further unbundled from local switching. In
addition, the local switching element includes all vertical features
that the switch is capable of providing, including custom calling,
CLASS features, and Centrex, as well as any technically feasible
customized routing functions. Thus, when a requesting carrier purchases
the unbundled local switching element, it obtains all switching
features in a single element on a per-line basis. A requesting carrier
will deploy individual vertical features on its customers' lines by
designating, via an electronic ordering interface, which features the
incumbent LEC is to activate for particular customer lines.
284. We disagree with commenters who argue that vertical switching
features should be classified exclusively as retail services, available
to competing providers only through the resale provision of section
251(c)(4). The 1996 Act defines network element as ``a facility or
equipment used in the provision of a telecommunications service'' and
``the features, functions, and capabilities that are provided by means
of such facility or equipment.'' Vertical switching features, such as
call waiting, are provided through operation of hardware and software
comprising the ``facility'' that is the switch, and thus are
``features'' and ``functions'' of the switch. In some cases vertical
features may be provided using hardware and software external to the
actual switch. In those instances, the functionality of such external
hardware and software is a separate element under section 251(c)(3),
and is available to competing providers. We note that the Illinois
Commission recently defined an unbundled local switching element to
include vertical switching features. Although we find that vertical
switching features should be available to competitors through the
resale provision of section 251(c)(4), we reject the view that Congress
intended for section 251(c)(4) implicitly to remove vertical switching
features from the definition of ``network element.'' Therefore, we find
that vertical switching features are part of the unbundled local
switching element.
285. At this time we decline to require further unbundling of the
local switch into a basic switching element and independent vertical
feature elements. Such unbundling does not appear to be necessary to
promote local competition. Indeed, most potential local competitors do
not recommend that vertical switching features be available as
[[Page 45522]]
separate network elements. MCI, AT&T and LDDS believe that such
features should be available to new entrants as part of the local
switch element. We also note that additional unbundling of the local
switching would not result in a practical difference in the way the
local switching element is provisioned. As discussed below, when a
competing provider orders the unbundled basic switching element for a
particular customer line, it will designate which vertical features
should be activated by the incumbent LEC for that line. In addition,
the record indicates that the incremental costs associated with
vertical switching features on a per-line basis may be quite small, and
may not justify the administrative difficulty for the incumbent LEC or
the arbitrator to determine a price for each vertical element. Thus,
states can investigate, in arbitration or other proceedings, whether
vertical switching features should be made available as separate
network elements. We will continue to review and revise our rules in
this area as necessary.
286. We conclude that providing access to an unbundled local
switching element at a LEC central office is technically feasible. We
are not persuaded by the argument that shared use of an unbundled
switching element would jeopardize network security and reliability by
permitting competitors independently to activate and deactivate various
switching features. A competing provider will purchase and obtain the
local switching element the same way it obtains an unbundled local
loop, that is, by ordering, via electronic interfaces, the local
switching element and particular vertical switching features. The
incumbent LEC will receive the order and activate (or deactivate) the
particular features on the customer line designated by the competing
provider. Consequently, the incumbent LEC is not required to relinquish
control over operations of the switch.
287. We also reject the argument that a definition of local
switching that incorporates shared use of a local switch would involve
physical partitioning of the switch. The requirements we establish for
local switch unbundling do not entail physical division of the switch,
and consequently do not impose the inefficiency or technical
difficulties identified by some commenters.
288. Nor are we persuaded by the arguments of some incumbent LECs
that an unbundled switching element based on shared use of the local
switch is technically infeasible because incumbent LECs lack
significant excess capacity at any given time. Initially, many requests
for local switching elements from competitors will likely result from
the loss of customers by the incumbent LEC. Thus, at least initially,
an increase in the use of the local switch element by the requesting
carrier is not likely to lead to an enormous, immediate increase in
switch use overall. If incumbent LECs and competing providers believe
that they would benefit by quantifying their anticipated demand for
switch resources, they are free to do so in the negotiation and
arbitration processes. Such planning may be necessary when a competitor
anticipates that usage of the local switching element by its customers
will place demands on the incumbent LEC's switch that exceed the usage
levels anticipated by the incumbent LEC.
289. We conclude that customized routing, which permits requesting
carriers to designate the particular outgoing trunks that will carry
certain classes of traffic originating from the competing provider's
customers, is technically feasible in many LEC switches. Customized
routing will enable a competitor to direct particular classes of calls
to particular outgoing trunks, which will permit a new entrant to self-
provide, or select among other providers of, interoffice facilities,
operator services, and directory assistance. In addition, we note that
the Illinois Commission recently directed Ameritech and Centel to
permit a carrier purchasing wholesale local exchange service to
designate a provider of operator services and directory assistance
other than that of the incumbent LEC. Such access is accomplished
through the routing of such calls from the incumbent LEC's switch to
the competing provider of the operator service or directory assistance.
Bell Atlantic notes that customized routing is generally technically
feasible for local calling, although it notes that the technology and
capacity constraints vary from switch to switch. SBC contends that
customized routing is technically infeasible for older switches, such
as the 1AESS switch. AT&T acknowledges that, although the ability to
establish customized routing in 1AESS switches may be affected by the
``call load'' in each office, only 9.8% of the switches used by the
seven RBOCs, GTE and SNET are 1AESS switches. We recognize that the
ability of an incumbent LEC to provide customized routing to a
requesting carrier will depend on the capability of the particular
switch in question. Thus, our requirement that incumbent LECs provide
customized routing as part of the ``functionality'' of the local
switching element applies, by definition, only to those switches that
are capable of performing customized routing. An incumbent LEC must
prove to the state commission that customized routing in a particular
switch is not technically feasible.
290. Section 251(d)(2)(A) requires the Commission, in determining
which network elements should be made available to competing providers,
to consider ``whether access to such network elements as are
proprietary in nature is necessary.'' To withhold a proposed network
element from a competing provider, an incumbent LEC must demonstrate
that the element is proprietary and that gaining access to that element
is not necessary because the competing provider can use other,
nonproprietary elements in the incumbent LEC's network to provide
service. U S West asserts that switch unbundling could raise concerns
involving, among other things, ``licensing of intellectual property.''
It cites a request by one interconnector to be the exclusive provider
of particular features in U S West's generic switching software. Bell
Atlantic states that it is not at liberty to sub-license the software
that operates vertical switching features. We note, however, that these
incumbent LECs do not object to providing vertical switching
functionalities to requesting carriers under the resale provision of
section 251(c)(4). In addition, the vast majority of parties that
discuss unbundled local switching do not raise proprietary concerns
with the unbundling of either basic local switching or vertical
switching features. Even if we accept the claim of U S West and Bell
Atlantic that vertical features are proprietary in nature, these
carriers do not meet the second consideration in our section
251(d)(2)(A) standard, which requires an incumbent LEC to show that a
new entrant could offer the proposed telecommunications service through
the use of other, nonproprietary elements in the incumbent LEC's
network. Accordingly, we find that access to unbundled local switching
is clearly ``necessary'' under our interpretation of section
251(d)(2)(A).
291. Section 251(d)(2)(B) directs the Commission to consider
whether the failure to provide access to an unbundled element ``would
impair the ability of the telecommunications carrier seeking access to
provide the services that it seeks to offer.'' We have interpreted the
term ``impair'' to mean either increased cost or decreased service
quality that would result from using network elements of the incumbent
LEC other than the one sought. SBC and MFS contend that
[[Page 45523]]
access to unbundled local switching may not be essential for new
entrants because competitors are likely to deploy their own switches.
These parties present no evidence that competitors could provide
service using another element in the LEC's network at the same cost and
at the same level of quality. In addition, most commenters that address
this issue generally argue that local switching is essential for the
provision of competing local service, and we agree. We thus conclude
that a requesting carrier's ability to offer local exchange services
would be impaired, if not thwarted, without access to an unbundled
local switching element.
292. Section 251(c)(3) requires that incumbent LECs provide access
to unbundled network elements on terms and conditions that are ``just,
reasonable, and nondiscriminatory.'' We agree with CompTel and LDDS
that new entrants will be disadvantaged if customer switchover is not
rapid and transparent. We also note that the Michigan Commission has
recognized the significance of customer switchover intervals and has
directed Ameritech and GTE to file proposals on how they will ``ensure
the equal availability of expeditious processing of local, interLATA,
and intraLATA carrier changes.'' Therefore, we require incumbent LECs
to switch over customers for local service in the same interval as LECs
currently switch end users between interexchange carriers. This
requirement applies to switchovers that only require the incumbent LEC
to make changes to software. Switchovers that require the incumbent LEC
to make physical modifications to its network, such as connecting a
competitor's loop to its switch, are not subject to this requirement,
and instead are governed by our terms and conditions for all unbundled
elements. Today, incumbent LECs routinely change customers'
presubscribed interexchange carriers quickly and transparently, thereby
contributing to the competitiveness of the interexchange market. We
expect that a similar requirement for local exchange switchovers that
require only a software change will similarly contribute to local
exchange competition.
293. We reject the proposal by some incumbent LECs to define
unbundled local switching as the facilities that provide a point of
access to the switch, but that would not actually include switching
functionality. Under this definition, the purchaser of the local
switching element would not actually obtain local switching, only the
right to purchase local switching functionality and other switching
features at wholesale rates. We believe that the unbundled local
switching element must include the functionality of connecting lines
and trunks. The definition proposed by these incumbent LECs would
contravene the requirement in section 251(c)(3) that incumbent LECs
provide network elements ``in a manner that allows requesting carriers
to combine such elements in order to provide such telecommunications
service.'' If a competing provider combined its own loops and transport
with the local switching element (``point of access''), it would be
unable to provide telecommunications service without separately
purchasing, at wholesale rates, switching functionality from the
incumbent LEC.
294. We also disagree with the proposal to define local switching
as a point of access plus basic switching functionality, but that would
exclude vertical switching features. As a legal matter, this definition
is inconsistent with the 1996 Act's definition of ``network element,''
which includes all the ``features, functionalities, and capabilities
provided by means of such facility or equipment.'' In addition, this
definition would not fulfill the pro-competitive objectives of the 1996
Act as effectively as the per-line definition we adopt. A competitor
that obtains basic and vertical switching features at cost-based rates
will have maximum flexibility to distinguish its offerings from those
of the incumbent LEC by developing a variety of service packages and
pricing plans. Moreover, an upfront purchase of all local switching
features may speed entry by simplifying practical issues such as the
pricing of individual switching features.
295. We also address the impact on small incumbent LECs. For
example, the Illinois Independent Telephone Association and the Rural
Telephone Coalition favor rules that recognize the differences between
larger and smaller LECs. We have considered the economic impact of our
rules in this section on small incumbent LECs. In this section, for
example, we expressly provide for the fact that certain LECs may
possess switches that are incapable of performing customized routing
for competitors that purchase unbundled local switching. As noted by
Rural Telephone Coalition and the Illinois Independent Telephone
Coalition, this approach is necessary to accommodate the different
technical capabilities of large and small carriers. We also note that
section 251(f) of the 1996 Act provides relief for certain small LECs
from our regulations under section 251.
(ii) Tandem Switching
296. We also affirm our tentative conclusion in the NPRM that it is
technically feasible for incumbent LECs to provide access to their
tandem switches unbundled from interoffice transmission facilities. We
note that some states already have required incumbent LECs to unbundle
tandem switching. Parties do not contend, pursuant to section
251(d)(2)(A), that tandem switches are proprietary in nature. With
regard to section 251(d)(2)(B), we find that competitors' ability to
provide telecommunications service would be impaired without unbundled
access to tandem switching. Therefore, we find that the availability of
unbundled tandem switching will ensure that competitors can deploy
their own interoffice facilities and connect them to incumbent LECs'
tandem switches where it is efficient to do so.
297. We define the tandem switch element as including the
facilities connecting the trunk distribution frames to the switch, and
all the functions of the switch itself, including those facilities that
establish a temporary transmission path between two other switches. The
definition of the tandem switching element also includes the functions
that are centralized in tandems rather than in separate end office
switches, such as call recording, the routing of calls to operator
services, and signaling conversion functions.
(iii) Packet Switching
298. At this time, we decline to find, as requested by AT&T and
MCI, that incumbent LECs' packet switches should be identified as
network elements. Because so few parties commented on the packet
switches in connection with section 251(c)(3), the record is
insufficient for us to decide whether packet switches should be defined
as a separate network element. We will continue to review and revise
our rules, but at present, we do not adopt a national rule for the
unbundling of packet switches.
3. Interoffice Transmission Facilities
(a) Background
299. In the NPRM, we proposed to require incumbent LECs to make
available unbundled transport facilities in a manner that corresponds
to the rate structure for interstate transport charges. We specifically
proposed to require unbundled access to links between the end office
and the serving wire center (SWC), the SWC and the IXC point of
presence (POP), the end office and the tandem switch, and the tandem
switch and the SWC. We also tentatively
[[Page 45524]]
concluded that incumbent LECs should be required to unbundle channel
termination facilities for special access from the interoffice
facilities. In addition, we requested comment on whether and how other
interoffice facilities used by incumbent LECs should be unbundled.
(b) Discussion
300. We conclude that incumbent LECs must provide interoffice
transmission facilities on an unbundled basis to requesting carriers.
The record supports our conclusion that such access is technically
feasible and would promote competition in the local exchange market. We
note that the 1996 Act requires BOCs to unbundle transport facilities
prior to entering the in-region, interLATA market.
301. We require incumbent LECs to provide unbundled access to
shared transmission facilities between end offices and the tandem
switch. Further, incumbent LECs must provide unbundled access to
dedicated transmission facilities between LEC central offices or
between such offices and those of competing carriers. This includes, at
a minimum, interoffice facilities between end offices and serving wire
centers (SWCs), SWCs and IXC POPs, tandem switches and SWCs, end
offices or tandems of the incumbent LEC, and the wire centers of
incumbent LECs and requesting carriers. The incumbent LEC must also
provide, to the extent discussed below, all technically feasible
transmission capabilities, such as DS1, DS3, and Optical Carrier levels
(e.g. OC-3/12/48/96) that the competing provider could use to provide
telecommunications services. We conclude that an incumbent LEC may not
limit the facilities to which such interoffice facilities are
connected, provided such interconnection is technically feasible, or
the use of such facilities. In general, this means that incumbent LECs
must provide interoffice facilities between wire centers owned by
incumbent LECs or requesting carriers, or between switches owned by
incumbent LECs or requesting carriers. For example, an interoffice
facility could be used by a competitor to connect to the incumbent
LEC's switch or to the competitor's collocated equipment. We agree with
the Texas Commission that a competitor should have the ability to use
interoffice transmission facilities to connect loops directly to its
switch. We anticipate that these requirements will reduce entry
barriers into the local exchange market by enabling new entrants to
establish efficient local networks by combining their own interoffice
facilities with those of the incumbent LEC.
302. The ability of new entrants to purchase the interoffice
facilities we have identified will increase the speed with which
competitors enter the market. By unbundling various dedicated and
shared interoffice facilities, a new entrant can purchase all
interoffice facilities on an unbundled basis as part of a competing
local network, or it can combine its own interoffice facilities with
those of the incumbent LEC. The opportunity to purchase unbundled
interoffice facilities will decrease the cost of entry compared to the
much higher cost that would be incurred by an entrant that had to
construct all of its own facilities. An efficient new entrant might not
be able to compete if it were required to build interoffice facilities
where it would be more efficient to use the incumbent LEC's facilities.
We recognize that there are alternative suppliers of interoffice
facilities in certain areas. We are convinced, however, that entry will
be facilitated if competitors have greater, not fewer, options for
procuring interoffice facilities as part of their local networks, and
that Congress intended for competitors to have these options available
from competitors. Thus, the rules we establish for the unbundled
interoffice facilities should maximize a competitor's flexibility to
use new technologies in combination with existing LEC facilities.
303. We find that it is technically feasible for incumbent LECs to
unbundle the foregoing interoffice facilities as individual network
elements. The interconnection and unbundling arrangements among the
larger LECs, IXCs, and CAPs that resulted from our Expanded
Interconnection rules confirm the technical feasibility of unbundling
interoffice facilities used by incumbent LECs to provide special access
and switched transport. As AT&T and Telecommunications Resellers
Association point out, IXCs currently interconnect with incumbent LECs'
transport facilities pursuant to standard specifications. We also note
that commenters do not identify technical feasibility problems with
unbundling interoffice facilities.
304. We also find that it is technically feasible for incumbent
LECs to unbundle certain interoffice facilities not addressed in our
Expanded Interconnection proceeding. First, we conclude that an
incumbent LEC must provide unbundled access to interoffice facilities
between its end offices, and between any of its switching offices and a
new entrant's switching office, where such interoffice facilities
exist. This allows a new entrant to purchase unbundled facilities
between two end offices of the incumbent LEC, or between the new
entrant's switching office and the incumbent LEC's switching office.
Although our Expanded Interconnection rules did not specifically
require incumbent LECs to unbundle these facilities, commenters do not
identify any potential technical problem with such unbundling.
Moreover, some LECs already offer unbundled dedicated interoffice
facilities, for example, between their end offices and SWCs for
exchange access.
305. In addition, as a condition of offering unbundled interoffice
facilities, we require incumbent LECs to provide requesting carriers
with access to digital cross-connect system (DCS) functionality. A DCS
aggregates and disaggregates high-speed traffic carried between IXCs'
POPs and incumbent LECs' switching offices, thereby facilitating the
use of cost-efficient, high-speed interoffice facilities. AT&T notes
that the BOCs, GTE, and other large LECs currently make DCS
capabilities available for the termination of interexchange traffic. We
find that the use of DCS functionality could facilitate competitors'
deployment of high-speed interoffice facilities between their own
networks and LECs' switching offices. Therefore, we require incumbent
LECs to offer DCS capabilities in the same manner that they offer such
capabilities to IXCs that purchase transport services.
306. We disagree with PacTel's assertion that it is not technically
feasible for incumbent LECs to provide DCS functionality to competitors
that purchase unbundled interoffice facilities. First, contrary to
PacTel's assertion, we do not require incumbent LECs to develop new
arrangements for the offering of DCS capabilities to competitors. We
only require that DCS capabilities be made available to competitors to
the extent incumbent LECs offer such capabilities to IXCs. Second,
PacTel suggests the provision of DCS capabilities requires physical
partitioning of the DCS equipment in order to prevent carriers from
gaining control of each other's traffic. We do not require such
partitioning for the provision of DCS capabilities. As noted above, we
only require incumbent LECs to permit competitors to use DCS
functionality in the same manner that incumbent LECs now permit IXCs to
use such functionality.
307. Section 251(d)(2)(A) requires the Commission to consider
whether ``access to such network elements as are
[[Page 45525]]
proprietary in nature is necessary.'' Commenters do not identify any
proprietary concerns relating to the provision of interoffice
facilities that LECs are required to unbundle. We also note that many
of these facilities are also currently offered on an unbundled basis to
competing carriers. Therefore, the record provides no basis for
withholding these facilities from competitors based on proprietary
considerations.
308. Section 251(d)(2)(B) requires the Commission to consider
whether the failure to provide access to an unbundled element ``would
impair the ability of the telecommunications carrier seeking access to
provide the services that it seeks to offer.'' We have interpreted the
term ``impair'' to mean either increased cost or decreased service
quality that would result from using network elements other than the
one sought. Certain commenters contend that unbundled access to these
facilities would improve their ability to provide competitive local
exchange and exchange access service. MCI, for example, argues that its
inability to obtain unbundled access to trunks between an incumbent
LEC's end offices raises its cost of providing local service.
Accordingly, we conclude that the section 251(d)(2)(B) requires
incumbent LECs to provide access to shared interoffice facilities and
dedicated interoffice facilities between the above-identified points in
incumbent LECs' networks, including facilities between incumbent LECs'
end offices, new entrant's switching offices and LEC switching offices,
and DCSs. We believe that access to these interoffice facilities will
improve competitors' ability to design efficient network architecture,
and in particular, to combine their own switching functionality with
the incumbent LEC's unbundled loops.
309. We reject Cincinnati Bell's argument that existing tariffs for
transport and special access services filed pursuant to our Expanded
Interconnection rules fulfill our obligation to implement the
requirements of section 251(c). First, the Expanded Interconnection
rules require the unbundling of interstate transport services only by
Class A carriers whereas section 251(c) requires network unbundling by
all incumbent LECs, except for carriers that are exempt under section
251(f) from our interconnection rules. Consequently, some non-Class A
carriers that were not subject to our Expanded Interconnection
requirements will be required to comply with the requirements of this
Order. Second, we find that the Class A carriers' existing tariffs for
unbundled transport elements do not satisfy the unbundling requirement
of section 251(c), as suggested by Cincinnati Bell, because such
tariffs are only for interstate access services, not for unbundled
interoffice facilities. As such, existing federal tariffs for transport
and special access exclude intrastate transport, and therefore are not
equivalent to unbundled interoffice facilities, which we have
determined to be nonjurisdicational in nature.
310. We also disagree with MECA, GTE, and Ameritech that we should
consider ``pricing distortions'' in adopting rules for unbundled
interoffice facilities. Section, below, addresses the pricing of
unbundled network elements identified pursuant to section 251(c)(3) as
it relates to our current access charge rules. Nor are we are persuaded
by MECA's argument that incumbent LECs not subject to the MFJ should
not be required to unbundle transport facilities because, according to
MECA, such facilities are unnecessary for local competition. As
discussed above, the ability of a new entrant to obtain unbundled
access to incumbent LECs' interoffice facilities, including those
facilities that carry interLATA traffic, is essential to that
competitor's ability to provide competing telephone service.
311. We do not impose specific terms and conditions for the
provision of unbundled interoffice facilities. We believe that the
rules we establish in this Order for all unbundled network elements
adequately address ALTS's concern regarding the provisioning, billing,
and maintenance of unbundled transport facilities. We also decline at
this time to address the unbundling of incumbent LECs' ``dark fiber.''
Parties that address this issue do not provide us with information on
whether dark fiber qualifies as a network element under sections
251(c)(3) and 251(d)(2). Therefore, we lack a sufficient record on
which to decide this issue. We will continue to review and revise our
rules in this area as necessary.
312. Rural Telephone Coalition contends that incumbent LECs should
not be required to construct new facilities to accommodate new
entrants. We have considered the economic impact of our rules in this
section on small incumbent LECs. In this section, for example, we
expressly limit the provision of unbundled interoffice facilities to
existing incumbent LEC facilities. We also note that section 251(f) of
the 1996 Act provides relief for certain small LECs from our
regulations under section 251.
4. Databases and Signaling Systems
a. Background
(1) NPRM
313. In the NPRM, we tentatively concluded that incumbent LECs
should be required to unbundle access to their signaling systems and
databases as network elements. We asked commenters to identify points
at which carriers interconnect with SS7 networks today, as well as the
technical feasibility of establishing other points of access and
interconnection. We also asked commenters to identify those signaling
and database functions currently provided by incumbent LECs on an
unbundled basis, and other functions not currently offered by incumbent
LECs, that the parties believe should be offered on an unbundled basis.
314. In the NPRM, we noted the possibility that competitors that
provide local exchange service using resold incumbent LEC services or
unbundled elements might want to connect an alternative call processing
database to the incumbent LEC's SS7 network in order to offer services
and features not available through the incumbent LEC's own SS7 network
databases.
315. We also sought comment on unbundling access to the Advanced
Intelligent Network (AIN), and referenced our separate Intelligent
Networks proceeding which deals with related issues. We sought comment
on whether to unbundle access to AIN facilities and functionalities.
(2) SS7 Signaling Network Technology
316. Signaling systems facilitate the routing of telephone calls
between switches. Most LECs employ signaling networks that are
physically separate from their voice networks, and these ``out-of-
band'' signaling networks simultaneously carry signaling messages for
multiple calls. In general, most LECs' signaling networks adhere to a
Bellcore standard Signaling System 7 (SS7) protocol.
317. SS7 networks use signaling links to transmit routing messages
between switches, and between switches and call-related databases. A
typical SS7 network includes a signaling link, which transmits
signaling information in packets, from a local switch to a signaling
transfer point (STP), which is a high-capacity packet switch. The STP
switches packets onto other links according to the address information
contained in the packet. These additional links extend to other
switches, databases, and STPs in the LEC's network. A switch routing a
call to another switch will initiate a series of signaling messages via
signaling links
[[Page 45526]]
through an STP to establish a call path on the voice network between
the switches.
318. As mentioned above, the SS7 network also employs signaling
links (via STPs) between switches and call-related databases, such as
the Line Information Database (LIDB), Toll Free Calling (i.e., 800, 888
number) database, and AIN databases. These links enable a switch to
send queries via the SS7 network to call-related databases, which
return customer information or instructions for call routing to the
switch.
319. From the perspective of a switch in a LEC network, the
databases discussed above merely supply information or instructions.
Updating or populating the information in such databases, however,
takes place through a separate process involving different equipment.
Carriers input information directly into a service management system
(SMS), which in turn downloads such information into the individual
databases.
320. The Advanced Intelligent Network (AIN) is a network
architecture that uses distributed intelligence in centralized
databases to control call processing and manage network information,
rather than performing those functions at every switch. An AIN-capable
switch halts call progress when a resident software ``trigger'' is
activated, and uses the SS7 network to access intelligent databases,
known as Service Control Points (SCPs), that contain service software
and subscriber information, for instruction on how to route, monitor,
or terminate the call. AIN is being used in the deployment of number
portability, wireless roaming, and such advanced services as same
number service (i.e., 500 number service) and voice recognition
dialing. AIN services are designed and tested in an off-line computer
known as a Service Creation Environment (SCE). Once a service is
successfully tested, the software is transferred to an SMS that
administers and supports SCP databases in the network. The SMS then
regularly downloads software and information to an SCP where
interaction with the voice network takes place via the signaling links
and STPs discussed above.
b. Discussion
321. In the interconnection section above, we conclude that the
exchange of signaling information between LECs necessary to exchange
traffic and access call related databases was included within the
interconnection obligation of section 251(c)(2). We emphasize below,
such exchange of signaling information does not include the exchange of
AIN signaling information between networks for the purpose of providing
AIN messages to the incumbent LEC's switch from a competitor's SCP
database. Thus, notwithstanding any obligations under section
251(c)(3), incumbent LECs are required to accept and provide signaling
in accordance with the exchange of traffic between interconnecting
networks. We conclude that this exchange of signaling information may
occur through an STP-to-STP interconnection.
(1) Signaling Links and STP
322. We conclude that incumbent LECs, upon request, must provide
nondiscriminatory access to their signaling links and STPs on an
unbundled basis. We believe it is technically feasible for incumbent
LECs to provide such access, and that such access is critical to entry
in the local exchange market. Further, the 1996 Act requires BOCs to
provide ``nondiscriminatory access to databases and associated
signaling necessary for call routing and completion'' as a precondition
for entry into in-region interLATA services. Thus, it appears that
Congress contemplated the unbundling of signaling systems as network
elements.
323. We conclude that access to unbundled signaling links and STPs
is technically feasible. The majority of commenters, including
incumbent LECs, agree that it is technically feasible to provide
unbundled access to signaling links and STPs. Parties note that
incumbent LECs and signaling aggregators already provide such access.
In addition, several state commissions already require incumbent LECs
to provide unbundled elements of SS7 networks. Because of the screening
role played by the STP and associated network reliability concerns that
were raised in the record, however, we do not require that incumbent
LECs permit requesting carriers to link their own STPs directly to the
incumbent's switch or call-related databases. We take a deliberately
conservative approach here because of significant evidence in the
record and we note that mere conclusory objections to technical
feasibility would not alone be sufficient evidence.
324. Under section 251(d)(2)(A), the Commission must consider
whether access to proprietary network elements is necessary. Commenters
did not identify proprietary concerns with signaling protocols for the
SS7 network. Moreover, in general, SS7 signaling networks adhere to
Bellcore standards, rather then LEC-specific protocols and provide
seamless interconnectivity between networks. Thus, we conclude that the
unbundling of signaling links and STPs does not present proprietary
concerns with respect to the incumbent LEC.
325. Under section 251(d)(2)(B), the Commission must consider
whether ``the failure to provide access to such network elements would
impair the ability of the telecommunications carrier seeking access to
provide the services that it seeks to offer.'' Access to signaling
systems continues to be a critical element to providing competing local
exchange and exchange access service. The vast majority of calls made
over incumbent LEC networks are set-up and controlled by separate
signaling networks. Incumbent LECs argue that access to signaling
systems and associated databases is already available from other
providers and therefore, they should not have to unbundle them for
access by competitors. As discussed above, section 251(d)(2)(B) only
relieves an incumbent LEC of its unbundling obligation if other
unbundled elements in its network could provide the same service
without diminution of quality. Because alternative signaling methods,
such as in-band signaling, would provide a lower quality of service, we
conclude that a competitor's ability to provide service would be
significantly impaired if it did not have access to incumbent LECs'
unbundled signaling links and STPs.
326. The purchase of unbundled elements of the SS7 network gives
the competitive provider the right to use those elements for signaling
between its switches (including unbundled switching elements), between
its switches and the incumbent LEC's switches, and between its switches
and those third party networks with which the incumbent LEC's SS7
network is interconnected. When a competitive provider purchases
unbundled switching from the incumbent LEC, the incumbent LEC must
provide nondiscriminatory access to its SS7 network from that switch in
the same manner in which it obtains such access itself. Carriers that
provide their own switching facilities should be able to access the
incumbent LEC's SS7 network for each of their switches via a signaling
link between their switch and an incumbent LEC's STP. Competitive
carriers should be able to make this connection in the same manner as
an incumbent LEC connects one of its own switches to the STP. This
could be accomplished by the incumbent providing an unbundled signaling
link from its STP to the competitor's switch or by a competitor
bringing a signaling
[[Page 45527]]
link from its switch to the incumbent LEC's STP.
(2) Call-Related Databases
327. We conclude that incumbent LECs, upon request, must provide
nondiscriminatory access on an unbundled basis to their call-related
databases for the purpose of switch query and database response through
the SS7 network. Query and response access to a call-related database
is intended to require the incumbent LEC only to provide access to its
call-related databases as is necessary to permit a competing provider's
switch (including the use of unbundled switching) to access the call-
related database functions supported by that database. The incumbent
LEC may mediate or restrict access to that necessary for the competing
provider to provide such services as are supported by the database.
Thus, for example, we find that it is technically feasible for
incumbent LECs to provide access to the Line Information Database
(LIDB), the Toll Free Calling Database and Number Portability
downstream databases. The vast majority of parties, including incumbent
LECs, agree that it is technically feasible to provide access to the
LIDB and the Toll Free Calling databases at an STP linked to the
database. Several state commissions also report that they have ordered
incumbent LECs' to provide such access to the LIDB and the Toll Free
Calling databases. We require incumbent LECs to provide this access to
their call-related databases by means of physical access at the STP
linked to the unbundled database. We find that such access is critical
to entry in the local exchange market.
328. We conclude that it is not technically feasible to unbundle
the SCP from its associated STP. We note that the overwhelming majority
of commenters contend that it is not technically feasible to access
call-related databases in a manner other than by connection at the STP
directly linked to the call-related database. Parties argue that the
STP is designed to provide mediation and screening functions for the
SS7 network that are not performed at the switch or database. We,
therefore, emphasize that access to call-related databases must be
provided through interconnection at the STP and that we do not require
direct access to call-related databases.
329. Several commenters also identified access to call-related
databases used in the incumbent's AIN to be critical to fair
competition in the local market, and some state commissions have
ordered incumbent LECs to provide access to AIN databases. We conclude
that such access is technically feasible via an STP for those call-
related databases used in the incumbent LEC's AIN. First, of course,
when a new entrant purchases an incumbent's local switching element it
is technically feasible for the new entrant to use the incumbent's SCP
element in the same manner, and via the same signaling links, as the
incumbent itself. Thus, we find no technical impediments in the record
with regard to such access when a requesting carrier is also purchasing
a local switching element associated with the AIN call-related
database.
330. Further, we conclude that when a new entrant deploys its own
switch, and links it to the incumbent LEC's signaling system, it is
technically feasible for the incumbent to provide access to the
incumbent's SCP to provide AIN-supported services to customers served
by the new entrant's switch. Some SS7 network services resellers
currently provide such access. Other potential local competitors
present additional evidence supporting the technical feasibility of
such access. Unlike the situation where a competitor's SCP would
control the incumbent's switch (which is discussed below in section
V.I.4.c.(4)), in this scenario, the incumbent's SCP will respond to and
control the competitor's switch, and potential competitors that have
commented in the record do not express network reliability concerns
with regard to such control. Further, like the software resident in a
switch, the incumbent LEC's applications resident in an SCP are merely
part of the overall software and hardware making up the SCP facility.
Thus, carriers purchasing access under either scenario above may use
the incumbent's service applications in addition to their own.
311. Although we conclude that access to incumbent AIN SCPs is
technically feasible, we agree with BellSouth that such access may
present the need for mediation mechanisms to, among other things,
protect data in incumbent AIN SCPs and ensure against excessive traffic
volumes. In addition, there may be mediation issues a competing carrier
will need to address before requesting such access. Mediation may be
necessary for requesting carriers to ensure that inadvertent feature
interactions, network management control and customer privacy concerns
do not arise from such access. Accordingly, if parties are unable to
agree to appropriate mediation mechanisms through negotiations, we
conclude that during arbitration of such issues the states (or the
Commission acting pursuant to section 252(e)(5)) must consider whether
such mediation mechanisms will be available and will adequately protect
against intentional or unintentional misuse of the incumbent's AIN
facilities. We encourage incumbent LECs and competitive carriers to
participate in industry fora and industry testing to resolve
outstanding mediation concerns. Incumbent LECs may establish reasonable
certification and testing programs for carriers proposing to access AIN
call related databases in a manner similar to those used for SS7
certification.
332. We recognize that providing unbundled access to AIN call-
related databases at cost, and in particular providing access to the
incumbent LEC's software applications that reside in the AIN databases,
may reduce the incumbent's incentive to develop new and advanced
services using AIN. In the near term, however, requiring entrants to
bear the cost of deploying a fully redundant network architecture,
including AIN databases and their application software, would
constitute a significant barrier to market entry for competitive
carriers. As local service markets develop, however, competition may
reduce the incumbent LEC's control over bottleneck facilities and
increase the importance of innovation. In those circumstances it is
important that incumbent LECs have the incentive to develop unique and
innovative services supported by AIN. Therefore at a later date, we
will revisit the proper balance between providing unbundled access and
maintaining the incentives of incumbent LECs to innovate.
333. Parties generally do not identify proprietary concerns when
access to call-related databases is provided via STPs. In general,
signaling protocols used to access call-related databases adhere to
open Bellcore standards. Parties also do not raise proprietary concerns
with specific call-related databases themselves. Today, many separate
carriers access incumbent LEC Toll Free Calling and LIDB databases for
the proper routing and billing of calls. Thus, we conclude that, in
general, unbundled access to call-related databases does not present
proprietary concerns with respect to section 251(d)(2)(A). Incumbent
LECs may, however, present such proprietary concerns in the arbitration
process with regard to specific databases, and states (or the
Commission acting pursuant to section 252(e)(5)) may take action to
limit unnecessary access to proprietary information.
334. We also conclude that denying access to call-related databases
would
[[Page 45528]]
impair the ability of a competing provider to offer services such as
Alternative Billing Services and AIN-based services. AIN-based services
represent the cutting edge of telephone exchange services, and
competitors would be at a significant disadvantage if they were forced
to develop their own AIN capability immediately. In addition, the
record indicates that deployment of call-related databases in the near
term would represent a substantial cost to new entrants. As mentioned
above, incumbent LECs argue that access to certain call-related
databases is already competitively available and therefore they should
not have to unbundle access to them. As discussed above, however,
section 251(d)(2)(B) would only relieve an incumbent LEC of its
unbundling obligation if other unbundled elements in its network could
provide the same service without diminution of quality. Because of the
absence of such elements, we conclude that a competitor's ability to
provide service would be significantly impaired if it did not have
unbundled access to incumbent LECs' call-related databases, including
the LIDB, Toll Free Calling, AIN, and number portibility downstream
databases for the purpose of switch query and database response through
the SS7 network.
335. We also conclude that access to call-related databases as
discussed above, and access to the service management system discussed
below, must be provided to, and obtained by, requesting carriers in a
manner that complies with section 222 of the Act. Section 222, which
was effective upon adoption, sets out requirements for privacy of
customer information. Section 222(a) provides that all
telecommunications carriers have a duty to protect the confidentiality
of proprietary information of other carriers, including resellers,
equipment manufacturers, and customers. Section 222(b) requires that
telecommunications carriers that use proprietary information obtained
from another telecommunications carrier in providing any
telecommunications service ``shall use that information only for such
purpose, and shall not use such information for its own marketing
purposes.'' Sections 222 (c) and (d) provide protection for, and
limitations on the use of, and access to, customer proprietary network
information (CPNI). We note that we have initiated a proceeding to
clarify the obligations of carriers with regard to sections 222 (c) and
(d).
(3) Service Management Systems
336. Finally, we conclude that incumbent LECs should provide
access, on an unbundled basis, to the service management systems (SMS),
which allow competitors to create, modify, or update information in
call-related databases. We believe it is technically feasible for
incumbent LECs to provide access to the SMS in the same manner and
method that they provide for their own access. We find that such access
is necessary for competitors to effectively use call-related databases,
which we have already found to be critical to entry in the local
exchange market.
337. Commenters argue that they need equal access to incumbent
LECs' SMSs to write or populate their own information in call-related
databases. As discussed above, information bound for many call-related
databases is entered first at an off-line SMS, which then downloads the
information to the call-related database for real time use on the
network. We find that competing provider access to the SMS is
technically feasible if it is provided in the same or equivalent manner
that the incumbent LEC currently uses to provide such access to itself.
For example, if the incumbent LEC inputs information into the SMS using
magnetic tapes, the competitive carrier must be able to create and
submit magnetic tapes for the incumbent to input into the SMS in the
same way the incumbent inputs its own magnetic tapes. If the incumbent
accesses the SMS through an electronic interface, the competitive
carrier should be able to access the SMS through an equivalent
electronic interface. We further conclude that, whatever method is
used, the incumbent LEC must provide the competing carrier with the
information necessary to correctly enter or format for entry the
information relevant for input into the particular incumbent LEC SMS.
338. Specifically with respect to AIN, we find that the record in
the Intelligent Networks proceeding supports access to the SMS. A
competing carrier seeking access to the SMS that is part of the
incumbent LEC's AIN would do so through the incumbent LEC's service
creation environment (SCE), an interface used to design, create, and
test AIN supported services. Software successfully tested in the SCE is
transferred to the SMS, where it is then downloaded into an SCP
database for active deployment on the network. We are persuaded that
the risk of harm to the public switched network from such access to the
SMS is minimized by the technical safeguards inherent in the SCE and
SMS. As described in comments filed in the Intelligent Networks docket,
competitors accessing the SCE and SMS would not communicate directly
with the LEC's database or switch. We therefore conclude that such
access is technically feasible, and that incumbent LECs should provide
requesting carriers with the same access to design, create, test, and
deploy AIN-based services at the SMS that the incumbent LEC provides
for itself. While many incumbent LECs express concerns with the
technical feasibility of access to AIN, we conclude that those concerns
deal primarily with the interconnection of third party AIN SCP
databases to the incumbent LEC's AIN and not access to the SCE and SMS.
339. We recognize that, although technically feasible, providing
nondiscriminatory access to the SMS and SCE for the creation and
deployment of AIN services may require some modifications, including
appropriate mediation, to accommodate such access by requesting
carriers. We note that BellSouth is currently prepared to tariff and
offer such access to third parties, and other incumbent LECs, including
Bell Atlantic and Ameritech, indicate that they have made significant
progress towards implementing such access. Therefore, if parties are
unable to agree to appropriate mediation mechanisms through
negotiations, we conclude that during arbitration of such issues the
states (or the Commission acting pursuant to section 252(e)(5)) must
consider whether such mediation mechanisms will be available and will
adequately protect against intentional or unintentional misuses of the
incumbent's AIN facilities. We again encourage incumbent LECs and
competitive carriers to participate in industry fora and industry
testing to resolve outstanding mediation concerns.
340. Parties did identify some proprietary concerns regarding
access to the SCE and SMS used in the incumbent LEC's AIN. Some
incumbent LECs contend that the interface used at the SCE is
proprietary in nature. GVNW argues that specific AIN-based services
designed by carriers should be proprietary in nature. Competitors
correctly argue that AIN can be used, not only for telecommunication
services traditionally supported by the switch, but as a means to
deploy advanced services not otherwise possible. We find that competing
providers without access to AIN would be at a significant disadvantage
to incumbent LECs, because they could not necessarily offer the same
services to the customer. This access will help competing providers
without imposing costs on incumbent
[[Page 45529]]
LECs because the entrants will pay the cost. We therefore conclude,
under section 251(d)(2)(A), that access to AIN, including those
elements that may be proprietary, is necessary for successful entry
into the local service market.
341. Most parties generally did not identify proprietary concerns
with access to those SMSs used other than for AIN. Some parties,
however, argue that there are proprietary interfaces used to enter
information into various databases. Competing carriers counter that
competitive providers would not need to have direct access to the
proprietary methods of data entry used by incumbent LECs, and as a
result we conclude that the unbundled access to SMSs used for other
than AIN does not present proprietary concerns with respect to section
251(d)(2)(A).
342. We also conclude that unbundled access to all SMSs is
necessary for a competing provider to effectively use unbundled call-
related databases. We find that the inability of competing carriers to
use the SMS in the same manner that an incumbent LEC uses to input data
itself would impair the ability of a competing carrier to effectively
offer services to its customers using unbundled call-related databases.
Commenters in the record point out that access to call-related
databases alone would not allow the competing carrier to provide such
services to its customers without access to an SMS. We also conclude
that AIN-based services are important to a new entrant's ability to
compete effectively for customers with the incumbent LEC, and in
developing new business by introducing new AIN based services. Thus we
conclude that a competitor's ability to provide service would be
significantly impaired if it did not have unbundled access to an
incumbent LEC's SMS, including access to the SMS(s) used to input data
to the LIDB, Toll Free Calling, Number Portability and AIN call-related
databases.
343. We reject the contention by several incumbent LECs that
signaling and database access was meant by the 1996 Act to apply only
to such access as is necessary for call routing and completion.
Although the competitive checklist for BOC entry into in-region
interLATA services under section 271 requires ``nondiscriminatory
access to databases and associated signaling necessary for call routing
and completion'' the definition of a network element is more
comprehensive in scope. A network element as defined by the 1996 Act
includes ``databases'' and in particular ``databases sufficient for
billing and collection or used in the transmission, routing, or other
provision of a telecommunications service.'' We find that the inclusion
of ``other provision of a telecommunications service'' meant Congress
intended the unbundling of databases to be read broadly and could
include databases beyond those directly used in the transmission or
routing of a telecommunications service.
(4) Third Party Call-Related Databases
344. We find that there is not enough evidence in the record to
make a determination as to the technical feasibility of interconnection
of third party call-related databases to the incumbent LEC's signaling
system. Some parties argue that such interconnection, including the
interconnection of third party AIN SCP databases, would allow them to
provide more efficient or advanced call processing and services to
customers, thereby increasing their ability to compete with the
incumbent LEC. AT&T and MCI specifically argue that it would be
technically feasible for them to interconnect their AIN SCP database to
an incumbent LEC's AIN for the purpose of providing call processing
instructions to the incumbent LEC's switch. Incumbent LECs contend that
such interconnection would leave their switch vulnerable to a multitude
of potential harms because sufficient mediation for such
interconnection does not currently exist at the STP or SCP and has not
yet been developed. AT&T counters that there is no need for additional
mediation and that sufficient certification and testing of AIN based
services before deployment in such a fashion is technically feasible.
345. At this time, in view of this record and the record compiled
in the Intelligent Networks docket, we cannot make a determination of
the technical feasibility of such interconnection. We do, however,
believe that state commissions could find such an arrangement to be
technically feasible and we do not intend to preempt such an order
through these rules. The Illinois Commission recently ordered access to
incumbent LECs' AIN that does allow for this type of interconnection.
We intend to address this issue early in 1997, either in the IN docket
or in a subsequent phase of this proceeding, taking into account, inter
alia, any relevant decisions of state commissions.
346. We also address the impact on small incumbent LECs. For
example, GVNW asserts that any national rule requiring this form of
interconnection would require many small incumbent LECs to make
uneconomic upgrades of their switches in order to accommodate it. We
have considered the economic impact of our rules in this section on
small incumbent LECs. Accordingly, we have not adopted any national
standards concerning AIN at this time. We also note that section 251(f)
provides relief for certain small LECs from our regulations
implementing section 251.
5. Operation Support Systems
a. Background
347. We sought comment, in the NPRM, on whether national
requirements for electronic ordering interfaces would reduce the time
and resources required for new entrants to enter and compete in
regional markets. We also sought comment on the unbundling of databases
generally in our discussion on unbundling database and signaling
systems.
b. Discussion
348. We conclude that operations support systems and the
information they contain fall squarely within the definition of
``network element'' and must be unbundled upon request under section
251(c)(3), as discussed below. Congress included in the definition of
``network element'' the terms ``databases'' and ``information
sufficient for billing and collection or used in the transmission,
routing, or other provision of a telecommunications service.'' We
believe that the inclusion of these terms in the definition of
``network element'' is a recognition that the massive operations
support systems employed by incumbent LECs, and the information such
systems maintain and update to administer telecommunications networks
and services, represent a significant potential barrier to entry. It is
these systems that determine, in large part, the speed and efficiency
with which incumbent LECs can market, order, provision, and maintain
telecommunications services and facilities. Thus, we agree with
Ameritech that ``[o]perational interfaces are essential to promote
viable competitive entry.''
349. Nondiscriminatory access to operations support systems
functions can be viewed in at least three ways. First, operations
support systems themselves can be characterized as ``databases'' or
``facilit[ies] * * * used in the provision of a telecommunications
service,'' and the functions performed by such systems can be
characterized as ``features, functions, and capabilities that are
provided by means of such facilit[ies].'' Second, the information
contained in, and processed by operations support systems can be
classified as
[[Page 45530]]
``information sufficient for billing and collection or used in the
transmission, routing, or other provision of a telecommunications
service.'' Third, nondiscriminatory access to the functions of
operations support systems, which would include access to the
information they contain, could be viewed as a ``term or condition'' of
unbundling other network elements under section 251(c)(3), or resale
under section 251(c)(4). Thus, we conclude that, under any of these
interpretations, operations support systems functions are subject to
the nondiscriminatory access duty imposed by section 251(c)(3), and the
duty imposed by section 251(c)(4) to provide resale services under
just, reasonable, and nondiscriminatory terms and conditions.
350. Much of the information maintained by these systems is
critical to the ability of other carriers to compete with incumbent
LECs using unbundled network elements or resold services. Without
access to review, inter alia, available telephone numbers, service
interval information, and maintenance histories, competing carriers
would operate at a significant disadvantage with respect to the
incumbent. Other information, such as the facilities and services
assigned to a particular customer, is necessary to a competing
carrier's ability to provision and offer competing services to
incumbent LEC customers. Finally, if competing carriers are unable to
perform the functions of pre-ordering, ordering, provisioning,
maintenance and repair, and billing for network elements and resale
services in substantially the same time and manner that an incumbent
can for itself, competing carriers will be severely disadvantaged, if
not precluded altogether, from fairly competing. Thus providing
nondiscriminatory access to these support systems functions, which
would include access to the information such systems contain, is vital
to creating opportunities for meaningful competition.
351. As noted in the comments above, several state commissions have
ordered real-time access or have ongoing proceedings working to develop
and implement it within their jurisdictions. The New York Commission,
building on its pioneering experience with the Rochester Telephone
``Open Market Plan,'' has facilitated a working group on electronic
interfaces comprised of both incumbent LECs and potential competitors.
The New York Commission focused on these issues in response to the
frustrations and concerns of resellers in the Rochester market. In
particular, AT&T alleged that it was ``severely disadvantaged due to
the fact that [Rochester Telephone] has failed to provide procedures
for resellers to access [their] databases for on-line queries needed to
perform basic service functions [such] as scheduling customer
appointments.'' The New York Commission has concluded that wherever
possible NYNEX will provide new entrants with real-time electronic
access to its systems. As another example, the Georgia Commission
recently ordered BellSouth to provide electronic interfaces such that
resellers have the same access to operations support systems and
informational databases as BellSouth does, including interfaces for
pre-ordering, ordering and provisioning, service trouble reporting, and
customer daily usage. In testimony before the Georgia Commission, a
BellSouth witness acknowledged that ``[n]o one is happy, believe me,
with a system that is not fully electronic.'' As noted above, Georgia
ordered BellSouth to establish these interfaces within two months of
its order (by July 15, 1996), but recently extended the deadline an
additional month (to August 15th). Both the Illinois and Indiana
Commissions ordered incumbent LECs immediately to provide to
competitors access to operational interfaces at parity with those
provided to their own retail customers, or submit plans with specific
timetables for achieving such access. Several other states have passed
laws or adopted rules ordering incumbent LECs to provide interfaces for
access equal to that the incumbent provides itself. We recognize the
lead taken by these states and others, and we generally rely upon their
conclusions in this Order.
352. We conclude that providing nondiscriminatory access to
operations support systems functions is technically feasible. Incumbent
LECs today provide IXCs with different types of electronic ordering or
trouble interfaces that demonstrate the feasibility of such access, and
perhaps also provide a basis for adapting such interfaces for use
between local service providers. Further, as discussed above, several
incumbent LECs, including NYNEX and Bell Atlantic, are already testing
and operating interfaces that support limited functions, and are
developing the interfaces to support access to the remaining functions
identified by most potential competitors. Some incumbent LECs
acknowledge that nondiscriminatory access to operations support systems
functions is technically feasible. Finally, several industry groups are
actively establishing standards for inter-telecommunications company
transactions.
353. Section 251(d)(2)(A) requires the Commission to consider
whether ``access to such network elements as are proprietary in nature
is necessary.'' Incumbent LECs argue that there are proprietary
interfaces used to access these databases and information. Parties
seeking to compete with incumbent LECs counter that access to such
databases and information is vitally important to the ability to
broadly compete with the incumbent. As discussed above, competitors
also argue that such access is necessary to order, provision, and
maintain unbundled network elements and resold services, and to market
competing services effectively to an incumbent LEC's customers. We find
that it is absolutely necessary for competitive carriers to have access
to operations support systems functions in order to successfully enter
the local service market.
354. Section 251(d)(2)(B) requires the Commission to consider
whether ``the failure to provide access to such network elements would
impair the ability of the telecommunications carrier seeking access to
provide the services that it seeks to offer.'' As mentioned above,
parties identified access to operations support systems functions as
critical to the provision of local service. We find that such
operations support systems functions are essential to the ability of
competitors to provide services in a fully competitive local service
market. Therefore, we conclude that competitors' ability to provide
service successfully would be significantly impaired if they did not
have access to incumbent LECs' operations support systems functions.
355. We thus conclude that an incumbent LEC must provide
nondiscriminatory access to their operations support systems functions
for pre-ordering, ordering, provisioning, maintenance and repair, and
billing available to the LEC itself. We adopt the definition of these
terms as set forth in the AT&T-Bell Atlantic Joint Ex Parte as the
minimum necessary for our requirements. We note, however, that
individual incumbent LEC's operations support systems may not clearly
mirror these definitions. Nevertheless, incumbent LECs must provide
nondiscriminatory access to the full range of functions within pre-
ordering, ordering, provisioning, maintenance and repair and billing
enjoyed by the incumbent LEC. Such nondiscriminatory access necessarily
includes access to the functionality of
[[Page 45531]]
any internal gateway systems the incumbent employs in performing the
above functions for its own customers. For example, to the extent that
customer service representatives of the incumbent have access to
available telephone numbers or service interval information during
customer contacts, the incumbent must provide the same access to
competing providers. Obviously, an incumbent that provisions network
resources electronically does not discharge its obligation under
section 251(c)(3) by offering competing providers access that involves
human intervention, such as facsimile-based ordering.
356. We recognize that, although technically feasible, providing
nondiscriminatory access to operations support systems functions may
require some modifications to existing systems necessary to accommodate
such access by competing providers. Although, as discussed above, many
incumbent LECs are actively developing these systems, even the largest
and most advanced incumbent LECs have not completed interfaces that
provide such access to all of their support systems functions. State
commissions such as Georgia, Illinois, and Indiana, however, have
ordered that such access be made available to requesting carriers in
the near term. As a practical matter, the interfaces developed by
incumbents to accommodate nondiscriminatory access will likely provide
such access for services and elements beyond a particular state's
boundaries, and thus we believe that requirements for such access by a
small number of states representing a cross-section of the country will
quickly lead to incumbents providing access in all regions.
357. In all cases, however, we conclude that in order to comply
fully with section 251(c)(3) an incumbent LEC must provide, upon
request, nondiscriminatory access to operations support systems
functions for pre-ordering, ordering, provisioning, maintenance and
repair, and billing of unbundled network elements under section
251(c)(3) and resold services under section 251(c)(4). Incumbent LECs
that currently do not comply with this requirement of section 251(c)(3)
must do so as expeditiously as possible, but in any event no later than
January 1, 1997. We believe that the record demonstrates that incumbent
LECs and several national standards-setting organizations have made
significant progress in developing such access. This progress is also
reflected in a number of states requiring competitor access to these
transactional functions in the near term. Thus, we believe that it is
reasonable to expect that by January 1, 1997, new entrants will be able
to compete for end user customers by obtaining nondiscriminatory access
to operations support systems functions.
358. We have considered the economic impact of our rules in this
section on small incumbent LECs. For example, RTC urges us to recognize
the differences between carriers in regards to computerized network
administration and operational interfaces. Our requirement of
nondiscriminatory access to operations support systems recognizes that
different incumbent LECs possess different existing systems. We also
note, however, that section 251(f) of the 1996 Act provides relief for
certain small LECs from our regulations implementing section 251.
359. Ideally, each incumbent LEC would provide access to support
systems through a nationally standardized gateway. Such national
standards would eliminate the need for new entrants to develop multiple
interface systems, one for each incumbent. We believe that the progress
made by standards-setting organizations to date evidences a strong
national movement toward such a uniform standard. For example, both
AT&T and Bell Atlantic agree that, given appropriate guidance from the
Commission, the industry can achieve consensus on national standards
such that within 12 months 95% of all inter-telecommunications company
transactions may be processed via nationally standardized electronic
gateways.
360. In order to ensure continued progress in establishing national
standards, we propose to monitor closely the progress of industry
organizations as they implement the rules adopted in this proceeding.
Depending upon the progress made, we will make a determination in the
near future as to whether our obligations under the 1996 Act require us
to issue a separate notice of proposed rulemaking or take other action
to guide industry efforts at arriving at appropriate national standards
for access to operations support systems.
6. Other Network Elements
a. Background
361. In the NPRM, we requested comment on other network elements
the Commission should require incumbent LECs to unbundle. We
tentatively concluded that ``subscriber numbers'' and ``operator call
completion services'' should be unbundled. We also, under our
discussion of section 251(b)(3), sought comment on nondiscriminatory
access to telephone numbers, operator services, and directory
assistance.
b. Discussion
(1) Operator Services and Directory Assistance
362. We conclude that incumbent LECs are under the same duty to
permit competing carriers nondiscriminatory access to operator services
and directory assistance as all LECs are under section 251(b)(3). We
further conclude that, if a carrier requests an incumbent LEC to
unbundle the facilities and functionalities providing operator services
and directory assistance as separate network elements, the incumbent
LEC must provide the competing provider with nondiscriminatory access
to such facilities and functionalities at any technically feasible
point. We believe that these facilities and functionalities are
important to facilitate competition in the local exchange market.
Further, the 1996 Act imposes upon BOCs, as a condition of entry into
in-region interLATA services the duty to provide nondiscriminatory
access to directory assistance services and operator call completion
services. We therefore conclude that unbundling facilities and
functionalities providing operator services and directory assistance is
consistent with the intent of Congress.
363. As discussed in our section on nondiscriminatory access under
section 251(b)(3), the provision of nondiscriminatory access to
operator services and directory assistance must conform to the
requirements of section 222, which restricts carrier's use of CPNI. In
particular, access to directory assistance and underlying directory
information does not require incumbent LECs to provide access to
unlisted or unpublished telephone numbers, or other information that
the incumbent LEC's customer has requested the LEC not to make
available. In conforming to section 222, we anticipate that incumbent
LECs will provide such access in a manner that will protect against the
inadvertent release of unlisted customer names and numbers.
364. We note that several competitors advocate unbundling the
facilities and functionalities providing operator services and
directory assistance from particular resold services or the unbundled
local switching element, so that a competing provider can provide these
services to its customers supported by its own systems rather than
those of the incumbent LEC. Some incumbent LECs argue that such
unbundling, however, is not technically feasible because of their
inability to
[[Page 45532]]
route individual end user calls to multiple systems. We find that
unbundling both the facilities and functionalities providing operator
services and directory assistance as separate network elements will be
beneficial to competition and will aid the ability of competing
providers to differentiate their service from the incumbent LECs. We
also note that the Illinois Commission has recently ordered such
access. We therefore find that incumbent LECs must unbundle the
facilities and functionalities providing operator services and
directory assistance from resold services and other unbundled network
elements to the extent technically feasible. As discussed above in our
section on unbundled switching, we require incumbent LECs, to the
extent technically feasible, to provide customized routing, which would
include such routing to a competitor's operator services or directory
assistance platform.
365. We also note that some competitors seek access to operator
services and directory assistance in order to serve their own
customers. Some of these parties argue that nondiscriminatory access to
such network elements requires incumbent LECs to provide rebranded
operator call completion services and directory assistance to the
competing carrier's customers. Incumbent LECs argue that the provision
of these services on an unbranded or rebranded basis is not technically
feasible because of their inability at the operator services or
directory assistance platforms to identify the carrier serving the end
user. As we concluded in our discussion on section 251(b)(3), we find
that incumbent LECs must permit nondiscriminatory access to both
operator services and directory assistance in the same manner required
of all LECs. We make no finding on the technical feasibility of
providing branded or unbranded service to competitors based on the
record before us. We note, however, that the Illinois Commission has
ordered incumbent LECs to provide rebranded operator call completion
services and directory assistance to requesting competitive carriers.
366. As discussed above, incumbent LECs must provide access to
databases as unbundled network elements. We find that the databases
used in the provision of both operator call completion services and
directory assistance must be unbundled by incumbent LECs upon a request
for access by a competing provider. In particular, the directory
assistance database must be unbundled for access by requesting
carriers. Such access must include both entry of the requesting
carrier's customer information into the database, and the ability to
read such a database, so as to enable requesting carriers to provide
operator services and directory assistance concerning incumbent LEC
customer information. We clarify, however, that the entry of a
competitor's customer information into an incumbent LEC's directory
assistance database can be mediated by the incumbent LEC to prevent
unauthorized use of the database. We find that the arrangement ordered
by the California Commission concerning the shared use of such a
database by Pacific Bell and GTE is one possible method of providing
such access.
367. Section 251(d)(2)(A) requires the Commission to consider
whether ``access to such network elements as are proprietary in nature
is necessary.'' Parties generally did not identify proprietary concerns
with unbundling access to operator call completion services or
directory assistance. Incumbent LECs generally did not claim a
proprietary interest in their directory assistance databases. Many
parties contend that proprietary interests leading to restrictions on
use or sharing of such database information would injure their ability
to compete effectively for local service. For the reasons described
below, we find that access to the systems supporting both operator call
completion services and directory assistance is necessary for new
entrants to provide competing local exchange service.
368. Section 251(d)(2)(B) requires the Commission to consider
whether ``the failure to provide access to such network elements would
impair the ability of the telecommunications carrier seeking access to
provide the services that it seeks to offer.'' Parties identified
access to operator call completion services and directory assistance as
critical to the provision of local service. Therefore we conclude that
competitors' ability to provide service would be significantly impaired
if they did not have access to incumbent LEC's operator call completion
services and directory assistance.
(2) Subscriber Numbers
369. Some commenters argue that the Commission should require
incumbent LECs to unbundle access to subscriber numbers. We conclude
that no Commission action under section 251(b)(3) is required at this
time to ensure nondiscriminatory access to subscriber numbers. Issues
regarding access to subscriber numbers will be addressed by our
implementation of section 251(e).
VI. Methods of Obtaining Interconnection and Access to Unbundled
Elements
370. In this section, we address the means of achieving
interconnection and access to unbundled network elements that incumbent
LECs are required to make available to requesting carriers.
A. Overview
1. Background
371. Section 251(c)(2) requires incumbent LECs to provide
interconnection with the LEC's network ``for the facilities and
equipment of any requesting telecommunications carrier.'' Section
251(c)(6) imposes upon incumbent LECs ``the duty to provide * * * for
physical collocation of equipment necessary for interconnection or
access to unbundled network elements at the premises of the [LEC],
except that the carrier may provide for virtual collocation if the
[LEC] demonstrates to the State commission that physical collocation is
not practical for technical reasons or because of space limitations.''
In the NPRM, we noted that section 251(c)(6) does not expressly limit
the Commission's authority under section 251(c)(2) to establish rules
requiring incumbent LECs to make available a variety of methods of
interconnection, except in situations where the incumbent can
demonstrate to the State commission that physical collocation is not
practical for technical reasons or space limitations. We tentatively
concluded that the Commission has the authority to require any
reasonable method of interconnection, including physical collocation,
virtual collocation, and meet point interconnection arrangements. Under
the Commission's Expanded Interconnection rules, LECs are not required
to offer a collocating carrier a choice between physical and virtual
collocation. Special Access Order, 57 FR 54323 (November 18, 1992);
Switched Transport Order, 58 FR 48756 (September 17, 1993); see also
Physical Collocation Designation Order, 8 FCC Rcd 4589 (under our
Expanded Interconnection rules, LECs must provide virtual collocation
where: virtual collocation is available on an intrastate basis; a LEC
has negotiated an interstate virtual collocation arrangement; LECs are
exempted from providing physical collocation because of space
constraints; or a state commission has granted a waiver). Also, see
Section VI.B.1.b. regarding the
[[Page 45533]]
definitions of physical and virtual collocation.
2. Discussion
372. We conclude that, under sections 251(c)(2) and 251(c)(3), any
requesting carrier may choose any method of technically feasible
interconnection or access to unbundled elements at a particular point.
Section 251(c)(2) imposes an interconnection duty at any technically
feasible point; it does not limit that duty to a specific method of
interconnection or access to unbundled elements.
373. Physical and virtual collocation are the only methods of
interconnection or access specifically addressed in section 251. Under
section 251(c)(6), incumbent LECs are under a duty to provide physical
collocation of equipment necessary for interconnection unless the LEC
can demonstrate that physical collocation is not practical for
technical reasons or because of space limitations. In that event, the
incumbent LEC is still obligated to provide virtual collocation of
interconnection equipment. Under section 251, the only limitation on an
incumbent LEC's duty to provide interconnection or access to unbundled
elements at any technically feasible point is addressed in section
251(c)(6) regarding physical collocation. Unless a LEC can establish
that the specific technical or space limitations in subsection (c)(6)
are met with respect to physical collocation, we conclude that
incumbent LECs must provide for any technically feasible method of
interconnection or access requested by a competing carrier, including
physical collocation. If, for example, we interpreted section 251(c)(6)
to limit the means of interconnection available to requesting carriers
to physical and virtual collocation, the requirement in section
251(c)(2) that interconnection be made available ``at any technically
feasible point'' would be narrowed dramatically to mean that
interconnection was required only at points where it was technically
feasible to collocate equipment. We are not pursuaded that Congress
intended to limit interconnection points to locations only where
collocation is possible.
374. Section 251(c)(6) provides the Commission with explicit
authority to mandate physical collocation as a method of providing
interconnection or access to unbundled elements. Such authority was
previously found lacking by the U.S. Court of Appeals for the D.C.
Circuit in Bell Atlantic v. FCC, (Bell Atlantic Telephone Companies v.
FCC, 24 F.3d 1441 (D.C. Cir. 1994) (Bell Atlantic v. FCC)), which was
decided prior to enactment of the 1996 Act. While section 251(c)(6)
limits an incumbent LEC's duty to provide physical collocation in
certain circumstances, we find that it does not limit our authority to
require, under sections 251 (c)(2) and (c)(3), the provision of virtual
collocation. We note that under our Expanded Interconnection rules,
that were amended subsequent to the Bell Atlantic decision, competitive
entrants using physical collocation were required by many incumbent
LECs to convert to virtual collocation. If the Commission concluded
that subsection (c)(6) places a limitation on our authority to require
virtual collocation, competitive providers would be required to
undertake costly and burdensome actions to convert back to physical
collocation even if they were satisfied with existing virtual
collocation arrangements. We conclude that Congress did not intend to
impose such a burden on requesting carriers that wish to continue to
use virtual collocation for purposes of section 251(c). Further, the
record indicates that this requirement would be costly and would delay
competition. In short, we conclude that, in enacting section 251(c)(6),
Congress intended to expand the interconnection choices available to
requesting carriers, not to restrict them.
375. We also conclude that requiring incumbent LECs to provide
virtual collocation and other technically feasible methods of
interconnection or access to unbundled elements is consistent with
Congress' desire to facilitate entry into the local telephone market by
competitive carriers. In certain circumstances, competitive carriers
may find, for example, that virtual collocation is less costly or more
efficient than physical collocation. We believe that this may be
particularly true for small carriers which lack the financial resources
to physically collocate equipment in a large number of incumbent LEC
premises. Moreover, since requesting carriers will bear the costs of
other methods of interconnection or access, this approach will not
impose an undue burden on the incumbent LECs.
376. Consistent with this view, other methods of technically
feasible interconnection or access to incumbent LEC networks, such as
meet point arrangements, in addition to virtual and physical
collocation, must be available to new entrants upon request. See
Teleport comments at 26-30; see also Washington Utilities and
Transportation Commission, Fourth Supplemental Order Rejecting Tariff
Filings and Ordering Refiling; Granting Complaints, in Part,
(Washington Commission Oct. 31, 1995), Docket No. UT-941464, at 45;
Application of Electric Lightwave, Inc., MFS Intelnet of Oregon, Inc.,
and MCI Metro Access Transmission Services, Inc., Public Utility
Commission of Oregon Order, Order No. 96-021, (Oregon Commission Jan.
12, 1996), at 68-69; Rules for Telecommunications Interconnection and
Unbundling, Arizona Corporation Commission Order, Decision No. 59483,
(Arizona Commission Jan. 11, 1996), Proposed Rule R14-2-1303
(Attachment E hereto). Meet point arrangements (or mid-span meets), for
example, are commonly used between neighboring LECs for the mutual
exchange of traffic, and thus, in general, we believe such arrangements
are technically feasible. The Michigan Commission recently required
Ameritech to provide meet point interconnection. Michigan Public
Service Commission, Case No. U-10860 (Michigan June 5, 1996) at 18 n.4.
Further, although the creation of meet point arrangements may require
some build out of facilities by the incumbent LEC, we believe that such
arrangements are within the scope of the obligations imposed by
sections 251(c)(2) and 251(c)(3). In a meet point arrangement, the
``point'' of interconnection for purposes of sections 251(c)(2) and
251(c)(3) remains on ``the local exchange carrier's network'' (e.g.,
main distribution frame, trunk-side of the switch), and the limited
build-out of facilities from that point may then constitute an
accommodation of interconnection. In a meet point arrangement each
party pays its portion of the costs to build out the facilities to the
meet point. We believe that, although the Commission has authority to
require incumbent LECs to provide meet point arrangements upon request,
such an arrangement only makes sense for interconnection pursuant to
section 251(c)(2) but not for unbundled access under section 251(c)(3).
New entrants will request interconnection pursuant to section 251(c)(2)
for the purpose of exchanging traffic with incumbent LECs. In this
situation, the incumbent and the new entrant are co-carriers and each
gains value from the interconnection arrangement. Under these
circumstances, it is reasonable to require each party to bear a
reasonable portion of the economic costs of the arrangement. In an
access arrangement pursuant to section 251(c)(3), however, the
interconnection point will be a part of the new entrant's network and
will be used to carry traffic from one element in the new entrant's
network to another. We conclude that in a section 251(c)(3)
[[Page 45534]]
access situation, the new entrant should pay all of the economic costs
of a meet point arrangement. Regarding the distance from an incumbent
LEC's premises that an incumbent should be required to build out
facilities for meet point arrangements, we believe that the parties and
state commissions are in a better position than the Commission to
determine the appropriate distance that would constitute the required
reasonable accommodation of interconnection.
377. Finally, in accordance with our interpretation of the term
``technically feasible,'' we conclude that, if a particular method of
interconnection is currently employed between two networks, or has been
used successfully in the past, a rebuttable presumption is created that
such a method is technically feasible for substantially similar network
architectures. Moreover, because the obligation of incumbent LECs to
provide interconnection or access to unbundled elements by any
technically feasible means arises from sections 251(c)(2) and
251(c)(3), we conclude that incumbent LECs bear the burden of
demonstrating the technical infeasibility of a particular method of
interconnection or access at any individual point.
B. Collocation
1. Collocation Standards
a. Adoption of National Standards
(1) Background
378. In the NPRM we tentatively concluded that we should adopt
national rules for virtual and physical collocation. This tentative
conclusion was based on the belief that national standards would help
to speed the development of competition. We also sought comment on
specific national standards that we might adopt, and on whether any
specific state approaches would serve as an appropriate model.
(2) Discussion
379. We conclude that we should adopt explicit national rules to
implement the collocation requirements of the 1996 Act. We find that
specific rules defining minimum requirements for nondiscriminatory
collocation arrangements will remove barriers to entry by potential
competitors and speed the development of competition. Our experience in
the Expanded Interconnection proceeding indicates that incumbent LECs
have an economic incentive to interpret regulatory ambiguities to delay
entry by new competitors. Our review of the LECs' initial physical and
virtual collocation tariffs raised significant concerns regarding the
implementation of our Expanded Interconnection requirements and
resulted in the designation of numerous issues for investigation. The
Commission has not yet reached decisions on most of these issues,
though it has found that certain rates for virtual collocation were
unlawful. We and the states should therefore adopt, to the extent
possible, specific and detailed collocation rules. We find, however,
that states should have flexibility to apply additional collocation
requirements that are otherwise consistent with the 1996 Act and our
implementing regulations.
b. Adoption of Expanded Interconnection Terms and Conditions for
Physical and Virtual Collocation Under Section 251
(1) Background
380. In our Expanded Interconnection proceeding, we required LECs
to offer expanded interconnection to all interested parties, which
allowed competitors and end users to terminate their own special access
and switched transport access transmission facilities at LEC central
offices. Expanded Interconnection with Local Telephone Company
Facilities, First Report and Order, 57 FR 54323 (November 18, 1992)
(Special Access Order), vacated in part and remanded, Bell Atlantic, 24
F.3d 1441 (1994); First Reconsideration, 57 FR 62481 (December 31,
1992); vacated in part and remanded, Bell Atlantic, 24 F.3d 1441;
Second Reconsideration, 58 FR 48752 (September 17, 1993); Second Report
and Order, 58 FR 48756 (September 17, 1993) (Switched Transport Order),
vacated in part and remanded, Bell Atlantic Telephone Cos., v. FCC, 24
F.3d 1441; Remand Order, 9 FCC Rcd 5154 (1994) (Virtual Collocation
Order), remanded for consideration of 1996 Act, Pacific Bell, et al. v.
FCC, 81 F.3d 1147 (1996) (collectively referred to as Expanded
Interconnection). Interstate access is a service traditionally provided
by local telephone companies and enables IXCs and other customers to
originate and terminate interstate telephone traffic. Special access is
a form of interstate access that uses dedicated transmission lines
between two points, without switching the traffic on those lines.
Switched transport is another form of interstate access comprising the
transmission of traffic between interexchange carriers' (or other
customers') points of presence and local telephone companies' end
offices, where the traffic is switched and routed to end users. We
required Tier 1 LECs to offer physical collocation, with the
interconnecting party paying the LEC for central office floor space.
(Tier 1 LECs are local exchange carriers having $100 million or more in
``total company annual regulated revenues.'' Commission Requirements
for Cost Support Material to be Filed with 1990 Annual Access Tariffs,
5 FCC Rcd 1364, 1364 (Com. Car. Bur. 1990)). We required that LECs
provide space to interested parties on a first-come first-served basis,
and that they provide virtual collocation when space for physical
collocation is exhausted. Under virtual collocation, interconnectors
are allowed to designate central office transmission equipment
dedicated to their use, as well as to monitor and control their
circuits terminating in the LEC central office. Interconnectors,
however, do not pay for the incumbent's floor space under virtual
collocation arrangements and have no right to enter the LEC central
office. Under our virtual collocation requirements, LECs must install,
maintain, and repair interconnector-designated equipment under the same
intervals and with the same or better failure rates for the performance
of similar functions for comparable LEC equipment.
381. In the Expanded Interconnection proceeding, we required the
LECs to file tariffs to implement our virtual and physical collocation
requirements. Our initial review of the LECs' tariffs raised
significant concerns regarding the LECs' provision of physical and
virtual collocation. Consequently, the Bureau partially suspended the
rates proposed by many of the LECs and allowed these rates to take
effect subject to investigation and an accounting order.
382. In 1994, the U.S. Court of Appeals for the District of
Columbia Circuit found that the FCC lacked the authority under section
201 of the 1934 Communications Act to require physical collocation and
remanded all other issues to the Commission. Bell Atlantic v. FCC, 24
F.3d 1441. On remand, we adopted rules for both special access and
switched transport that required LECs to provide either virtual or
physical collocation, at the LECs' option. Those rules currently are in
place, although the court of appeals remanded the Remand Order to us to
consider the impact of the 1996 Act on those rules. Pacific Bell et al.
v. FCC, 81 F.3d 1147 (D.C. Cir. 1996). As discussed below, we find that
the 1996 Act does not supplant or otherwise alter our Expanded
Interconnection rules for interstate interconnection services provided
pursuant to section 201 of the Communications Act. In the 1996 Act,
Congress specifically directed
[[Page 45535]]
incumbent LECs to provide physical collocation for interconnection and
access to unbundled network elements, absent technical or space
constraints, pursuant to section 251(c)(6) of the Communications Act.
383. We sought comment in the NPRM on whether, for purposes of
implementing physical and virtual collocation under section 251, we
should readopt the standards set out in our Expanded Interconnection
proceeding and, if so, how to adapt those standards to reflect the new
statutory requirements and other policy considerations of the 1996 Act.
(2) Discussion
384. We conclude that we should adopt the existing Expanded
Interconnection requirements, with some modifications, as the rules
applicable for collocation under section 251. Those rules were
established on the basis of an extensive record in the Expanded
Interconnection proceeding, and are largely consistent with the
requirements of section 251(c)(6). Adoption of those requirements for
purposes of collocation under section 251, moreover, has substantial
support in the record of this proceeding. Thus, the standards
established for physical and virtual collocation in our Expanded
Interconnection proceeding will generally apply to collocation under
section 251. The most significant requirements of Expanded
Interconnection are specifically set out in rules we adopt here. We
address pricing and rate structure issues separately, in section VII
below.
385. We find, however, that certain modifications to our Expanded
Interconnection requirements are necessary to account for specific
provisions of section 251(c)(6) and service arrangements that differ
from those contemplated in our Expanded Interconnection orders. For
example, the Expanded Interconnection requirements apply to Tier 1 LECs
that are not NECA pool members, and section 251 applies to ``incumbent
LECs,'' though there is an exemption for certain rural carriers.
Expanded Interconnection also allows end-users to interconnect their
equipment, while section 251 requires that interconnection and access
to unbundled network elements be provided to ``any requesting
telecommunications carrier.'' Accordingly, we set forth below several
modifications to the terms and conditions for collocation as they are
described in our Expanded Interconnection orders for application in
implementing section 251. We believe that, in light of the expedited
statutory time frame for this rulemaking and limited record addressing
the specific terms and conditions for collocation under section 251 in
this proceeding, it would be impractical and imprudent to develop a
large number of new substantive collocation requirements in this order.
We may consider the need for additional or different requirements in a
subsequent proceeding, if we determine that such action is warranted.
386. The most significant difference between the Expanded
Interconnection rules and the collocation rules we adopt to implement
the 1996 Act concerns the collocation tariffing requirement. As
discussed below, the 1996 Act does not require that collocation be
federally tariffed. We thus do not adopt, under section 251, the
Expanded Interconnection tariffing requirements originally adopted
under section 201 for physical and virtual collocation. The existing
tariffing requirements of Expanded Interconnection for interstate
special access and switched transport will continue to apply for use by
customers that wish to subscribe to those interstate services.
387. We reject SBC's contention that we may not adopt any terms and
conditions in this proceeding that differ from those in the Expanded
Interconnection proceeding. SBC argues that Congress intended, in
section 251(c)(6), to use the term ``physical collocation'' as a term
of art, and thereby to adopt wholesale the terms and conditions for
physical collocation that the Commission adopted in the Expanded
Interconnection proceeding. A variety of terms and conditions for
physical collocation are possible and section 251(c)(6) makes no
reference to the Commission's decisions on these issues in the Expanded
Interconnection proceeding. If Congress had intended to readopt those
rules wholesale without permitting the Commission any flexibility in
the matter, we believe that Congress would have been more explicit
rather than merely using the phrase ``physical collocation.'' Thus, we
believe that we can and should modify our preexisting standards, as set
forth below, for purposes of implementing the provisions of section
251(c)(6). In the following sections (c.-i.) we address comments filed
by interested parties concerning application of our existing Expanded
Interconnection requirements for purposes of collocation under section
251. (In a number of instances, we decline to adopt proposals for
modifications to our Expanded Interconnection requirements.)
388. Finally, our experience reviewing the tariffs that incumbent
LECs filed to implement our requirements for physical and virtual
collocation suggests that rates, terms, and conditions under which
incumbent LECs propose to provide these arrangements pursuant to
section 251(c)(6) bear close scrutiny. We strongly urge state
commissions to be vigilant in their review of such arrangements. Some
areas our investigations have found problematic in the past include
channel assignment, letters of agency, charges for repeaters, and
placement of point-of-termination bays. We will review this issue and
revise our requirements as necessary.
c. The Meaning of the Term ``Premises''
(1) Background
389. In the Expanded Interconnection proceeding, we required
collocation at end offices, serving wire centers, and tandem switches,
as well as at remote distribution nodes and any other points that the
LEC treats as a ``rating point.'' A rating point is a point used in
calculating the length of interoffice special access links. Section
251(c)(6) requires physical collocation ``at the premises of the local
exchange carrier.'' In the NPRM, we tentatively concluded that the term
``premises'' includes, in addition to LEC central offices and tandem
offices, all buildings or similar structures owned or leased by the
incumbent LEC that house LEC network facilities. We sought comment on
whether structures that house LEC network facilities on public rights-
of-way, such as vaults containing loop concentrators or similar
structures, should be deemed to be LEC ``premises.''
(2) Discussion
390. The 1996 Act does not address the definition of premises, nor
is the term discussed in the legislative history. Therefore, we look to
the purposes of the 1996 Act and general uses of the term ``premises''
in other contexts in order to define this term for purposes of section
251(c)(6). The term ``premises'' is defined in varying ways, according
to the context in which it is used. In light of the 1996 Act's
procompetitive purposes, we find that a broad definition of the term
``premises'' is appropriate in order to permit new entrants to
collocate at a broad range of points under the incumbent LEC's control.
A broad definition will allow collocation at points other than those
specified for collocation under the existing Expanded Interconnection
requirements. We find that this result is
[[Page 45536]]
appropriate because the purposes of physical and virtual collocation
under section 251 are broader than those established in the Expanded
Interconnection proceeding. We therefore interpret the term
``premises'' broadly to include LEC central offices, serving wire
centers and tandem offices, as well as all buildings or similar
structures owned or leased by the incumbent LEC that house LEC network
facilities. We also treat as incumbent LEC premises any structures that
house LEC network facilities on public rights-of-way, such as vaults
containing loop concentrators or similar structures.
391. As discussed below, we conclude that section 251(c)(6)
requires collocation only where technically feasible. In light of this
conclusion, we find that adoption of a definition of ``premises'' that
depends on whether interconnection or access to unbundled network
elements at a particular point is ``technically feasible,'' as
suggested by Ameritech and Pacific Telesis, would be superfluous. We
also conclude that it is not appropriate to adopt a definition of
``premises,'' as suggested by several parties, that is dependent on
whether it is ``practical'' to collocate equipment at a particular
point. We note however, that neither physical nor virtual collocation
is required at points where not technically feasible. We therefore
decline to adopt specific requirements regarding collocation at
particular points in the LEC network, as suggested by GVNW and others.
Because collocation is only required where technically feasible, the
approach we here adopt will enable competitors to take advantage of
opportunities to collocate equipment without imposing undue burdens on
incumbent LECs, whether large or small.
392. We also address the impact on small incumbent LECs. For
example, the Rural Tel. Coalition asks that interconnection and
collocation points be established in a flexible manner. We have
considered the economic impact of our rules in this section on small
incumbent LECs. For example, we do not adopt rigid requirements for
locations where collocation must be provided. Incumbent LECs are not
required to physically collocate equipment in locations where not
practical for technical reasons or because of space limitations, and
virtual collocation is required only where technically feasible. We
also note, however, that section 251(f) of the 1996 Act provides relief
to certain small LECs from our regulations implementing section 251.
d. Collocation Equipment
(1) Background
393. In the Expanded Interconnection proceeding, we allowed
collocation for central office equipment needed to terminate basic
transmission facilities between LEC central offices and third-party
premises. Acceptable equipment included optical terminating equipment
and multiplexers. We did not require the LECs to permit collocation of
enhanced services equipment or customer premises equipment because such
equipment was not necessary to foster competition in the provision of
basic transmission services. We also did not require LECs to allow the
collocation of switches. Section 251(c)(6) requires incumbent LECs to
allow collocation of ``equipment necessary for interconnection or
access to unbundled elements. * * *'' We sought comment in the NPRM on
what types of equipment competitors should be permitted to collocate on
LEC premises.
(2) Discussion
394. We believe that section 251(c)(6) generally requires that
incumbent LECs permit the collocation of equipment used for
interconnection or access to unbundled network elements. Although the
term ``necessary,'' read most strictly, could be interpreted to mean
``indispensable,'' we conclude that for the purposes of section
251(c)(6) ``necessary'' does not mean ``indispensable'' but rather
``used'' or ``useful.'' This interpretation is most likely to promote
fair competition consistent with the purposes of the Act. (We note that
this view is consistent with the findings of the Colorado Commission.)
Colorado Public Utilities Commission, Proposed Rules Regarding
Implementation of Secs. 40-15-101 et seq., Requirements Relating to
Interconnection and Unbundling, Docket No. 95R-556T, (Colorado
Commission, March 29, 1996) at 19-20. Thus, we read section 251(c)(6)
to refer to equipment used for the purpose of interconnection or access
to unbundled network elements. Cf. National Railroad Passenger
Corporation v. Boston and Maine Corp., 503 U.S. 407, 417 (1992)
(upholding the ICC's interpretation of the word ``required'' as
``useful or appropriate,'' rather than ``indispensable''); McCulloch v.
Maryland, 4 Wheat. 316, 413 (1819) (Chief Justice Marshall read the
word ``necessary'' to mean ``convenient, or useful,'' rejecting a
stricter reading of the term). Even if the collocator could use other
equipment to perform a similar function, the specified equipment may
still be ``necessary'' for interconnection or access to unbundled
network elements under section 251(c)(6). We can easily imagine
circumstances, for instance, in which alternative equipment would
perform the same function, but with less efficiency or at greater cost.
A strict reading of the term ``necessary'' in these circumstances could
allow LECs to avoid collocating the equipment of the interconnectors'
choosing, thus undermining the procompetitive purposes of the 1996 Act.
395. Consistent with this interpretation, we conclude that
transmission equipment, such as optical terminating equipment and
multiplexers, may be collocated on LEC premises. We also conclude that
LECs should continue to permit collocation of any type of equipment
currently being collocated to terminate basic transmission facilities
under the Expanded Interconnection requirements. In addition, whenever
a telecommunications carrier seeks to collocate equipment for purposes
within the scope of section 251(c)(6), the incumbent LEC shall prove to
the State commission that such equipment is not ``necessary,'' as we
have defined that term, for interconnection or access to unbundled
network elements. State commissions may designate specific additional
types of equipment that may be collocated pursuant to section
251(c)(6).
396. We do not find, however, that section 251(c)(6) requires
collocation of equipment used to provide enhanced services, contrary to
the arguments of the Association of Telemessaging Services
International. We also decline to require incumbent LECs to allow
collocation of any equipment without restriction. Section 251(c)(6)
requires collocation only of equipment ``necessary for interconnection
or access to unbundled elements.'' Section 251(c)(2) requires incumbent
LECs to provide ``interconnection'' for the ``transmission and routing
of telephone exchange service and exchange access,'' and section
251(c)(3) requires incumbent LECs to provide access to unbundled
network elements ``for the provision of a telecommunications service.''
Section 251(c)(6) therefore requires incumbent LECs to provide physical
or virtual collocation only for equipment ``necessary'' or used for
those purposes. We find that section 251(c)(6) does not require
collocation of equipment necessary to provide enhanced services. We
declined to require collocation of enhanced services equipment in our
Computer III and ONA proceedings. See Third Computer
[[Page 45537]]
Inquiry, Report and Order, 51 FR 24350 (July 3, 1986); Computer III
Remand, 57 FR 4373 (February 5, 1992). Enhanced services are defined as
services that ``employ computer processing applications which act on
the format, content, code, protocol or similar aspects of the
subscriber's transmitted information; provide the subscriber
additional, different, or restructured information; or involve
subscriber interaction with stored information.'' 47 CFR Sec. 64.702.
This definition appears not to include the provision of
``telecommunications services.'' See 47 U.S.C. Sec. 153(43), (46). At
this time, we do not impose a general requirement that switching
equipment be collocated since it does not appear that it is used for
the actual interconnection or access to unbundled network elements. We
recognize, however, that modern technology has tended to blur the line
between switching equipment and multiplexing equipment, which we permit
to be collocated. We expect, in situations where the functionality of a
particular piece of equipment is in dispute, that state commissions
will determine whether the equipment at issue is actually used for
interconnection or access to unbundled elements. We also reserve the
right to reexamine this issue at a later date if it appears that such
action would further achievement of the 1996 Act's procompetitive
goals. Finally, because we lack an adequate record on the issue, we
decline to adopt AT&T's proposal that we require that incumbent LECs
allow collocated equipment to be used for ``hubbing.'' AT&T advocates
requiring LECs to allow new entrants to ``connect additional equipment
of their own to their collocated equipment in the collocated space.''
397. In response to WinStar's suggestion that we require
collocation of microwave transmission facilities, we note that
collocation of microwave transmission equipment was required where
reasonably feasible by the Special Access Order. We also require the
collocation of microwave equipment under section 251, although we
modify the Expanded Interconnection standard we adopt under section 251
for when such collocation is required slightly to conform to the
standard for the provision of physical collocation in section
251(c)(6). We therefore require that incumbent LECs allow competitors
to use physical collocation for microwave transmission facilities
except where this is not practical for technical reasons or because of
space limitations, in which case virtual collocation is required where
technically feasible.
e. Allocation of Space
(1) Background
398. In the Expanded Interconnection proceeding, we required LECs
to allocate space for physical collocation on a first-come, first-
served basis. We also required LECs to take into account interconnector
demand for collocation space when reconfiguring space or building new
central offices, and we found that imposing reasonable restrictions on
warehousing of space by collocating carriers was appropriate. The NPRM
sought comment on whether national guidelines would deter
anticompetitive behavior through the manipulation or unreasonable
allocation of space by either incumbent LECs or new entrants.
(2) Discussion
399. We believe that incumbent LECs have the incentive and
capability to impede competitive entry by minimizing the amount of
space that is available for collocation by competitors. Accordingly, we
adopt our Expanded Interconnection space allocation rules for purposes
of section 251, except as indicated herein. LECs will thus be required
to make space available to requesting carriers on a first-come, first-
served basis. We also conclude that collocators seeking to expand their
collocated space should be allowed to use contiguous space where
available. We further conclude that LECs should not be required to
lease or construct additional space to provide physical collocation to
interconnectors when existing space has been exhausted. We find such a
requirement unnecessary because section 251(c)(6) allows incumbent LECs
to provide virtual collocation where physical collocation is not
practical for technical reasons or because of space limitations.
Consistent with the requirements and findings of the Expanded
Interconnection proceeding, we conclude that incumbent LECs should be
required to take collocator demand into account when renovating
existing facilities and constructing or leasing new facilities, just as
they consider demand for other services when undertaking such projects.
We find that this requirement is necessary in order to ensure that
sufficient collocation space will be available in the future. We
decline, however, to adopt a general rule requiring LECs to file
reports on the status and planned increase and use of space. State
commissions will determine whether sufficient space is available for
physical collocation, and we conclude that they have authority under
the 1996 Act to require incumbent LECs to file such reports. We expect
individual state commissions to determine whether the filing of such
reports is warranted.
400. We also agree with Pacific Telesis that restrictions on
warehousing of space by interconnectors are appropriate. Because
collocation space on incumbent LEC premises may be limited, inefficient
use of space by one competitive entrant could deprive another entrant
of the opportunity to collocate facilities or expand existing space. In
the Expanded Interconnection proceeding, we allowed ``reasonable
restrictions on warehousing of space,'' and will adopt this provision
for purposes of section 251. As discussed below, we also adopt measures
to ensure that incumbent LECs themselves do not unreasonably
``warehouse'' space, although we do permit them to reserve a limited
amount of space for specific future uses. Incumbent LECs, however, are
not permitted to set maximum space limitations without demonstrating
that space constraints make such restrictions necessary, as such
maximum limits could constrain a collocator's ability to provide
service efficiently.
401. We also address the impact on small incumbent LECs. For
example, GVNW argues that we should require collocation in rural areas
only where there is space available. We have considered the impact of
our rules in this section on small incumbent LECs and do not require
physical collocation at any point where there is insufficient space
available. We decline, however, to adopt rules regarding space
availability that apply differently to small, rural carriers because
the rules we here adopt are sufficiently flexible. We also note,
however, that section 251(f) of the 1996 Act provides relief to certain
small LECs from our regulations implementing section 251.
f. Leasing Transport Facilities
(1) Background
402. Our Expanded Interconnection rules require LECs to provide
collocation for the purpose of allowing collocators to terminate their
own transmission facilities for special access or switched transport
service. We did not require that collocation be made available for
other purposes, for example, when the interconnecting party wished only
to connect incumbent LEC transmission facilities to collocated
equipment. We sought comment in the NPRM on whether we should modify
[[Page 45538]]
the standards of the Expanded Interconnection proceeding in light of
the new statutory requirements and disputes that have arisen in the
investigations regarding the incumbent LECs' physical and virtual
collocation tariffs.
(2) Discussion
403. Although in Expanded Interconnection the Commission required
that interested parties interconnect collocated equipment with their
own transmission facilities, we conclude that it would be inconsistent
with the provisions of the 1996 Act to adopt that requirement under
section 251. Rather, we conclude that a competitive entrant should not
be required to bring transmission facilities to LEC premises in which
it seeks to collocate facilities. Entrants should instead be permitted
to collocate and connect equipment to unbundled network transmission
elements obtained from the incumbent LEC. The purpose of the Expanded
Interconnection requirement was to foster competition in the market for
interstate switched and special access transmission facilities. The
purposes of section 251 are broader. Section 251(c)(3) requires that
competitive entrants be given access to unbundled elements and that
they be permitted to combine such elements. Prohibiting competitors
from connecting unbundled network elements to their collocated
equipment would appear contrary to the provisions of section 251(c)(3).
404. Finally, we find that Bell Atlantic's opposition to this
requirement is without merit. Bell Atlantic argues that collocators
should be required to provide their own transmission facilities because
otherwise new entrants could compete without providing any of their own
facilities. Section 251(c)(3) specifically states that unbundled
elements are to be provided in a manner that allows requesting carriers
to combine elements in order to provide telecommunications service. As
stated above, requiring collocators to supply their own transmission
facilities would amount to a prohibition on connecting unbundled
transmission facilities to other unbundled elements connected to
equipment in the collocation space. Although such interconnection
arrangements were not required by our Expanded Interconnection
requirements, we conclude that they are required by section 251 when
collocated equipment is used to achieve interconnection or access to
unbundled network elements.
g. Co-Carrier Cross-Connect
(1) Background
405. In the most common collocation configuration under existing
requirements, the designated physical collocation space of several
competitive entrants is located close together within the LEC premises.
Since carriers connect to the collocation space via high-capacity
lines, different competitive entrants seeking to interconnect with each
other may find connecting between their respective collocation spaces
on the LEC premises the most efficient means of interconnecting with
each other. We sought comment in the NPRM on whether we should adopt
any requirements in addition to those adopted in the Expanded
Interconnection proceeding in order to fulfill the mandate of the 1996
Act.
(2) Discussion
406. We believe that it serves the public interest and is
consistent with the policy goals of section 251 to require that
incumbents permit two or more collocators to interconnect their
networks at the incumbent's premises. Parties opposed to this proposal
have offered no legitimate objection to such interconnection. Allowing
incumbent LECs to prohibit collocating carriers from interconnecting
their collocated equipment would require them to interconnect
collocated facilities by routing transmission facilities outside of the
LECs' premises. We find that such a policy would needlessly burden
collocating carriers. To the extent equipment is collocated for the
purposes expressly permitted under section 251(c)(6), the statute does
not bar us from requiring that incumbent LECs allow connection of such
equipment to other collocating carriers located nearby. We find that
requiring LECs to allow such interconnection of collocated equipment
will foster competition by promoting efficient operation. It is also
unlikely to have a significant effect on space availability. We find
authority for such a requirement in section 251(c)(6), which requires
that collocation be provided on ``terms and conditions that are just,
reasonable, and nondiscriminatory'' and in section 4(i), which permits
the Commission to ``perform any and all acts, make such rules and
regulations, and issue such orders, not inconsistent with this Act, as
may be necessary in the execution of its functions.'' We therefore will
require that incumbent LECs allow collocating telecommunications
carriers to connect collocated equipment to such equipment of other
carriers within the same LEC premises so long as the collocated
equipment is used for interconnection with the incumbent LEC or access
to the LEC's unbundled network elements.
407. We clarify that we here require incumbent LECs to provide the
connection between the equipment in the collocated spaces of two or
more collocating telecommunications carriers unless they permit the
collocating parties to provide this connection for themselves. We do
not require incumbent LECs to allow placement of connecting
transmission facilities owned by competitors within the incumbent LEC
premises anywhere outside of the actual physical collocation space.
h. Security Arrangements
(1) Background
408. Under our Expanded Interconnection requirements, incumbent
LECs typically require that physically collocated equipment be placed
inside a collocation cage within the incumbent LEC facility. Such cages
are intended to separate physically the competitors' facilities from
those of the incumbent and to prevent access by unauthorized personnel
to any parties' equipment. Such cages frequently add considerably to
the cost of establishing physical collocation at a particular LEC
premises and could constitute a barrier to entry in certain
circumstances.
(2) Discussion
409. Based on the comments in this proceeding and our previous
experience with physical collocation in the Expanded Interconnection
docket, we will continue to permit LECs to require reasonable security
arrangements to separate an entrant's collocation space from the
incumbent LEC's facilities. The physical security arrangements around
the collocation space protect both the LEC's and competitor's equipment
from interference by unauthorized parties. We reject the suggestion of
ALTS and MCI that security measures be provided only at the request of
the entrant since LECs have legitimate security concerns about having
competitors' personnel on their premises as well. We conclude that the
physical separation provided by the collocation cage adequately
addresses these concerns. At the same time, we recognize that the
construction costs of physical security arrangements could serve as a
significant barrier to entry, particularly for smaller competitors. We
also conclude that LECs have both an incentive and the capability to
impose higher construction costs than the new
[[Page 45539]]
entrant might need to incur. We therefore conclude that collocating
parties should have the right to subcontract the construction of the
physical collocation arrangements with contractors approved by the
incumbent LEC. Incumbent LECs shall not unreasonably withhold such
approval of contractors. Approval by incumbent LECs of such contractors
should be based on the same criteria as such LECs use for approving
contractors for their own purposes. We decline, however, to require
that competitive entrants' personnel be subject to minimum training and
proficiency requirements as suggested by GVNW. We find that such
concerns are better resolved through negotiation and arbitration.
i. Allowing Virtual Collocation in Lieu of Physical
(1) Background
410. Section 251(c)(6) requires that incumbent LECs provide
physical collocation unless the carrier ``demonstrates to the state
commission that physical collocation is not practical for technical
reasons or because of space limitations * * *.'' In the NPRM, we sought
comment on whether the Commission should establish guidelines for
states to apply when determining whether physical collocation is not
practical for ``technical reasons or because of space limitations.''
(2) Discussion
411. Section 251(c)(6) clearly contemplates the provision of
virtual collocation when physical collocation is not practical for
technical reasons or because of space limitations. Section 251(c)(6)
requires the incumbent LEC to demonstrate to the state commission's
satisfaction that there are space limitations on the LEC premises or
that technical considerations make collocation impractical. Because the
space limitations and technical practicality issues will vary
considerably depending on the location at which competitor equipment is
to be collocated, we find that these issues are best handled on a case-
by-case basis, as they were under our Expanded Interconnection
requirements. In light of our experience in the Expanded
Interconnection proceeding, we require that incumbent LECs provide the
state commission with detailed floor plans or diagrams of any premises
where the incumbent alleges that there are space constraints.
Submission of floor plans will enable state commissions to evaluate
whether a refusal to allow physical collocation on the grounds of space
constraints is justified. We also find that the approach detailed by
AT&T in its July 12 Ex Parte submission to be useful and believe that
state commissions may find it a valuable guide. AT&T describes a
detailed proposed showing that would be required of an incumbent LEC
that claims physical collocation is not practical because of space
exhaustion. The proposed showing would require the specific
identification of the space on incumbent LEC premises that is used for
various purposes, as well as specific plans for rearrangement/expansion
and identification of steps taken to avoid exhaustion.
412. Although section 251(c)(6) provides that incumbent LECs are
not required to provide physical collocation where impractical for
technical reasons or because of space limitations, our experience in
the Expanded Interconnection proceeding has not demonstrated that
technical reasons, apart from those related to space availability, are
a significant impediment to physical collocation. We therefore decline
to adopt any rules for determining when physical collocation should be
deemed impractical for technical reasons.
413. Incumbent LECs are allowed to retain a limited amount of floor
space for defined future uses. Allowing competitive entrants to claim
space that incumbent LECs had specifically planned to use could prevent
incumbent LECs from serving their customers effectively. Incumbent LECs
may not, however, reserve space for future use on terms more favorable
than those that apply to other telecommunications carriers seeking to
hold collocation space for their own future use.
414. We decline to adopt AT&T's suggestion that incumbent LECs
should be required to lease additional space or provide trunking at no
cost where they have insufficient space for physical collocation. In
light of the availability of substitute virtual collocation
arrangements, we find that requiring the type of ``substitute'' for
physical collocation as advocated by AT&T is unnecessary. We similarly
reject Time Warner's suggestion that incumbent LECs supply a
``substitute'' for physical collocation at cost, except to the extent
we require virtual collocation. On the other hand, we will require
incumbent LECs with limited space availability to take into account the
demands of interconnectors when planning renovations and leasing or
constructing new premises, as we have in the Expanded Interconnection
proceeding.
415. Incumbent LECs are not required to provide collocation at
locations where it is not technically feasible to provide virtual
collocation. Although space constraints are a concern normally
associated with physical collocation, given our broad reading of the
term ``premises,'' we find that space constraints could preclude
virtual collocation at certain LEC premises as well. State commissions
will decide whether virtual collocation is technically feasible at a
given point. We do, however, require that incumbent LECs relinquish any
space held for future use before denying virtual collocation due to a
lack of space unless the incumbent can prove to a state commission that
virtual collocation at that point is not technically feasible.
Moreover, when virtual collocation is not feasible, we require that
incumbent LECs provide other forms of interconnection and access to
unbundled network elements to the extent technically feasible.
416. Finally, we decline to require that incumbent LECs provide
virtual collocation that is equal in all functional aspects to physical
collocation. Our Expanded Interconnection rules required a variety of
standards for the virtual collocation and have been largely successful.
In addition, Congress was aware of the differences between virtual and
physical collocation when it adopted section 251(c)(6), and this
section does not specify any requirements for virtual collocation. As
discussed above, we adopt the Expanded Interconnection requirements for
virtual collocation under section 251. We find, however, that a
standard simply requiring equality in all functional aspects could be
difficult to administrate and could lead to substantial disputes. We
also decline to adopt the suggestion that we require LECs to offer
virtual collocation under the ``$1 sale and repurchase option.'' This
configuration is described as involving ``the acquisition by the
interconnectors of the equipment to be dedicated for interconnectors'
use on the LEC premises and the sale of that equipment to the LECs for
a nominal $1 sum while maintaining a repurchase option.'' We do not
find evidence that such a specific requirement is necessary at this
time. We reserve the right to revisit these issues in the future,
however, if we perceive that smaller entities would be disadvantaged by
our existing standards.
2. Legal Issues
a. Relationship Between Expanded Interconnection Tariffs and Section
251
(1) Background
417. The enactment of sections 251 and 252 raises the question of
whether,
[[Page 45540]]
and to what extent, the interconnection, access to unbundled network
element, and collocation requirements set forth in those sections, and
the delegation of specific rate-setting authority to the states under
section 252(d)(1), as a matter of law supplant our section 201 Expanded
Interconnection requirements. We tentatively concluded in the NPRM that
our existing Expanded Interconnection policies for interstate special
access and switched transport should continue to apply.
(2) Discussion
418. Our Expanded Interconnection rules require the largest
incumbent LECs to file tariffs with the Commission to offer collocation
to parties that wish to terminate interstate special access and
switched transport transmission facilities. Section 252 of the 1996
Act, on the other hand, provides for interconnection arrangements
rather than tariffs, for review and approval of such agreements by
state commissions rather than the FCC, and for public filing of such
agreements. Section 252 procedures, however, apply only to ``request[s]
for interconnection, services, or network elements pursuant to section
251.'' Such procedures do not, by their terms, apply to requests for
service under section 201. Moreover, section 251(i) expressly provides
that ``[n]othing in this section shall be construed to limit or
otherwise affect the Commission's authority under section 201,'' which
provided the statutory basis for our Expanded Interconnection rules.
Thus, we find that the 1996 Act, as a matter of law, does not displace
our Expanded Interconnection requirements, and, in fact, grants
discretion to the FCC to preserve our existing rules and tariffing
requirements to the extent they are consistent with the Communications
Act.
419. We further conclude that it would make little sense to find
that sections 251 and 252 supersede our Expanded Interconnection rules,
because the two sets of requirements are not coextensive. For example,
our Expanded Interconnection rules encompass collocation for interstate
purposes for all parties, including non-carrier end users, that seek to
terminate transmission facilities at LEC central offices. In
comparison, section 251 requires collocation only for ``any requesting
telecommunications carrier.'' Certain competing carriers--and non-
carrier customers not covered by section 251--may prefer to take
interstate expanded interconnection service under general interstate
tariff schedules. We find that it would be unnecessarily disruptive to
eliminate that possibility at this time. We also conclude that
permitting requesting carriers to seek interconnection pursuant to our
Expanded Interconnection rules as well as section 251 is consistent
with the goals of the 1996 Act to permit competitive entry through a
variety of entry strategies. Thus, a requesting carrier would have the
choice of negotiating an interconnection agreement pursuant to sections
251 and 252 or of taking tariffed interstate service under our Expanded
Interconnection rules.
420. Finally, we expect that, over time, sections 251 and 252 and
our implementing rules may replace our Expanded Interconnection rules
as the primary regulations governing interconnection for carriers. We
note that section 251 is broader than our Expanded Interconnection
requirements in certain respects. For example, section 251 requires
incumbent LECs to offer collocation for purposes of accessing unbundled
network elements, whereas our Expanded Interconnection rules require
collocation only for the provision of interstate special access and
switched transport. In addition, section 251(c)(6) requires incumbents
to offer physical collocation subject to certain exceptions, whereas
our existing Expanded Interconnection rules only require carriers to
offer virtual collocation, although they may choose to offer physical
collocation under Title II regulation in lieu of virtual collocation.
In the future, we may review the need for a separate set of Expanded
Interconnection requirements and revise our requirements if necessary.
We believe that this approach is consistent with Congress'
determination that the need for federal regulations will likely
decrease as the provisions of the 1996 Act take effect and competition
develops in the local exchange and exchange access markets.
b. Takings Issues
(1) Background
421. In Bell Atlantic v. FCC, the U.S. Court of Appeals for the DC
Circuit found that the Commission lacked authority under the
Communications Act to impose physical collocation on the LECs. The
court found that this requirement implicated the Fifth Amendment
takings clause. See Bell Atlantic v. FCC, 24 F.3d 1441 (DC Cir. 1994).
On remand, the Commission required LECs to provide virtual collocation.
In Pacific Bell v. FCC, 81 F.3d 1147 (DC Cir. 1996), several LECs
challenged the Commission's virtual collocation rules on essentially
identical grounds, claiming that the virtual collocation rules also
constituted an unauthorized taking. The court did not reach the merits
of these claims. Instead, addressing the scope of section 251
immediately following enactment and before the FCC had yet exercised
its interpretive authority with respect to the provision, the court
stated that regulations enacted to implement the 1996 Act would render
moot questions regarding the future effect of the virtual collocation
order under review. The court did not vacate the order, but remanded to
the Commission the issues presented in that case.
(2) Discussion
422. We conclude that the ruling in Bell Atlantic does not preclude
the rules we are adopting in this proceeding. The court in Bell
Atlantic did not hold that an agency may never ``take'' property; the
court acknowledged that, as a constitutional matter, takings are
unlawful only if they are not accompanied by ``just compensation.''
Instead, the court simply said that the Communications Act of 1934
should not be construed to permit the FCC to take LEC property without
express authorization. Because the court concluded that mandatory
physical collocation would likely constitute a taking, and that section
201 of the Act did not expressly authorize physical collocation, the
court held that the Commission was without authority under section 201
to impose physical collocation requirements on LECs. The Commission
maintains the position, however, that mandatory physical collocation
should not properly be seen to create a takings issue. See Remand
Order, 9 FCC Rcd at 5169.
423. The question of statutory authority to impose (physical or
virtual) collocation obligations on incumbent LECs largely evaporates
in the context of the 1996 Act. New section 251(c)(6) expressly
requires incumbent LECs to provide physical collocation, absent space
or technical limitations. Where such limitations exist, the statute
expressly requires virtual collocation. Thus, under the court's
analysis in Bell Atlantic, there is no warrant for a narrowing
construction of section 251 that would deny us the authority to require
either form of collocation. Moreover, for the reasons stated in the
Virtual Collocation Order, we continue to believe that virtual
collocation, as we have defined it, is not a taking, and that our
authority to order such collocation (under either section 251 or
section 201) is not subject to the strict construction canon announced
in Bell Atlantic.
424. Given that we now have express statutory authority to order
physical and
[[Page 45541]]
virtual collocation pursuant to section 251, any remaining takings-
related issue necessarily is limited to the question of just
compensation. As discussed in Section VII.B.2.a.(3).(c), below, we find
that the ratemaking methodology we are adopting to implement the
collocation obligations under section 251(c) is consistent with
congressional intent and fully satisfies the just compensation
standard. There is, therefore, no merit to the LECs' Fifth Amendment-
based claims.
VII. Pricing of Interconnection and Unbundled Elements
A. Overview
425. The prices of interconnection and unbundled elements, along
with prices of resale and transport and termination, are critical terms
and conditions of any interconnection agreement. If carriers can agree
on such prices voluntarily without government intervention, these
agreements will be submitted directly to the states for approval under
section 252. To the extent that the carriers, in voluntary
negotiations, cannot determine the prices, state commissions will have
to set those prices. The price levels set by state commissions will
determine whether the 1996 Act is implemented in a manner that is pro-
competitor and favors one party (whether favoring incumbents or
entrants) or, as we believe Congress intended, pro-competition. As
discussed more fully in Section II.D. above, it is therefore critical
to implementing Congress' pro-competitive, de-regulatory national
policy framework to establish among the states a common, pro-
competition understanding of the pricing standards for interconnection
and unbundled elements, resale, and transport and termination. While
such a common interpretation might eventually emerge through judicial
review of state arbitration decisions, we believe that such a process
could delay competition for years and require carriers to incur
substantial legal costs. We therefore conclude that, to expedite the
development of fair and efficient competition, we must set forth rules
now establishing this common, pro-competition understanding of the 1996
Act's pricing standards. Accordingly, the rules we adopt today set
forth the methodological principles for states to use in setting
prices. This section addresses interconnection and unbundled elements,
and subsequent sections address resale and transport and termination,
respectively.
426. While every state should, to the maximum extent feasible,
immediately apply the pricing methodology for interconnection and
unbundled elements that we set forth below, we recognize that not every
state will have the resources to implement this pricing methodology
immediately in the arbitrations that will need to be decided this fall.
Therefore, so that competition is not impaired in the interim, we
establish default proxies that a state commission shall use to resolve
arbitrations in the period before it applies the pricing methodology.
In most cases, these default proxies for unbundled elements and
interconnection are ceilings, and states may select lower prices. In
one instance, the default proxy we establish is a price range. Once a
state sets prices according to an economic cost study conducted
pursuant to the cost-based pricing methodology we outline, the defaults
cease to apply. In setting a rate pursuant to the cost-based pricing
methodology, and especially when setting a rate above a default proxy
ceiling or outside the default proxy range, the state must give full
and fair effect to the economic costing methodology we set forth in
this Order and must create a factual record, including the cost study,
sufficient for purposes of review after notice and opportunity for the
affected parties to participate.
427. In the following sections, we first set forth generally, based
on the current record, a cost-based pricing methodology based on
forward-looking economic costs, which we conclude is the approach for
setting prices that best furthers the goals of the 1996 Act. In dynamic
competitive markets, firms take action based not on embedded costs, but
on the relationship between market-determined prices and forward-
looking economic costs. If market prices exceed forward-looking
economic costs, new competitors will enter the market. If their
forward-looking economic costs exceed market prices, new competitors
will not enter the market and existing competitors may decide to leave.
Prices for unbundled elements under section 251 must be based on cost
under the law, and that should be read as requiring that prices be
based on forward-looking economic costs. New entrants should make their
decisions whether to purchase unbundled elements or to build their own
facilities based on the relative economic costs of these options. By
contrast, because the cost of building an element is based on forward-
looking economic costs, new entrants' investment decisions would be
distorted if the price of unbundled elements were based on embedded
costs. In arbitrations of interconnection arrangements, or in
rulemakings the results of which will be applied in arbitrations,
states must set prices for interconnection and unbundled network
elements based on the forward-looking, long-run, incremental cost
methodology we describe below. Using this methodology, states may not
set prices lower than the forward-looking incremental costs directly
attributable to provision of a given element. They may set prices to
permit recovery of a reasonable share of forward-looking joint and
common costs of network elements. In the aftermath of the arbitrations
and relying on the state experience, we will continue to review this
costing methodology, and issue additional guidance as necessary.
428. We reject various arguments raised by parties regarding the
recovery of costs other than forward-looking economic costs in section
251 (c)(2) and (c)(3) prices, including the possible recovery of: (1)
embedded or accounting costs in excess of economic costs; (2) incumbent
LECs' opportunity costs; (3) universal service subsidies; and (4)
access charges. As discussed in Section VII.B.2.a. below, certain
portions of access charges may continue to be collected for an interim
period in addition to section 251(c)(3) prices.
429. With respect to prices developed under the forward-looking,
cost-based pricing methodology, we conclude that incumbent LECs' rates
for interconnection and unbundled elements must recover costs in a
manner that reflects the way they are incurred. We adopt certain rules
that states must follow in setting rates in arbitrations. These rules
are designed to ensure the efficient cost-based rates required by the
1996 Act.
430. In the next section of the Order, we establish default proxies
that states may elect to use prior to utilizing an economic study and
developing prices using the cost-based pricing methodology. We
recognize that certain states may find it difficult to apply an
economic costing methodology within the statutory time frame for
arbitrating interconnection disputes. We therefore set forth default
proxies that will be relatively easy to apply on an interim basis to
interconnection arrangements. We discuss with respect to particular
unbundled elements the reasonable rate structure for those elements and
the particular default proxies we are establishing for use pending our
adoption of a generic forward-looking cost model. Finally, we discuss
the following additional matters: generic forward-looking costing
models that we intend to examine further by the first quarter of 1997
in order to determine
[[Page 45542]]
whether any of those models, with modifications, could serve as better
default proxies; the future adjustment of rates; the relationship of
unbundled element prices to retail prices; and the meaning of the
statutory prohibition against discrimination in sections 251 and 252.
431. Those states that have already established methodologies for
setting interconnection and unbundled rates must review those
methodologies against the rules we are adopting in this Order. To the
extent a state's methodology is consistent with the approach we set
forth herein, the state may apply that methodology in any section 252
arbitration. However, if a state's methodology is not consistent with
the rules we adopt today, the state must modify its approach. We invite
any state uncertain about whether its approach complies with this Order
to seek a declaratory ruling from the Commission.
B. Cost-Based Pricing Methodology
432. As discussed more fully in Section II.D. above, although the
states have the crucial role of setting specific rates in arbitrations,
the Commission must establish a set of national pricing principles in
order to implement Congress's national policy framework. For the
reasons set forth in the preceding section and as more fully explained
below, we are adopting a cost-based methodology for states to follow in
setting interconnection and unbundled element rates. In setting forth
the cost-based pricing methodology for interconnection and access to
unbundled elements, there are three basic sets of questions that must
be addressed. First, does the 1996 Act require that the same standard
apply to the pricing of interconnection provided pursuant to section
251(c)(2), and unbundled elements provided pursuant to section
251(c)(3)? Second, what is the appropriate methodology for establishing
the price levels for interconnection and for each unbundled element,
how should costs be defined, and is the price based on economic costs,
embedded costs, or other costs? Third, what are the appropriate rate
structures to be used to set prices designed to recover costs,
including a reasonable profit? We address each of these questions in
the following sections.
1. Application of the Statutory Pricing Standard
a. Background
433. In the NPRM, we proposed that any pricing principles we adopt
should be the same for interconnection and unbundled network elements
because sections 251(c)(2) and (c)(3) and 252(d)(1) use the same
pricing standard. We invited parties to comment on this issue and to
justify any proposed distinction in the priority for interconnection
and unbundled network elements. We also stated our belief that the same
pricing rules that apply to interconnection and unbundled network
elements should also apply to collocation under section 251(c)(6) of
the 1996 Act.
b. Discussion
434. Sections 251(c)(2) and (c)(3) impose an identical duty on
incumbent LECs to provide interconnection and access to network
elements ``on rates, terms, and conditions that are just, reasonable,
and nondiscriminatory.'' In addition, both interconnection and
unbundled network elements are made subject to the same pricing
standard in section 252(d)(1). Based on the plain language of sections
251(c)(2), (c)(3), and section 252(d)(1), we conclude that Congress
intended to apply the same pricing rules to interconnection and
unbundled network elements. The pricing rules we adopt shall,
therefore, apply to both.
435. We further conclude that, because section 251(c)(6) requires
that incumbent LECs provide physical collocation on ``rates, terms, and
conditions that are just, reasonable, and nondiscriminatory,'' which is
identical to the standard for interconnection and unbundled elements in
sections 251(c)(2) and (c)(3), collocation should be subject to the
same pricing rules. We also note that, because collocation is a method
of obtaining interconnection and access to unbundled network elements,
collocation is properly treated under the same pricing rules. This
legal conclusion that there should be a single set of pricing rules for
interconnection, unbundled network elements, and collocation provides
greater consistency and guidance to the industry, regulators, and the
courts. Moreover, it reduces the regulatory burdens on state
commissions of developing and applying different pricing rules for
collocation, interconnection, and unbundled network elements. We note
that our adoption of this single set of pricing rules should minimize
regulatory burdens, conflicts, and uncertainties associated with
multiple, and possibly inconsistent rules, thus facilitating
competition on a reasonable and efficient basis minimizing the economic
impact of our rules for all parties, including small entities and small
incumbent LECs.
2. Rate Levels
a. Pricing Based on Economic Cost
(1) Background
436. We observed in the NPRM that economists generally agree that
prices based on forward-looking long-run incremental costs (LRIC) give
appropriate signals to producers and consumers and ensure efficient
entry and utilization of the telecommunications infrastructure. We
noted, however, that there was a lack of general agreement on the
specifics of methodology for deriving prices based on LRIC or total
service long-run incremental cost (TSLRIC). We invited parties to
comment on whether we should require the states to employ a LRIC-based
pricing methodology and to explain with specificity the costing
methodology they support. We recognized, however, that prices based on
LRIC might not permit recovery of forward-looking costs if there were
significant forward-looking joint and common costs among network
elements. We sought comment on how, if rates are set above incremental
cost, to deal with the problems inherent in allocating common costs and
any other overheads. We observed that, by defining the unbundled
elements at a sufficiently aggregated level, it may be possible to
reduce the costs to be allocated as joint and common by identifying a
substantial portion of costs as incremental to a particular element. To
the extent that joint and common costs cannot be entirely eliminated,
we sought comment on various methodologies for assigning them,
including the use of a fixed allocator or on the basis of inverse
demand elasticity. We also sought comment on whether, regardless of the
method of allocating common costs, we should limit rates to levels that
do not exceed stand-alone costs. Finally, we invited parties to comment
on whether a LRIC-based methodology would establish a price for
interconnection and unbundled network elements that includes a
reasonable profit and thus complies with section 252(d)(1).
437. A number of states already employ, or have plans to utilize,
some form of LRIC or TSLRIC methodology in their approach to setting
prices for unbundled network elements, with several states choosing
LRIC or TSLRIC as a price floor. For instance, the Connecticut
Commission adopted a TSLRIC methodology to measure the cost of service
of SNET, its principal incumbent LEC. Arizona also requires incumbent
LECs to conduct TSLRIC cost studies to establish the underlying cost
[[Page 45543]]
of unbundled services and facilities. The Ohio Commission has adopted
Long Run Service Incremental Cost (``LRSIC''), which is closely related
to TSLRIC. The Missouri and Wyoming Commissions are among a number of
state commissions that have not yet adopted a pricing methodology, but
are considering LRIC or TSLRIC. Oklahoma law provides for submission of
LRIC cost studies and studies identifying a contribution to common
costs for interconnection of facilities and access to network elements
to the Oklahoma Commission during an arbitration. A number of states
have yet to choose a pricing methodology. For instance, the New York
Commission sets prices on a case-by-case basis. Unbundled element
prices also exist in several states pursuant to negotiated
interconnection agreements that have either already been approved by
state commissions or are under consideration.
438. Section 252(d)(1) requires, inter alia, that rates for
interconnection and unbundled network elements be based on ``cost
(determined without reference to a rate-of-return or other rate-based
proceeding).'' We tentatively concluded in the NPRM that this language
precludes states from setting rates by use of traditional cost-of
service regulation, with its detailed examination of historical carrier
investment and expenses. Instead, we indicated our belief that the
statute contemplates the use of other forms of cost-based price
regulation, such as the setting of prices based on forward-looking
economic cost methodologies (such as LRIC) that do not involve the use
of an embedded rate base. We sought comment on whether section
252(d)(1) forecloses consideration of historical or embedded costs or
merely prohibits state commissions from conducting a traditional rate-
of-return proceeding to establish prices for interconnection and
unbundled network elements. Embedded costs are the costs that the
incumbent LECs carry on their accounting books that reflect historical
purchase prices, regulatory depreciation rates, system configurations,
and operating procedures. We invited parties to comment on whether
incumbent LECs should be permitted to recover some portion of their
historical or embedded costs over TSLRIC.
439. In the NPRM, we noted that certain incumbent LECs had
advocated that interconnection and access to unbundled element prices
be based on the ``efficient component pricing rule'' (ECPR). Under this
approach, an incumbent LEC that sells an essential input element, such
as interconnection, to a competing network would set the price of that
input element equal to ``the input's direct per-unit incremental costs
plus the opportunity cost to the input supplier of the sale of a unit
of input.'' We tentatively concluded in the NPRM that ECPR or
equivalent methodologies are inconsistent with the section 252(d)(1)
requirement that rates be based on ``cost,'' and we proposed to
preclude the states from using this methodology.
440. Section 254 requires the Commission and the Joint Board
established thereunder to ensure that ``[a]ll providers of
telecommunications service * * * make an equitable and
nondiscriminatory contribution to the preservation and advancement of
universal service. * * *'' That section further provides that ``[t]here
should be specific, predictable, and sufficient Federal and State
mechanisms to preserve and advance universal service.'' The Conference
Committee also explained that these provisions require any such
universal service support payment to be, to the extent possible,
``explicit, rather than implicit as many support mechanisms are
today.'' In the NPRM, we sought comment on whether ``it would be
consistent with sections 251(d)(1) and 254 for states to include any
universal service costs or subsidies in the rates they set for
interconnection, collocation, and unbundled network elements.'' In
particular, we discussed the ``play or pay'' system adopted by the
State of New York in which interconnectors that agree to serve all
customers in their self-defined service areas (``players'') potentially
pay a substantially lower interconnection rate than those that serve
only selected customers (``payers'') and are, therefore, liable to pay
additional contribution charges. We noted that the statutory schedule
for the completion of the universal service reform proceeding (15
months from the enactment of the 1996 Act) is different from that for
this proceeding (6 months from the date of enactment of the 1996 Act).
We asked whether the ability of states to take universal service
support into account differs pending completion of the section 254
Joint Board proceeding or state universal service proceedings, pursuant
to section 254(f), during any transition period that may be established
in the section 254 proceeding or thereafter.
(2) Discussion
441. Overview. Having concluded in Section II.D., above, that we
have the requisite legal authority and that we should establish
national pricing rules, we conclude here that prices for
interconnection and unbundled elements pursuant to sections 251(c)(2),
251(c)(3), and 252(d)(1), should be set at forward-looking long-run
economic cost. In practice, this will mean that prices are based on the
TSLRIC of the network element, which we will call Total Element Long
Run Incremental Cost (TELRIC), and will include a reasonable allocation
of forward-looking joint and common costs. The 1996 Act encourages
competition by removing barriers to entry and providing an opportunity
for potential new entrants to purchase unbundled incumbent LEC network
elements to compete efficiently to provide local exchange services. We
believe that the prices that potential entrants pay for these elements
should reflect forward-looking economic costs in order to encourage
efficient levels of investment and entry.
442. In this section, we describe this forward-looking, cost-based
pricing standard in detail. First, we define the terms we are using,
explain how the methodology we are adopting differs from other costing
approaches, and describe how it should be implemented. In particular,
we explain that the price of a network element should include the
forward-looking costs that can be attributed directly to the provision
of services using that element, which includes a reasonable return on
investment (i.e., ``profit''), plus a reasonable share of the forward-
looking joint and common costs. Second, we address potential cost
measures that must not be included in a TELRIC analysis, such as
embedded (or historical) costs, opportunity costs, or universal service
subsidies. Finally, we refute arguments that this methodology would
violate the incumbent LECs' rights under the Fifth Amendment.
(a) Total Element Long-Run Incremental Cost
443. Definitions of Terms. In light of the various possible
definitions of a number of the critical economic terms used in this
context, we begin by defining terms as we use them in this Order.
Specifically, we provide definitions for the following terms:
``incremental cost;'' ``economic cost;'' ``embedded or accounting
cost;'' ``joint cost;'' ``common cost;'' ``long-run incremental cost;''
``total service long-run incremental cost;'' ``total element long-run
incremental cost.'' In addition to defining these terms, we explain the
economic rationale behind the concepts.
444. Incremental costs are the additional costs (usually expressed
as a cost per unit) that a firm will incur as a result of expanding the
output of a good or service by producing an additional quantity of the
good or
[[Page 45544]]
service. Incremental costs are forward-looking in the sense that these
costs are incurred as the output level changes by a given increment.
The costs that are considered incremental will vary greatly depending
on the size of the increment. For example, the incremental cost of
carrying an additional call from a residence that is already connected
to the network to its end office is virtually zero. The incremental
cost of connecting a new residence to its end office, however, is the
cost of the loop. Forward-looking incremental costs, plus a portion of
the forward-looking joint and common costs, are sometimes referred to
as ``economic costs.'' Embedded or accounting costs are costs that
firms incurred in the past for providing a good or service and are
recorded as past operating expenses and depreciation. Due to changes in
input prices and technologies, incremental costs may differ from
embedded costs of that same increment. In competitive markets, the
price of a good or service will tend towards its long-run incremental
cost.
445. Certain types of costs arise from the production of multiple
products or services. We use the term ``joint costs'' to refer to costs
incurred when two or more outputs are produced in fixed proportion by
the same production process (i.e., when one product is produced, a
second product is generated by the same production process at no
additional cost). The term ``common costs'' refers to costs that are
incurred in connection with the production of multiple products or
services, and remains unchanged as the relative proportion of those
products or services varies (e.g., the salaries of corporate managers).
Such costs may be common to all services provided by the firm or common
to only a subset of those services or elements. If a cost is common
with respect to a subset of services or elements, for example, a firm
avoids that cost only by not providing each and every service or
element in the subset. For the purpose of our discussion, we refer to
joint and common costs as simply common costs unless the distinction is
relevant in a particular context.
446. The term ``long-run,'' in the context of ``long run
incremental cost,'' refers to a period long enough so that all of a
firm's costs become variable or avoidable. The term ``total service,''
in the context of TSLRIC, indicates that the relevant increment is the
entire quantity of the service that a firm produces, rather than just a
marginal increment over and above a given level of production.
Depending on what services are the subject of a study, TSLRIC may be
for a single service or a class of similar services. TSLRIC includes
the incremental costs of dedicated facilities and operations that are
used by only the service in question. TSLRIC also includes the
incremental costs of shared facilities and operations that are used by
that service as well as other services.
447. While we are adopting a version of the methodology commonly
referred to as TSLRIC as the basis for pricing interconnection and
unbundled elements, we are coining the term ``total element long-run
incremental cost'' (TELRIC) to describe our version of this
methodology. The incumbent LEC offerings to be priced using this
methodology generally will be ``network elements,'' rather than
``telecommunications services,'' as defined by the 1996 Act. More
fundamentally, we believe that TELRIC-based pricing of discrete network
elements or facilities, such as local loops and switching, is likely to
be much more economically rational than TSLRIC-based pricing of
conventional services, such as interstate access service and local
residential or business exchange service. As discussed in greater
detail below, separate telecommunications services are typically
provided over shared network facilities, the costs of which may be
joint or common with respect to some services. The costs of local loops
and their associated line cards in local switches, for example, are
common with respect to interstate access service and local exchange
service, because once these facilities are installed to provide one
service they are able to provide the other at no additional cost. By
contrast, the network elements, as we have defined them, largely
correspond to distinct network facilities. Therefore, the amount of
joint and common costs that must be allocated among separate offerings
is likely to be much smaller using a TELRIC methodology rather than a
TSLRIC approach that measures the costs of conventional services.
Because it is difficult for regulators to determine an economically
optimal allocation of any such joint and common costs, we believe that
pricing elements, defined as facilities with associated features and
functions, is more reliable from the standpoint of economic efficiency
than pricing services that use shared network facilities.
448. Description of TELRIC-Based Pricing Methodology. Adopting a
pricing methodology based on forward-looking economic costs best
replicates, to the extent possible, the conditions of a competitive
market. In addition, a forward-looking cost methodology reduces the
ability of an incumbent LEC to engage in anti-competitive behavior.
Congress recognized in the 1996 Act that access to the incumbent LECs'
bottleneck facilities is critical to making meaningful competition
possible. As a result of the availability to competitors of the
incumbent LEC's unbundled elements at their economic cost, consumers
will be able to reap the benefits of the incumbent LECs' economies of
scale and scope, as well as the benefits of competition. Because a
pricing methodology based on forward-looking costs simulates the
conditions in a competitive marketplace, it allows the requesting
carrier to produce efficiently and to compete effectively, which should
drive retail prices to their competitive levels. We believe that our
adoption of a forward-looking cost-based pricing methodology should
facilitate competition on a reasonable and efficient basis by all firms
in the industry by establishing prices for interconnection and
unbundled elements based on costs similar to those incurred by the
incumbents, which may be expected to reduce the regulatory burdens and
economic impact of our decision for many parties, including both small
entities seeking to enter the local exchange markets and small
incumbent LECs.
449. We note that incumbent LECs have greater access to the cost
information necessary to calculate the incremental cost of the
unbundled elements of the network. Given this asymmetric access to cost
data, we find that incumbent LECs must prove to the state commission
the nature and magnitude of any forward-looking cost that it seeks to
recover in the prices of interconnection and unbundled network
elements.
450. Some parties express concern that the information required to
compute prices based on forward-looking costs is inherently so
hypothetical as to be of little or no practical value. Based on the
record before us, we disagree. A number of states, which ultimately
will have to review forward-looking cost studies in carrying out their
duties under section 252, either have already implemented forward-
looking, incremental costing methodologies to set prices for
interconnection and unbundled network elements or support the use of
such an approach. While these states have applied somewhat different
definitions of, and approaches to setting prices developed on, an
incremental cost methodology, the record demonstrates that such
approaches are practical and implementable.
[[Page 45545]]
451. We conclude that, under a TELRIC methodology, incumbent LECs'
prices for interconnection and unbundled network elements shall recover
the forward-looking costs directly attributable to the specified
element, as well as a reasonable allocation of forward-looking common
costs. Per-unit costs shall be derived from total costs using
reasonably accurate ``fill factors'' (estimates of the proportion of a
facility that will be ``filled'' with network usage); that is, the per-
unit costs associated with a particular element must be derived by
dividing the total cost associated with the element by a reasonable
projection of the actual total usage of the element. Directly
attributable forward-looking costs include the incremental costs of
facilities and operations that are dedicated to the element. Such costs
typically include the investment costs and expenses related to primary
plant used to provide that element. Directly attributable forward-
looking costs also include the incremental costs of shared facilities
and operations. Those costs shall be attributed to specific elements to
the greatest extent possible. Telephone Company-Cable Television Cross-
Ownership Rules, Memorandum Opinion and Order on Reconsideration and
Third Further Notice of Proposed Rulemaking, 59 FR 63909 (December 12,
1994). For example, the costs of conduits shared by both transport and
local loops, and the costs of central office facilities shared by both
local switching and tandem switching, shall be attributed to specific
elements in reasonable proportions. More broadly, certain shared costs
that have conventionally been treated as common costs (or overheads)
shall be attributed directly to the individual elements to the greatest
extent possible. The forward-looking costs directly attributable to
local loops, for example, shall include not only the cost of the
installed copper wire and telephone poles but also the cost of payroll
and other back office operations relating to the line technicians, in
addition to other attributable costs.
452. Forward-looking cost methodologies, like TELRIC, are intended
to consider the costs that a carrier would incur in the future. Thus, a
question arises whether costs should be computed based on the least-
cost, most efficient network configuration and technology currently
available, or whether forward-looking cost should be computed based on
incumbent LECs' existing network infrastructures, taking into account
changes in depreciation and inflation. The record indicates three
general approaches to this issue. Under the first approach, the
forward-looking economic cost for interconnection and unbundled
elements would be based on the most efficient network architecture,
sizing, technology, and operating decisions that are operationally
feasible and currently available to the industry. Prices based on the
least-cost, most efficient network design and technology replicate
conditions in a highly competitive marketplace by not basing prices on
existing network design and investments unless they represent the
least-cost systems available for purchase. This approach, however, may
discourage facilities-based competition by new entrants because new
entrants can use the incumbent LEC's existing network based on the cost
of a hypothetical least-cost, most efficient network.
453. Under the second approach, the cost of interconnection and
unbundled network elements would be based on existing network design
and technology that are currently in operation. Because this approach
is not based on a hypothetical network in the short run, incumbent LECs
could recover costs based on their existing operations, and prices for
interconnection and unbundled elements that reflect inefficient or
obsolete network design and technology. This is essentially an embedded
cost methodology.
454. Under the third approach, prices for interconnection and
access to unbundled elements would be developed from a forward-looking
economic cost methodology based on the most efficient technology
deployed in the incumbent LEC's current wire center locations. This
approach mitigates incumbent LECs' concerns that a forward-looking
pricing methodology ignores existing network design, while basing
prices on efficient, new technology that is compatible with the
existing infrastructure. This benchmark of forward-looking cost and
existing network design most closely represents the incremental costs
that incumbents actually expect to incur in making network elements
available to new entrants. Moreover, this approach encourages
facilities-based competition to the extent that new entrants, by
designing more efficient network configurations, are able to provide
the service at a lower cost than the incumbent LEC. We, therefore,
conclude that the forward-looking pricing methodology for
interconnection and unbundled network elements should be based on costs
that assume that wire centers will be placed at the incumbent LEC's
current wire center locations, but that the reconstructed local network
will employ the most efficient technology for reasonably foreseeable
capacity requirements.
455. We agree with USTA, Bell Atlantic, and BellSouth that, as a
theoretical matter, the combination of significant sunk investment,
declining technology costs, and competitive entry may increase the
depreciation costs and cost of capital of incumbent LECs. We do not
agree, however, that TSLRIC does not or cannot account for risks that
an incumbent LEC incurs because it has sunk investments in facilities.
On the contrary, properly designed depreciation schedules should
account for expected declines in the value of capital goods. Both AT&T
and MCI appear to agree with this proposition. For example, AT&T
states, ``[i]n order to estimate TSLRIC, one must perform a discounted
cash flow analysis of the future costs associated with the decision to
invest. * * * One-time costs associated with the acquisition of capital
goods are amortized over the economic life of the assets using the user
cost of capital * * *, which requires accounting for both expected
capital good price changes and economic depreciation.'' Moreover, we
are confident that parties to an arbitration with TELRIC studies can
propose specific depreciation rate adjustments that reflect expected
asset values over time.
456. As noted, we also agree that, as a matter of theory, an
increase in risk due to entry into the market for local exchange
service can increase a LEC's cost of capital. We believe that this
increased risk can be partially mitigated, however, by offering term
discounts, since long-term contracts can minimize the risk of stranded
investment. In addition, growth in overall market demand can increase
the potential of the incumbent LEC to use some of its displaced
facilities for other purposes. Overall, we think that these factors can
and should be captured in any LRIC model and therefore we do not agree
that this requires a departure from the general principle of forward-
looking cost-based pricing for network elements.
457. We are not persuaded by USTA's argument that forward looking
methodologies fail to adjust the cost of capital to reflect the risks
associated with irreversible investments and that they are ``biased
downward by a factor of three.'' First, USTA's argument unrealistically
assumes that competitive entry would be instantaneous. The more
reasonable assumption of entry occurring over time will reduce the
costs associated with sunk investment. Second, we find it unlikely that
investment in communications
[[Page 45546]]
equipment is entirely irreversible or that such equipment would become
valueless once facilities-based competition begins. In a growing
market, there most likely would be demand for at least some embedded
telecommunications equipment, which would therefore retain its value.
Third, contractual arrangements between the new entrant and the
incumbent that specifically address USTA's concerns and protect
incumbent's investments during transition can be established.
458. Finally we are not persuaded that the use by firms of hurdle
rates that exceed the market cost of capital is convincing evidence
that sunk investments significantly increase a firm's cost of capital.
An alternative explanation for this phenomenon is that the process that
firms use to choose among investment projects results in overestimates
of their returns. Firms therefore use hurdle rates in excess of the
market cost of capital to account for these overestimates.
459. Summary of TELRIC Methodology. The following summarizes our
conclusions regarding setting prices of interconnection and access to
unbundled network elements based on the TELRIC methodology for such
elements. The increment that forms the basis for a TELRIC study shall
be the entire quantity of the network element provided. As we have
previously stated, all costs associated with providing the element
shall be included in the incremental cost. Only forward-looking,
incremental costs shall be included in a TELRIC study. Costs must be
based on the incumbent LEC's existing wire center locations and most
efficient technology available.
460. Any function necessary to produce a network element must have
an associated cost. The study must explain with specificity why and how
specific functions are necessary to provide network elements and how
the associated costs were developed. Only those costs that are incurred
in the provision of the network elements in the long run shall be
directly attributable to those elements. Costs must be attributed on a
cost-causative basis. Costs are causally-related to the network element
being provided if the costs are incurred as a direct result of
providing the network elements, or can be avoided, in the long run,
when the company ceases to provide them. Thus, for example, the
forward-looking costs of capital (debt and equity) needed to support
investments required to produce a given element shall be included in
the forward-looking direct cost of that element. Directly attributable
costs shall include costs such as certain administrative expenses,
which have traditionally been viewed as common costs, if these costs
vary with the provision of network elements. Retailing costs, such as
marketing or consumer billing costs associated with retail services,
are not attributable to the production of network elements that are
offered to interconnecting carriers and must not be included in the
forward-looking direct cost of an element.
461. In a TELRIC methodology, the ``long run'' used shall be a
period long enough that all costs are treated as variable and
avoidable. This ``long run'' approach ensures that rates recover not
only the operating costs that vary in the short run, but also fixed
investment costs that, while not variable in the short term, are
necessary inputs directly attributable to providing the element.
462. States may review a TELRIC economic cost study in the context
of a particular arbitration proceeding, or they may conduct such
studies in a rulemaking and apply the results in various arbitrations
involving incumbent LECs. In the latter case, states must replace any
interim rates set in arbitration proceedings with the permanent rate
resulting from the separate rulemaking. This permanent rate will take
effect at or about the time of the conclusion of the separate
rulemaking and will apply from that time forward.
463. Forward-Looking Common Costs. Certain common costs are
incurred in the provision of network elements. As discussed above, some
of these costs are common to only a subset of the elements or services
provided by incumbent LECs. Such costs shall be allocated to that
subset, and should then be allocated among the individual elements or
services in that subset, to the greatest possible extent. For example,
shared maintenance facilities and vehicles should be allocated only to
the elements that benefit from those facilities and vehicles. Common
costs also include costs incurred by the firm's operations as a whole,
that are common to all services and elements (e.g., salaries of
executives involved in overseeing all activities of the business),
although for the purpose of pricing interconnection and access to
unbundled elements, which are intermediate products offered to
competing carriers, the relevant common costs do not include billing,
marketing, and other costs attributable to the provision of retail
service. Given these common costs, setting the price of each discrete
network element based solely on the forward-looking incremental costs
directly attributable to the production of individual elements will not
recover the total forward-looking costs of operating the wholesale
network. Because forward-looking common costs are consistent with our
forward-looking, economic cost paradigm, a reasonable measure of such
costs shall be included in the prices for interconnection and access to
network elements.
464. The incumbent LECs generally argue that common costs are quite
significant, while several other parties maintain that these amounts
are minimal. Because the unbundled network elements correspond, to a
great extent, to discrete network facilities, and have different
operating characteristics, we expect that common costs should be
smaller than the common costs associated with the long-run incremental
cost of a service. We expect that many facility costs that may be
common with respect to the individual services provided by the
facilities can be directly attributed to the facilities when offered as
unbundled network elements. Moreover, defining the network elements at
a relatively high level of aggregation, as we have done, should also
reduce the magnitude of the common costs. A properly conducted TELRIC
methodology will attribute costs to specific elements to the greatest
possible extent, which will reduce the common costs. Nevertheless,
there will remain some common costs that must be allocated among
network elements and interconnection services. For example, at the sub-
element level of study (e.g., identifying the respective costs of 2-
wire loops, 4-wire loops, ISDN loops, and so on), common costs may be a
significant proportion of all the costs that must be recovered from
sub-elements. Given the likely asymmetry of information regarding
network costs, we conclude that, in the arbitration process, incumbent
LECs shall have the burden to prove the specific nature and magnitude
of these forward-looking common costs.
465. We conclude that forward-looking common costs shall be
allocated among elements and services in a reasonable manner,
consistent with the pro-competitive goals of the 1996 Act. One
reasonable allocation method would be to allocate common costs using a
fixed allocator, such as a percentage markup over the directly
attributable forward-looking costs. We conclude that a second
reasonable allocation method would allocate only a relatively small
share of common costs to certain critical network elements, such as the
local loop and collocation, that are most difficult for entrants to
replicate promptly (i.e., bottleneck facilities). Allocation of common
costs
[[Page 45547]]
on this basis ensures that the prices of network elements that are
least likely to be subject to competition are not artificially inflated
by a large allocation of common costs. On the other hand, certain other
allocation methods would not be reasonable. For example, we conclude
that an allocation methodology that relies exclusively on allocating
common costs in inverse proportion to the sensitivity of demand for
various network elements and services may not be used. We conclude that
such an allocation could unreasonably limit the extent of entry into
local exchange markets by allocating more costs to, and thus raising
the prices of, the most critical bottleneck inputs, the demand for
which tends to be relatively inelastic. Such an allocation of these
costs would undermine the pro-competitive objectives of the 1996 Act.
466. We believe that our treatment of forward-looking common costs
will minimize regulatory burdens and economic impact for all parties
involved in arbitration of agreements for interconnection and access to
unbundled elements, and will advance the 1996 Act's pro-competitive
objectives for local exchange and exchange access markets. In our
decisionmaking, we have considered the economic impact of our rules in
this section on small incumbent LECs. For example, although opposed to
the use of a forward-looking, economic cost methodology, small
incumbent LECs favor the recovery of joint and common costs in the
event the Commission adopts forward-looking cost methodology. We are
adopting such an approach. Moreover, the cost-based pricing methodology
that we are adopting is designed to permit incumbent LECs to recover
their economic costs of providing interconnection and unbundled
elements, which may minimize the economic impact of our decisions on
incumbent LECs, including small incumbent LECs. We also note that
certain small incumbent LECs are not subject to our rules under section
251(f)(1) of the 1996 Act, unless otherwise determined by a state
commission, and certain other small incumbent LECs may seek relief from
their state commissions from our rules under section 251(f)(2) of the
1996 Act.
467. We further conclude that, for the aggregate of all unbundled
network elements, incumbent LECs must be given a reasonable opportunity
to recover their forward-looking common costs attributable to operating
the wholesale network. In no instance should prices exceed the stand-
alone cost for a specific element, and in most cases they should be
below stand-alone costs. Stand-alone costs are defined as the forward-
looking cost that an efficient entrant would incur in providing a given
element or any combination of elements. No price higher than stand-
alone cost could be sustained in a market from which entry barriers
were completely absent. Where there are few common costs, there is
likely to be only a minimal difference between the forward-looking
costs that are directly attributable to the particular element, which
excludes these costs, and stand-alone cost, which includes all of them.
Network elements should not, however, be priced at levels that would
enable the incumbent LEC to recover the same common costs multiple
times from different elements. Any multiple recovery would be
unreasonable and thus in violation of the statutory standard. Further,
we note that the sum of the direct costs and the forward-looking common
costs of all elements will likely differ from the incumbent LEC's
historical, fully distributed costs.
468. Reasonable Return on Investment and ``Profit.'' Section
252(d)(1) states that rates for interconnection and access to unbundled
elements ``may include a reasonable profit.'' We find that the TELRIC
pricing methodology we are adopting provides for such a reasonable
profit and thus no additional profit is justified under the statutory
language. We note there are two types of profit. First, in plain
English, profit is defined as ``the excess of returns over expenditure
in a transaction or a series of transactions.'' This is also known as a
``normal'' profit, which is the total revenue required to cover all of
the costs of a firm, including its opportunity costs. Second, there is
``economic'' profit, which is any return in excess of normal profit.
Thus, for example, if the normal return in an industry is 10 percent
and a firm earns a return of 14 percent, the economic profit for that
firm is 4 percent. Economic is also referred to as ``supranormal''
profit. We conclude that the definition of ``normal'' profit is
embodied in ``reasonable profit'' under Section 252(d)(1).
469. The concept of normal profit is embodied in forward-looking
costs because the forward-looking cost of capital, i.e., the cost of
obtaining debt and equity financing, is one of the forward-looking
costs of providing the network elements. This forward-looking cost of
capital is equal to a normal profit. We conclude that allowing greater
than normal profits would not be ``reasonable'' under sections 251(c)
and 252(d)(1). Bluefield Water Works & Improvement Co. v. Public
Service Comm'n of West Virginia, 262 U.S. 679 (1923); Federal Power
Comm'n v. Hope Natural Gas Co., 320 U.S. 591 (1944). Thus, contrary to
the arguments put forth by several incumbent LECs, we find that adding
an additional measure of profit to the risk-adjusted cost of capital in
setting the prices for interconnection and access to unbundled elements
would violate the requirements of sections 251(c) and 252(d)(1) of the
1996 Act.
470. Possible accounting losses from the sale of interconnection
and unbundled network elements using a reasonable forward-looking cost-
based methodology do not necessarily indicate that incumbent LECs are
being denied a ``reasonable profit'' under the statute. The use of a
forward-looking, economic, cost-based pricing methodology, including a
reasonable allocation of legitimate joint and common costs, will permit
incumbent LECs the opportunity to earn a reasonable return on their
investment in network elements. Finally, contrary to PacTel's argument,
and as discussed below in detail, we conclude that our forward-looking
cost-based pricing methodology is consistent with the Fifth Amendment
and is not confiscatory.
471. Based on the current record, we conclude that the currently
authorized rate of return at the federal or state level is a reasonable
starting point for TELRIC calculations, and incumbent LECs bear the
burden of demonstrating with specificity that the business risks that
they face in providing unbundled network elements and interconnection
services would justify a different risk-adjusted cost of capital or
depreciation rate. These elements generally are bottleneck, monopoly
services that do not now face significant competition. We recognize
that incumbent LECs are likely to face increased risks given the
overall increases in competition in this industry, which generally
might warrant an increased cost of capital, but note that, earlier this
year, we instituted a preliminary inquiry as to whether the currently
authorized federal 11.25 percent rate of return is too high given the
current marketplace cost of equity and debt. On the basis of the
current record, we decline to engage in a time-consuming examination to
determine a new rate of return, which may well require a detailed
proceeding. States may adjust the cost of capital if a party
demonstrates to a state commission that either a higher or lower level
of cost of capital is warranted, without that commission conducting a
``rate-of-return or other rate based proceeding.'' We note that the
risk-adjusted cost of capital need not be uniform for all
[[Page 45548]]
elements. We intend to re-examine the issue of the appropriate risk-
adjusted cost of capital on an ongoing basis, particularly in light of
the state commissions' experiences in addressing this issue in specific
situations.
472. We disagree with the conclusion that, when there are mostly
sunk costs, forward-looking economic costs should not be the basis for
pricing interconnection elements. The TELRIC of an element has three
components, the operating expenses, the depreciation cost, and the
appropriate risk-adjusted cost of capital. We conclude that an
appropriate calculation of TELRIC will include a depreciation rate that
reflects the true changes in economic value of an asset and a cost of
capital that appropriately reflects the risks incurred by an investor.
Thus, even in the presence of sunk costs, TELRIC-based prices are an
appropriate pricing methodology.
(b) Cost Measures Not Included in Forward-Looking Cost Methodology
473. Embedded Costs. We read section 252(d)(1)(A)(i) to prohibit
states from conducting traditional rate-of-return or other rate-based
proceedings to determine rates for interconnection and access to
unbundled network elements. We find that the parenthetical,
``(determined without reference to a rate-of-return or other rate-based
proceeding),'' does not further define the type of costs that may be
considered, but rather specifies a type of proceeding that may not be
employed to determine the cost of interconnection and unbundled network
elements. The legislative history demonstrates that Congress was eager
to set in motion expeditiously the development of local competition and
intended to avoid imposing the costs and administrative burdens
associated with a traditional rate case. Prior to the joint conference,
the Senate version of the 1996 Act contained the parenthetical
language. In addition, the Senate version of the 1996 Act eliminated
rate-of-return regulation, as did the House version. Conferees removed
the provisions eliminating rate-of-return regulation, but retained the
parenthetical.
474. Section 252(d)(1)(A)(i) does not specify whether historical or
embedded costs should be considered or whether only forward-looking
costs should be considered in setting arbitrated rates. We are not
persuaded by incumbent LEC arguments that prices for interconnection
and unbundled network elements must or should include any difference
between the embedded costs they have incurred to provide those elements
and their current economic costs. Neither a methodology that
establishes the prices for interconnection and access to network
elements directly on the costs reflected in the regulated books of
account, nor a price based on forward looking costs plus an additional
amount reflecting embedded costs, would be consistent with the approach
we are adopting. The substantial weight of economic commentary in the
record suggests that an ``embedded cost''-based pricing methodology
would be pro-competitor--in this case the incumbent LEC--rather than
pro-competition. We therefore decline to adopt embedded costs as the
appropriate basis of setting prices for interconnection and access to
unbundled elements. Rather, we reiterate that the prices for the
interconnection and network elements critical to the development of a
competitive local exchange should be based on the pro-competition,
forward-looking, economic costs of those elements, which may be higher
or lower than historical embedded costs. Such pricing policies will
best ensure the efficient investment decisions and competitive entry
contemplated by the 1996 Act, which should minimize the regulatory
burdens and economic impact of our decisions on small entities.
475. Incumbent LECs contend generally that, in order to ensure they
will recover their total investment costs and earn a profit, they must
recover embedded costs. These costs, they argue, were incurred under
federal and regulatory oversight and therefore should be recoverable.
We are not convinced by the incumbent LECs' principal arguments for
recognizing embedded cost in setting section 251 pricing rules. Even if
the incumbent LECs' contention is correct, increasing the rates for
interconnection and unbundled elements offered to competitors would
interfere with the development of efficient competition, and is not the
proper remedy for any past under-depreciation. Moreover, contrary to
assertions by some incumbent LECs, regulation does not and should not
guarantee full recovery of their embedded costs. Such a guarantee would
exceed the assurances that we or the states have provided in the past.
We have considered the economic impact of precluding recovery of small
incumbent LECs' embedded costs. We do not believe that basing the
prices of interconnection and unbundled elements on an incumbent LEC's
embedded costs would advance the pro-competitive goals of the statute.
We also note that certain small incumbent LECs are not subject to our
rules under section 251(f)(1) of the 1996 Act, unless otherwise
determined by a state commission, and certain other small incumbent
LECs may seek relief from their state commissions from our rules under
section 251(f)(2) of the 1996 Act.
476. We acknowledge that some incumbent LECs may have incurred
certain embedded costs reasonably before the passage of the 1996 Act,
based on different regulatory regimes. Some incumbent LECs may assert
that they have made certain historical investments required by
regulators that they have been denied a reasonable opportunity to
recover in the past and that the incumbent LECs may no longer have a
reasonable opportunity to recover in the new environment of the 1996
Act. The record before us, however, does not support the conclusion
that significant residual embedded costs will necessarily result from
the availability of network elements at economic costs. To the extent
that any such residual consists of costs of meeting universal service
obligations, the recovery of such costs can and should be considered in
our ongoing universal service proceeding. Universal Service NPRM. To
the extent a significant residual exists within the interstate
jurisdiction that does not fall within the ambit of section 254, we
intend that to address that issue in our upcoming proceeding on access
reform.
477. Opportunity Cost--Efficient Component Pricing Rule. A number
of incumbent LECs advocate using the ``efficient component pricing
rule'' (ECPR) to set the prices that incumbent LECs charge new entrants
for inputs required to produce the same retail services the incumbent
produces. Under the ECPR, the price of an input should be equal to the
incremental cost of the input plus the opportunity cost that the
incumbent carrier incurs when the new entrant provides the services
instead of the incumbent. The opportunity cost, which is computed as
revenues less all incremental costs, represents both profit and
contribution to common costs of the incumbent, given the existing
retail prices of the services being sold.
478. We conclude that ECPR is an improper method for setting prices
of interconnection and unbundled network elements because the existing
retail prices that would be used to compute incremental opportunity
costs under ECPR are not cost-based. Moreover, the ECPR does not
provide any mechanism for moving prices towards competitive levels; it
simply takes prices as given. The record indicates that both incumbents
and new entrants agree that
[[Page 45549]]
retail prices are not based on costs. Incumbents generally argue that
local residential retail prices are below costs while new entrants
contend that they exceed competitive levels. In either case,
application of ECPR would result in input prices that would be either
higher or lower than those which would be generated in a competitive
market and would not lead to efficient retail pricing.
479. In markets where retail prices exceed competitive levels,
entry would take place if network element prices were set at efficient
competitive levels. The ECPR, however, will serve to discourage
competition in these very markets because it relies on the prevailing
retail price in setting the price which new entrants pay the incumbent
for inputs. While ECPR establishes conditions for efficient entry given
existing retail prices, as its advocates contend, the ECPR provides no
mechanism that will force retail prices to their competitive levels. We
do not believe that Congress envisioned a pricing methodology for
interconnection and network elements that would insulate incumbent
LECs' retail prices from competition. Instead, Congress specifically
determined that input prices should be based on costs because this
would foster competition in the retail market. Therefore, we reject the
use of ECPR for establishing prices for interconnection and unbundled
elements.
480. As discussed above, the record in this docket shows that end
user prices are not cost-based. In Open Video Systems, in contrast, we
did not find that there would be a problem with the determination of
end user prices. Implementation of Section 302 of the
Telecommunications Act of 1996--Open Video Systems, Second Report and
Order, 61 FR 28698 (June 5, 1996). We concluded that ``[u]se of [an
ECPR] approach is appropriate in circumstances where the pricing is
applicable [sic] to a new market entrant (the open video system
operator) that will face competition from an existing incumbent
provider (the incumbent cable operator), as opposed to circumstances
where the pricing is used to establish a rate for an essential input
service that is charged to a competing new entrant by an incumbent
provider.'' In addition, in Open Video Systems, we concluded that the
ECPR is appropriate because it encourages entry for open video system
operators and also enhances the availability of carriage for
unaffiliated programmers. The ECPR generally protects the provider's
profits and provides opportunities for third parties to use the
provider's inputs. The ECPR does not provide a mechanism to drive
retail prices to competitive levels, however. In Open Video Systems, we
wanted to encourage entry by open video system providers and to
encourage them to have incentives to open their systems to unaffiliated
programmers. Here, our goal is to ensure that competition between
providers, including third party providers using interconnection and
unbundled elements, will drive prices toward competitive levels and
thus use of the ECPR is inappropriate.
481. Universal Service Subsidies. We conclude that funding for any
universal service mechanisms adopted in the universal service
proceeding may not be included in the rates for interconnection,
network elements, and access to network elements that are arbitrated by
the states under sections 251 and 252. Sections 254(d) and 254(e) of
the 1996 Act mandate that universal service support be recovered in an
equitable and nondiscriminatory manner from all providers of
telecommunications services. We conclude that permitting states to
include such costs in rates arbitrated under sections 251 and 252 would
violate that requirement by requiring carriers to pay specified
portions of such costs solely because they are purchasing services and
elements under section 251. Section 252(d)(1) requires that rates for
interconnection, network elements, and access to network elements
reflect the costs of providing those network elements, not the costs of
supporting universal service.
482. Section 254(f) provides that a state may adopt equitable,
nondiscriminatory, specific, and predictable mechanisms to advance
universal service within that state. If a state collects universal
service funding in rates for elements and services pursuant to sections
251 and 252, it will be imposing non-cost based charges in those rates.
Including non-cost based charges in the rates for interconnection and
unbundled elements is inconsistent with our rules implementing sections
251 and 252 which require that these rates be cost-based. It is also
inconsistent with the requirement of section 254(f) that
telecommunications carriers contribute to state universal service on a
nondiscriminatory basis, because telecommunications carriers requesting
interconnection or access to unbundled network elements will be
required to make contributions to universal service support through
such surcharges. States may not, therefore, include universal service
support funding in the rates for elements and services pursuant to
sections 251 and 252, nor may they implement mechanisms that have the
same effect. For example, states may not fund universal service support
by imposing higher rates for interconnection, unbundled elements, or
transport and termination on carriers that offer service to different
types of customers or different geographic areas. To the extent that
New York's ``pay or play'' system funds universal service in this
manner, it violates sections 251, 252, and 254 of the 1996 Act. Nothing
in the 1996 Act or in this Order, however, precludes a state from
adopting a universal service funding mechanism, whether interim or
otherwise, if such funds are collected in accordance with section
254(f) on an ``equitable and nondiscriminatory basis'' through
``specific, predictable, and sufficient mechanisms that do not rely on
or burden Federal universal service support mechanisms.''
483. Our decision here does not exempt carriers purchasing elements
or services under section 251 from contributing to (or possibly
receiving) universal service support. Rather, the recovery of universal
service support costs from telecommunications carriers, including
carriers requesting unbundled network elements, will be governed by
section 254 of the 1996 Act. Federal universal service support
mechanisms will be determined by our decisions reached in CC Docket 96-
45, based on the recommendations of the Federal/State Universal Service
Joint Board, and states may adopt additional universal service support
mechanisms consistent with section 254(f).
484. We are mindful that the requirements of the 1996 Act may be
disruptive to existing state universal service support mechanisms
during the period commencing with this order and continuing until we
complete our universal service proceeding to implement section 254. As
discussed in the subsection immediately below, we permit incumbent LECs
to continue to recover certain non-cost-based interstate access charge
revenues for a limited period of time, largely because of concerns
about possible deleterious impacts on universal service. We also
authorize incumbent LECs, for a similar limited period of time, to
continue to recover explicit intrastate universal service subsidy
revenues based on intrastate access charges. This mechanism minimizes
any possibility that implementation of sections 251 and 252 will unduly
harm universal service during the interim period prior to completion of
our universal service and access reform proceedings. Because we
conclude this action should adequately provide for the continuation of
a portion
[[Page 45550]]
of existing subsidy flows during a transition period until completion
of our proceeding implementing section 254, we decline to permit any
additional funding of universal service support through rates for
interconnection, unbundled elements, and transport and termination
during the interim period.
485. Interim Application of Access Charges to Purchasers of
Unbundled Local Switching Element. In the introduction of this Order,
we emphasize that implementation of section 251 of the 1996 Act is
integrally related to both universal service reform as required under
section 254, and to reform of the interstate access charge system. In
order to achieve pro-competitive, deregulatory markets for all
telecommunications services, we must create a new system of funding
universal service that is specific, explicit, predictable, sufficient,
and competitively neutral. We also must move access charges to more
cost-based and economically efficient levels. We intend to fulfill both
of these goals in the coming months, by completing our pending
universal service proceeding to implement section 254 by our statutory
deadline of May 1997, and by addressing access charge issues in an
upcoming access reform proceeding. The 1996 Act, however, requires us
to adopt rules implementing section 251 by August 1996. We are
concerned that implementation of the requirements of section 251 now,
without taking into account the effects of the new rules on our
existing access charge and universal service regimes, may have
significant, immediate, adverse effects that were neither intended nor
foreseen by Congress.
486. Specifically, as we conclude above, the 1996 Act permits
telecommunications carriers that purchase access to unbundled network
elements from incumbent LECs to use those elements to provide
telecommunications services, including the origination and termination
of interstate calls. Without further action on our part, section 251
would allow entrants to use those unbundled network facilities to
provide access services to customers they win from incumbent LECs,
without having to pay access charges to the incumbent LECs. This result
would be consistent with the long term outcome in a competitive market.
In the short term, however, while other aspects of our regulatory
regime are in the process of being reformed, such a change may have
detrimental consequences.
487. The access charge system includes non-cost-based components
and elements that at least in part may represent subsidies, such as the
carrier common line charge (CCLC) and the transport interconnection
charge (TIC). The CCLC recovers part of the allocated interstate costs
for incumbent LECs to provide local loops to end users. In the
universal service NPRM, we observed that the CCLC may result in higher-
volume toll users paying rates that exceed cost, and some customers
paying rates that are below cost. We sought comment on whether that
subsidy should be continued, and on whether and how it should be
restructured. Universal Service NPRM. The nature of most of the
revenues recovered through the TIC is unclear and subject to dispute,
although a portion of the TIC is associated with certain costs related
to particular transport facilities. Although the TIC was not created to
subsidize local rates, some parties have argued in the Transport
proceeding and elsewhere that some portion of the revenues now
recovered through the TIC may be misallocated local loop or intrastate
costs that operate to support universal service. First Transport Order.
57 FR 54717 (November 20, 1992). In the forthcoming access reform
proceeding, we intend to consider the appropriate disposition of the
TIC, including the development of cost-based transport rates as
directed by the United States Court of Appeals for the District of
Columbia Circuit in Competitive Telecommunications Association v. FCC,
87 F.3d 522 (1996) (CompTel v. FCC).
488. Without a temporary mechanism such as the one we adopt below,
the implementation of section 251 would permit competitive local
service providers that also provide interstate long-distance service to
avoid totally the CCLC and the TIC, which in part represent
contributions toward universal service, by serving their local
customers solely through the use of unbundled network elements rather
than through resale. We believe that allowing such a result before we
have reformed our universal service and access charge regimes would be
undesirable as a matter of both economics and policy, because carrier
decisions about how to interconnect with incumbent LECs would be driven
by regulatory distortions in our access charge rules and our universal
service scheme, rather than the unfettered operation of a competitive
market. Because of our desire to err on the side of caution where
universal service may be implicated, we conclude that some action is
needed during the interim period before we complete our access reform
and universal service proceedings.
489. We conclude that we should establish a temporary transitional
mechanism to help complete all of the steps toward the pro-competitive
goal of the 1996 Act, including the implementation of a new,
competitively-neutral system to fund universal service and a
comprehensive review of our system of interstate access charges.
Therefore, for a limited period of time, incumbent LECs may recover
from interconnecting carriers the CCLC and a charge equal to 75 percent
of the TIC for all interstate minutes traversing the incumbent LECs'
local switches for which the interconnecting carriers pay unbundled
local switching element charges. Incumbent LECs may recover these
charges only until the earliest of: (1) June 30, 1997; (2) the
effective date of final decisions by the Commission in both the
universal service and access reform proceedings; or (3) if the
incumbent LEC is a BOC, the date on which that BOC is authorized under
section 271 of the 1996 Act to offer in-region interLATA service. The
end date for BOCs that are authorized to offer interLATA service shall
apply only to the recovery of access charges in those states in which
the BOC is authorized to offer such service.
490. We tentatively concluded in the NPRM that purchasers of
unbundled network elements should not be required to pay access
charges. We reaffirm our conclusion above in our discussion of
unbundled network elements that nothing on the face of sections
251(c)(3) and 252(d)(1) compels telecommunications carriers that use
unbundled elements to pay these charges, nor limits these carriers'
ability to use unbundled elements to originate or terminate interstate
calls, and that payment of rates based on TELRIC plus a reasonable
allocation of common costs, pursuant to section 251(d)(1), represents
full compensation to the incumbent LEC for use of the network elements
that telecommunications carriers purchase. Because of the unique
situation described in the preceding paragraphs, however, we conclude,
contrary to our proposal in the NPRM, that during a time-limited
period, interconnecting carriers should not be able to use unbundled
elements to avoid access charges in all cases. As detailed below, this
temporary mechanism will apply only to carriers that purchase the local
switch as an unbundled network element, and use that element to
originate or terminate interstate traffic. We are applying these
transitional charges to the unbundled local switching element, rather
than to any
[[Page 45551]]
other network elements, because such an approach is most closely
analogous to the manner in which the CCLC and TIC are recovered in the
interstate access regime. Currently, the CCLC and TIC apply to
interstate switched access minutes that traverse incumbent LECs' local
switches. Applying the CCLC and 75 percent of the TIC to the unbundled
local switching element is consistent with our goal of minimizing
disruptions while we reform our universal service system and consider
changes to our access charge mechanisms. Moreover, the CCLC and the TIC
are recovered on a per-minute basis, and the local switch is the
primary point at which incumbent LECs are capable of recording
interstate minutes for traffic associated with end user customers of
requesting carriers.
491. We have crafted this short-term continuation of certain access
charge revenue flows to minimize the possibility that incumbent LECs
will be able to ``double recover'' through access charges the facility
costs that new entrants have already paid to purchase unbundled
elements. For that reason, we do not permit incumbent LECs to assess on
purchasers of the unbundled local switching element any interstate
access charges other than the CCLC and 75 percent of the TIC. The other
access charges are all designed to recover the cost of particular
facilities involved in the provision of interstate access services,
such as local switching, dedicated interoffice transport circuits, and
tandem switching. Imposition of these facility-based access charges in
addition to the cost-based charges for comparable network elements
established under Section 252 could result in double recovery. The
mechanism we establish will ensure that incentives created by non-cost-
based elements of access charges do not result in harmful consequences
prior to completion of access reform and our universal service
proceeding. Imposition of additional access charges is therefore not
necessary. We note that this mechanism serves to minimize the
potentially disruptive effects of our decisions on incumbent LECs,
including small incumbent LECs.
492. For the same reason, we permit incumbent LECs to recover only
75 percent of the TIC. Some portion of the TIC recovers revenues
associated with specific transport facilities. To the extent that these
costs can be identified clearly, they should not be imposed on new
entrants through the TIC. Incumbent LECs will be fully compensated for
any transport facilities that new entrants purchase from them through
the unbundled element rates states establish under 252(d)(1), which, as
we have stated, must be based on economic cost rather than access
charges. In our interim transport rate restructuring, we explicitly set
the initial tandem switching rate at 20 percent of the interstate
revenue requirement, with the remainder included in the TIC. Transport
Rate Structure and Pricing, Report and Order and Further Notice of
Proposed Rulemaking, 57 FR 54717 (November 20, 1992). In addition,
certain costs of upgrading incumbent LEC networks to support SS7
signaling were allocated to transport through then-existing separations
procedures. In our interim transport rate restructuring, we did not
create any facility-based charges to recover these costs, so the
associated revenues presumably were incorporated into the TIC. There
may also be other revenues associated with transport facilities that
are recovered today through the TIC. While we are uncertain of the
precise magnitude of these revenues, in our best judgment, based on the
record in the Transport proceeding and other information before us, we
find that it is likely that these revenues approach, but probably do
not exceed 25 percent of the TIC for most incumbent LECs. Thus, we
believe that 25 percent is a conservative amount to exclude from the
TIC to ensure that incumbent LECs do not double recover revenues
associated with transport facilities from new entrants. Moreover, the
Court in CompTel v. FCC remanded our Transport decision, in part,
because of the inclusion of tandem switching revenues in the TIC rather
than in the rate element for tandem switching. We find that excluding
25 percent of the TIC represents a reasonable exercise of our
discretion to prevent revenues associated with the tandem switching
revenue requirement from being recovered from purchasers or unbundled
local switching.
493. We strongly emphasize that these charges will apply to
purchasers of the unbundled switching element only for a very limited
period, to avoid the possible harms that might arise if we were to
ignore the effects on access charges and universal service of
implementation of section 251. BOCs shall not be permitted to recover
these revenues once they are authorized to offer in-region interLATA
service, because at that time the potential loss of access charge
revenues faced by a BOC most likely will be able to be offset by new
revenues from interLATA services. Moreover, although we do not prejudge
the conditions necessary to grant BOC petitions under section 271 to
offer in-region interLATA service, we do decide that BOCs should not be
able to charge the CCLC and the TIC, which are not based on forward-
looking economic costs, to competitors that use unbundled elements
under section 251 once they are authorized to provide in-region
interLATA service. Only BOCs are subject to special restrictions in the
1996 Act to ensure that their entry into the in-region interLATA market
does not have an adverse impact on competition. We conclude that this
additional trigger date after which BOCs may not continue to receive
access charges from purchasers of unbundled local switching is
consistent with this Congressional design.
494. We have selected June 30, 1997 as an ultimate end date for
this transitional mechanism to coincide with the effective date for LEC
annual access tariffs, and because we believe it is imperative that
this transitional requirement be limited in duration. We can conceive
of no circumstances under which the requirement that certain entrants
pay the CCLC or a portion of the TIC on calls carried over unbundled
network elements would be extended further. The fact that access or
universal service reform have not been completed by that date would not
be a sufficient justification, nor would any actual or asserted harm to
the financial status of the incumbent LECs. By June 30, 1997, the
industry will have had sufficient time to plan for and adjust to
potential revenue shifts that may result from competitive entry. Thus,
the economic impact of our decision on competitive local service
providers, including those that are small entities, should be
minimized.
495. We believe that we have ample legal authority to implement
this temporary transitional measure, and we find that this approach is
consistent with the letter and spirit of the 1996 Act. We recognize
that the CCLC and TIC have not been developed in accordance with the
pricing standards of section 252(d)(1), and that to comply with the
1996 Act, the rates that states establish for interconnection and
unbundled network elements may not include non-cost-based amounts or
subsidies. The 1934 and 1996 Acts do, however, give us legal authority
to determine, for policy reasons, that users of LEC facilities should
pay certain access charges for a period of time. New England Tel. and
Tel . Co. v. FCC, 826 F.2d 1101 (DC. Cir 1987); North American
Telecommunications Association v. FCC, 772 F.2d (7th Cir. 1085);
Lincoln Tel. and Tel. Co. v. FCC, 659 F.2d (DC. Cir. 1989). Section
4(i) of the 1934 Act authorizes the Commission to ``perform any and all
acts * * * not
[[Page 45552]]
inconsistent with this Act, as may be necessary in the execution of its
functions.'' Given the extraordinary upheaval in the industry's
structure set in motion by the 1996 Act, and the specific concerns
described above, we believe that a temporary mechanism is necessary in
order to ensure that the policy goals underlying the access charge
system and the Communications Act itself are not undermined. Further,
we believe section 251(g) of the 1996 Act lends support to our
decision. As discussed above, section 251(g) does not require that
incumbent LECs continue to receive access charge revenues when
telecommunications carriers use unbundled incumbent LEC network
elements to originate and terminate interstate traffic. That section
does, however, provide evidence of Congressional recognition of the
potential tension between existing interconnection obligations, such as
access charges, and the new methods of interconnection mandated by
section 251, and therefore supports our decision to create a limited-
duration mechanism to address this tension.
496. The decision of the court in CompTel v. FCC to remand our
decision to adopt the TIC is not inconsistent with this approach. The
Court's concern stemmed, in part, from the inclusion of a portion of
the interstate tandem switching revenue requirement in the TIC. We have
excluded from the charges that purchasers of unbundled local switching
must pay a percentage of the TIC that, at a minimum, includes these
allocated tandem switching revenues from the transitional charges that
incumbent LECs may assess on IXCs. Furthermore, the Court directed the
Commission to develop a cost-based transport rate structure, or to
explain why it chose not to do so. Competitive Telecommunications
Association v. FCC, 87 F.3d 522 (DC. Cir 1996). We intend to fulfill
this obligation in the forthcoming access reform proceeding. The charge
equal to 75 percent of the TIC will be applied only as an interim
measure for a brief, clearly-identified period, until that
restructuring of access charges is completed. The court expressly
acknowledged that the 1996 Act would have implications for the access
charge system. For the reasons described above, we conclude that these
effects necessitate temporary application of a portion of the TIC to
entrants that win end user customers from LECs, and that purchase the
local switch as an unbundled element to originate and terminate
interstate and intrastate toll traffic for such end users. In the
access reform proceeding, we intend to determine the appropriate
disposition for these revenues. Until we have had the opportunity to do
so, however, we permit incumbent LECs to recover a transitional charge
equal to 75 percent of the TIC under the limited circumstances
described herein.
497. The interim mechanism we establish here differs from the
waiver relief we have previously granted to NYNEX and Ameritech to
permit them to recover certain interstate access charge revenues
through ``bulk billing'' of revenues to all interstate switched access
customers. Those orders responded to waiver requests filed prior to the
passage of the 1996 Act. Our responsibility in those proceedings was to
determine whether special circumstances existed, and whether the
specific relief requested better served the public interest than
continued application of our general rules. By constrast, the action we
take today addresses industry-wide issues that arise from the new
regime put into place by section 251 of the 1996 Act, which allows
states to establish unbundled network element rates that recover the
full unseparated cost of elements. Our response to the Ameritech and
NYNEX waiver petitions does not, simply because those petitions also
concerned access charge recovery, constrain our decision in this
proceeding.
498. It would be unreasonable to provide such a transitional
mechanism on the federal level, but to deny similar authority to the
states. Therefore, states may continue existing explicit universal
service support mechanisms based on intrastate access charges for an
interim period of a similar brief, clearly-defined length. During that
period, unless decided otherwise by the state, incumbent LECs may
continue to recover such revenues from purchasers of unbundled local
switching elements that use those elements to originate or terminate
intrastate toll calls for end user customers they win from incumbent
LECs. States may terminate these mechanisms at any time. We define
mechanisms based on intrastate access charges as those mechanisms that
require purchasers of intrastate access services from incumbent LECs to
pay non-cost-based charges for those access services on the basis of
their intrastate access minutes of use.
499. We do not intend, however, that such a transitional mechanism
eviscerate the requirements of sections 252 and 254, which, as we have
stated, prohibit funding of universal service subsidies through rates
for interconnection and unbundled network elements. Mechanisms such as
New York's ``pay or play'' system, which would impose intrastate access
charges on non-access services rather than allowing incumbent LECs to
recover non-cost-based revenues from purchasers of access services, may
not be included in this interim system. Such a result is justified
because state ``pay or play'' mechanisms do not at present constitute a
significant revenue stream to incumbent LECs, and therefore elimination
of this mechanism is unlikely, in the short term, to have significant
detrimental effects on universal service support.
500. These state mechanisms must end on the earlier of: (1) June
30, 1997; or (2) if the incumbent LEC that receives the transitional
access charge revenues is a BOC, the date on which that BOC is
authorized under section 271 of the 1996 Act to offer in-region
interLATA service. With one exception, the analysis provided above as
to the rationale for the end dates for the transitional interstate
access charge mechanism applies here as well. Because our access reform
proceeding focuses on federal charges, and because the full extent of
the section 254 universal service mechanism remains to be determined in
that proceeding, intrastate access charge-based universal service
support mechanisms should not now be required to terminate upon the
completion of those proceedings.
501. As with our decision to permit incumbent LECs to continue to
receive certain interstate access charge revenues from some purchasers
of unbundled local switching for a limited period of time, we believe
our decision to allow states to preserve certain intrastate universal
service support mechanisms based on access charges is within our
authority under section 251(d)(1) of the 1996 Act, and section 4(i) of
the 1934 Act. Moreover, although section 251(g) does not directly refer
to intrastate access charge mechanisms, it would be incongruous to
conclude that Congress was concerned about the effects of potential
disruption to the interstate access charge system, but had no such
concerns about the effects on analogous intrastate mechanisms.
(c) Fifth Amendment Issues
502. We conclude that our decision that prices for incumbent LECs'
unbundled elements and interconnection offerings be based on forward-
looking economic cost does not violate the incumbent LECs' rights under
the Fifth Amendment of the Constitution. The Supreme Court has
recognized that public utilities owned and operated by private
investors, even though their assets are employed in the public interest
to provide consumers
[[Page 45553]]
with service, may assert their rights under the Takings Clause of the
Fifth Amendment. Duquesne Light Co. v. Barasch, 488 U.S. 299, 307
(1989). In applying the Takings Clause to rate setting for public
utilities, the Court has stated that ``[t]he guiding principle has been
that the Constitution protects utilities from being limited to a charge
for their property serving the public which is so `unjust' as to be
confiscatory.''
503. The Supreme Court has held that the determination of whether a
rate is confiscatory depends on whether that rate is just and
reasonable, and not on what methodology is used. In re Permian Basin
Area Rate Cases, 390 U.S. 747 (1968); Federal Power Commission v.
Memphis Light, Gas & Water Division, 411 U.S. 458 (1973); Jersey
Central Power & Light v. FERC, 810 F.2d 1168 (D.C. Cir. 1987). In
Federal Power Comm'n v. Hope Natural Gas Co., 320 U.S. 591 (1944), the
Court upheld the Federal Power Commission's order that required the
company to make a large reduction in wholesale gas rates. The
commission based its determination of a reasonable rate of return on a
plant valuation determined by using a historical cost methodology that
was only half as large as the company's own valuation based on forward-
looking reproduction costs. In its decision, the Court set forth the
governing legal standard for determining whether a rate is
constitutional:
Under the statutory standard of ``just and reasonable'' it is
the result reached not the method employed that is controlling. It
is not the theory but the impact of the rate order which counts. If
the total effect of the rate order cannot be said to be unjust and
unreasonable, judicial inquiry under the Act is at an end. The fact
that the method employed to reach that result may contain
infirmities is not then important.
504. The Court went on to explain that, in determining whether a
rate is reasonable, the regulatory body must balance the interests of
both the investor and consumer. ``From the investor or company point of
view, it is important that there be enough revenue not only for
operating expenses but also for the capital costs of the business * *
*. [T]he return on the equity owner should be commensurate with returns
on investments in other enterprises having corresponding risks.''
505. Under sections 251(c) (2) and (3) of the 1996 Act, incumbent
LECs must establish rates for interconnection and unbundled elements
that are just and reasonable. In adopting the rules that govern those
rates, under Hope Natural Gas we must consider whether the end result
of incumbent LEC rates is just and reasonable. Incumbent LECs argue
that establishing a rate structure that does not permit recovery of
historical or embedded costs is confiscatory. We disagree. As stated
above, the Court has consistently held since Hope Natural Gas that it
is the end result, not the method used to achieve that result, that is
the issue to be addressed. Indeed, the Court has found that the
``fixing of prices, like other applications of the police power, may
reduce the value of the property which is being regulated. But the fact
that the value is reduced does not mean that the regulation is
invalid.'' Moreover, the Court has upheld as reasonable changes in
ratemaking methodology when the change resulted in the exclusion of
historical costs prudently incurred. Thus, the mere fact that an
incumbent LEC may not be able to set rates that will allow it to
recover a particular cost incurred in establishing its regulated
network does not, in and of itself, result in confiscation.
506. Moreover, Hope Natural Gas requires only that the end result
of our overall regulatory framework provides LECs a reasonable
opportunity to recover a return on their investment. In other words,
incumbent LECs' overall rates must be considered, including the
revenues for other services under our jurisdiction.
507. In this proceeding, we are establishing pricing rules that
should produce rates for monopoly elements and services that
approximate what the incumbent LECs would be able to charge if there
were a competitive market for such offerings. We believe that a
forward-looking economic cost methodology enables incumbent LECs to
recover a fair return on their investment, i.e., just and reasonable
rates. The record does not compel a contrary conclusion. No incumbent
LEC has provided persuasive evidence that prices based on a forward-
looking economic cost methodology would have a significant impact on
its ``financial integrity.'' We further note that at least one federal
appellate court has held incremental cost-based pricing constitutional.
Metropolitan Transp. Auth. v. Interstate Commerce Commission, 792 F.2d
287, 297 (2d Cir.), cert. denied, 479 U.S. 1017 (1986).
508. Incumbent LECs may seek relief from the Commission's pricing
methodology if they provide specific information to show that the
pricing methodology, as applied to them, will result in confiscatory
rates. We also do not completely foreclose the possibility that
incumbent LECs will be afforded an opportunity to recover, to some
extent, their embedded costs through a mechanism separate from rates
for interconnection and unbundled network elements. As stated above, we
intend to explore this issue in detail in our upcoming access reform
proceeding.
509. GTE argues that the proper standard to review our ratemaking
methodology is the just compensation standard generally reserved for
takings of property. This is in effect a contention that the 1996 Act's
physical collocation and unbundled network facility requirements
constitute physical occupation of their property that should be deemed
a taking and that must be subject to ``just compensation.'' Assuming
for the sake of argument that the physical collocation and unbundled
facilities requirements do result in a taking, we nevertheless find
that the ratemaking methodology we have adopted satisfies the just
compensation standard. Just compensation is normally measured by the
fair market value of the property subject to the taking. Just
compensation is not, however, intended to permit recovery of monopoly
rents. The just and reasonable rate standard of TELRIC plus a
reasonable allocation of the joint and common costs of providing
network elements that we are adopting attempts to replicate, with
respect to bottleneck monopoly elements, the rates that would be
charged in a competitive market, Policy and Rules Concerning Rates for
Dominant Carriers, Further Notice of Proposed Rulemaking, 53 FR 22356
(June 15, 1988), and, we believe, is entirely consistent with the just
compensation standard. Indeed, a similar rate methodology based on
incremental costs has been found to satisfy the just compensation
requirement. For these reasons, we conclude that, even if the 1996
Act's physical collocation and unbundled network facility requirements
constitute a taking, a forward-looking economic cost methodology
satisfies the Constitution's just compensation standard.
3. Rate Structure Rules
a. General Rate Structure Rules
(1) Background
510. In addition to applying our economic pricing methodology to
determine the rate level of a specific element or interconnection, the
state must also determine the appropriate rate structure. We discuss in
this section general principles for analyzing rate structure questions,
such as in what circumstances charges should be flat-rated or usage
sensitive and in what circumstances they should be recurring or non-
recurring. These rate structure
[[Page 45554]]
rules will apply as well if a state sets rates based on default proxies
discussed in Section VII.C.2 below, where we also discuss the
appropriate rate structure for specific network elements. Network
providers incur costs in providing two broad categories of facilities,
dedicated and shared. Dedicated facilities are those that are used by a
single party--either an end user or an interconnecting network. Shared
facilities are those used by multiple parties. In the NPRM, we proposed
that costs should be recovered in a manner that reflects the way they
are incurred. We also sought comment on whether we should require
states to provide for recovery of dedicated facility costs on a flat-
rated basis, or at a minimum, require LECs to offer a flat-rate option.
(2) Discussion
511. We conclude, as a general rule, that incumbent LECs' rates for
interconnection and unbundled elements must recover costs in a manner
that reflects the way they are incurred. This will conform to the 1996
Act's requirement that rates be cost-based, ensure requesting carriers
have the right incentives to construct and use public network
facilities efficiently, and prevent incumbent LECs from inefficiently
raising costs in order to deter entry. We note that this conclusion
should facilitate competition on a reasonable and efficient basis by
all firms in the industry by establishing prices for interconnection
and unbundled elements based on costs similar to those incurred by the
incumbents, which may be expected to reduce the regulatory burdens and
economic impact of our decision for many parties, including both small
entities seeking to enter the local exchange markets and small
incumbent LECs. We also adopt some more specific rules that follow from
this general rule.
512. First, we require that the charges for dedicated facilities be
flat-rated, including, but not limited to, charges for unbundled loops,
dedicated transport, interconnection, and collocation. These charges
should be assessed for fixed periods, such as a month. We are requiring
flat-rated charges for dedicated facilities. Usage-based charges for
dedicated facilities would give purchasers of access to network
elements an uneconomic incentive to reduce their traffic volumes.
Moreover, purchasers of access to network elements with low volumes of
traffic would pay below-cost prices, and therefore have an incentive to
add lines that they would not add if they had to pay the full cost. As
stated in the NPRM, a flat-rated charge is most efficient for dedicated
facilities, because it ensures that a customer will pay the full cost
of the facility, and no more. It ensures that an entrant will, for
example, purchase the exclusive right to use additional loops only if
the entrant believes that the benefits of the additional loops will
exceed its costs. It also ensures that the entrant will not face an
additional (and non-cost-based) usage charge.
513. Second, if we apply our general rule that costs should be
recovered in a manner that reflects the way they are incurred, then
recurring costs must be recovered through recurring charges, rather
than through a nonrecurring charge. A recurring cost is one incurred
periodically over time. A LEC may not recover recurring costs such as
income taxes, maintenance expenses, and administrative expenses through
a nonrecurring charge because these are costs that are incurred in
connection with the asset over time. For example, we determine that
maintenance expenses relating to the local loop must be recovered
through the recurring loop charge, rather than through a nonrecurring
charge imposed upon the entrant.
514. We find that recovering a recurring cost through a
nonrecurring charge would be unjust and unreasonable because it is
unlikely that incumbent LECs will be able to calculate properly the
present value of recurring costs. To calculate properly the present
value of recurring costs, an incumbent LEC would have to project
accurately the duration, level, and frequency of the recurring costs
and estimate properly its overall cost of capital. We find that, in
practice, the present value of the recurring costs cannot be calculated
with sufficient accuracy to warrant up-front recovery of these costs
because incumbent LECs lack sufficient experience with the provision of
interconnection and unbundled rate elements. Without sufficient
experience, incumbent LECs are unable to project the length of time
that an average entrant would interconnect with, or take an unbundled
element from, the incumbent LEC, or how expenses associated with
interconnection and unbundled rate elements would change over time. In
contrast, a recurring charge for a recurring cost would ensure that a
customer is only charged for the costs the entrant incurs while that
entrant is taking interconnection service or unbundled rate elements
from the incumbent LEC. Moreover, when costs associated with the
interconnection and particular unbundled rate elements change, the
incumbent LEC can make appropriate adjustments to the charges at the
time such cost changes occur.
515. Accordingly, we find that imposing nonrecurring charges for
recurring costs could pose a barrier to entry because these charges may
be excessive, reflecting costs that may (1) not actually occur; (2) be
incurred later than predicted; (3) not be incurred for as long as
predicted; (4) be incurred at a level that is lower than predicted; (5)
be incurred less frequently than predicted; and (6) be discounted to
the present using a cost of capital that is too low.
516. Notwithstanding the foregoing, where recurring costs are de
minimis, we will permit incumbent LECs to recover such costs through
nonrecurring charges. We find that recurring costs are de minimis where
the costs of administering the recurring charge would be excessive in
relation to the amount of the recurring costs.
517. Third, states may, but need not, require incumbent LECs in an
arbitrated agreement to recover nonrecurring costs, costs that are
incurred only once, through recurring charges over a reasonable period
of time. The recovery of such nonrecurring costs through recurring
charges is a common practice for telecommunications services.
Construction of an interconnector's physical collocation cage is an
example of a nonrecurring cost. We find that states may, where
reasonable, require an incumbent LEC to recover construction costs for
an interconnector's physical collocation cage as a recurring charge
over a reasonable period of time in lieu of a nonrecurring charge. This
arrangement would decrease the size of the entrant's initial capital
outlay, thereby reducing financial barriers to entry. At the same time,
any such reasonable arrangement would ensure that incumbent LECs are
fully compensated for their nonrecurring costs.
518. We require, however, that state commissions take steps to
ensure that incumbent LECs do not recover nonrecurring costs twice and
that nonrecurring charges are imposed equitably among entrants. A state
commission may, for example, decide to permit incumbent LECs to charge
the initial entrants the full amount of costs incurred for shared
facilities for physical collocation service, even if future entrants
may benefit. A state commission may, however, require subsequent
entrants, who take physical collocation service in the same central
office and receive benefits as a result of costs for shared facilities,
to pay the incumbent LEC for their proportionate share of those costs,
less depreciation (if
[[Page 45555]]
an asset is involved). Under this approach, the state commission could
require the incumbent LEC to provide the initial entrants pro rata
refunds, reflecting the full amount of the charges collected from the
subsequent entrants. Alternatively, a state commission may decide to
permit incumbent LECs to charge initial entrants a proportionate
fraction of the costs incurred, based on a reasonable estimate of the
total demand by entrants for the particular interconnection service or
unbundled rate elements.
519. In addition, state commissions must ensure that nonrecurring
charges imposed by incumbent LECs are equitably allocated among
entrants where such charges are imposed on one entrant for the use of
an asset and another entrant uses the asset after the first entrant
abandons the asset. For example, when an entrant pays a nonrecurring
charge for construction of a physical collocation cage and the entrant
discontinues occupying the cage before the end of the economic life of
the cage, a state commission could require that the initial entrant
receive a pro rata refund from the incumbent LEC for the undepreciated
value of the cage in the event that a subsequent entrant takes physical
collocation service and uses the asset. Under this approach, the state
commission could require that the subsequent entrant pay the incumbent
LEC a nonrecurring charge equal to the remaining unamortized value of
the cage and the initial entrant will receive a credit from the
incumbent LEC equal to the unamortized value of the cage at the time
the subsequent entrant takes service and utilizes the cage.
520. BellSouth's concern that rate structure rules could preclude
mutually agreeable alternative structures is misplaced. The rate
structure rules we adopt here apply only to rates imposed by the states
in arbitration among the parties and to state review of BOC statements
of generally available terms. Our rules do not restrict parties from
agreeing to alternative rate structures. On the contrary, our intent,
following the clear pro-negotiation spirit of the 1996 Act, is for
parties to use the backdrop of state arbitrations conducted under our
rules, to negotiate more efficient, mutually agreeable arrangements,
subject, of course, to the antitrust laws and to the 1996 Act's
requirements that voluntarily negotiated agreements not unreasonably
discriminate against third parties.
b. Additional Rate Structure Rules for Shared Facilities
(1) Background
521. In the NPRM, we stated our belief that the costs of shared
facilities should be recovered in a manner that efficiently apportions
costs among users that share the facility. The NPRM noted that, for
shared facilities, it may be efficient to set prices using any of the
following: a usage-sensitive charge; a usage-sensitive charge for peak-
time usage and a lower charge for off-peak usage; or a flat charge for
the peak capacity that an interconnector wishes to pay for and use as
though that portion of the facility were dedicated to the
interconnector.
(2) Discussion
522. The costs of shared facilities including, but not limited to,
much of local switching, tandem switching, transmission facilities
between the end office and the tandem switch, and signaling, should be
recovered in a manner that efficiently apportions costs among users.
Because the cost of capacity is determined by the volume of traffic
that the facilities are able to handle during peak load periods, we
believe, as a matter of economic theory, that if usage-sensitive rates
are used, then somewhat higher rates should apply to peak period
traffic, with lower rates for non-peak usage. The peak load price would
be designed to recover at least the cost of the incremental network
capacity added to carry peak period traffic. Pricing traffic during
peak periods based on the cost of the incremental capacity needed to
handle additional traffic would be economically efficient because
additional traffic would be placed on the network if and only if the
user or interconnecting network is willing to pay the cost of the
incremental network capacity required to handle this additional
traffic. Such pricing would ensure that a call made during the peak
period generates enough revenue to cover the cost of the facilities
expansion it requires, and would thus give carriers an incentive to
expand and develop the network efficiently. In contrast, off-peak
traffic imposes relatively little additional cost because it does not
require any incremental capacity to be added to base plant, and
consequently, the price for carrying off-peak traffic should be lower.
523. We recognize, however, that there are practical problems
associated with a peak-sensitive pricing system. For example, different
parts of a given provider's network may experience peak traffic volumes
at different times (e.g., business districts may experience their peak
period between 10:00 and 11:00 a.m., while suburban areas may have
their peak periods between 7:00 and 8:00 p.m.) Moreover, peak periods
may change over time. For instance, growth in Internet usage may create
new peak periods in the late evening. Further, charging different
prices for calls made during different parts of the day may cause some
customers to shift their calling to the less expensive time periods,
which could shift the peak or create new peaks. Thus, to design an
efficient peak-sensitive pricing system requires detailed knowledge of
both the structure of costs as well as demand.
524. We conclude that the practical problems associated with peak-
sensitive pricing make it inappropriate for us to require states to
impose such a rate structure for unbundled local switching or other
shared facilities whose costs vary with capacity. Because we believe
that such a structure may be the most economically efficient, however,
we do not prohibit states from imposing peak-sensitive pricing. We also
expect that parties may be able to negotiate agreements with peak/off-
peak differences if the benefits of such distinctions are sufficiently
high. We conclude that states may use either usage-sensitive rates or
flat capacity-based rates for shared facilities, if a state finds that
such rates reasonably reflect the costs imposed by the various users.
States may consider for guidance rate structures developed in
competitive markets for shared facilities. We note that our decisions
in this section may benefit small entity entrants in local exchange and
exchange access markets by minimizing the extent to which purchasers of
interconnection and unbundled access pay rates that diverge from the
costs of those facilities and services.
c. Geographic/Class-of-Service Averaging
(1) Background
525. In the NPRM, we asked about the appropriate level of
aggregation for rates for interconnection and access to unbundled
elements. We noted that geographic averaging is simple to administer
and prevents unreasonable or unlawful rate differences but, where
averaging covers high and low cost areas, it could distort competitors'
decisions whether to lease unbundled elements or build their own
facilities. We sought comment on the geographic deaveraging of
interconnection and unbundled element rates by zone, LATA, or other
area.
[[Page 45556]]
526. We also inquired about disaggregation by class of service. We
questioned whether business and residential loops, or loops deployed
using different technologies should be charged different rates, and how
large a differential should be allowed.
(2) Discussion
527. Geographic Deaveraging. The 1996 Act mandates that rates for
interconnection and unbundled elements be ``based on the cost * * * of
providing the interconnection of network elements.'' We agree with most
parties that deaveraged rates more closely reflect the actual costs of
providing interconnection and unbundled elements. Thus, we conclude
that rates for interconnection and unbundled elements must be
geographically deaveraged.
528. The record reflects that at least two states have implemented
geographically-deaveraged rate zones. These rate zone pricing systems
have generally included a minimum of three zones. In the Expanded
Interconnection proceeding, the Commission also permitted LECs to
implement a three zone structure. Expanded Interconnection Order. 57 FR
54323 (November 18, 1992); Expanded Interconnection Second Report and
Order and Third Notice of Proposed Rulemaking. 58 FR 48756 (September
17, 1993). We conclude that three zones are presumptively sufficient to
reflect geographic cost differences in setting rates for
interconnection and unbundled elements, and that states may, but need
not, use these existing density-related rate zones. Where such systems
are not in existence, states shall create a minimum of three cost-
related rate zones to implement deaveraged rates for interconnection
and unbundled elements. A state may establish more than three zones
where cost differences in geographic regions are such that it finds
that additional zones are needed to adequately reflect the costs of
interconnection and access to unbundled elements.
529. Class-of-Service Deaveraging. The record leads us to the
opposite conclusion for class-of-service deaveraging. Under the 1996
Act, wholesale rates for resold services will be based on retail rates
less avoided costs. Rates for interconnection and access to unbundled
elements, however, are to be based on costs. We conclude that the
pricing standard for interconnection and unbundled elements prohibits
deaveraging that is not cost based. Interconnection and unbundled
elements are intermediate services provided by incumbent LECs to other
telecommunications carriers, and there is no evidence that the cost of
providing these intermediate services varies with the class of service
the telecommunications carrier is providing to its end-user customers.
We conclude that states may not impose class-of-service deaveraging on
rates for interconnection and unbundled elements. We disagree with the
Ohio Consumers' Counsel's position that the 1996 Act's explicit
permission of class-of-service deaveraging of resold services implies
that class-of-service deaveraging should be permitted for
interconnection and unbundled elements. Finally, we note that these
decisions concerning averaging may be expected to lead to increased
competition and a more efficient allocation of resources, which should
benefit the entire industry, including small entities and small
incumbent LECs.
C. Default Proxy Ceilings and Ranges
530. As previously discussed, we strongly encourage state
commissions, as a general rule, to set arbitrated rates for
interconnection and access to unbundled network elements pursuant to
the forward-looking, economic cost pricing methodology we adopt in this
Order. Such rates would approximate levels charged in a competitive
market, would be economically efficient, and would be based on the
forward-looking, economic cost of providing interconnection and
unbundled elements. We recognize, however, that, in some cases, it may
not be possible for carriers to prepare, or the state commission to
review, economic cost studies within the statutory time frame for
arbitration and thus here first address situations in which a state has
not approved a cost study. States that do not complete their review of
a forward-looking economic cost study within the statutory time periods
but must render pricing decisions, will be able to establish interim
arbitrated rates based on the proxies we provide in this Order. A proxy
approach might provide a faster, administratively simpler, and less
costly approach to establishing prices on an interim basis than a
detailed forward-looking cost study.
531. The default proxies we establish will, in most cases, serve as
presumptive ceilings. States may set prices below those ceilings if the
record before them supports a lower price. States should provide a
reasoned basis for selecting a particular default price. In one case,
for local switching, the default proxy is a range within which a state
may set prices.
532. States that set prices based upon the default proxies must
also require the parties to update the prices in the interconnection
agreement on a going-forward basis, either after the state conducts or
approves an economic study according to the cost-based pricing
methodology or pursuant to any revision of the default proxy. We
believe generic economic cost models, in principle, best comport with
the preferred economic cost approach described previously, and we
intend to examine further such models by the first quarter of 1997 to
determine whether any of those models, with any appropriate
modifications, could serve as better default proxies. Any updated price
would take effect beginning at the time of the completed and approved
study or the application of the revised default proxy.
533. Second, if a state has approved or conducted an economic cost
study, prior to this Order, that complies with the methodology we adopt
in this Order, the state may continue to apply the resulting rate even
when not consistent with our default proxies. There must, however, be a
factual record, including the cost study, sufficient for purposes of
review after notice and opportunity for the affected parties to
participate.
534. Finally, while we provide for the use by states of default
proxies, we recognize that certain states that are unable to utilize an
economic cost study may wish to obtain the benefits of setting rates
pursuant to such a study for its residents. The Commission will
therefore entertain requests by states to review an economic cost
study, to assist the state in conducting or reviewing such a study, or
to conduct such a study.
1. Use of Proxies Generally
a. Background
535. In the NPRM, we discussed the possibility of setting certain
outside limits for interconnection and unbundled element rates, in
particular, by the use of proxies. We invited parties to comment on
whether the use of certain proxies to set outer boundaries on the
prices for interconnection and unbundled elements would be consistent
with the pricing principles of the 1996 Act. Specifically, in the NPRM,
we asked parties to comment on the benefits of various types of
proxies: (1) generic cost studies, such as the Benchmark Cost Model and
the Hatfield models; (2) some measure of nationally-averaged cost data;
(3) rates in existing interconnection and unbundling arrangements
between incumbent LECs and other providers of local service, such as
neighboring incumbent LECs, CMRS providers, or other entrants in the
[[Page 45557]]
same service area; (4) a subset of the incumbent LECs' existing
interstate access rates, charged for interconnection with IXCs and
other access customers, or an intrastate equivalent; (5) use of the
interstate prices established in the ONA proceeding for unbundled
features and functions of the local switch as ceilings for the same
unbundled elements under section 251; and (6) any other
administratively simple methods for establishing a ceiling for
interconnection and unbundled network element rates. As a counterpart
to ceilings, we also sought comment on whether it would be necessary or
appropriate for us to establish floors for interconnection and
unbundled element prices.
b. Discussion
536. We adopt, in the section below, default proxies for particular
network elements. We believe that these default proxies generally will
result in reasonable price ceilings or price ranges and, for
administrative and practical reasons, will be beneficial to the states
in conducting initial rate arbitrations, especially in the time period
prior to completion of a cost study. The proxies we adopt are designed
to approximate prices that will enable competitors to enter the local
exchange market swiftly and efficiently and will constrain the
incumbent LECs' ability to preclude efficient entry by manipulating the
allocation of common costs among services and elements. States that
utilize the default proxies we establish to set prices in an
arbitration should revise those prices on a going-forward basis when
they are able to utilize the preferred economic costing methodology we
describe in Section VII.B.2.a. above, or if we subsequently adopt new
proxies.
537. We have considered the economic impact of the adoption of
default proxy ceilings and ranges on small entities, including new
entrants and small incumbent LECs. The adoption of proxies for interim
arbitrated rates should minimize regulatory burdens on the parties to
arbitration, including small entities seeking to enter the local
exchange markets and small incumbent LECs, by permitting states to
implement the 1996 Act more quickly and facilitating competition on a
reasonable and efficient basis by all firms in the industry. We
therefore believe that the adoption of default proxy ranges and
ceilings advances the pro-competitive goals of the 1996 Act. We also
note that certain small incumbent LECs are not subject to our rules
under section 251(f)(1) of the 1996 Act, unless otherwise determined by
a state commission, and certain other small incumbent LECs may seek
relief from their state commissions from our rules under section
251(f)(2) of the 1996 Act.
538. The proxies that we establish represent the price ceiling or
price ranges for the particular element on an averaged basis. In
Section VII.B.3.c. above, we required that rates be set on a
geographically-deaveraged basis. Consequently, states utilizing the
proxies shall set rates such that the average rate for the particular
element in a study area does not exceed the applicable proxy ceiling or
lie outside the proxy range.
539. We reject the use of rates in interconnection agreements that
predate the 1996 Act as a proxy-based ceiling for interconnection and
unbundled element rates. These existing interconnection agreements were
not reached in a competitive market environment. Further, such
agreements may reflect the divergent bargaining power of the parties to
the agreement, various public policy initiatives to advance rural
telephone service, or non-monetary quid pro quos often found in
voluntarily negotiated business arrangements that may be difficult to
quantify. There is little basis for us to conclude that rates in these
interconnection agreements reflect the forward-looking, incremental
cost of interconnection and unbundled network elements. Prices in
agreements reached since the 1996 Act are more likely than prior
agreements to provide useful information about forward-looking costs,
which together with other information may be useful in establishing
proxies.
540. In the NPRM, we also raised the issue of using some measure of
nationally-averaged cost data as a proxy. No such study has been
submitted into the record in this proceeding.
2. Proxies for Specific Elements
a. Overview
541. Although we encourage states to use an economic cost
methodology to set rates for interconnection, unbundled network
elements, and collocation, we will permit states unable to analyze an
economic costing study within the statutory time constraints to use
default proxies in setting and reviewing rates. We set forth below the
default proxies for specific network elements. These proxies are
interim only. They will apply only until a state sets rates in
arbitrations on the basis of an economic cost study, or until we
promulgate new proxies based on economic cost models. We also set forth
below the rate structure rules that apply to each of network elements.
These rate structure requirements are applicable regardless of whether
a state uses an economic cost study or the proxy approach to set rate
levels.
b. Discussion
(1) Loops
(a) Discussion
542. Most loop costs are associated with a single customer. MTS and
WATS Market Structure, Third Report and Order. 48 FR 10319 (March 11,
1983). Outside plant between a customer's premises and ports on
incumbent LEC switches is typically either physically separate for each
individual customer, or has costs that can easily be apportioned among
users. We therefore conclude that costs associated with unbundled loops
should be recovered on a flat-rated basis. Usage-based rates for an
unbundled loop would most likely translate into usage-based rates for
new entrants' retail local customers. A retail usage-based rate would
distort incentives for efficient use. Customers that had to pay a usage
charge would have an incentive not to use the network in situations
where the benefit of using the network exceeds the true cost of using
the network. Usage-based loop prices would put an entrant at an
artificial cost disadvantage when competing for high-volume customers.
We note that MFS has filed a separate petition asking the Commission to
preempt certain provisions of the Texas statute, which it contends
requires incumbent LECs to sell unbundled local loops on a usage-
sensitive basis. We will rule specifically on the Texas statute when we
consider the MFS Texas Petition.
543. In general, we believe that states should use a TELRIC
methodology to establish geographically deaveraged, flat-rate charges
for access to unbundled loops. As discussed above, however, we
recognize that, in some cases, it may not be possible for carriers to
prepare, or for state commissions to review, economic cost studies
within the statutory time frame for arbitration proceedings. Because
reviewing and approving such cost studies takes time and because many
states have not yet begun, or have only recently begun, to develop and
examine such studies, it is critical for the near-term development of
local competition to have proxies that provide an approximation of
forward-looking economic costs and can be used by states almost
immediately. These proxies would be used by a state commission until it
is able either to complete a cost study or to evaluate and adopt the
results of a study or studies
[[Page 45558]]
submitted in the record. In an NPRM to be issued shortly, we will
investigate more fully various long-run incremental cost models in the
record with an eye to developing a model that can be used to generate
proxies for the forward looking economic costs of network elements.
Until such time as we can develop such a model, we have developed the
following default proxy ceilings that state commissions that have not
completed forward looking economic cost studies may use in the interim
as an approximation to the forward looking cost of the local loop.
544. State commissions may use this proxy to derive a maximum (or
ceiling) loop rate for each incumbent LEC operating within their state,
and may establish actual unbundled loop rates at any level less than or
equal to this maximum rate in specific arbitrations or other
proceedings. Of course, we are encouraging states to have economic
studies completed wherever feasible. Moreover, states will have to
replace this proxy ceiling with the results of their own forward
looking economic cost study or the results produced by a generic
economic cost model that the Commission has approved.
545. We are adopting a proxy ceiling based on two cost models and
rates for unbundled loops allowed by six states that had available to
them the results of forward-looking economic cost studies at the time
they considered either interim or permanent rates for the unbundled
loop element. These states are Colorado, Connecticut, Florida,
Illinois, Michigan, and Oregon. Each of these states has used a
standard that appears to be reasonably close to the forward-looking
economic cost methodology that we require to be used, although possibly
not consistent in every detail with our TELRIC methodology. Generally,
these states appear to have included an allocation of forward-looking
common costs in their unbundled loop prices. The individual state
studies resulted in the following average rates for unbundled local
loops: Colorado, $18; Connecticut, $12.95; Florida, $17.28; Illinois,
$10.93; Michigan, $10.03; and Oregon, $12.45, computed as set forth
below.
546. The Colorado Commission set an interim rate of $18 per month
for unbundled loops terminated at the main distribution frame of the
LEC switch. The Connecticut Commission ruled that SNET must provide the
following interim unbundled loop prices varying by four zones: metro
$10.18; urban $11.33; suburban $15.33; and rural $14.97. In the absence
of further information about customer density or average loop length by
zone, we used a simple average equal to $12.95. The Florida Commission
set an interim rate for 2-wire loops at $17.00 per month for BellSouth,
$15.00 for United/Centel, and $20.00 for GTE. Using weights equal to
the number of loops served by each company in 1994 as reported in the
Monitoring Report, we computed a weighted average price equal to
$17.28. Pursuant to its Customers First Order, the Illinois Commerce
Commission approved tariffs establishing business rates equal to $7.08,
$10.92, and $14.45, and residential rates equal to $4.59, $8.67, and
$12.14 in three density zones. Based on data from Table 2.5, page 20 of
the Common Carrier Statistics, 1995 Preliminary, we found a 36 percent-
64 percent business residential split. Using Illinois Commission data
for number of households in each density zone (996,750 in zone A;
2,788,759 in zone B; 4,594,567 in zone C), we computed an average loop
cost of $10.93. The Michigan Commission approved transitional rates of
$8.00 per loop for business and $11 per loop for residence. Based on
Common Carrier Statistics, 1995 Preliminary data, we computed a 32
percent-68 percent business-residential split in Michigan, which leads
to an average rate of $10.03. The Oregon Commission set the rate for a
``basic 2-wire loop set'' at $11.95 plus $0.50 for a network access
channel connection, for a total price of $12.45.
547. In order to set a proxy ceiling for unbundled loop elements we
make use of the two cost models for which nationwide data are available
and upon which parties have had the opportunity to comment in this
proceeding. These models are the Benchmark Cost Model (BCM) and the
Hatfield 2.2. Based on our current information, we believe that both
these models are based on detailed engineering and demographic
assumptions that vary among states, and that the outputs of these
models represent sufficiently reasonable predictions of relative cost
differences among states to be used as set forth below to set a proxy
ceiling on unbundled loop prices for each state. We do not believe,
however, that these model outputs by themselves necessarily represent
accurate estimates of the absolute magnitude of loop costs. As we
discuss below, further analysis is necessary in order to evaluate fully
the procedures and input assumptions that the models use in order to
derive cost estimates. Furthermore, in the case of BCM, model outputs
include costs in addition to the cost of the local loop. In order to
correct for these considerations, we have developed a hybrid cost proxy
in the following manner. First, we have applied a scaling factor to the
cost estimates of each model. This scaling is based on the actual rates
computed for unbundled loop elements in the six states referred to
above. Specifically we have multiplied the cost estimate produced by
each model in each state by a factor equal to the unweighted average of
rates adopted by state commissions in the six states, divided by the
unweighted average of the model cost estimates for the same six states.
Our hybrid cost proxy is computed as the simple average of the scaled
cost estimates for the two models in each of the 48 contiguous states
and the District of Columbia. Neither BCM nor Hatfield 2.2 provide cost
estimates for Alaska and only the BCM provides an estimate for Hawaii.
Our default loop cost proxies for Hawaii and Puerto Rico are based on
the default loop cost proxies of the states that most closely
approximate them in population density per square mile. We are not
setting default loop cost proxies in this Order for Alaska or for any
of the remaining non-contiguous areas subject to the 1996 Act
requirement that incumbent LECs offer unbundled loop elements. We are
not establishing default loop cost proxies for these areas because we
are unsure that comparisons of the population densities of the
continental states and of Alaska and other non-contiguous areas subject
to the 1996 Act fully capture differences in loop costs. Regulatory
authorities in those areas may seek assistance from this Commission
should default loop cost proxies be needed before they have completed
their investigations of the forward-looking costs of providing
unbundled loop elements. Since our intention is to establish a ceiling
for unbundled loop rates, we believe that it is necessary to take
account of the variation in the data that we have used for scaling.
While the six states that we considered appear to have based their
rates on forward-looking economic cost pricing principles, the actual
rates that they approved appear to reflect other factors as well.
Furthermore, because only a small number of states have conducted such
studies, some upward adjustment is warranted as a safety margin to
ensure that the ceiling captures the variation in forward-looking
economic costing prices on a state-by-state basis. We have therefore
chosen to adjust the hybrid cost estimates upward by five percent for
each state. A table listing the proxy ceilings on a statewide average
basis is contained in Appendix D.
[[Page 45559]]
548. A number of parties have opposed the use of either the
Hatfield model or BCM. Some critics, for example, have argued that the
models may lead to inaccurate cost estimates since these estimates
assume that a network is built ``from scratch.'' Others have criticized
specific procedures that have been used in the models to estimate both
operating expenses and capital costs. As discussed below in Section
VII.C.3., we believe that these criticisms may have merit. In a future
rulemaking proceeding, we intend to examine in greater detail various
forward looking economic cost models. For the purposes of setting an
interim proxy, however, we note that the criticisms have been directed
largely toward the absolute level of cost estimates produced by the
models, rather than the relative cost estimates across states. Since
our hybrid proxy ceiling explicitly scales the model cost estimates
based on existing state decisions and uses the model results simply to
compute relative prices, we believe that these criticisms do not apply
in the present context.
549. We also note that a third model, the BCM 2, could have been
used in the construction of our interim cost proxy by simply taking the
scaled cost estimates from three cost models instead of two. We have
chosen not to follow this approach since parties have not had an
opportunity to comment on the possible deficiencies of the BCM 2. For
comparison purposes, however, we have computed the corresponding
ceiling cost estimates, and have found that the scaled costs using the
three model proxy are very similar to the estimated costs that were
derived using the two models.
550. As discussed above, we believe that cost-based rates should be
implemented on a geographically deaveraged basis. We allow states to
determine the number of density zones within the state, provided that
they designate at least three zones, but require that in all cases the
weighted average of unbundled loop prices, with weights equal to the
number of loops in each zone, should be less than the proxy ceiling set
for the statewide average loop cost set forth in Appendix D.
551. As noted above, we have not yet had sufficient time to
evaluate fully any of the cost models that have been submitted in the
record, and our hybrid proxy is therefore intended to be used only on
an interim basis. We believe that the methodology is consistent with
forward-looking cost studies, but we also recognize that there may be
situations in which forward looking loop costs will differ from
computed costs, and accordingly, we have increased the state average
loop costs by five percent and established the proxy as a ceiling. We
emphasize that use of the hybrid proxy model can be superseded at any
time by a full forward looking economic cost study that follows the
guidelines set forth in this order. In addition, we are currently in
the process of evaluating the more detailed cost models that have been
submitted in the record, and will issue a further notice on the use of
these models in the near future.
(2) Local Switching
(a) Discussion
552. We conclude that a combination of a flat-rated charge for line
ports, which are dedicated to a single new entrant, and either a flat-
rate or per-minute usage charge for the switching matrix and for trunk
ports, which constitute shared facilities, best reflects the way costs
for unbundled local switching are incurred and is therefore reasonable.
We find that there is an insufficient basis in the record to conclude
that we should require two flat rates for unbundled local switching
charges as proposed by Sprint.
553. Based on the record in this proceeding and in the LEC-CMRS
Interconnection proceeding, we conclude that a range between 0.2 cents
($0.002) per minute of use and 0.4 cents ($0.004) per minute of use for
unbundled local switching is a reasonable default proxy. In setting
this default price range, we consider the range of evidence in the
record, and believe that the most credible studies fall at the lower
end of this range. However, so as to minimize disruption for any state
that has set a rate only marginally outside this range, we will
grandfather any state that has set a rate at 0.5 cents ($0.005) per
minute of use or less pending completion of an economic study pursuant
to the methodology set forth in this Order.
554. The forward-looking cost studies contained in the record
estimate that the average cost of end-office switching ranges from 0.18
cents ($0.0018) per minute of use to 0.35 cents ($0.0035) per minute of
use. Maryland and Florida have adopted rates based on forward-looking
economic cost studies that fall within the default price range we are
adopting. NYNEX's estimate of 0.129 cents ($0.00129) per minute of use,
in the Massachusetts proceeding, is an estimate of the marginal cost of
end-office switching. As discussed above, we generally expect studies
estimating marginal costs to generate estimates that are less than
estimates derived from TELRIC-based studies. We, therefore, conclude
that 0.2 cents ($0.002) per minute of use is a reasonable lower end of
the price range for end-office switching.
555. USTA's estimate of 1.3 cents ($0.013) appears to be an outlier
that is significantly higher than the other estimates. We find that
USTA's estimate does not represent an appropriate cost model for
termination of traffic. USTA's estimate is based on the high end of a
set of econometric estimates of LEC-reported cost data rather than an
independent cost estimate, and USTA gives no explanation of why we
should regard this as the best estimate. In addition, USTA's figure is
derived, at least in part, from studies that attempt to measure the
incremental cost of end-to-end use of the network for local calls, not
the cost of local switching. Pacific Bell's study of the average LRIC
of a call terminating under ``Feature Group B'' apparently includes
terminations at tandem switches in addition to end-office terminations.
556. Michigan and Illinois have adopted rates for transport and
termination of traffic that are higher than the default price range we
adopt for end-office switching. Michigan, which established mutual
compensation rates of 1.5 cents ($0.015) per minute of use, did not
review a forward-looking cost study. Illinois's 0.5 cents ($0.005) per
minute rate for termination through the end office is just outside the
range we are establishing. First, as previously stated, we are
grandfathering rates of 0.5 cents ($0.005) per minute or lower.
Further, we do not believe Illinois's rate overrides the weight of
evidence in the record, which supports the range we are establishing.
557. States that do not calculate the rate for the unbundled local
switching element pursuant to a forward-looking economic cost study
may, in the interim, set the rate so that the sum of the flat-rated
charge for line ports and the product of the projected minutes of use
per port and the usage-sensitive charges for switching and trunk ports,
all divided by the projected minutes of use, does not exceed 0.4 cents
($0.004) per minute of use and is not lower than 0.2 cents ($0.002) per
minute of use. A state may impose a rate for unbundled local switching
that is outside this range if it finds that a forward-looking economic
cost study shows a higher or lower rate is justified. States that use
our proxy and impose flat-rated charges for unbundled local switching
should set rates so that the price falls within the range of 0.2 cents
($0.002) per minute of use and 0.4 cents ($0.004) per minute of use if
converted through use of a geographically disaggregated average
[[Page 45560]]
usage factor. A default price range of 0.2 cents ($0.002) per minute of
use and 0.4 cents ($0.004) per minute of use should allow carriers the
opportunity to recover fully their additional cost of terminating a
call including, according to Maryland's study, a reasonable allocation
of common costs. We observe that the most credible studies in the
record before us fall at the lower end of this range and we encourage
states to consider such evidence in their analysis.
558. With respect to the argument that vertical features should be
priced pursuant to the resale price standards, we concluded earlier
that vertical features are part of the unbundled local switching
element, because they are provided through the operation of hardware
and software comprising the ``facility'' that is the switch.
Accordingly, the pricing standard in 252(d)(1) applies to vertical
features as part of the functionality of the switch. As previously
discussed, allowing new entrants to purchase switching and vertical
features as part of the local switching network element is an integral
part of a separate option Congress has provided for new entrants to
compete against incumbent LECs.
559. The 1996 Act establishes different pricing standards for these
two options available to new entrants--resale of services pursuant to
section 251(c)(4) and unbundled elements pursuant to section 251(c)(3).
Where the new entrant purchases vertical features as part of its
purchase of an unbundled local switching element, the price of that
element, including associated vertical features, should be determined
according to section 252(d)(1). The availability of vertical services
as part of a wholesale service offering is distinct from their
availability as part of the local switching network element. In these
circumstances, allowing the new entrant to combine unbundled elements
with wholesale services is an option that is not necessary to permit
the new entrant to enter the local market.
560. As to Bell Atlantic's takings argument, we concluded above
that the pricing of unbundled elements according to the just and
reasonable standard in section 251 (c)(2) and (c)(3), and applied in
section 252(d)(1), is not an unconstitutional taking. That analysis,
which looks at the overall rates established by our regulations,
applies with equal force to the pricing of unbundled local switching,
inclusive of associated vertical features. A forward-looking economic
cost methodology enables incumbent LECs to recover a fair return on
their investments and Bell Atlantic has provided no specific evidence
to the contrary. We conclude that our pricing methodology for unbundled
local switching, inclusive of associated vertical features, provides
just compensation to incumbent LECs.
(3) Other Elements
(a) Discussion
561. The primary categories of network elements identified in this
Order, other than loops and switching, are transport, signaling, and
collocation. Our rule that dedicated facilities shall be priced on a
flat-rated basis applies to dedicated transmission links because these
facilities are dedicated to the use of a specific customer.
562. For dedicated transmission links, states must use existing
rates for interstate dedicated switched transport as a default proxy
ceiling. We believe these rates are currently at or close to economic
cost levels. Such rates were set based on interstate special access
rates, which we found based on the record in the Transport proceeding
were relatively close to costs. First Transport Order. 57 FR 54717
(November 20, 1992); Transport Rate Structure and Pricing, Third
Memorandum Opinion and Order on Reconsideration and Supplemental Notice
of Proposed Rulemaking. 60 FR 2068 (January 6, 1995). These interstate
access rates originally were based on incumbent LEC accounting costs,
rather than a forward-looking economic cost model. Since 1991, however,
incumbent LEC interstate access rates have been subject to price cap
regulation, and have therefore been disengaged from embedded costs.
Interstate access rates for dedicated transport vary by region, type of
circuit, mileage, and other factors. For example, BellSouth's entrance
facility charge, for transport from an IXC's point of presence to a
BellSouth serving wire center, is $134 monthly per DS1 circuit ($5.58
per derived voice grade circuit) and $2,100 monthly per DS3 circuit
($3.13 per derived voice grade circuit). Dedicated transport for 10
miles of interoffice transmission between a serving wire center and an
end office is $325 monthly per DS1 circuit ($13.54 per derived voice
grade circuit) and $2,950 monthly per DS3 circuit ($4.39 per derived
voice grade circuit). Installation, multiplexing, and other transport-
related charges may also apply.
563. Typically, transmission facilities between tandem switches and
end offices are shared facilities. Pursuant to our rate structure
guidelines, states may establish usage-sensitive or flat-rate charges
to recover those costs. For shared transmission facilities between
tandem switches and end offices, states may use as a default proxy
ceiling the rate derived from the incumbent LEC's interstate direct
trunked transport rates in the same manner that we derive presumptive
price caps for tandem switched transport under our interstate price cap
rules, using the same weighting and loading factors. Specifically, when
the transport rate restructure was implemented, the initial levels of
tandem-switched transmission rates were presumed reasonable if they
were based on a weighted per-minute equivalent of direct-trunked
transport DS1 and DS3 rates that reflects the relative number of DS1
and DS3 circuits used in the tandem to end office links, calculated
using a loading factor of 9000 minutes per month per voice-grade
circuit. 47 CFR Sec. 69.111. We conclude above that interstate direct-
trunked transport rates provide a reasonable default proxy ceiling for
unbundled dedicated transport rates. First Transport Order. Interstate
access rates for tandem-switched transport vary by region and mileage.
The average charge by RBOCs in Density Zone 1 for transport termination
and one mile of switched common transport facility between a tandem
switching office and end office equals 0.033 cents ($0.000331) per
minute. For a five-mile facility, the average charge is 0.048 cents
($0.000479) per minute; for a ten-mile facility, 0.066 cents
($0.000664) per minute. When we restructured the incumbent LECs'
interstate transport rates to be more closely aligned with cost, we
derived presumptive tandem-switched transmission rate levels from
direct-trunked transport rates. This proxy ceiling for shared
transmission facilities between tandem switches and end offices,
therefore, should be similarly derived.
564. The United States Court of Appeals for the District of
Columbia Circuit recently remanded our interim transport rules. The
court concluded that the Commission had not provided sufficient
justification for its method of establishing the rate level of the
interstate switched access rate element for tandem switching. We do not
believe, however, that the CompTel v. FCC decision is inconsistent with
the rules we establish here because the decision did not address or
criticize the Commission's determination of the rates for dedicated
transport or tandem-switched transport links. Because our proxies do
not involve the interstate access rate for tandem switching, they are
not inconsistent with the court's analysis.
565. Tandem switching also employs shared facilities. States may,
therefore,
[[Page 45561]]
establish usage-sensitive charges to recover tandem-switching costs.
For those states that cannot complete a forward-looking economic cost
study within the arbitration period or cannot devote the necessary
resources to such a review, we establish a default rate ceiling of 0.15
cents ($0.0015) per minute of use. The additional cost of termination
at a tandem in comparison to termination at an end office consists of
the cost of tandem switching and the cost of tandem-switched transport
transmission. Illinois and Maryland have adopted rates for the
transport and termination of traffic from the tandem switch that are,
respectively, 0.25 cents ($0.0025) per minute of use and 0.2 cents
($0.002) per minute of use, higher than rates for termination at end
office switches. In both instances, our default rate ceiling for tandem
switching constitutes at least 60 percent of the implicit tandem
switching and transport to the end office switch. We, therefore, find
the default rate ceiling we adopt for tandem switching to be consistent
with both Illinois's and Maryland's adopted rates for transport and
switching of traffic from the tandem office. States that use our proxy
and impose flat-rated charges for tandem switching should set rates so
that the price does not exceed 0.15 cents ($0.0015) per minute of use
if converted through use of a geographically disaggregated usage
factor.
566. Rates for signaling and database services should be usage-
sensitive, based either on the number of queries or the number of
messages, with the exception of the dedicated circuits known as
signaling links, which should be charged on a flat-rated basis. Usage
charges of this type appear to reflect most accurately the underlying
costs of these services. Interstate access rates for most of these
elements have been justified using the price caps new services test,
which roughly approximates the results of a forward-looking economic
cost study. Amendments of Part 69 of the Commission's Rules Relating to
the Creation of Access Charge Supplements for Open Network
Architecture, CC Docket Nos. 89-79 and 87-313, Report and Order, Order
on Reconsideration, and Supplemental Notice of Proposed Rulemaking. 56
FR 33879 (July 24, 1991), modified on recon. 57 FR 37720 (August 20,
1992). In addition, the costs of these services were forward-looking,
in that the services were completely new and hence, by definition, used
the best-available technology. Thus, we establish as a default proxy
ceiling for these elements corresponding interstate access charges for
these elements. Interstate database services consist of Line
Information Database (LIDB) and 800 Database. Deployment of SS7 (out-
of-band signaling) has enabled LECs to offer these services. The
average charge for RBOCs for LIDB in Density Zone 1 equals 3.34 cents
($0.034) per database query. For elements that have not been subject to
the new services test, states may establish proxy ceilings by
identifying the direct costs of providing the element and adding a
reasonable allocation of joint and common costs. Because we expect that
the joint and common costs associated with the forward-looking cost of
network elements are substantially less than those associated with
traditional service-based costs, allowing a reasonable allocation is
sufficient to protect against possible anticompetitive pricing. Absent
any proxy, this approach will provide the most reasonable approximation
of forward-looking economic cost.
567. We have established rate structure rules for collocation
elements in connection with our Expanded Interconnection proceeding.
Expanded Interconnection with Local Telephone Company Facilities. 59 FR
38922 (August 1, 1994). Many collocation elements established under
section 251(c)(6) are likely to represent the same facilities, and
should have the same cost characteristics, as existing interstate
expanded interconnection services, and therefore we require states to
use the same rate structure rules for those collocation elements that
we established in the Expanded Interconnection proceeding. As a proxy
ceiling, states may use the rates the LEC has in effect in its federal
expanded interconnection tariff for the equivalent services. Expanded
interconnection services are subject to the new services test, which,
as discussed above, uses a forward-looking methodology. Although LECs
have filed expanded interconnection tariffs, we have not yet completed
our investigation into those tariffs. Any price for unbundled
collocation elements set based on LEC expanded interconnection tariffs
would therefore be subject to any modification of those tariffs that
results from our pending investigation, and any state-imposed prices
based on those tariffs will need to be adjusted accordingly.
568. We find it unnecessary to specify rate structures for other
unbundled elements. The states shall make those determinations by
applying our general rate structure principles described above. In the
absence of an acceptable forward-looking cost study, states may
establish default proxy ceilings for other unbundled elements by
identifying the direct costs of providing the element and adding a
reasonable allocation of joint and common costs.
3. Forward-Looking Cost Model Proxies
a. Background
569. In the NPRM, we sought comment on the use of certain generic
cost studies. Commenters discussed several such models. These models
include: (1) the Hatfield 2; (2) the Hatfield 2.2; (3) the BCM; (4) the
BCM 2; and (5) the CPM.
b. Discussion
570. We believe that the generic forward-looking costing models, in
principle, appear best to comport with the preferred economic cost
approach discussed previously. Several such models were placed in the
record, including Hatfield 2, Hatfield 2.2, BCM, BCM 2, and the CPM.
The BCM is designed to produce ``benchmark'' costs for the provision of
basic telephone service within specific geographic regions defined by
the Bureau of the Census as Census Block Groups. The Hatfield 2 model
combines output from the BCM with independently-developed investment
data to produce annual cost estimates for eleven basic network
functions. The CPM is similar in structure to the BCM and Hatfield 2
models, although it uses different algorithms.
571. These models appear to offer a method of estimating the cost
of network elements on a forward-looking basis that is practical to
implement and that allows state commissions the ability to examine the
assumptions and parameters that go into the cost estimates. Although
these models were submitted too late in this proceeding for the
Commission and parties to evaluate them fully, our initial examination
leads us to believe that the remaining practical and empirical issues
can be resolved in the near future. In light of the advantages of such
a generic approach, we will further examine these generic economic cost
models by the first quarter of 1997 to determine whether we should use
one of them to replace the default proxies we adopt in this proceeding.
In that event, states would have the option of setting rates in
arbitrations on the basis of an economic cost study or by using a
generic forward-looking cost model approved at that time.
572. Finally, we note that Commission staff developed a model of
the telecommunications industry that they designed to simulate industry
demand and supply characteristics. In
[[Page 45562]]
order to encourage an open-ended discussion of the utility of the staff
model, the Common Carrier Bureau sought comment on a working draft of
the model that was released. Almost all parties commenting on the staff
model urged the Commission not to rely upon the staff model as record
evidence in this proceeding. We are not relying on the staff model to
develop the requirements imposed by this Order.
D. Other Issues
1. Future Adjustments to Interconnection and Unbundled Element Rate
Levels
a. Background
573. In the NPRM, we sought comment on whether some cost index or
price cap system would be appropriate to ensure that rates reflect
expected changes in costs over time.
b. Discussion
574. As noted earlier, we will continue to review our pricing
methodology, and will make revisions as appropriate. Accordingly, there
is no present need to establish a Commission price cap or cost index
system to adjust interconnection and unbundled element rate levels.
2. Imputation
a. Background
575. We sought comment in the NPRM on whether we should require an
``imputation rule'' in establishing rates for unbundled network
elements. An imputation rule would require that the sum of prices
charged for a basket of unbundled network elements not exceed the
retail price for a service offered using the same basket of elements.
We further solicited comment on any other rules that could be adopted
regarding pricing of unbundled network elements that would help to
promote the pro-competitive goals of the 1996 Act.
b. Discussion
576. Although we recognize, as several commenters observe, that an
imputation rule could help detect and prevent price squeezes, we
decline to impose an imputation requirement. Adoption of an imputation
rule could force states to engage in a major rate rebalancing effort at
this time, because it would impose substantial additional burdens on
states at a time when they will need to devote significant resources to
implementing the 1996 Act.
577. In addition to our practical concerns regarding implementation
of an imputation rule, we find that an imputation rule may not be
necessary to achieve the pro-competitive goals of the 1996 Act. As some
commenters, including several state commissions, suggest, competing
providers may be able to provide basic service, at less than the cost
of facilities and associated management, just as incumbent LECs do
currently, by selling customers higher profit vertical or intrastate
toll services, or through receipt of access revenues and subsidies.
Further, the Ohio Consumers' Counsel suggest that below-cost rates may
not be sufficiently prevalent to justify a national imputation rule.
The Joint Consumer Advocates and the Ohio Consumers' Counsel question
whether local service is, in fact, underpriced.
578. We give special weight to the comments of several state
commissions that currently employ imputation rules. These state
commissions endorse imputation as a tool to prevent price squeezes, but
urge us only to provide states with the flexibility to adopt imputation
rules. We agree with those state commission commenters that argue that
nothing in the 1996 Act prohibits individual states from adopting
imputation rules. While an imputation rule may be pro-competitive, we
will leave the implementation of such rules to individual states for
the time being.
3. Discrimination
a. Background
579. In the NPRM, we noted the different usages of the term
``discrimination'' in the 1996 Act and the 1934 Act. Sections 251 and
252 require that interconnection and unbundled element rates be
``nondiscriminatory.'' Similarly, section 251(c)(4) requires that, in
making resale available, carriers not impose ``discriminatory
conditions or limitations on resale.'' Finally, section 252(e) provides
that states may reject a negotiated agreement or a portion of the
agreement if it ``discriminates'' against a carrier not a party to the
agreement and section 252(i) requires incumbent LECs to ``make
available any interconnection, service, or network element provided
under an agreement * * * to which it is a party to any requesting
telecommunications carrier upon the same terms and conditions.'' In
contrast, section 202(a) of the 1934 Act provides that ``(i)t shall be
unlawful for any common carrier to make any unjust or unreasonable
discrimination in charges * * * for * * * like communication service.''
580. We sought comment on ``the meaning of the term
`nondiscriminatory' in the 1996 Act compared with the phrase
`unreasonable discrimination' in the 1934 Act.'' We asked specifically
whether Congress intended to prohibit all price discrimination,
including measures such as density zone pricing or volume and term
discounts, by choosing the word ``nondiscriminatory.'' We further asked
whether sections 251 and 252 could be interpreted to prohibit only
unjust or unreasonable discrimination. Finally, we sought comment on
whether the 1996 Act prohibited carriers from charging different rates
to parties that are not similarly situated.
b. Discussion
581. We conclude that the term ``nondiscriminatory'' in the 1996
Act is not synonymous with ``unjust and unreasonable discrimination''
in section 202(a), but rather is a more stringent standard. Finding
otherwise would fail to give meaning to Congress's decision to use
different language. We agree, however, with those parties that argue
that cost-based differences in rates are permissible under sections 251
and 252.
582. Section 252(d)(1), for example, requires carriers to base
interconnection and network element charges on costs. Where costs
differ, rate differences that accurately reflect those differences are
not discriminatory. This is consistent with the economic definition of
price discrimination, which is ``the practice of selling the same
product at two or more prices where the price differences do not
reflect cost differences * * * An important feature of the economic
definition of price discrimination is that it occurs not only when
prices are different in the presence of similar costs but also when the
prices are the same and the costs of supplying customers are
different.'' As one economist has recognized, differential pricing is
``one of the most prevalent forms of marketing practices'' of
competitive enterprises. Strict application of the term
``nondiscriminatory'' as urged by those commenters who argue that
prices must be uniform would itself be discriminatory according to the
economic definition of price discrimination. If the 1996 Act is read to
allow no price distinctions between companies that impose very
different interconnection costs on LECs, competition for all
competitors, including small companies, could be impaired. Thus, we
find that price differences, such as volume and term discounts, when
based upon legitimate variations in costs are permissible under the
1996 Act, if justified.
583. On the other hand, price differences based not on cost
differences but on such considerations as competitive relationships,
the
[[Page 45563]]
technology used by the requesting carrier, the nature of the service
the requesting carrier provides, or other factors not reflecting costs,
the requirements of the Act, or applicable rules, would be
discriminatory and not permissible under the new standard. Such
examples include the imposition of different rates, terms and
conditions based on the fact that the competing provider does or does
not compete with the incumbent LEC, or offers service via wireless
rather than wireline facilities. We find that it would be unlawfully
discriminatory, in violation of sections 251 and 252, if an incumbent
LEC were to charge one class of interconnecting carriers, such as CMRS
providers, higher rates for interconnection than it charges other
carriers, unless the different rates could be justified by differences
in the costs incurred by the incumbent LEC.
584. State regulations permitting non-cost based discriminatory
treatment are prohibited by the 1996 Act. This conclusion is consistent
with both the letter and the spirit of the 1996 Act and our
determination that the pricing for interconnection, unbundled elements,
and transport and termination of traffic should not vary based on the
identity or classification of the interconnector.
VIII. Resale
585. Section 251(c)(4) imposes a duty on incumbent LECs to offer
certain services for resale at wholesale rates. Specifically, section
251(c)(4) requires an incumbent LEC:
(A) to offer for resale at wholesale rates any telecommunications
service that the carrier provides at retail to subscribers who are not
telecommunications carriers; and
(B) not to prohibit, and not to impose unreasonable or
discriminatory conditions or limitations on, the resale of such
telecommunications service, except that a State commission may,
consistent with regulations prescribed by the Commission under this
section, prohibit a reseller that obtains at wholesale rates a
telecommunications service that is available at retail only to a
category of subscribers from offering such service to a different
category of subscribers.
586. The requirement that incumbent LECs offer services at
wholesale rates is described in section 252(d)(3), which sets forth the
pricing standard that states must use in arbitrating agreements and
reviewing rates under BOC statements of generally available terms and
conditions:
[A] State commission shall determine wholesale rates on the basis
of retail rates charged to subscribers for the telecommunications
service requested, excluding the portion thereof attributable to any
marketing, billing, collection, and other costs that will be avoided by
the local exchange carrier.
Section VIII.A. of this Order discusses the scope of section
251(c)(4). Section VIII.B. addresses the determination of ``wholesale
rates.'' Section VIII.C. considers the issue of conditions or
limitations on resale under this section, Section VIII.D. discusses the
resale obligations under section 251(b)(1), and Section VIII.E.
considers the application of access charges in the resale environment.
A. Scope of Section 251(c)(4)
1. Background
587. In the NPRM, we sought comment generally on the scope of
section 251(c)(4).
2. Discussion
588. Section 251(c)(4)(A) imposes on all incumbent LECs the duty to
offer for resale ``any telecommunications service that the carrier
provides at retail to subscribers who are not telecommunications
carriers.'' We conclude that an incumbent LEC must establish a
wholesale rate for each retail service that: (1) meets the statutory
definition of a ``telecommunications service;'' and (2) is provided at
retail to subscribers who are not ``telecommunications carriers.'' We
thus find no statutory basis for limiting the resale duty to basic
telephone services, as some suggest.
589. We need not prescribe a minimum list of services that are
subject to the resale requirement. State commissions, incumbent LECs,
and resellers can determine the services that an incumbent LEC must
provide at wholesale rates by examining that LEC's retail tariffs. The
1996 Act does not require an incumbent LEC to make a wholesale offering
of any service that the incumbent LEC does not offer to retail
customers. State commissions, however, may have the power to require
incumbent LECs to offer specific intrastate services.
590. Exchange access services are not subject to the resale
requirements of section 251(c)(4). The vast majority of purchasers of
interstate access services are telecommunications carriers, not end
users. It is true that incumbent LEC interstate access tariffs do not
contain any limitation that prevents end users from buying these
services, and that end users do occasionally purchase some access
services, including special access, Feature Group A, and certain
Feature Group D elements for large private networks. Despite this fact,
we conclude that the language and intent of section 251 clearly
demonstrates that exchange access services should not be considered
services an incumbent LEC ``provides at retail to subscribers who are
not telecommunications carriers'' under section 251(c)(4). We note that
virtually all commenters in this proceeding agree, or assume without
stating, that exchange access services are not subject to the resale
requirements of section 251(c)(4).
591. We find several compelling reasons to conclude that exchange
access services should not be subject to resale requirements. First,
these services are predominantly offered to, and taken by, IXCs, not
end users. Part 69 of our rules defines these charges as ``carrier's
carrier charges,'' and the specific part 69 rules that describe each
interstate switched access element refer to charges assessed on
``interexchange carriers'' rather than end users. The mere fact that
fundamentally non-retail services are offered pursuant to tariffs that
do not restrict their availability, and that a small number of end
users do purchase some of these services, does not alter the essential
nature of the services. Moreover, because access services are designed
for, and sold to, IXCs as an input component to the IXC's own retail
services, LECs would not avoid any ``retail'' costs when offering these
services at ``wholesale'' to those same IXCs. Congress clearly intended
section 251(c)(4) to apply to services targeted to end user
subscribers, because only those services would involve an appreciable
level of avoided costs that could be used to generate a wholesale rate.
Furthermore, as explained in the following paragraph, section 251(c)(4)
does not entitle subscribers to obtain services at wholesale rates for
their own use. Permitting IXCs to purchase access services at wholesale
rates for their own use would be inconsistent with this requirement.
592. We conclude that section 251(c)(4) does not require incumbent
LECs to make services available for resale at wholesale rates to
parties who are not ``telecommunications carriers'' or who are
purchasing service for their own use. The wholesale pricing requirement
is intended to facilitate competition on a resale basis. Further, the
negotiation process established by Congress for the implementation of
section 251 requires incumbent LECs to negotiate agreements, including
resale agreements, with ``requesting telecommunications carrier or
carriers,'' not with end users or other entities. We further discuss
the definition of
[[Page 45564]]
``telecommunications carrier'' in Section IX. of the Order.
593. With regard to independent public payphone providers, however,
we agree with the American Public Communication Council's argument that
such carriers are not ``telecommunications carriers'' under section
3(44). We therefore also agree with the American Public Communications
Council's contention that the services independent public payphone
providers obtain from incumbent LECs are telecommunications services
that incumbent LECs provide ``at retail to subscribers who are not
telecommunications carriers'' and that such services should be
available at wholesale rates to telecommunications carriers. Because we
conclude that independent public payphone providers are not
``telecommunications carriers,'' however, we conclude that incumbent
LECs need not make available service to independent public payphone
providers at wholesale rates. This is consistent with our finding that
wholesale offerings must be purchased for the purpose of resale by
``telecommunications carriers.''
594. We conclude that the plain language of the 1996 Act requires
that the incumbent LEC make available at wholesale rates retail
services that are actually composed of other retail services, i.e.,
bundled service offerings. Section 251(c)(4) states that the incumbent
LEC must offer for resale ``any telecommunications service'' provided
at retail to subscribers who are not telecommunications carriers. The
resale provision of the 1996 Act does not contain any language
exempting services if those services can be duplicated or approximated
by combining other services. On the other hand, section 251(c)(4) does
not impose on incumbent LECs the obligation to disaggregate a retail
service into more discrete retail services. The 1996 Act merely
requires that any retail services offered to customers be made
available for resale.
B. Wholesale Pricing
1. Background
595. As discussed above, section 251(c)(4) requires incumbent LECs
to offer at ``wholesale rates'' any telecommunications services that
the carrier provides at retail to subscribers who are not
telecommunications carriers. Section 252(d)(3) establishes the standard
that states must use in determining wholesale rates in arbitrations or
in reviewing wholesale rates under BOC statements of generally
available terms and conditions. Specifically, section 252(d)(3)
provides that wholesale rates shall be set ``on the basis of retail
rates charged to subscribers for the telecommunications service
requested, excluding the portion thereof attributable to any marketing,
billing, collection, and other costs that will be avoided by the local
exchange carrier.''
596. In the NPRM, we generally sought comment on the meaning of the
term ``wholesale rates'' in section 251(c)(4). We asked if we could and
should establish principles for the states to apply in order to
determine wholesale prices in an expeditious and consistent manner. We
also sought comment on whether we should issue rules for states to
apply in determining avoided costs. We stated that we could, for
example, determine that states are permitted under the 1996 Act to
direct incumbent LECs to quantify their costs for any marketing,
billing, collection, and similar activities that are associated with
offering retail, but not wholesale, services. We also sought comment on
whether avoided costs should include a share of common costs and
general overhead or ``markup'' assigned to such costs. LECs would then
reduce retail rates by this amount, offset by any portion of expenses
that they incur in the provision of wholesale rates. We noted that this
approach appeared to be consistent with the 1996 Act, but would create
certain administrative difficulties because all of the information
regarding costs is under the control of the incumbent LECs. We also
asked for comment on several alternative approaches. For example, we
asked whether we could establish a uniform set of presumptions
regarding avoided costs that states could adopt and that would apply in
the absence of a quantification of such costs by incumbent LECs.
Additionally, we asked whether we should identify specific accounts or
portions of accounts in the Commission's Uniform System of Accounts
(``USOA'') that the states should include as avoided costs. We also
requested comment on whether we should establish rules that allocate
avoided costs across services. We asked whether incumbent LECs should
be allowed, or required, to vary the percentage wholesale discounts
across different services based on the degree the avoided costs relate
to those services. Finally, we asked whether we should adopt a uniform
percentage discount off of the retail rate of each service.
2. Discussion
597. Resale will be an important entry strategy for many new
entrants, especially in the short term when they are building their own
facilities. Further, in some areas and for some new entrants, we expect
that the resale option will remain an important entry strategy over the
longer term. Resale will also be an important entry strategy for small
businesses that may lack capital to compete in the local exchange
market by purchasing unbundled elements or by building their own
networks. In light of the strategic importance of resale to the
development of competition, we conclude that it is especially important
to promulgate national rules for use by state commissions in setting
wholesale rates. For the same reasons discussed in Section II.D of the
Order, we believe that we have legal authority under the 1996 Act to
articulate principles that will apply to the arbitration or review of
wholesale rates. We also believe that articulating such principles will
promote expeditious and efficient entry into the local exchange market.
Clear resale rules will create incentives for parties to reach
agreement on resale arrangements in voluntary negotiations. Clear rules
will also aid states in conducting arbitrations that will be
administratively workable and will produce results that satisfy the
intent of the 1996 Act. The rules we adopt and the determinations we
make in this area are crafted to achieve these purposes. We also note
that clear resale rules should minimize regulatory burdens and
uncertainty for all parties, including small entities and small
incumbent LECs.
598. The statutory pricing standard for wholesale rates requires
state commissions to (1) identify what marketing, billing, collection,
and other costs will be avoided by incumbent LECs when they provide
services at wholesale; and (2) calculate the portion of the retail
prices for those services that is attributable to the avoided costs.
Our rules provide two methods for making these determinations. The
first, and preferred, method requires state commissions to identify and
calculate avoided costs based on avoided cost studies. The second
method allows states to select, on an interim basis, a discount rate
from within a default range of discount rates adopted by this
Commission. They may then calculate the portion of a retail price that
is attributable to avoided costs by multiplying the retail price by the
discount rate.
[[Page 45565]]
599. We adopt a minimum set of criteria for avoided cost studies
used to determine wholesale discount rates. The record before us
demonstrates that avoided cost studies can produce widely varying
results, depending in large part upon how the proponent of the study
interprets the language of section 252(d)(3). The criteria we adopt are
designed to ensure that states apply consistent interpretations of the
1996 Act in setting wholesale rates based on avoided cost studies which
should facilitate swift entry by national and regional resellers, which
may include small entities. At the same time, our criteria are intended
to leave the state commissions broad latitude in selecting costing
methodologies that comport with their own ratemaking practices for
retail services. Thus, for example, our rules for identifying avoided
costs by USOA expense account are cast as rebuttable presumptions, and
we do not adopt as presumptively correct any avoided cost model.
600. Based on the comments filed in this proceeding and on our
analysis of state decisions setting wholesale discounts, we adopt a
default range of rates that will permit a state commission to select a
reasonable default wholesale rate between 17 and 25 percent below
retail rate levels. A default wholesale discount rate shall be used if:
(1) an avoided cost study that satisfies the criteria we set forth
below does not exist; (2) a state commission has not completed its
review of such an avoided cost study; or (3) a rate established by a
state commission before release of this Order is based on a study that
does not comply with the criteria described in the following section. A
state commission must establish wholesale rates based on avoided cost
studies within a reasonable time from when the default rate was
selected. This approach will enable state commissions to complete
arbitration proceedings within the statutory time frames even if it is
infeasible to conduct full-scale avoided cost studies that comply with
the criteria described below for each incumbent LEC.
a. Criteria for Cost Studies
601. There has been considerable debate on the record in this
proceeding and before the state commissions on whether section
252(d)(3) embodies an ``avoided'' cost standard or an ``avoidable''
cost standard. We find that ``the portion [of the retail rate] * * *
attributable to costs that will be avoided'' includes all of the costs
that the LEC incurs in maintaining a retail, as opposed to a wholesale,
business. In other words, the avoided costs are those that an incumbent
LEC would no longer incur if it were to cease retail operations and
instead provide all of its services through resellers. Thus, we reject
the arguments of incumbent LECs and others who maintain that the LEC
must actually experience a reduction in its operating expenses for a
cost to be considered ``avoided'' for purposes of section 252(d)(3). We
do not believe that Congress intended to allow incumbent LECs to
sustain artificially high wholesale prices by declining to reduce their
expenditures to the degree that certain costs are readily avoidable. We
therefore interpret the 1996 Act as requiring states to make an
objective assessment of what costs are reasonably avoidable when a LEC
sells its services wholesale. We note that Colorado, Georgia, Illinois,
New York, and Ohio commissions have all interpreted the 1996 Act in
this manner.
602. We find that, under this ``reasonably avoidable'' standard
discussed above, an avoided cost study must include indirect, or
shared, costs as well as direct costs. We agree with MCI, AT&T, and the
California, Illinois, Ohio, Colorado, and Georgia commissions that some
indirect or shared costs are avoidable and likely to be avoided when a
LEC provides retail services to a reseller instead of to the end user.
This is because indirect or shared costs, such as general overheads,
support all of the LEC's functions, including marketing, sales, billing
and collection, and other avoided retail functions. Therefore, a
portion of indirect costs must be considered ``attributable to costs
that will be avoided'' pursuant to section 252(d)(3). It is true that
expenses recorded in indirect or shared expense accounts will continue
to be incurred for wholesale operations. It is also true, however, that
the overall level of indirect expenses can reasonably be expected to
decrease as a result of a lower level of overall operations resulting
from a reduction in retail activity.
603. A portion of contribution, profits, or mark-up may also be
considered ``attributable to costs that will be avoided'' when services
are sold wholesale. MCI's model makes this attribution by means of a
calculation that applies the same mark-up to wholesale services as to
retail services. The Illinois Commission achieved a similar effect by
removing a pro rata portion of contribution from the retail rate for
each service. In AT&T's model, the portion of return on investment
(profits) that was attributable to assets used in avoided retail
activities was treated as an avoided cost. We find that these
approaches are consistent with the 1996 Act.
604. An avoided cost study may not calculate avoided costs based on
non-cost factors or policy arguments, nor may it make disallowances for
reasons not provided for in section 252(d)(3). The language of section
252(d)(3) makes no provision for selecting a wholesale discount rate on
policy grounds. We therefore reject NCTA's argument that discount rates
should be ten percent or less in order to avoid discouraging
facilities-based competition, as well as AT&T's suggestion that
wholesale discount rates should be set at levels that ensure the
viability of the reseller's business. We also reject, for example,
MCI's assertion that no external relations or research and development
costs should be allowed in wholesale rates because the activities
represented by those costs are contrary to the interests of the LEC
competitors that purchase wholesale services. Our analysis also
precludes a state commission from adopting AT&T's suggestion that an
increment should be added to the base discount rate to compensate
resellers for alleged deficiencies in the provisioning of services.
605. The 1996 Act requires that wholesale rates be based on
existing retail rates, and thus clearly precludes use of a ``bottom
up'' TSLRIC study to establish wholesale rates that are not related to
the rates for the underlying retail services. We thus reject the
suggestions of those parties that ask us to require use of TSLRIC to
set wholesale rates. The 1996 Act does not, however, preclude use of
TSLRIC cost studies to identify the portion of a retail rate that is
attributable to avoided retail costs. TSLRIC studies would be entirely
appropriate in states where the retail rates were established using a
TSLRIC method. For example, the Illinois Commission calculated its
wholesale rate using an avoided cost formula and long run incremental
cost studies. Embedded cost studies, such as the studies used by the
Georgia Commission, may also be used to identify avoided costs.
Ideally, a state would use a study methodology that is consistent with
the manner in which it sets retail rates.
606. We neither prohibit nor require use of a single, uniform
discount rate for all of an incumbent LEC's services. We recognize that
a uniform rate is simple to apply, and avoids the need to allocate
avoided costs among services. Therefore, our default wholesale discount
is to be applied uniformly. On the other hand, we also agree with
parties who observe that avoided costs
[[Page 45566]]
may, in fact, vary among services. Accordingly, we allow a state to
approve nonuniform wholesale discount rates, as long as those rates are
set on the basis of an avoided cost study that includes a demonstration
of the percentage of avoided costs that is attributable to each service
or group of services.
607. All costs recorded in accounts 6611 (product management), 6612
(sales), 6613 (product advertising) and 6623 (customer services) are
presumed to be avoidable. The costs in these accounts are the direct
costs of serving customers. All costs recorded in accounts 6621 (call
completion services) and 6622 (number services) are also presumed
avoidable, because resellers have stated they will either provide these
services themselves or contract for them separately from the LEC or
from third parties. These presumptions regarding accounts 6611-6613 and
6621-6623 may be rebutted if an incumbent LEC proves to the state
commission that specific costs in these accounts will be incurred with
respect to services sold at wholesale, or that costs in these accounts
are not included in the retail prices of the resold services.
608. General support expenses (accounts 6121-6124), corporate
operations expenses (accounts 6711, 6712, 6721-6728), and
telecommunications uncollectibles (account 5301) are presumed to be
avoided in proportion to the avoided direct expenses identified in the
previous paragraph. Expenses recorded in these accounts are tied to the
overall level of operations in which an incumbent LEC engages. Because
the advent of wholesale operations will reduce the overall level of
operations--for example, staffing should decrease because customer
inquiries and billing and collection activity will decrease--overhead
and support expenses are in part avoided. We select the revenue offset
account of 5301 rather than accounts 5300 or 6790 because account 5301
most directly represents overheads attributable to the services being
resold.
609. Plant-specific and plant non-specific expenses (other than
general support expenses) are presumptively not avoidable.
610. In the case of carriers designated as Class B under section
32.11 of our rules that use certain summary accounts in lieu of
accounts designated in this subsection of the Order, our avoided cost
study criteria shall apply to the relevant summary account in its
entirety.
b. Default Range of Wholesale Discount Rates
611. Parties to this proceeding present evidence or arguments
supporting wholesale discount rates ranging from 4.76 percent to 55
percent:
------------------------------------------------------------------------
Percent
------------------------------------------------------------------------
Sprint/United Telephone study:
Simple Access service.................. 4.76
Other services......................... 7.19
NCTA..................................... 10.0
Comcast.................................. 10.0
Massachusetts Attorney General........... 25.0
ACTA..................................... 25.0
MCI Model................................ 25.6-33.2
Telecommunications Resellers Ass'n....... 30.0-50.0
AT&T Model............................... 23.05-55.52
------------------------------------------------------------------------
612. States applying wholesale pricing standards similar to the
standards in section 252(d)(3) have set the following wholesale
discounts:
------------------------------------------------------------------------
Percent
------------------------------------------------------------------------
California:
PacTel:
Business................................................ 17.0
Residential............................................. 10.0
GTE:
Business................................................ 12.0
Residential............................................. 7.0
Colorado:
Residential............................................... 9.0
Business.................................................. 16.0
Toll Services............................................. 30.0
Central Office-Based Features............................. 50.0
All other services........................................ 18.0
Georgia:
Residential............................................... 20.3
Business.................................................. 17.3
Illinois.................................................... 20.07
New York:
NYNEX:
Business................................................ 17.0
Residential............................................. 11.0
Rochester Telephone....................................... 13.5
------------------------------------------------------------------------
613. We find unpersuasive various arguments presented by parties at
the lower and higher ends of the range of possible discounts. The
Sprint/United Telephone study produces unreasonably low measures of
avoided costs because the study considers only avoided direct expenses
in five accounts. As explained above, we interpret the statutory
language providing for a wholesale price that excludes the ``portion
[of a retail rate] attributable to any marketing, billing, collection,
and other costs that will be avoided'' to include indirect as well as
direct costs. The proposals of NCTA and Comcast for a maximum discount
of 10 percent are premised on the view that any greater discount would
unduly discourage facilities-based competition. Section 252(d)(3),
however, requires wholesale prices to be set based on avoided costs,
not on any policy preference for facilities-based competition. For the
same statutory reason, we reject as inconsistent with section 252(d)(3)
the policy arguments of the Telecommunications Resellers Association
and AT&T that we should establish national wholesale discounts at
levels that will ensure that resale of local exchange services is a
viable business.
614. We find AT&T's model unsuitable for purposes of establishing
in this proceeding a range for default wholesale discount rates. The
AT&T model does in many respects satisfy the general criteria we
establish above for avoided cost studies. The model, however,
incorporates numerous assumptions, cost allocation factors, and
studies, and because AT&T submitted its model with its reply comments,
and other parties have not analyzed the model in detail. We find that
we would need to develop a more complete record on the AT&T model
before deciding whether to endorse it. We do not, however, preclude a
state commission from considering in a wholesale rate proceeding
evidence developed using this model.
615. We find that we can use MCI's model, with some modifications,
along with the results of certain state proceedings, to establish a
range of rates that would produce an acceptable default wholesale
discount rate that reasonably approximates the amount of avoided costs
that should be subtracted from the retail rate. A default rate is to be
used only in three instances: (1) in a state arbitration proceeding if
an avoided cost study that satisfies the criteria we set forth above
does not exist; (2) where a state has not completed its review of such
an avoided cost study; (3) where a rate established by a state before
the release date of this Order is based on a study that does not comply
with the criteria described in the previous section. We emphasize that
the default rate is to be used as an interim measure only, and should
be replaced with an avoided cost study within a reasonable time. The
MCI model is a reasonable attempt at estimating avoided cost in
accordance with section 252(d)(3) using only publicly-available data.
We find, however, that we should modify certain features of the model.
616. First, MCI treats account 6722 (external relations) and
account 6727 (research and development) as avoidable costs. MCI argues
that purchasers of wholesale services are competing with LECs and,
therefore, should not be forced to fund regulatory
[[Page 45567]]
activities reflected in account 6722. MCI claims that research and
development are not of practical use for the services that resellers
will purchase. As explained above, this type of disallowance is not
contemplated by the avoided cost standard of section 252(d)(3). We
therefore adjust the model to treat these costs in the same manner as
other overhead expense accounts.
617. Second, MCI treats a number of accounts as ``other avoided
costs'' on the grounds that the expenses in those accounts are not
relevant to the provision of telecommunications services that an
incumbent LEC currently provides. Based on this rationale, MCI excludes
account 6113 (aircraft expense), account 6341 (large PBX expense),
account 6511 (property held for future telecommunications use expense),
account 6351 (public telephone terminal equipment expense), account
6512 (provisioning expense), account 6562 (depreciation expense for
property held for future telecommunications use), and account 6564
(amortization expense, intangible). Public telephone terminal equipment
expense and large PBX expense are not ``avoided'' precisely because
they are unrelated to the retail services being discounted. We would
not expect these expenses to be included in retail service rates for
resold services; but if these expenses were included in retail rates,
they would not be avoided when the services are purchased by resellers.
The rest of MCI's ``other'' accounts contain costs that support all of
the telecommunications services offered by the company. MCI has not
shown that any of these costs are either reduced or eliminated when
services are sold at wholesale. We, therefore, adjust the MCI model so
as not to treat these accounts as avoidable costs.
618. Third, MCI treats accounts 6611 (product management), 6612
(sales), 6613 (product advertising), and 6623 (customer services) as
costs that are entirely avoided with respect to services purchased at
wholesale. We agree that a large portion of the expenses in these
accounts is avoided when service is sold at wholesale. We also agree,
however, with parties that argue that some expenses in these accounts
will continue to be incurred with respect to wholesale products and
customers, and that some new expenses may be incurred in addressing the
needs of resellers as customers. No party in this proceeding has
suggested a specific adjustment to the MCI model that would account for
these costs of the wholesale operation. We note that, in their own
proceedings, several states have made varying estimates concerning the
level of wholesale-related expenses in these accounts. Colorado, for
example, estimated that none of the costs in accounts 6611-6613 would
relate to wholesale services, and that only five percent of the costs
in account 6623 would be incurred in a wholesale operation. The Georgia
Commission, on the other hand, decided that 25 percent of sales and
product advertising expenses would continue to be incurred in the
wholesale operation. Given the lack of evidence, and the wide range of
estimates that have been made by these states, we find it reasonable to
assume, for purposes of determining a default range of wholesale
discount rates, that ten percent of costs in accounts 6611, 6612, 6613,
and 6623 are not avoided by selling services at wholesale.
619. Fourth, MCI uses a complex formula to calculate the portions
of overhead and general support expense that are attributable to
avoided costs. We find that this formula is constructed in a way that
tends to inflate the results of the calculation. We have, therefore,
substituted a more straightforward approach in which we apply to each
indirect expense category the ratio of avoided direct expense to total
expenses. We also identify a slightly different list of accounts
representing indirect costs than that proposed by MCI.
620. With the modifications described above, and using actual 1995
data, MCI's model produces the following results for the RBOCs and GTE:
------------------------------------------------------------------------
Percent
------------------------------------------------------------------------
U S West..................................................... 18.80
GTE.......................................................... 18.81
BellSouth.................................................... 19.20
Bell Atlantic................................................ 19.99
SBC.......................................................... 20.11
NYNEX........................................................ 21.31
Pacific...................................................... 23.87
Ameritech.................................................... 25.98
------------------------------------------------------------------------
621. We also take into account the experience of those state
commissions, Illinois and Georgia, that have undertaken or approved
detailed avoided cost studies under the pricing standard of section
252(d)(3) of the 1996 Act. Applying the statutory standard to the
examination of significant cost studies, those commissions derived
average wholesale discounts of 18.74 percent and 20.07 percent. We find
that these decisions present evidence of an appropriate wholesale
discount that should be given more weight than state commission
decisions that have set their discounts under other pricing standards
or only on an interim basis.
622. Accordingly, based on the record before us, we establish a
range of default discounts of 17-25 percent that is to be used in the
absence of an avoided cost study that meets the criteria set forth
above. A state commission that has not set wholesale prices based on
avoided cost studies that meet the criteria set forth above as of the
release date of this Order shall use a default wholesale discount rate
between 17 and 25 percent. A state should articulate the basis for
selecting a particular discount rate. If this default discount rate is
used, the state commission must establish wholesale rates based on
avoided cost studies within a reasonable time. The avoided cost study
must comply with the criteria for avoided cost studies described above.
A state commission may submit an avoided cost study to this Commission
for a determination of whether it complies with these criteria. If a
party (either a reseller or an incumbent LEC) believes that a state
commission has failed to act within a reasonable period of time, that
party may file a petition for declaratory ruling with this Commission,
asking us to determine whether the state has failed to comply with this
rule. We will, in making such determinations, consider the particular
circumstances in the state involved. If a state commission has adopted
as of the release date of this Order an interim wholesale pricing
decision that relies on an avoided cost study that meets the criteria
set forth above, the state commission may continue to require an
incumbent LEC to offer services for resale under such interim wholesale
prices in lieu of the default discount range, so long as the state
commission's interim pricing rules are fully enforceable by resellers
and followed by a final decision within a reasonable period of time
that adopts an avoided cost study that meets the criteria set forth
above.
623. We select the 17 to 25 percent range of default discounts
based on our evaluation of the record. The adjusted results of the MCI
model taken together with the results of those state proceedings
discussed above that indicated they applied the statutory standard
produces, a range between 18.74 and 25.98 percent. A majority of these
wholesale discount rates fall between 18.74 and 21.11 percent. Other
state commissions, such as California and New York, that have employed
avoided cost studies have produced wholesale discount rates somewhat
below the low end of this range. Furthermore, it has been argued that
smaller incumbent LECs' avoided costs are likely to be less than those
of the larger incumbent LECs, whose data was used by MCI. Therefore, to
allow for
[[Page 45568]]
these considerations, we select 17 percent as the lower end of the
range. We select 25 percent as the top of the range because it
approximates the top of the range of results produced by the modified
MCI model. This range gives state commissions flexibility in addressing
circumstances of incumbent LECs serving their states and permits resale
to proceed until such time as the state commission can review a fully-
compliant avoided cost study.
624. We have considered the economic impact of our rules in this
section on small incumbent LECs. For example, Bay Springs, et al.,
argues that national wholesale pricing rules will insufficiently
consider operational differences between small and large incumbent
LECs. We take this into consideration in setting the default discount
rate and in requiring state commissions to perform carrier-specific
avoided cost studies within a reasonable period of time that will
reflect carrier-to-carrier differences. We believe, however, that the
procompetitive goals of the 1996 Act require us to establish a default
discount rate for state commissions to use in the absence of avoided
cost studies that comply with the criteria we set forth above. The
presumptions we establish in conducting avoided cost studies regarding
the avoidability of certain expenses may be rebutted by evidence that
certain costs are not avoided, which should minimize any economic
impact of our decisions on small incumbent LECs. We also note that
certain small incumbent LECs are not subject to our rules under section
251(f)(1) of the 1996 Act, unless otherwise determined by a state
commission, and certain other small incumbent LECs may seek relief from
their state commissions from our rules under section 251(f)(2) of the
1996 Act.
C. Conditions and Limitations
625. Section 251(c)(4) requires incumbent LECs to make their
services available for resale without unreasonable or discriminatory
conditions or limitations. This portion of this Order addresses various
issues relating to conditions or limitations on resale. It first
discusses restrictions, generally, in Section VIII.C.1. Next, it turns
to promotional and discounted offerings and the conditions that may
attach to such offerings in Section VIII.C.2., and then to refusals to
resell residential and below-cost services in Section VIII.C.3.
Limitations on the categories of customers to whom a reseller may sell
incumbent LEC services are discussed in VIII.C.4. Resale restrictions
in the form of withdrawal of service are discussed in VIII.C.5.
Finally, Section VIII.C.6. discusses resale restrictions relating to
provisioning.
1. Restrictions, Generally, and Burden of Proof
a. Background
626. In the NPRM, we asked whether incumbent LECs should have the
burden of proving that restrictions on resale are reasonable and
nondiscriminatory. We stated our belief that, given the pro-competitive
goals of the 1996 Act and the view that restrictions and conditions
were likely to be evidence of an exercise of market power, the range of
permissible restrictions should be quite narrow.
b. Discussion
627. We conclude that resale restrictions are presumptively
unreasonable. Incumbent LECs can rebut this presumption, but only if
the restrictions are narrowly tailored. Such resale restrictions are
not limited to those found in the resale agreement. They include
conditions and limitations contained in the incumbent LEC's underlying
tariff. As we explained in the NPRM, the ability of incumbent LECs to
impose resale restrictions and conditions is likely to be evidence of
market power and may reflect an attempt by incumbent LECs to preserve
their market position. In a competitive market, an individual seller
(an incumbent LEC) would not be able to impose significant restrictions
and conditions on buyers because such buyers turn to other sellers.
Recognizing that incumbent LECs possess market power, Congress
prohibited unreasonable restrictions and conditions on resale. We, as
well as state commissions, are unable to predict every potential
restriction or limitation an incumbent LEC may seek to impose on a
reseller. Given the probability that restrictions and conditions may
have anticompetitive results, we conclude that it is consistent with
the procompetitive goals of the 1996 Act to presume resale restrictions
and conditions to be unreasonable and therefore in violation of section
251(c)(4). This presumption should reduce unnecessary burdens on
resellers seeking to enter local exchange markets, which may include
small entities, by reducing the time and expense of proving
affirmatively that such restrictions are unreasonable. We discuss
several specific restrictions below including certain restrictions for
which we conclude the presumption of unreasonableness shall not apply.
We also discuss certain restrictions that we will presume are
reasonable.
2. Promotions and Discounts
a. Background
628. In the NPRM, we asked whether an incumbent LEC's obligation to
make their services available for resale at wholesale rates applies to
discounted and promotional offerings and, if so, how. We also asked, if
the wholesale pricing obligation applies to promotions and discounts,
whether the reseller entrant's customer must take service pursuant to
the same restrictions that apply to the incumbent LEC's retail
customers.
b. Discussion
629. Section 251(c)(4) provides that incumbent LECs must offer for
resale at wholesale rates ``any telecommunications service'' that the
carrier provides at retail to noncarrier subscribers. This language
makes no exception for promotional or discounted offerings, including
contract and other customer-specific offerings. We therefore conclude
that no basis exists for creating a general exemption from the
wholesale requirement for all promotional or discount service offerings
made by incumbent LECs. A contrary result would permit incumbent LECs
to avoid the statutory resale obligation by shifting their customers to
nonstandard offerings, thereby eviscerating the resale provisions of
the 1996 Act. In discussing promotions here, we are only referring to
price discounts from standard offerings that will remain available for
resale at wholesale rates, i.e., temporary price discounts. Limited
time offerings of service are still subject to resale pursuant to
Section VIII.A.
630. There remains, however, the question of whether all short-term
promotional prices are ``retail rates'' for purposes of calculating
wholesale rates pursuant to section 252(d)(3). The 1996 Act does not
define ``retail rate;'' nor is there any indication that Congress
considered the issue. In view of this ambiguity, we conclude that
``retail rate'' should be interpreted in light of the pro-competitive
policies underlying the 1996 Act. We recognize that promotions that are
limited in length may serve procompetitive ends through enhancing
marketing and sales-based competition and we do not wish to
unnecessarily restrict such offerings. We believe that, if promotions
are of limited duration, their procompetitive effects will outweigh any
potential anticompetitive effects. We therefore conclude that short-
term promotional
[[Page 45569]]
prices do not constitute retail rates for the underlying services and
are thus not subject to the wholesale rate obligation.
631. We must also determine when a promotional price ceases to be
``short term'' and must therefore be treated as a retail rate for an
underlying service. Incumbent LEC commenters support 120 days as the
maximum period for such promotions. This has been criticized as being
too long. We are concerned that excluding promotions that are offered
for as long as four months may unreasonably hamper the efforts of new
competitors that seek to enter local markets through resale. We believe
that promotions of up to 90 days, when subjected to the conditions
outlined below, will have significantly lower anticompetitive
potential, especially as compared to the potential procompetitive
marketing uses of such promotions. We therefore establish a presumption
that promotional prices offered for a period of 90 days or less need
not be offered at a discount to resellers. Promotional offerings
greater than 90 days in duration must be offered for resale at
wholesale rates pursuant to section 251(c)(4)(A). To preclude the
potential for abuse of promotional discounts, any benefit of the
promotion must be realized within the time period of the promotion,
e.g., no benefit can be realized more than ninety days after the
promotional offering is taken by the customer if the promotional
offering was for ninety days. In addition, an incumbent LEC may not use
promotional offerings to evade the wholesale obligation, for example by
consecutively offering a series of 90-day promotions.
632. We find unconvincing the arguments that the offerings under
section 251(c)(4) should not apply to volume-based discounts. The 1996
Act on its face does not exclude such offerings from the wholesale
obligation. If a service is sold to end users, it is a retail service,
even if it is priced as a volume-based discount off the price of
another retail service. The avoidable costs for a service with volume-
based discounts, however, may be different than without volume
contracts.
633. We are concerned that conditions that attach to promotions and
discounts could be used to avoid the resale obligation to the detriment
of competition. Allowing certain incumbent LEC end user restrictions to
be made automatically binding on reseller end users could further
exacerbate the potential anticompetitive effects. We recognize,
however, that there may be reasonable restrictions on promotions and
discounts. We conclude that the substance and specificity of rules
concerning which discount and promotion restrictions may be applied to
resellers in marketing their services to end users is a decision best
left to state commissions, which are more familiar with the particular
business practices of their incumbent LECs and local market conditions.
These rules are to be developed, as necessary, for use in the
arbitration process under section 252.
634. With respect to volume discount offerings, however, we
conclude that it is presumptively unreasonable for incumbent LECs to
require individual reseller end users to comply with incumbent LEC
high-volume discount minimum usage requirements, so long as the
reseller, in aggregate, under the relevant tariff, meets the minimal
level of demand. The Commission traditionally has not permitted such
restrictions on the resale of volume discount offers. Regulatory
Policies Concerning Resale and Shared Use of Common Carrier Services
and Facilities, 41 FR 30657 (July 26, 1976). We believe restrictions on
resale of volume discounts will frequently produce anticompetitive
results without sufficient justification. We, therefore, conclude that
such restrictions should be considered presumptively unreasonable. We
note, however, that in calculating the proper wholesale rate, incumbent
LECs may prove that their avoided costs differ when selling in large
volumes.
3. Below-Cost and Residential Service
a. Background
635. Responding to our general questions regarding the scope of
limitations that may be placed on competitors' resale of incumbent LEC
services, parties addressed in their comments whether below-cost and
residential services are subject to section 251(c)(4).
b. Discussion
636. Subject to the cross-class restrictions discussed below, we
believe that below-cost services are subject to the wholesale rate
obligation under section 251(c)(4). First, the 1996 Act applies to
``any telecommunications service'' and thus, by its terms, does not
exclude these types of services. Given the goal of the 1996 Act to
encourage competition, we decline to limit the resale obligation with
respect to certain services where the 1996 Act does not specifically do
so. Second, simply because a service may be priced at below-cost levels
does not justify denying customers of such a service the benefits of
resale competition. We note that, unlike the pricing standard for
unbundled elements, the resale pricing standard is not based on cost
plus a reasonable profit. The resale pricing standard gives the end
user the benefit of an implicit subsidy in the case of below-cost
service, whether the end user is served by the incumbent or by a
reseller, just as it continues to take the contribution if the service
is priced above cost. So long as resale of the service is generally
restricted to those customers eligible to receive such service from the
incumbent LEC, as discussed below, demand is unlikely to be
significantly increased by resale competition. Thus, differences in
incumbent LEC revenue resulting from the resale of below-cost services
should be accompanied by proportionate decreases in expenditures that
are avoided because the service is being offered at wholesale.
637. We have considered the economic impact of our rules in this
section on small incumbent LECs. For example, MECA argues that services
incumbent LECs offer at below-cost rates should not be subject to
resale under section 251(c)(4). We do not adopt MECA's proposal. As
explained above, we conclude that the 1996 Act provides that below-cost
services are subject to the section 251(c)(4) resale obligation and
that differences in incumbent LEC revenue resulting from the resale of
below-cost services should be accompanied by decreases in expenditures
that are avoided because the service is being offered at wholesale.
Therefore, resale of below-cost services at wholesale rates should not
adversely impact small incumbent LECs. We also note that certain small
incumbent LECs are not subject to our rules under section 251(f)(1) of
the 1996 Act, unless otherwise determined by a state commission, and
certain other small incumbent LECs may seek relief from their state
commissions from our rules under section 251(f)(2) of the 1996 Act.
4. Cross-Class Selling
a. Background
638. In the NPRM, we sought comment on the meaning of section
251(c)(4)(B) which provides that ``[a] State commission may, consistent
with regulations prescribed by the Commission under this section,
prohibit a reseller that obtains at wholesale rates a
telecommunications service that is available at retail only to a
category of subscribers from offering such service to a different
category of subscribers.'' We suggested that competing
telecommunications carriers should not be allowed to purchase a
subsidized service that is offered to a specific
[[Page 45570]]
category of subscribers and then resell such service to other
customers. We tentatively concluded, for example, that it might be
reasonable for a state to restrict the resale of a residential exchange
service that is limited to low-income consumers, such as the existing
Lifeline program. We noted that we have generally not allowed carriers
to prevent other carriers from purchasing high-volume, low-price
offerings to resell to a broad pool of lower volume customers.
Similarly, we inquired into the propriety of practices such as limiting
the resale of flat-rated service.
b. Discussion
639. There is general agreement that residential services should
not be resold to nonresidential end users, and we conclude that
restrictions prohibiting such cross-class reselling of residential
services are reasonable. We conclude that section 251(c)(4)(B) permits
states to prohibit resellers from selling residential services to
customers ineligible to subscribe to such services from the incumbent
LEC. For example, this would prevent resellers from reselling
wholesale-priced residential service to business customers. We also
conclude that section 251(c)(4)(B) allows states to make similar
prohibitions on the resale of Lifeline or any other means-tested
service offering to end users not eligible to subscribe to such service
offerings. State commissions have established rate structures that take
into account certain desired balances between residential and business
rates and the goal of maximizing access by low-income consumers to
telecommunications services. We do not wish to disturb these efforts by
prohibiting or overly narrowing state commissions' ability to impose
such restrictions on resale.
640. Shared tenant services are made possible through the resale
and trunking of flat-rated services to multiple customers. We do not
believe that these or other efficient uses of technology should be
discouraged through restrictions on the resale of flat-rated offerings
to multiple end users, even if incumbent LECs have not always priced
such offerings assuming these usage patterns. We therefore conclude
that such restrictions are presumptively unreasonable.
641. We also conclude that all other cross-class selling
restrictions should be presumed unreasonable. Without clear statutory
direction concerning potentially allowable cross-class restrictions, we
are not inclined to allow the imposition of restrictions that could
fetter the emergence of competition. As with volume discount and flat-
rated offerings, we will allow incumbent LECs to rebut this presumption
by proving to the state commission that the class restriction is
reasonable and nondiscriminatory.
5. Incumbent LEC Withdrawal of Services
a. Background
642. In the NPRM, we sought comment on whether an incumbent LEC can
avoid making a service available at wholesale rates by ceasing to offer
the retail service on a retail basis, or whether the incumbent should
first be required to make a showing that withdrawing the offering is in
the public interest or that competitors will continue to have an
alternative way of providing service. We also asked if access to
unbundled elements addresses the concern that incumbent LECs could
withdraw retail services.
b. Discussion
643. We are concerned that the incumbent LECs' ability to withdraw
services may have anticompetitive effects where resellers are
purchasing such services for resale in competition with the incumbent.
We decline to issue general rules on this subject because we conclude
that this is a matter best left to state commissions. Many state
commissions have rules regarding the withdrawal of retail services and
have experience regulating such matters. States can assess, for
example, the universal service implications of an incumbent LEC's
proposal to withdraw a retail service. Therefore, we conclude that our
general presumption that incumbent LEC restrictions on resale are
unreasonable does not apply to incumbent LEC withdrawal of service.
States must ensure that procedural mechanisms exist for processing
complaints regarding incumbent LEC withdrawals of services. We find it
important, however, to ensure that grandfathered customers--subscribers
to the service being withdrawn who are allowed by an incumbent LEC to
continue purchasing services--not be denied the benefits of
competition. We conclude that, when an incumbent LEC grandfathers its
own customers of a withdrawn service, such grandfathering should also
extend to reseller end users. For the duration of any grandfathering
period, all grandfathered customers should have the right to purchase
such grandfathered services either directly from the incumbent LEC or
indirectly through a reseller. The incumbent LEC shall offer wholesale
rates for such grandfathered services to resellers for the purpose of
serving grandfathered customers.
6. Provisioning
644. We conclude that service made available for resale be at least
equal in quality to that provided by the incumbent LEC to itself or to
any subsidiary, affiliate, or any other party to which the carrier
directly provides the service, such as end users. Practices to the
contrary violate the 1996 Act's prohibition of discriminatory
restrictions, limitations, or prohibitions on resale. This requirement
includes differences imperceptible to end users because such
differences may still provide incumbent LECs with advantages in the
marketplace. Additionally, we conclude that incumbent LEC services are
to be provisioned for resale with the same timeliness as they are
provisioned to that incumbent LEC's subsidiaries, affiliates, or other
parties to whom the carrier directly provides the service, such as end
users. This equivalent timeliness requirement also applies to incumbent
LEC claims of capacity limitations and incumbent LEC requirements
relating to such limitations, such as potential down payments. We note
that common carrier obligations, established by federal and state law
and our rules, continue to apply to incumbent LECs in their relations
with resellers. With regard to customer changeover charges, we conclude
that states should determine reasonable and nondiscriminatory rates for
such charges.
645. Brand identification is likely to play a major role in markets
where resellers compete with incumbent LECs for the provision of local
and toll service. This brand identification is critical to reseller
attempts to compete with incumbent LECs and will minimize consumer
confusion. Incumbent LECs are advantaged when reseller end users are
advised that the service is being provided by the reseller's primary
competitor. We therefore conclude that where operator, call completion,
or directory assistance service is part of the service or service
package an incumbent LEC offers for resale, failure by an incumbent LEC
to comply with reseller branding requests presumptively constitutes an
unreasonable restriction on resale. This presumption may be rebutted by
an incumbent LEC proving to the state commission that it lacks the
capability to comply with unbranding or rebranding requests. We
recognize that an incumbent LEC may incur costs in complying with a
request for unbranding or rebranding. Because we
[[Page 45571]]
do not have a record on which to determine the level of fees or
wholesale pricing offsets that may reasonably be assessed to recover
these costs, we leave such determinations to the state commissions.
D. Resale Obligations of LECs Under Section 251(b)(1)
646. Section 251(b)(1) imposes a duty on all LECs to offer certain
services for resale. Specifically, section 251(b)(1) requires LECs
``not to prohibit, and not to impose unreasonable or discriminatory
conditions or limitations on, the resale of its telecommunications
services.''
1. Background
647. In the NPRM, we sought comment generally on the relationship
of section 251(b)(1) to section 251(c)(4). We sought comment on whether
all LECs are prohibited from imposing unreasonable restrictions on
resale of their services, but only incumbent LECs that provide retail
services to subscribers that are not telecommunications carriers are
required to make such services available at wholesale rates to
requesting telecommunications carriers. We also sought comment on what
types of resale restrictions should be permitted under section
251(b)(1) and stated our belief that few, if any, conditions or
limitations should be permitted for the same reasons that resale
restrictions are sharply limited under section 251(c)(4). We also asked
what standards should be adopted for determining whether resale
restrictions should be permitted, and whether presumptions should be
established.
2. Discussion
648. There are two differences between the resale obligations in
section 251(b)(1) and in section 251(c)(4): the scope of services that
must be resold and the pricing of such resale offerings. Section
251(b)(1) requires resale of all telecommunications services offered by
the carrier while section 251(c)(4) only applies to telecommunications
services that the carrier provides at retail to subscribers who are not
telecommunications carriers. Thus, the scope of services to which
section 251(b)(1) applies is larger and necessarily includes all
services subject to resale under section 251(c)(4). We need not
prescribe a minimum list of services that are subject to the 251(b)(1)
resale requirement for the same reasons that we specified for not
prescribing such a list in Section VIII.A. of this Order. We note that
section 251(b)(1) clearly omits a wholesale pricing requirement. We
therefore conclude that the 1996 Act does not impose wholesale pricing
requirements on nonincumbent LECs. Nonincumbent LECs definitionally
lack the market power possessed by incumbent LECs and were therefore
not made subject to the wholesale pricing obligation in the 1996 Act.
Their wholesale rates will face competition by incumbent LECs, making a
wholesale pricing requirement for nonincumbent LECs unnecessary.
649. Sections 251(b)(1) and 251(c)(4) contain the same statutory
standards regarding resale restrictions. Therefore, we conclude that
our rules concerning resale restrictions under section 251(b)(1), such
as the general presumption that all resale restrictions are
unreasonable, should be the same as under section 251(c)(4). We
conclude that any restriction of a type that has been found reasonable
for incumbent LECs should be deemed reasonable for all other LECs as
well.
E. Application of Access Charges
1. Background
650. In the NPRM, we suggested that an entrant that merely resold a
bundled retail service purchased at wholesale rates would not receive
access revenues. In other words, IXCs must still pay access charges to
incumbent LECs for originating and terminating interstate traffic of an
end user served by a telecommunications carrier that resells incumbent
LEC services under section 251(c)(4).
2. Discussion
651. We conclude that the 1996 Act requires that incumbent LECs
continue to receive access charge revenues when local services are
resold under section 251(c)(4). IXCs must still pay access charges to
incumbent LECs for originating or terminating interstate traffic, even
when their end user is served by a telecommunications carrier that
resells incumbent LEC retail services. Resale, as defined in section
251(b)(1) and 251(c)(4), involves services, in contrast to section
251(c)(3), which governs sale of network elements. New entrants that
purchase retail local exchange services from an incumbent LEC at
wholesale rates are entitled to resell only those retail services, and
not any other services--such as exchange access--the LEC may offer
using the same facilities. IXCs must therefore still purchase access
services from incumbent LECs outside of the resale framework of
251(c)(4), through existing interstate access tariffs.
652. Most existing interstate access charges are recovered from
IXCs, and therefore can easily be recovered by incumbent LECs whether
or not the incumbent LEC retains its billing relationship with the end
user subscriber. To allow incumbent LECs to continue recovering the
subscriber line charge (SLC), however, the mechanism for assessment of
the SLC must be modified. The SLC is currently assessed directly on end
users as a monthly charge. When an end user customer receives local
exchange service from a reseller, however, the incumbent LEC will have
no direct commercial relationship with that end user. Because the end
user would not be a customer of the incumbent LEC, the incumbent LEC
could not bill SLC directly to the end user as specified under our
existing rules.
653. In March 1995, in the Rochester Waiver Order, we granted
Rochester Telephone waivers to permit Rochester Telephone to recover
the SLC from carriers that purchase local exchange service for resale,
rather than recovering the SLC directly from end users. In that order,
we stated that by offering the local exchange service for resale and by
unbundling subscriber lines from other network functions, Rochester
Telephone created a situation where it would no longer have a direct
relationship with end users, IXCs, or both, and that such a situation
was not contemplated when the Commission created the rules governing
the recovery of access charges. We also permitted Rochester Telephone
to bill to resellers the PIC change charge, which is assessed by
incumbent local exchange carriers on end users that wish to change
their primary interexchange carrier (PIC).
654. The resale requirements of the 1996 Act create a situation for
the entire industry that is analogous to the situation Rochester
Telephone faced in 1995. We therefore conclude that similar relief is
warranted here with respect to the SLC, so that incumbent LECs can
recover the SLC from resellers, as we conclude the 1996 Act mandates.
Although the PIC change charge is not a part of access charges, and is
assessed only when an end user changes his or her primary interexchange
carrier, this charge has similar characteristics to the SLC and
therefore should also be subject to the rule we adopt. Incumbent LECs
may assess the SLC and the PIC change charge on telecommunications
carriers that resell incumbent LEC services under section 251(c)(4).
655. Although incumbent LECs may continue to recover the SLC when
other carriers resell their local exchange services, the SLC is not
subject to the wholesale pricing standard of section 252(d)(3). As
described above, resellers
[[Page 45572]]
of local exchange service are not reselling access services; they are
purchasing these services from incumbent LECs in the same manner they
do today. The SLC is a component of interstate access charges, not of
intrastate local service rates. Consistent with the principles of cost-
causation and economic efficiency, we have required the portion of
interstate allocated loop costs represented by the SLC to be recovered
from end users, rather than from carriers as with other access charges.
Although the SLC is listed on end user monthly local service bills,
this charge does not represent a ``telecommunications service [an
incumbent LEC] provides at retail to subscribers.'' Rather, the SLC,
like other interstate access charges, relates solely to incumbent LEC
interstate access services, which are provided to other carriers rather
than retail subscribers and which we have concluded are not subject to
the resale requirements of section 251(c)(4). Therefore, the reseller
shall pay the SLC to the incumbent LEC for each subscriber taking
resold service. The specific SLC that applies depends upon the identity
of the end user served by the reselling telecommunications carrier.
IX. Duties Imposed on ``Telecommunications Carriers'' by Section 251(a)
A. Background
656. Section 251(a) imposes two fundamental duties on all
telecommunications carriers: (1) ``to interconnect directly or
indirectly with the facilities and equipment of other
telecommunications carriers;'' and (2) ``not to install network
features, functions, or capabilities that do not comply with the
guidelines and standards established pursuant to sections 255 or 256.''
47 U.S.C. 251(a). Section 255 addresses access by persons with
disabilities and ensures that manufacturers and providers of
telecommunications will design equipment and provide service that is
accessible to, and usable by, individuals with disabilities. Section
256 provides for coordination for interconnectivity ``to promote
nondiscriminatory accessibility by the broadest number of users and
vendors of communications products and services.'' 47 U.S.C. Secs. 255,
256. In this proceeding we determine which carriers are
``telecommunications carriers'' as defined in section 3(44) of the Act.
The term telecommunications carrier means ``any provider of
telecommunications services, except that such term does not include
aggregators of telecommunications services (as defined in section 226).
A telecommunications carrier shall be treated as a common carrier under
this Act only to the extent that it is engaged in providing
telecommunications services, except that the Commission shall determine
whether the provision of fixed and mobile satellite service shall be
treated as common carriage.'' 47 U.S.C. 153(44). In the NPRM, we
tentatively concluded that, pursuant to the statute's definition of
``telecommunications carrier'' and ``telecommunications service,'' to
the extent a carrier is engaged in providing for a fee local,
interexchange, or international services, directly to the public or to
such classes of users as to be effectively available directly to the
public, that carrier falls within the definition of
``telecommunications carrier.'' We sought comment on which carriers are
included under this definition, and on whether a provider may qualify
as a telecommunications carrier for some purposes but not others.
657. We also tentatively concluded that we should determine whether
the provision of mobile satellite services is Commercial Mobile Radio
Services (CMRS) or Private Mobile Radio Service (PMRS) based on the
factors set forth in the CMRS Second Report and Order. NPRM at para
247. The Commission makes this determination by looking at an array of
public interest considerations (e.g., the types of services being
offered and the number of licensees being authorized). See, e.g.,
Amendment of Parts 2, 22 and 25 of the Commission's Rules to Allocate
Spectrum for, and To Establish Other Rules and Policies Pertaining to
the Use of Radio Frequencies in a Land Mobile Satellite Service for the
Provision of Various Common Carrier Services, GEN Docket No. 84-1234,
Second Report and Order, 52 FR 4017 (February 9, 1987); Amendment to
the Commission's Rules to Allocate Spectrum for, and to Establish Other
Rules and Policies Pertaining to a Radiodetermination Satellite
Service, GEN Docket No. 84-689, Second Report and Order, 51 FR 18444
(May 20, 1986). We sought comment on the meaning of offering service
``directly or indirectly'' to the public in the context of section
251(a)(1) and on whether section 251(a) allows non-incumbent LECs
discretion to interconnect directly or indirectly with a requesting
carrier. We also sought comment on what other actions we should take to
ensure that carriers do not install network features, functions, or
capabilities that are inconsistent with guidelines and standards
established pursuant to sections 255 and 256.
B. Discussion
658. A ``telecommunications carrier'' is defined as ``any provider
of telecommunications services, except that such term does not include
aggregators of telecommunications services (as defined in section
226).'' 47 U.S.C. 153(44). The term ``aggregator'' is defined as ``any
person that, in the ordinary course of its operations, makes telephones
available to the public or to transient users of its premises, for
interstate telephone calls using a provider of operator services.'' 47
U.S.C. 226(a)(2). A telecommunications carrier shall be treated as a
common carrier under the Act ``only to the extent that it is engaged in
providing telecommunications services, except that the Commission shall
determine whether the provision of fixed and mobile satellite service
shall be treated as common carriage.'' A ``telecommunications service''
is defined as the ``offering of telecommunications for a fee directly
to the public, or to such classes of users as to be effectively
available directly to the public, regardless of the facilities used.''
We conclude that to the extent a carrier is engaged in providing for a
fee domestic or international telecommunications, directly to the
public or to such classes of users as to be effectively available
directly to the public, the carrier falls within the definition of
``telecommunications carrier.'' We find that this definition is
consistent with the 1996 Act, and there is nothing in the record in
this proceeding that suggests that this definition should not be
adopted. Also, enhanced service providers, to the extent that they are
providing telecommunications services, are entitled to the rights under
section 251(a).
659. We believe, as a general policy matter, that all
telecommunications carriers that compete with each other should be
treated alike regardless of the technology used unless there is a
compelling reason to do otherwise. We agree with those parties that
argue that all CMRS providers are telecommunications carriers and are
thus obligated to comply with section 251(a). The term ``CMRS'' is
defined as ``any mobile service * * * that is provided for profit and
makes interconnected service available (A) to the public or (B) to such
classes of eligible users as to be effectively available to a
substantial portion of the public.'' 47 U.S.C. Sec. 332(d)(1). CMRS
includes, among others, some private paging, personal communications
services, business radio services, and
[[Page 45573]]
mobile service that is the functional equivalent of a commercial mobile
radio service. 47 CFR Sec. 20.9. These carriers meet the definition of
``telecommunications carrier'' because they are providers of
telecommunications services as defined in the 1996 Act and are thus
entitled to the benefits of section 251(c), which include the right to
request interconnection and obtain access to unbundled elements at any
technically feasible point in an incumbent LEC's network. PMRS is
defined as any mobile service that is not a commercial service or the
functional equivalent of a commercial mobile service. We conclude that
to the extent a PMRS provider uses capacity to provide domestic or
international telecommunications for a fee directly to the public, it
will fall within the definition of ``telecommunications carrier'' under
the Act and will be subject to the duties listed in section 251(a). The
Commission held in the CMRS Second Report and Order that any PMRS
provider that ``employs spectrum for not-for-profit services, such as
an internal operation, but also uses its excess capacity to make
available a service that is intended to receive compensation, will be
deemed to be a `for profit' service to the extent of such excess
capacity activities.'' Implementation of Section 3(n) and 332 of the
Communications Act, Second Report and Order, GN Docket No. 93-252, 59
FR 18493 (April 19, 1994) (CMRS Second Report and Order).
660. We conclude that cost-sharing for the construction and
operation of private telecommunications networks is not within the
definition of ``telecommunications services'' and thus such operators
of private networks are not subject to the requirements of section
251(a). We believe that such methods of cost-sharing do not equate to a
``fee directly to the public'' under the definition of
``telecommunications service.'' Conversely, to the extent an operator
of a private telecommunications network is offering
``telecommunications'' (the term ``telecommunications'' means ``the
transmission, between or among points specified by the user, of
information of the user's choosing, without change in form or content
of the information as sent and received'' 47 U.S.C. Sec. 153(43)) for a
fee directly to the public, or to such classes of users as to be
effectively available directly to the public (i.e., providing a
telecommunications service), the operator is a telecommunications
carrier and is subject to the duties in section 251(a). Providing to
the public telecommunications (e.g., selling excess capacity on private
fiber or wireless networks), constitutes provision of a
telecommunications service and thus subjects the operator of such a
network to the duties of section 251(a) to that extent.
661. We conclude that, if a company provides both
telecommunications and information services, it must be classified as a
telecommunications carrier for purposes of section 251, and is subject
to the obligations under section 251(a), to the extent that it is
acting as a telecommunications carrier. We also conclude that
telecommunications carriers that have interconnected or gained access
under sections 251(a)(1), 251(c)(2), or 251(c)(3), may offer
information services through the same arrangement, so long as they are
offering telecommunications services through the same arrangement as
well. Under a contrary conclusion, a competitor would be precluded from
offering information services in competition with the incumbent LEC
under the same arrangement, thus increasing the transaction cost for
the competitor. We find this to be contrary to the pro-competitive
spirit of the 1996 Act. By rejecting this outcome we provide
competitors the opportunity to compete effectively with the incumbent
by offering a full range of services to end users without having to
provide some services inefficiently through distinct facilities or
agreements. In addition, we conclude that enhanced service providers
that do not also provide domestic or international telecommunications,
and are thus not telecommunications carriers within the meaning of the
Act, may not interconnect under section 251.
662. Consistent with our tentative conclusion in the NPRM, we will
determine whether the provision of mobile satellite service (MSS) is
CMRS (and therefore common carriage) or PMRS based on the factors set
forth in theCMRS Second Report and Order. Commenters have not raised
objections to the Commission's tentative conclusion on this issue.
663. Regarding the issue of interconnecting ``directly or
indirectly'' with the facilities of other telecommunications carriers,
we conclude that telecommunications carriers should be permitted to
provide interconnection pursuant to section 251(a) either directly or
indirectly, based upon their most efficient technical and economic
choices. The interconnection obligations under section 251(a) differ
from the obligations under section 251(c). Unlike section 251(c), which
applies to incumbent LECs, section 251(a) interconnection applies to
all telecommunications carriers including those with no market power.
Given the lack of market power by telecommunication carriers required
to provide interconnection via section 251(a), and the clear language
of the statute, we find that indirect connection (e.g., two non-
incumbent LECs interconnecting with an incumbent LEC's network)
satisfies a telecommunications carrier's duty to interconnect pursuant
to section 251(a). We decline to adopt, at this time, Metricom's
suggestion to forbear under section 10 of the 1996 Act from imposing
any interconnection requirements upon non-dominant carriers. We believe
that, even for telecommunications carriers with no market power, the
duty to interconnect directly or indirectly is central to the 1996 Act
and achieves important policy objectives. Nothing in the record
convinces us that we should forbear from imposing the provisions of
section 251(a) on non-dominant carriers. In fact, section 251
distinguishes between dominant and non-dominant carriers, and imposes a
number of additional obligations exclusively on incumbent LECs.
Similarly, we also do not agree with the Texas Commission's argument
that the obligations of section 251(a) should apply equally to all
telecommunications carriers. Section 251 is clear in imposing different
obligations on carriers depending upon their classification (i.e.,
incumbent LEC, LEC, or telecommunications carrier). For example,
section 251(c) specifically imposes obligations upon incumbent LECs to
interconnect, upon request, at all technically feasible points. This
direct interconnection, however, is not required under section 251(a)
of all telecommunications carriers.
664. Section 251(a)(2) prohibits telecommunications carriers from
installing network features, functions, and capabilities that do not
comply with standards or guidelines established under sections 255 and
256. Because the Commission and the Architectural and Transportation
Barriers Compliance Board have not developed standards or guidelines
under section 255, we find that it would be premature at this point to
attempt to delineate specific requirements or definitions of terms to
implement Section 251(a)(2). The Illinois Commission lists several
features which could provide access to individuals with disabilities,
such as access to interrupt messages, directory assistance and operator
services by users of text telephones (TTYs). Illinois
[[Page 45574]]
Commission comments at 82-83. Specific accessibility requirements such
as those proposed by the Illinois Commission will need to be developed
in proceedings to implement section 255, and therefore, we will not set
forth any required ``features, functions, or capabilities'' in this
proceeding. Similarly, the Commission has asked its federal advisory
committee, the Network Reliability and Interoperability Council, for
recommendations on how the Commission should implement Section 256. We
intend to issue a further notice of proposed rulemaking seeking comment
on what accessibility and compatibility requirements apply to
telecommunications carriers who install network features, functions and
capabilities.
X. Commercial Mobile Radio Service Interconnection
665. In the NPRM, we sought comment on whether interconnection
arrangements between incumbent LECs and CMRS providers fall within the
scope of sections 251 and 252. Application of sections 251 and 252 to
LEC-CMRS interconnection arrangements involves two distinct issues. One
is whether the terms and conditions of the physical interconnection
between incumbent LECs and CMRS providers are governed under section
251(c)(2), and the corresponding pricing standards set forth in section
252(d)(1). The second, and perhaps more critical issue from the CMRS
providers' perspective, is whether CMRS providers are entitled to
reciprocal compensation for transport and termination under section
251(b)(5), and the corresponding pricing standards set forth in section
252(d)(2).
666. We tentatively concluded in the NPRM that CMRS providers are
not obliged to provide to requesting telecommunications carriers either
reciprocal compensation for transport and termination of
telecommunications under section 251(b)(5), or interconnection under
the provisions of section 251(c)(2), but that CMRS providers may be
entitled to request interconnection under section 251(c)(2) for the
purposes of providing ``telephone exchange service and exchange
access.'' We sought comment on this tentative conclusion. We also asked
for comment on the separate but related question of whether LEC-CMRS
transport and termination arrangements fall within the scope of section
251(b)(5). In addition, we sought comment on the relationship between
section 251 and section 332(c). 47 U.S.C. 332(c). This section sets
forth the regulatory treatment for mobile services, including the
common carrier treatment of CMRS providers (except for such provisions
of Title II as the Commission may specify), the right of CMRS providers
to request (and the Commission to order) physical interconnection with
other common carriers and the preemption of state regulation of the
entry of or the rates charged by any CMRS providers. We acknowledged
that issues relating to LEC-CMRS interconnection pursuant to section
332(c) were part of an ongoing proceeding initiated before the passage
of the 1996 Act, (Interconnection Between Local Exchange Carriers and
Commercial Mobile Radio Service Providers, Notice of Proposed
Rulemaking, CC Docket No. 95-185, 61 FR 3644 (February 1, 1996) (LEC-
CMRS Interconnection NPRM)), and retained the prerogative of
incorporating by reference the comments filed in that docket to the
extent necessary. We hereby do so.
A. CMRS Providers and Obligations of Local Exchange Carriers Under
Section 251(b) and Incumbent Local Exchange Carriers Under Section
251(c)
1. Background
667. Section 251(b) imposes duties only on LECs, and section 251(c)
imposes duties only on incumbent LECs. Section 3(26) of the Act defines
``local exchange carrier'' to mean ``any person that is engaged in the
provision of telephone exchange service or exchange access,'' but
``does not include a person insofar as such person is engaged in the
provision of a commercial mobile service under section 332(c), except
to the extent that the Commission finds that such service should be
included in the definition of such term.'' In the NPRM, we sought
comment on whether, and to what extent, CMRS providers should be
classified as ``local exchange carriers'' and therefore subject to the
duties and obligations imposed by section 251(b).
2. Discussion
668. We are not persuaded by those arguing that CMRS providers
should be treated as LECs, and decline at this time to treat CMRS
providers as LECs. Section 3(26) of the Act, quoted above, makes clear
that CMRS providers should not be classified as LECs until the
Commission makes a finding that such treatment is warranted. We
disagree with COMAV and National Wireless Resellers Association that
CMRS providers are de facto LECs (and even incumbent LECs if they are
affiliated with a LEC) simply because they provide telephone exchange
and exchange access services. Congress recognized that some CMRS
providers offer telephone exchange and exchange access services, and
concluded that their provision of such services, by itself, did not
require CMRS providers to be classified as LECs. We further note that,
because the determination as to whether CMRS providers should be
defined as LECs is within the Commission's sole discretion, states are
preempted from requiring CMRS providers to classify themselves as
``local exchange carriers'' or be subject to rate and entry regulation
as a precondition to participation in interconnection negotiations and
arbitrations under sections 251 and 252.
669. NARUC argues that CMRS providers should be classified as LECs
if they provide fixed service. We are currently seeking comment in our
CMRS Flexibility Proceeding, (Amendment of the Commission's Rules to
Permit Flexible Service Offerings in the Commercial Mobile Radio
Services, WT Docket No. 96-6, First Report and Order and Further Notice
of Proposed Rulemaking, FCC 96-283 (released August 1, 1996)), on the
regulatory treatment to be afforded CMRS providers when they provide
fixed services. Thus, we believe that it would be premature to answer
that question here, based only on the record in this proceeding. We
also decline to adopt the Illinois Commission's suggestion that we find
that a CMRS provider is a LEC if the CMRS provider seeks to compete
directly with a wireline LEC. Even if we were to accept the Illinois
Commission's underlying assumption, the record in this proceeding
contains no evidence that wireless local loops have begun to replace
wireline loops for the provision of local exchange service. Thus, until
such time that we decide otherwise, CMRS providers will not be
classified as LECs, and are not subject to the obligations of section
251(b). We further note that, even if we were to classify some CMRS
providers as LECs, other types of CMRS providers, such as paging
providers, might not be so classified because they do not offer local
exchange service or exchange access.
670. We further note that, because CMRS providers do not fall
within the definition of a LEC under section 251(h)(1), they are not
subject to the duties and obligations imposed on incumbent LECs under
section 251(c). An incumbent LEC is defined in section 251(h)(1), and
includes only those LECs that were, on the date of enactment of the
1996 Act, deemed to be members of NECA pursuant to 47 CFR
Sec. 69.601(b), or the successor or assign of a NECA member. Similarly,
we do not find that
[[Page 45575]]
CMRS providers satisfy the criteria set forth in section 251(h)(2),
which grants the Commission the discretion to, by rule, provide for the
treatment of a LEC as an incumbent LEC if certain conditions are met.
B. Reciprocal Compensation Arrangements Under Section 251(b)(5)
671. Some parties contend that LEC-CMRS transport and termination
arrangements do not fall within the scope of 251(b)(5), which requires
LECs to establish reciprocal compensation arrangements for transport
and termination. Other commenters argue that because CMRS providers
fall within the definition of ``telecommunications carriers,'' they
fall within the scope of section 251(b)(5).
672. Under section 251(b)(5), LECs have a duty to establish
reciprocal compensation arrangements for the transport and termination
of ``telecommunications.'' Under section 3(43), ``[t]he term
`telecommunications' means the transmission, between or among points
specified by the user, of information of the user's choosing, without
change in the form or content of the information as sent and
received.'' All CMRS providers offer telecommunications. Accordingly,
LECs are obligated, pursuant to section 251(b)(5) (and the
corresponding pricing standards of section 252(d)(2)), to enter into
reciprocal compensation arrangements with all CMRS providers, including
paging providers, for the transport and termination of traffic on each
other's networks, pursuant to the rules governing reciprocal
compensation set forth in Section XI.B, below.
C. Interconnection Under Section 251(c)(2)
1. Background
673. Section 251(c)(2)(A) provides that an incumbent LEC must
provide interconnection with its local exchange network to ``any
requesting telecommunications carrier * * * for the transmission and
routing of telephone exchange service and exchange access.'' In the
NPRM, we tentatively concluded that CMRS providers may be entitled to
request interconnection under section 251(c)(2) for the purposes of
providing telephone exchange service and exchange access. We sought
comment on this tentative conclusion.
2. Discussion
674. As discussed in the preceding section, CMRS providers meet the
statutory definition of ``telecommunications carriers.'' We also agree
with several commenters that many CMRS providers (specifically
cellular, broadband PCS and covered SMR) also provide telephone
exchange service and exchange access as defined by the 1996 Act.
Incumbent LECs must accordingly make interconnection available to these
CMRS providers in conformity with the terms of sections 251(c) and 252,
including offering rates, terms, and conditions that are just,
reasonable and nondiscriminatory.
675. The 1996 Act defines ``telephone exchange service'' as
``service within a telephone exchange, or within a connected system of
telephone exchanges within the same exchange area * * * and which is
covered by the exchange service charge, or (B) comparable service
provided through a system of switches, transmission equipment, or other
facilities (or combination thereof) by which a subscriber can originate
and terminate a telecommunications service.'' 47 U.S.C. 153(47)
(emphasis added). This is a broader definition of ``telephone exchange
service'' than had previously existed; Congress changed the definition
in the 1996 Act to include services ``comparable'' to telephone
exchange. At a minimum, we find that cellular, broadband PCS, and
covered SMR providers fall within the second part of the definition
because they provide ``comparable service'' to telephone exchange
service. The services offered by cellular, broadband PCS, and covered
SMR providers are comparable because, as a general matter, and as some
commenters note, these CMRS carriers provide local, two-way switched
voice service as a principal part of their business. Indeed, the
Commission has described cellular service as exchange telephone
service, (See Need to Promote Competition and Efficient Use of Spectrum
for Radio Common Carriers, Memorandum Opinion and Order, 59 Rad. Reg.
2d 1275, 1278 (1986)), and cellular carriers as ``generally engaged in
the provision of local exchange telecommunications in conjunction with
local telephone companies * * *.'' In the Matter of the Need to Promote
Competition and Efficient Use of Spectrum For Radio Common Carrier
Services, Memorandum Opinion and Order, 59 Rad. Reg. 2d 1275, 1278
(1986) (Competition Opinion); see also id. at 1284 (cellular carriers
are primarily engaged in the provision of local, intrastate exchange
telephone service); Equal Access and Interconnection Obligations
Pertaining to Commercial Radio Services, CC Docket No. 94-54, Notice of
Proposed Rulemaking and Notice of Inquiry, 59 FR 35664 (July 13, 1994).
In addition, although CMRS providers are not currently classified as
LECs, the fact that most CMRS providers are capable, both technically
and pursuant to the terms of their licenses, of providing fixed
services, as LECs do, buttresses our conclusion that these CMRS
providers offer services that are ``comparable'' to telephone exchange
service and supports the notion that these services may become a true
economic substitute for wireline local exchange service in the future.
See Amendment of the Commission's Rules to Permit Flexible Service
Offerings in the Commercial Mobile Radio Services, WT Docket No. 96-6,
First Report and Order and Further Notice of Proposed Rulemaking, FCC
96-283 (released August 1, 1996) (amending rules to allow providers of
narrowband and broadband PCS, cellular, CMRS SMR, CMRS paging, CMRS 220
MHz service, and for-profit interconnected business radio services to
offer fixed wireless services on their assigned spectrum on a co-
primary basis with mobile services).
676. We also believe that other definitions in the Act support the
conclusion that cellular, broadband PCS, and covered SMR licensees
provide telephone exchange service. The fact that the 1996 Act's
definition of a LEC excludes CMRS until the Commission finds that such
service should be included in the definition,'' suggests that Congress
found that some CMRS providers were providing telephone exchange
service or exchange access, but sought to afford the Commission the
discretion to decide whether CMRS providers should be treated as LECs
under the new Act. Similarly, section 253(f) permits the states to
impose certain obligations on ``telecommunications carrier[s] that
seek[ ] to provide telephone exchange service'' in rural areas. The
provision further provides that ``[t]his subsection shall not apply * *
* to a provider of commercial mobile services.'' It would have been
unnecessary for the statute to include this exception if some CMRS were
not telephone exchange service. Similarly, section 271(c)(1)(A), which
sets forth conditions for determining the presence of a facilities-
based competitor for purposes of BOC applications to provide in-region,
interLATA services, provides that Part 22 [cellular] services ``shall
not be considered to be telephone exchange services,'' for purposes of
that section. Again, if Congress did not believe that cellular
providers were engaged in the provision of telephone exchange service,
it would not have
[[Page 45576]]
been necessary to exclude cellular providers from this provision.
677. The arguments that CMRS traffic flows may differ from wireline
traffic, that CMRS providers' termination costs may differ from LECs,
that CMRS service areas do not coincide with wireline local exchange
areas, or that CMRS providers are not LECs, do not alter our conclusion
that cellular, broadband PCS, and covered SMR licensees provide
telephone exchange service. These considerations are not relevant to
the statutory definition of telephone exchange service in section
3(47). Incumbent LECs are required to provide interconnection to CMRS
providers who request it for the transmission and routing of telephone
exchange service or exchange access, under the plain language of
section 251(c)(2).
D. Jurisdictional Authority for Regulation of LEC-CMRS Interconnection
Rates
1. Background
678. In the NPRM, we sought comment on the relationship between
section 251 and section 332(c). As noted above, we hereby incorporate
by reference the comments filed in CC Docket No. 95-185 to the extent
relevant to our analysis. In the NPRM, we noted that we had previously
sought comment on the relationship of these two statutory provisions in
the LEC-CMRS Interconnection proceeding. In the LEC-CMRS proceeding, we
tentatively concluded that the Commission has sufficient authority to
promulgate specific federal requirements for interstate and intrastate
LEC-CMRS interconnection arrangements, including the adoption of a
specific interim bill and keep arrangement. However, we reached that
tentative conclusion before the enactment of the 1996 Act.
2. Discussion
679. Several parties in this proceeding argue that sections 251 and
252 provide the exclusive jurisdictional basis for regulation of LEC-
CMRS interconnection rates. Other parties assert that sections 332 and
201 provide the exclusive jurisdictional basis for regulation of LEC-
CMRS interconnection rates. Some parties have argued that jurisdiction
resides concurrently under sections 251 and 252, on the one hand, and
under sections 332 and 201 on the other.
680. Sections 251, 252, 332 and 201 are designed to achieve the
common goal of establishing interconnection and ensuring
interconnection on terms and conditions that are just, reasonable, and
fair. It is consistent with the broad authority of these provisions to
hold that we may apply sections 251 and 252 to LEC-CMRS
interconnection. By opting to proceed under sections 251 and 252, we
are not finding that section 332 jurisdiction over interconnection has
been repealed by implication, or rejecting it as an alternative basis
for jurisdiction. We acknowledge that section 332 in tandem with
section 201 is a basis for jurisdiction over LEC-CMRS interconnection;
we simply decline to define the precise extent of that jurisdiction at
this time.
681. As a practical matter, sections 251 and 252 create a time-
limited negotiation and arbitration process to ensure that
interconnection agreements will be reached between incumbent LECs and
telecommunications carriers, including CMRS providers. We expect that
our establishment of pricing methodologies and default proxies which
may be used as interim rates will help expedite the parties'
negotiations and drive voluntary CMRS-LEC interconnection agreements.
We also believe that sections 251 and 252 will foster regulatory parity
in that these provisions establish a uniform regulatory scheme
governing interconnection between incumbent LECs and all requesting
carriers, including CMRS providers. Thus, we believe that sections 251
and 252 will facilitate consistent resolution of interconnection issues
for CMRS providers and other carriers requesting interconnection.
682. Although we are applying sections 251 and 252 to LEC-CMRS
interconnection at this time, we preserve the option to revisit this
determination in the future. We note that Section 332 generally
precludes states from rate and entry regulation of CMRS providers, and
thus, differentiates CMRS providers from other carriers. In passing
section 332 in 1993, Congress stated that it intended to ``foster the
growth and development of mobile services that, by their nature,
operate without regard to state lines as an integral part of the
national telecommunications infrastructure.'' H.R. Report No. 103-11,
103d. Cong., 1st Sess. 260 (1993). We also recognize that, based on the
combined record in CC Docket No. 95-185 and CC Docket No. 96-68, there
have been instances in which state commissions have treated CMRS
providers in a discriminatory manner with respect to the terms and
conditions of interconnection. Should the Commission determine that the
regulatory scheme established by sections 251 and 252 does not
sufficiently address the problems encountered by CMRS providers in
obtaining interconnection on terms and conditions that are just,
reasonable and nondiscriminatory, the Commission may revisit its
determination not to invoke jurisdiction under section 332 to regulate
LEC-CMRS interconnection rates.
683. Our decision to proceed under section 251 as a basis for
regulating LEC-CMRS interconnection rates should not be interpreted as
undercutting our intent to enforce Section 332(c)(3), for example,
where state regulation of interconnection rates might constitute
regulation of CMRS entry. In such situations, state action might be
precluded by either section 332 or section 253. Such circumstances
would require a case-by-case evaluation. We note, however, that we are
aware of numerous specific state requirements that may constitute CMRS
entry or rate regulation preempted by section 332. For example, many
states, such as California, require all telecommunications providers to
certify that the public convenience and necessity will be served as a
precondition to construction and operation of telecommunications
services within the state. CAL. PUBLIC UTILITIES CODE Sections
1001,1005 (West 1995); ALASKA STAT. Section 42.05221 (1995); CONN. GEN.
STAT. Section 16-247g (1995); HAW. REV. STAT. Section 269-7.5 (1995);
NEB. REV. STAT. Section 86-805 (1995); N.M. STAT. ANN. Section 63-9B-4
(Michie 1996). Some states, such as Alaska and Connecticut, also
require CMRS providers to certify as service providers other than CMRS
in order to obtain the same treatment afforded other telecommunications
providers under state law. See In the Matter of Motion for a
Declaratory Ruling Concerning Preemption of Alaska Call Routing and
Interexchange Certification Regulation as Applies to Cellular Carriers,
File No. WTB/POL 95-2, Motion for a Declaratory Ruling, Alaska-3
Cellular d/b/a CellularOne, p.5, para. 11 (filed Sept. 22, 1995);
Decision, Investigation Into Wireless Mutual Compensation Plans, State
of Connecticut, Department of Public Utility control, at 15
(Connecticut Commission Sept. 22, 1995). Hawaii and Louisiana, in
addition to imposing a certification requirement, require CMRS
providers and other telecommunications carriers to file tariffs with
the state commission. HAW. REV. STAT. Section 6-80-29 (1996); see In re
Regulations for Competition in the Local Telecommunications Market,
General
[[Page 45577]]
Order, Louisiana Public Service Commission, Secs. 301, 401 (Louisiana
Commission March 15, 1996). We will not permit entry regulation through
the exercise of states' sections 251/252 authority or otherwise. In
this regard, we note that states may not impose on CMRS carriers rate
and entry regulation as a pre-condition to participation in
interconnection agreements that may be negotiated and arbitrated
pursuant to sections 251 and 252. We further note that the Commission
is reviewing filings made pursuant to section 253 alleging that
particular states or local governments have requirements that
constitute entry barriers, in violation of section 253. We will
continue to review any allegations on an ongoing basis, including any
claims that states or local governments are regulating entry or
imposing requirements on CMRS providers that constitute barriers to
market entry.
XI. Obligations Imposed on LECs by Section 251(b)
A. Reciprocal Compensation for Transport and Termination of
Telecommunications
1. Statutory Language
684. Section 251(b)(5) provides that all LECs, including incumbent
LECs, have the duty to ``establish reciprocal compensation arrangements
for the transport and termination of telecommunications.'' Section
252(d)(2) states that, for the purpose of compliance by an incumbent
LEC with section 251(b)(5), a state commission shall not consider the
terms and conditions for reciprocal compensation to be just and
reasonable unless such terms and conditions both: (1) provide for the
``mutual and reciprocal recovery by each carrier of costs associated
with the transport and termination on each carrier's network facilities
of calls that originate on the network facilities of the other
carrier,'' and (2) ``determine such costs on the basis of a reasonable
approximation of the additional costs of terminating such calls.'' That
subsection further provides that the foregoing language shall not be
construed ``to preclude arrangements that afford the mutual recovery of
costs through the offsetting of reciprocal obligations, including
arrangements that waive mutual recovery (such as bill and keep
arrangements),'' or to authorize the Commission or any state to
``engage in any rate regulation proceeding to establish with
particularity the additional costs of transporting or terminating
calls, or require carriers to maintain records with respect to the
additional costs of such calls.'' The legislative history indicates
that ``mutual and reciprocal recovery of costs * * * may include a
range of compensation schemes, such as in-kind exchange of traffic
without cash payment (known as bill-and-keep arrangements).''
2. Definition of Transport and Termination of Telecommunications
a. Background
685. In the NPRM, we sought comment on whether ``transport and
termination of telecommunications'' under section 251(b)(5) is limited
to certain types of traffic. We noted that the statutory provision
appears to encompass telecommunications traffic that originates on the
network of one LEC and terminates on the network of a competing
provider in the same local service area as well as traffic passing
between LECs and CMRS providers. We sought comment on whether section
251(b)(5) also encompasses telecommunications traffic passing between
neighboring LECs that do not compete with one another. We also observed
in the NPRM that section 252(d)(2) is entitled ``Charges for Transport
and Termination of Traffic,'' and it could be interpreted to permit
separate charges for these two components of reciprocal compensation.
We sought comment on this issue.
b. Discussion
(1) Distinction Between ``Transport and Termination'' and Access
686. We recognize that transport and termination of traffic,
whether it originates locally or from a distant exchange, involves the
same network functions. Ultimately, we believe that the rates that
local carriers impose for the transport and termination of local
traffic and for the transport and termination of long distance traffic
should converge. We conclude, however, as a legal matter, that
transport and termination of local traffic are different services than
access service for long distance telecommunications. Transport and
termination of local traffic for purposes of reciprocal compensation
are governed by sections 251(b)(5) and 252(d)(2), while access charges
for interstate long-distance traffic are governed by sections 201 and
202 of the Act. The Act preserves the legal distinctions between
charges for transport and termination of local traffic and interstate
and intrastate charges for terminating long-distance traffic.
687. We conclude that section 251(b)(5) reciprocal compensation
obligations should apply only to traffic that originates and terminates
within a local area, as defined in the following paragraph. We disagree
with Frontier's contention that section 251(b)(5) entitles an IXC to
receive reciprocal compensation from a LEC when a long-distance call is
passed from the LEC serving the caller to the IXC. Access charges were
developed to address a situation in which three carriers--typically,
the originating LEC, the IXC, and the terminating LEC--collaborate to
complete a long-distance call. As a general matter, in the access
charge regime, the long-distance caller pays long-distance charges to
the IXC, and the IXC must pay both LECs for originating and terminating
access service. In addition, both the caller and the party receiving
the call pay a flat-rated interstate access charge--the end-user common
line charge--to the respective incumbent LEC to whose network each of
these parties is connected. By contrast, reciprocal compensation for
transport and termination of calls is intended for a situation in which
two carriers collaborate to complete a local call. In this case, the
local caller pays charges to the originating carrier, and the
originating carrier must compensate the terminating carrier for
completing the call. This reading of the statute is confirmed by
section 252(d)(2)(A)(i), which establishes the pricing standards for
section 251(b)(5). Section 251(d)(2)(A)(i) provides for ``recovery by
each carrier of costs associated with the transport and termination on
each carrier's network facilities of calls that originate on the
network facilities of the other carrier.'' We note that our conclusion
that long distance traffic is not subject to the transport and
termination provisions of section 251 does not in any way disrupt the
ability of IXCs to terminate their interstate long-distance traffic on
LEC networks. Pursuant to section 251(g), LECs must continue to offer
tariffed interstate access services just as they did prior to enactment
of the 1996 Act. We find that the reciprocal compensation provisions of
section 251(b)(5) for transport and termination of traffic do not apply
to the transport or termination of interstate or intrastate
interexchange traffic.
688. With the exception of traffic to or from a CMRS network, state
commissions have the authority to determine what geographic areas
should be considered ``local areas'' for the purpose of applying
reciprocal compensation obligations under section 251(b)(5), consistent
with the state commissions' historical practice of defining local
service areas for wireline LECs. Traffic originating or terminating
[[Page 45578]]
outside of the applicable local area would be subject to interstate and
intrastate access charges. We expect the states to determine whether
intrastate transport and termination of traffic between competing LECs,
where a portion of their local service areas are not the same, should
be governed by section 251(b)(5)'s reciprocal compensation obligations
or whether intrastate access charges should apply to the portions of
their local service areas that are different. This approach is
consistent with a recently negotiated interconnection agreement between
Ameritech and ICG that restricted reciprocal compensation arrangements
to the local traffic area as defined by the state commission.
Continental Cablevision, in an ex parte letter, states that many
incumbent LECs offer optional expanded local area calling plans, in
which customers may pay an additional flat rate charge for calls within
a wider area than that deemed as local, but that terminating intrastate
access charges typically apply to calls that originate from competing
carriers in the same wider area. Continental Cablevision argues that
local transport and termination rates should apply to these calls. We
lack sufficient record information to address the issue of expanded
local area calling plans; we expect that this issue will be considered,
in the first instance, by state commissions. In addition, we expect the
states to decide whether section 251(b)(5) reciprocal compensation
provisions apply to the exchange of traffic between incumbent LECs that
serve adjacent service areas.
689. On the other hand, in light of this Commission's exclusive
authority to define the authorized license areas of wireless carriers,
we will define the local service area for calls to or from a CMRS
network for the purposes of applying reciprocal compensation
obligations under section 251(b)(5). Different types of wireless
carriers have different FCC-authorized licensed territories, the
largest of which is the ``Major Trading Area'' (MTA). See Rand McNally,
Inc., 1992 Commercial Atlas & Marketing Guide 38-39 (1992). Because
wireless licensed territories are federally authorized, and vary in
size, we conclude that the largest FCC-authorized wireless license
territory (i.e., MTA) serves as the most appropriate definition for
local service area for CMRS traffic for purposes of reciprocal
compensation under section 251(b)(5) as it avoids creating artificial
distinctions between CMRS providers. Accordingly, traffic to or from a
CMRS network that originates and terminates within the same MTA is
subject to transport and termination rates under section 251(b)(5),
rather than interstate and intrastate access charges.
690. We conclude that section 251(b)(5) obligations apply to all
LECs in the same state-defined local exchange service areas, including
neighboring incumbent LECs that fit within this description. Contrary
to the arguments of NYNEX and Pacific Telesis, neither the plain
language of the Act nor its legislative history limits this subsection
to the transport and termination of telecommunications traffic between
new entrants and incumbent LECs. In addition, applying section
251(b)(5) obligations to neighboring incumbent LECs in the same local
exchange area is consistent with our decision that all interconnection
agreements, including agreements between neighboring LECs, must be
submitted to state commissions for approval pursuant to section 252(e).
691. Under section 252, neighboring states may establish different
rate levels for transport and termination of traffic. In cases in which
territory in multiple states is included in a single local service
area, and a local call from one carrier to another crosses state lines,
we conclude that the applicable rate for any particular call should be
that established by the state in which the call terminates. This
provides an administratively convenient rule, and termination of the
call typically occurs in the same state where the terminating carrier's
end office switch is located and where the cost of terminating the call
is incurred.
(2) Distinction Between ``Transport'' and ``Termination''
692. We conclude that transport and termination should be treated
as two distinct functions. We define ``transport,'' for purposes of
section 251(b)(5), as the transmission of terminating traffic that is
subject to section 251(b)(5) from the interconnection point between the
two carriers to the terminating carrier's end office switch that
directly serves the called party (or equivalent facility provided by a
non-incumbent carrier). Many alternative arrangements exist for the
provision of transport between the two networks. These arrangements
include: dedicated circuits provided either by the incumbent LEC, the
other local service provider, separately by each, or jointly by both;
facilities provided by alternative carriers; unbundled network elements
provided by incumbent LECs; or similar network functions currently
offered by incumbent LECs on a tariffed basis. Charges for transport
subject to section 251(b)(5) should reflect the forward-looking cost of
the particular provisioning method.
693. We define ``termination,'' for purposes of section 251(b)(5),
as the switching of traffic that is subject to section 251(b)(5) at the
terminating carrier's end office switch (or equivalent facility) and
delivery of that traffic from that switch to the called party's
premises. In contrast to transport, for which some alternatives exist,
alternatives for termination are not likely to exist in the near term.
A carrier or provider typically has no other mechanism for delivering
traffic to a called party served by another carrier except by having
that called party's carrier terminate the call. In addition, forward-
looking costs are calculated differently for the transport of traffic
and the termination of traffic, as discussed above in the unbundled
elements section. As such, we conclude that we need to treat transport
and termination as separate functions--each with its own cost. With
respect to GST's contention that separate charges for transport and
termination of traffic will allow incumbent LECs to ``game'' the system
through network design decisions, we conclude in the interconnection
section above that interconnecting carriers may interconnect at any
technically feasible point. We find that this sufficiently limits LECs'
ability to disadvantage interconnecting parties through their network
design decisions.
(3) CMRS-Related Issues
694. Section 251(b)(5) obligates LECs to establish reciprocal
compensation arrangements for the transport and termination of
telecommunications traffic. Although section 252(b)(5) does not
explicitly state to whom the LEC's obligation runs, we find that LECs
have a duty to establish reciprocal compensation arrangements with
respect to local traffic originated by or terminating to any
telecommunications carriers. CMRS providers are telecommunications
carriers and, thus, LECs' reciprocal compensation obligations under
section 251(b)(5) apply to all local traffic transmitted between LECs
and CMRS providers.
695. We conclude that, pursuant to section 251(b)(5), a LEC may not
charge a CMRS provider or other carrier for terminating LEC-originated
traffic. Section 251(b)(5) specifies that LECs and interconnecting
carriers shall compensate one another for termination of traffic on a
reciprocal basis. This section does not address charges payable to a
carrier that originates traffic. We therefore conclude that
[[Page 45579]]
section 251(b)(5) prohibits charges such as those some incumbent LECs
currently impose on CMRS providers for LEC-originated traffic. As of
the effective date of this order, a LEC must cease charging a CMRS
provider or other carrier for terminating LEC-originated traffic and
must provide that traffic to the CMRS provider or other carrier without
charge.
696. As noted above, CMRS providers' license areas are established
under federal rules, and in many cases are larger than the local
exchange service areas that state commissions have established for
incumbent LECs' local service areas. We reiterate that traffic between
an incumbent LEC and a CMRS network that originates and terminates
within the same MTA (defined based on the parties' locations at the
beginning of the call) is subject to transport and termination rates
under section 251(b)(5), rather than interstate or intrastate access
charges. Under our existing practice, most traffic between LECs and
CMRS providers is not subject to interstate access charges unless it is
carried by an IXC, with the exception of certain interstate
interexchange service provided by CMRS carriers, such as some
``roaming'' traffic that transits incumbent LECs' switching facilities,
which is subject to interstate access charges. ``[S]ome cellular
carriers provide their customers with a service whereby a call to a
subscriber's local cellular number will be routed to them over
interstate facilities when the customer is ``roaming'' in a cellular
system in another state. In this case, the cellular carrier is
providing not local exchange service but interstate, interexchange
service. In this and other situations where a cellular company is
offering interstate, interexchange service, the local telephone company
providing interconnection is providing exchange access to an
interexchange carrier and may expect to be paid the appropriate access
charge. * * * Therefore, to the extent that a cellular operator does
provide interexchange service through switching facilities provided by
a telephone company, its obligation to pay carrier's carrier [i.e.,
access] charges is defined by Sec. 69.5(b) of our rules.'' See
Regulatory Treatment of Mobile Services Second Report and Order, 59 FR
18493 (April 19, 1994). Based on our authority under section 251(g) to
preserve the current interstate access charge regime, we conclude that
the new transport and termination rules should be applied to LECs and
CMRS providers so that CMRS providers continue not to pay interstate
access charges for traffic that currently is not subject to such
charges, and are assessed such charges for traffic that is currently
subject to interstate access charges.
697. CMRS customers may travel from location to location during the
course of a single call, which could make it difficult to determine the
applicable transport and termination rate or access charge. In the LEC-
CMRS Interconnection NPRM, we observed that a significant amount of
LEC-CMRS traffic crosses state lines, because CMRS service areas often
cross state lines and CMRS customers are mobile. LEC-CMRS
Interconnection NPRM, 61 FR 3644 (February 1, 1996). We recognize that,
using current technology, it may be difficult for CMRS providers to
determine, in real time, which cell site a mobile customer is connected
to, let alone the customer's specific geographic location. Enhanced 911
Emergency Calling Systems Report and Order and Further NPRM, 61 FR
40374 (August 2, 1996). This could complicate the computation of
traffic flows and the applicability of transport and termination rates,
given that in certain cases, the geographic locations of the calling
party and the called party determine whether a particular call should
be compensated under transport and termination rates established by one
state or another, or under interstate or intrastate access charges. We
conclude, however, that it is not necessary for incumbent LECs and CMRS
providers to be able to ascertain geographic locations when determining
the rating for any particular call at the moment the call is connected.
We conclude that parties may calculate overall compensation amounts by
extrapolating from traffic studies and samples. For administrative
convenience, the location of the initial cell site when a call begins
shall be used as the determinant of the geographic location of the
mobile customer. As an alternative, LECs and CMRS providers can use the
point of interconnection between the two carriers at the beginning of
the call to determine the location of the mobile caller or called
party.
698. As discussed above, pursuant to section 251(b)(5) of the Act,
all local exchange carriers, including small incumbent LECs and small
entities offering competitive local exchange services, have a duty to
establish reciprocal compensation arrangements for the transport and
termination of local exchange service. CMRS providers, including small
entities, and LECs, including small incumbent LECs and small entity
competitive LECs, will receive reciprocal compensation for terminating
certain traffic that originates on the networks of other carriers, and
will pay such compensation for certain traffic that they transmit and
terminate to other carriers. We believe that these arrangements should
benefit all carriers, including small incumbent LECs and small
entities, because it will facilitate competitive entry into new markets
while ensuring reasonable compensation for the additional costs
incurred in terminating traffic that originates on other carriers'
networks. We also recognize that, to implement transport and
termination pursuant to section 251(b)(5), carriers, including small
incumbent LECs and small entities, may be required to measure the
exchange of traffic, but we believe that the cost of such measurement
to these carriers is likely to be substantially outweighed by the
benefits of these arrangements.
3. Pricing Methodology
a. Background
699. In the NPRM, we sought comment on how to interpret section
252(d)(2) of the Act. Specifically, we asked if we should establish a
generic pricing methodology or impose a ceiling to guide the states in
setting the charge for the transport and termination of traffic. We
also asked whether such a generic pricing methodology or ceiling should
be established using the same principles we adopt for interconnection
and unbundled elements. Additionally, we sought comment on the use of
an interim and transitional pricing mechanism that would address
concerns about unequal bargaining power in negotiations.
b. Discussion
(1) Statutory Standard
700. We conclude that the pricing standards established by section
252(d)(1) for interconnection and unbundled elements, and by section
252(d)(2) for transport and termination of traffic, are sufficiently
similar to permit the use of the same general methodologies for
establishing rates under both statutory provisions. Section 252(d)(2)
states that reciprocal compensation rates for transport and termination
shall be based on ``a reasonable approximation of the additional costs
of terminating such calls.'' Moreover, there is some substitutability
between the new entrant's use of unbundled network elements for
transporting traffic and its use of transport under section 252(d)(2).
Depending on the interconnection arrangements, carriers may transport
traffic to the competing carriers' end offices or hand traffic off to
competing carriers at meet points for termination
[[Page 45580]]
on the competing carriers' networks. Transport of traffic for
termination on a competing carrier's network is, therefore, largely
indistinguishable from transport for termination of calls on a
carrier's own network. Thus, we conclude that transport of traffic
should be priced based on the same cost-based standard, whether it is
transport using unbundled elements or transport of traffic that
originated on a competing carrier's network. We, therefore, find that
the ``additional cost'' standard permits the use of the forward-
looking, economic cost-based pricing standard that we are establishing
for interconnection and unbundled elements.
(2) Pricing Rule
701. States have three options for establishing transport and
termination rate levels. A state commission may conduct a thorough
review of economic studies prepared using the TELRIC-based methodology
outlined above in the section on the pricing of interconnection and
unbundled elements. Alternatively, the state may adopt a default price
pursuant to the default proxies outlined below. If the state adopts a
default price, it must either commence review of a TELRIC-based
economic cost study, request that this Commission review such a study,
or subsequently modify the default price in accordance with any revised
proxies we may adopt. As previously noted, we intend to commence a
future rulemaking on developing proxies using a generic cost model, and
to complete such proceeding in the first quarter of 1997. As a third
alternative, in some circumstances states may order a ``bill and keep''
arrangement, as discussed below.
(3) Cost-Based Pricing Methodology
702. Consistent with our conclusions about the pricing of
interconnection and unbundled network elements, we conclude that states
that elect to set rates through a cost study must use the forward-
looking economic cost-based methodology, which is described in greater
detail above, in establishing rates for reciprocal transport and
termination when arbitrating interconnection arrangements. We find that
section 252(d)(2)(B)(ii), which indicates that section 252(d)(2) shall
not be construed to ``authorize the Commission or any State to engage
in any rate regulation proceeding to establish with particularity the
additional costs of transporting or terminating calls,'' does not
preclude states or this Commission from reviewing forward-looking
economic cost studies. First, we believe that Congress intended the
term ``rate regulation proceeding'' in section 252(d)(2)(B)(ii) to mean
the same thing as ``a rate-of-return or other rate-based proceeding''
in section 252(d)(1)(A)(i). In the section on the pricing of
interconnection and unbundled elements above, we conclude that the
statutory prohibition of the use of such proceedings is intended to
foreclose the use of traditional rate case proceedings using rate-of-
return regulation. Moreover, forward-looking economic cost studies
typically involve ``a reasonable approximation of the additional
cost,'' rather than determining such costs ``with particularity,'' such
as by measuring labor costs with detailed time and motion studies.
703. We find that, once a call has been delivered to the incumbent
LEC end office serving the called party, the ``additional cost'' to the
LEC of terminating a call that originates on a competing carrier's
network primarily consists of the traffic-sensitive component of local
switching. The network elements involved with the termination of
traffic include the end-office switch and local loop. The costs of
local loops and line ports associated with local switches do not vary
in proportion to the number of calls terminated over these facilities.
The duty to terminate calls that originate on the network of a
competitor does not directly affect the number of calls routed to a
particular end user and any costs that result from inadequate loop
capacity are, therefore, not considered ``additional costs.'' We
conclude that such non-traffic sensitive costs should not be considered
``additional costs'' when a LEC terminates a call that originated on
the network of a competing carrier. For the purposes of setting rates
under section 252(d)(2), only that portion of the forward-looking,
economic cost of end-office switching that is recovered on a usage-
sensitive basis constitutes an ``additional cost'' to be recovered
through termination charges.
704. Rates for termination established pursuant to a TELRIC-based
methodology may recover a reasonable allocation of common costs. A rate
equal to incremental costs may not compensate carriers fully for
transporting and terminating traffic when common costs are present. We
therefore reject the argument by some commenters that ``additional
costs'' may not include a reasonable allocation of forward-looking
common costs. We recognize that, as noted by Time Warner, call
termination is an essential element in completing calls because
competitors are required to use the incumbent LECs' existing networks
to terminate calls to incumbent LEC customers. The 1996 Act envisions a
seamless interconnection of competing networks, rather than the
development of redundant, ubiquitous networks throughout the nation. In
order to terminate traffic ubiquitously to other companies' local
customers, all LECs are given the right to use termination services
from those companies rather than construct facilities to everyone.
While, on the originating end, carriers have different options to reach
their revenue-paying customers--including their own network facilities,
purchasing access to unbundled elements of the incumbent LEC, or
resale--they have no realistic alternatives for terminating traffic
destined for competing carriers' subscribers other than to use those
carriers' networks. Thus, all carriers--incumbent LECs as well as
competing carriers--have a greater incentive and opportunity to charge
prices in excess of economically efficient levels on the terminating
end. To ensure that rates for reciprocal compensation make possible
efficient competitive entry, we conclude that termination rates should
include an allocation of forward-looking common costs that is no
greater proportionally than that allocated to unbundled local loops,
which, as discussed above, should be relatively low. Additionally, we
conclude that rates for the transport and termination of traffic shall
not include an element that allows incumbent LECs to recover any lost
contribution to basic, local service rates represented by the
interconnecting carriers' service, because such an element would be
inconsistent with the statutory requirement that rates for transport
and termination be based on additional costs. In the section addressing
prices for unbundled elements we conclude that the ECPR, which would
allow incumbent LECs to recover such lost contributions, or collection
of universal service costs through interconnection rates, leads to
significant distortions in markets when existing retail prices are not
cost-based.
705. We also address the impact on small incumbent LECs. For
example, the Western Alliance argues that it is especially important
for small LECs to recover lost contributions and common costs through
termination charges. We have considered the economic impact of our
rules in this section on small incumbent LECs. For example, we conclude
that termination rates for all LECs should include an allocation of
forward-looking common costs, but find that the inclusion of an element
for the
[[Page 45581]]
recovery of lost contribution may lead to significant distortions in
local exchange markets. We also note that certain small incumbent LECs
are not subject to our rules under section 251(f)(1) of the 1996 Act,
unless otherwise determined by a state commission, and certain other
small incumbent LECs may seek relief from their state commissions from
our rules under section 251(f)(2) of the 1996 Act.
(4) Default Proxies
706. As with unbundled network elements, we recognize that it may
not be feasible for some state commissions conducting or reviewing
economic studies to establish transport and termination rates using our
TELRIC-based pricing methodology within the time required for the
arbitration process, particularly given some states' resource
limitations. Thus, for the time being, we adopt a default price range
of 0.2 cents ($0.002) to 0.4 cents ($0.004) per minute of use for calls
handed off at the end-office switch. This default price range is based
on the same proxies that apply to local switching as an unbundled
network element. In establishing end-office termination rates, states
may adopt a default termination price that is within our default price
range or at either of the end points of the range. States should
articulate the basis for selecting a particular price within this
range. Thus, in arbitration proceedings, states must set the price for
end office termination of traffic by: (1) using a forward-looking,
economic cost study that complies with the forward-looking, economic-
cost methodology set forth above; or (2) adopting a price less than or
equal to 0.4 cents ($0.004) per minute, and greater than or equal to
0.2 cents ($0.002) per minute, pending the completion of such a
forward-looking, economic cost study. We observe that the most credible
studies in the record before us fall at the lower end of this range,
and we encourage states to consider such evidence in their analysis.
The adoption of a range of rates to serve as a default price range for
interconnection agreements being arbitrated by the states provides
carriers with a clearer understanding of the terms and conditions that
will govern them if they fail to reach an agreement and helps to reduce
the transaction costs of arbitration and litigation. We also find that
states that have already adopted end-office termination rates based on
an approach other than a full forward-looking cost study, either
through arbitration or rulemaking proceedings, may keep such rates in
effect, pending their review of a forward-looking cost study, as long
as they do not exceed 0.5 cents ($0.005) per minute. As discussed
below, a state may also order a ``bill and keep'' arrangement subject
to certain limitations. Additionally, our adoption of a default price
range temporarily relieves small and mid-sized carriers from the burden
of conducting forward-looking economic cost studies.
707. Similarly, in establishing transport rates under sections
251(b)(5) and 252(d)(2), state commissions should be guided by the
price proxies that we are establishing for unbundled transport elements
discussed above. States should explain the basis for selecting a
particular default price subject to the applicable ceiling.
Specifically, when interconnecting carriers hand off traffic at an
incumbent LEC's tandem switch (or equivalent facilities of a carrier
other than an incumbent LEC), the rates for the tandem switching and
transmission from the tandem switch to end offices--a portion of the
``transport'' component of transport and termination rates-- should be
subject to the proxies that apply to the analogous unbundled network
elements. Thus, for the time being, when states set rates for tandem
switching under section 252(d)(2), they may set a default price at or
below the default price ceiling that applies to the tandem switching
unbundled element as an alternative to reviewing a forward-looking
economic cost study using our TELRIC methodology. Similarly, when
states set rates for transmission facilities between tandem switches
and end offices, they may establish rates equal to the default prices
we are adopting for such transmission, as discussed above in the
section on unbundled elements.
708. Finally, in establishing the rates for transmission facilities
that are dedicated to the transmission of traffic between two networks,
state commissions should be guided by the default price level we are
adopting for the unbundled element of dedicated transport. For such
dedicated transport, we can envision several scenarios involving a
local carrier that provides transmission facilities (the ``providing
carrier'') and another local carrier with which it interconnects (the
``interconnecting carrier''). The amount an interconnecting carrier
pays for dedicated transport is to be proportional to its relative use
of the dedicated facility. For example, if the providing carrier
provides one-way trunks that the interconnecting carrier uses
exclusively for sending terminating traffic to the providing carrier,
then the interconnecting carrier is to pay the providing carrier a rate
that recovers the full forward-looking economic cost of those trunks.
The interconnecting carrier, however, should not be required to pay the
providing carrier for one-way trunks in the opposite direction, which
the providing carrier owns and uses to send its own traffic to the
interconnecting carrier. Under an alternative scenario, if the
providing carrier provides two-way trunks between its network and the
interconnecting carrier's network, then the interconnecting carrier
should not have to pay the providing carrier a rate that recovers the
full cost of those trunks. These two-way trunks are used by the
providing carrier to send terminating traffic to the interconnecting
carrier, as well as by the interconnecting carrier to send terminating
traffic to the providing carrier. Rather, the interconnecting carrier
shall pay the providing carrier a rate that reflects only the
proportion of the trunk capacity that the interconnecting carrier uses
to send terminating traffic to the providing carrier. This proportion
may be measured either based on the total flow of traffic over the
trunks, or based on the flow of traffic during peak periods. Carriers
operating under arrangements which do not comport with the principles
we have set forth above, shall be entitled to convert such arrangements
so that each carrier is only paying for the transport of traffic it
originates, as of the effective date of this order.
(5) Rate Structure
709. Nearly all commenters agree that flat rates, rather than
usage-sensitive rates, should apply to the purchase of dedicated
facilities. As discussed in the NPRM, economic efficiency may generally
be maximized when non-traffic sensitive services, such as the use of
dedicated facilities for the transport of traffic, are priced on a
flat-rated basis. We, therefore, require all interconnecting parties to
be offered the option of purchasing dedicated facilities, for the
transport of traffic, on a flat-rated basis. As discussed by Lincoln
Telephone, the connection between an incumbent LEC's end or tandem
office and an interconnecting LEC's network is likely to be a dedicated
facility. We recognize that the facility itself can be provided in a
number of different ways--by use of two service providers, by the other
carrier, or jointly in a meet-point arrangement. We conclude first
that, no matter what the specific arrangements, these costs should be
recovered in a cost-causative manner and that usage-based charges
should be limited to situations where costs are usage sensitive. In
cases going to arbitration and in reviewing BOC statements of terms and
conditions, the
[[Page 45582]]
carrier actually providing the facility should presumptively be
entitled to a rate that is set based on the forward-looking economic
cost of providing the portion of the facility that is used for
terminating traffic that originates on the network of a competing
carrier. We recognize that negotiated agreements may incorporate flat-
rated charges when it is efficient to do so and find that the presence
of the arbitration default rule is likely to lead parties to negotiate
efficient rate structures.
710. We recognize that the costs of transporting and terminating
traffic during peak and off-peak hours may not be the same. As
suggested by the Massachusetts Attorney General, rates that are the
same during peak and off-peak hours may not reflect the cost of using
the network and could lead to inefficient use of the network. The
differences in the cost of transporting and terminating traffic during
peak and off-peak hours, however, are likely to vary depending on the
network, and the amount and type of traffic terminated at a particular
switch. For example, peak periods may vary within a local service area
depending upon whether the switch is located in a business or
residential area. As a result, there may be administrative difficulties
in establishing peak-load pricing schemes that may outweigh the
benefits of such schemes. The negotiating parties, however, are likely
to be in a position to more accurately determine how traffic patterns
will adjust to peak-load pricing schemes and we encourage parties to
address such pricing schemes in the negotiation process. For similar
reasons, we neither require nor forbid states from adopting rates that
reflect peak and off-peak costs. We hope some states will evaluate the
benefits and costs of pricing schemes that consist of different rates
for peak and off-peak traffic. We do require, however, that peak-load
pricing schemes, adopted through the arbitration process, comply with
our default price level if not based on a forward-looking cost study
(e.g., the average rate, weighted by the projected relative minutes of
use during peak and off-peak periods, should fall within our default
price range of 0.2 to 0.4 cents or the level determined by an
incremental cost study).
(6) Interim Transport and Termination Rate Levels
711. We are concerned that some new entrants that do not already
have interconnection arrangements with incumbent LECs may face delays
in initiating service solely because of the need to negotiate transport
and termination arrangements with the incumbent LEC. In particular, a
new entrant that has already constructed facilities may have a
relatively weak bargaining position because it may be forced to choose
either to accept transport and termination rates not in accord with
these rules or to delay its commencement of service until the
conclusion of the arbitration and state approval process. To promote
the Act's goal of rapid competition in the local exchange, we order
incumbent LECs upon request from new entrants to provide transport and
termination of traffic, on an interim basis, pending resolution of
negotiation and arbitration regarding transport and termination prices,
and approval by the state commission. A carrier may take advantage of
this interim arrangement only after it has requested negotiation with
the incumbent LEC. The interim arrangement shall cease to be in effect
when one of the following occurs: (1) an agreement has been negotiated
and approved; (2) an agreement has been arbitrated and approved; or (3)
the period for requesting arbitration has passed with no such request.
We also conclude that interim prices for transport and termination
shall be symmetrical. Because the purpose of this interim termination
requirement is to permit parties without existing interconnection
agreements to enter the market expeditiously, this requirement shall
not apply with respect to requesting carriers that have existing
interconnection arrangements that provide for termination of local
traffic by the incumbent LEC. The ability to interconnect with an
incumbent LEC prior to the completion of a forward-looking, economic
cost study, based on an interim presumptive price ceiling, allows
carriers, including small entrants, to enter into local exchange
service expeditiously.
712. In states that have already conducted or reviewed forward-
looking economic cost studies and promulgated transport and termination
rates based on such studies, an incumbent LEC receiving a request for
interim transport and termination shall use these state-determined
rates as interim transport and termination rates. In states that have
not conducted or reviewed a forward-looking economic cost study, but
have set rates for transport and termination of traffic consistent with
the default price ranges and ceilings discussed above, an incumbent LEC
shall use these state-determined rates as interim rates. In states that
have neither set rates consistent with the default price ceilings and
ranges nor reviewed or conducted forward-looking economic cost studies,
we must establish an interim default price in order to facilitate rapid
competition in the local exchange market. In those states, an incumbent
LEC shall set interim rates at the default ceilings for end-office
switching (0.4 cents per minute of use), tandem switching (0.15 cents
per minute of use), and transport described above. Using the ceiling as
a default interim price, pending a state commission's completion of a
forward-looking economic cost analysis, should ensure that both the
incumbent LEC and the competing provider recovers no less than their
full transport and termination costs. We note, however, that the most
credible evidence in the record suggests that the actual forward-
looking economic cost of end-office switching is closer to 0.2 cents
($0.002) per minute of use than the ceiling of 0.4 cents ($0.004) per
minute of use. States must adopt ``true-up'' mechanisms to ensure that
no carrier is disadvantaged by an interim rate that differs from the
final rate established pursuant to arbitration.
713. We conclude that section 251, in conjunction with our broad
rulemaking authority under section 4(i), provides us with authority to
create interim pricing rules to facilitate market entry. Because
section 251(d)(1) gives the FCC authority ``to establish regulations to
implement the requirements of this section,'' we find that section
251(d)(1) gives the Commission authority to establish interim
regulations that address the ``just and reasonable'' rates for the
``reciprocal compensation'' requirement of section 251(b)(5), subject
to the preservation requirements of section 251(d)(3). Courts have
upheld our adoption of interim compensation arrangements pursuant to
our authority under section 4(i) of the 1934 Communications Act on
numerous occasions in the past. See New England Tel. and Tel. Co. v.
FCC, 826 F.2d 1101 (D.C. Cir. 1987); North American Telecommunications
Association v. FCC, 772 F.2d 1092 (7th Cir. 1085); Lincoln Tel. and
Tel. Co. v. FCC, 659 F.2d (D.C. Cir. 1989). In particular, we have
authority, under section 4(i), to set interim rates subject to a later
``true-up'' when final rates are established. ``[T]he Commission's
establishment of an interim billing and collection arrangement was both
a helpful and necessary step for the Commission to take in implementing
its `immediate' interconnection order.'' Lincoln Telephone & Telegraph
Co. v. FCC, 659 F.2d 1092, 1107 (D.C. Cir. 1981) (upholding Commission
decision requiring an incumbent LEC to interconnect with MCI
immediately, in
[[Page 45583]]
order not to delay interconnection, at interim rates subject to later
adjustment); see also FTC Communications v. FCC, 750 F.2d 226 (2d Cir.
1984) (affirming Commission's authority under Section 4(i) to set
interim rates for interconnection between the domestic record carrier,
Western Union, and international record carriers, subject to an
accounting order, pending the conclusion of a rulemaking to set
permanent rates replacing expired, contract-based rates). We therefore
conclude that the default prices discussed above need not in all
instances await the conclusion of the negotiation, arbitration, and
state approval process set forth in section 252, but must nevertheless
be in accordance with the requirements of section 251(d)(3) preserving
state access regulations. We also observe that we proposed a similar
interim transport and termination arrangement, albeit with different
rate levels, in our NPRM in the LEC-CMRS Interconnection proceeding.
LEC-CMRS Interconnection NPRM, 61 FR 3644 (February 1, 1996).
714. We have considered the economic impact of our rules in this
section on small incumbent LECs. For example, Cincinnati Bell asserts
that interim mechanisms are not required because large corporations are
not disadvantaged by unequal bargaining power in negotiations with
small and mid-size incumbent LECs. We do not adopt Cincinnati Bell's
position because some new entrants, regardless of their size, that do
not already have interconnection arrangements with incumbent LECs may
face delays in initiating service solely because of the need to
negotiate transport and termination arrangements with the incumbent
LEC. We believe that the adoption of interim rates, subject to a
``true-up,'' advances the pro-competitive goals of the statute. We also
note that certain small incumbent LECs are not subject to our rules
under section 251(f)(1) of the 1996 Act, unless otherwise determined by
a state commission, and certain other small incumbent LECs may seek
relief from their state commissions from our rules under section
251(f)(2) of the 1996 Act.
4. Symmetry
a. Background
715. Symmetrical compensation arrangements are those in which the
rate paid by an incumbent LEC to another telecommunications carrier for
transport and termination of traffic originated by the incumbent LEC is
the same as the rate the incumbent LEC charges to transport and
terminate traffic originated by the other telecommunications carrier.
Incumbent LECs are not likely to purchase interconnection or unbundled
elements from competitive LECs, except for termination of traffic, and
possibly transport. In the NPRM, we sought comment on whether rate
symmetry requirements are consistent with the statutory requirement
that rates set by states for transport and termination of traffic be
based on ``costs associated with the transport and termination on each
carrier's network facilities of calls that originate on the network
facilities of the other carrier,'' and ``a reasonable approximation of
the additional costs of terminating such calls.''
716. In addition, we noted in the NPRM that the Illinois, Maryland,
and New York commissions have established different rates for
termination of traffic on an incumbent LEC's network, depending upon
whether the traffic is handed off at the incumbent LEC's end office or
tandem switch. We also observed that California and Michigan have
established one rate that applies to transport and termination of all
competing local exchange carrier traffic on incumbent LEC networks,
regardless of whether the traffic is handed off at the incumbent LEC's
end office or tandem switch, although this rate does not currently
apply to CMRS. We, therefore, address whether rates for transport and
termination should be symmetrical and consist of only a single rate
regardless of where the call is handed off, or if rates should be
priced on an element-by-element basis.
717. In the LEC-CMRS Interconnection NPRM, we sought comment on
whether incumbent LECs were utilizing their greater bargaining power to
negotiate with wireless carriers interconnection agreements that did
not reflect principles of mutual compensation. We sought comment on
whether we should institute some procedure or mechanism in addition to
our section 208 enforcement process to ensure that incumbent LECs
comply with our existing rules requiring mutual compensation. LEC-CMRS
Interconnection NPRM, 61 FR 3644 (February 1, 1996).
b. Discussion
(1) Symmetry in General
718. Regardless of whether the incumbent LEC's transport and
termination prices are set using a TELRIC-based economic cost study or
a default proxy, we conclude that it is reasonable to adopt the
incumbent LEC's transport and termination prices as a presumptive proxy
for other telecommunications carriers' additional costs of transport
and termination. Both the incumbent LEC and the interconnecting
carriers usually will be providing service in the same geographic area,
so the forward-looking economic costs should be similar in most cases.
We also conclude that using the incumbent LEC's forward-looking costs
for transport and termination of traffic as a proxy for the costs
incurred by interconnecting carriers satisfies the requirement of
section 252(d)(2) that costs be determined ``on the basis of a
reasonable approximation of the additional costs of terminating such
calls.'' Using the incumbent LEC's cost studies as proxies for
reciprocal compensation is consistent with section 252(d)(2)(B)(ii),
which prohibits ``establishing with particularity the additional costs
of transporting or terminating calls.'' If both parties are incumbent
LECs (e.g., an independent LEC and an adjacent BOC), we conclude that
the larger LEC's forward-looking costs should be used to establish the
symmetrical rate for transport and termination. We conclude that larger
LECs are generally in a better position to conduct a forward-looking
economic cost study than smaller carriers.
719. We conclude that imposing symmetrical rates based on the
incumbent LEC's additional forward-looking costs will not substantially
reduce carriers' incentives to minimize those costs. A symmetric
compensation rule gives the competing carriers correct incentives to
minimize its own costs of termination because its termination revenues
do not vary directly with changes in its own costs. Moreover,
symmetrical rates based on the incumbent LEC's costs should not
seriously affect incumbent LECs' incentives to control costs. We expect
that incumbent LECs will transport and terminate much more traffic that
originates on their own networks than traffic that originates on
competing carriers' networks. Even if, under the additional cost
standard, incumbent LECs were required to reflect any improvements in
operating efficiency, and consequent cost reductions, in reduced
termination rates, the cost savings realized by the incumbent LEC are
likely to be much greater than its reduction in net termination
revenues, because the majority of traffic transported and terminated is
likely to be its own. Even if a pass-through of incumbent LEC's cost
reductions were instantaneous and complete, the number of minutes of
use on which an incumbent LEC's net termination revenues is assessed is
much smaller
[[Page 45584]]
than its overall number of minutes of switching and transport.
Moreover, if a portion of the reduction in costs is specific to
exchange traffic, under symmetrical rates, the LEC's revenues from
terminating traffic originating from another local carrier are based on
the net difference in traffic, which is likely to be much smaller than
the total traffic it terminates. Consider a situation approximating
traditional LEC-CMRS interconnection, in which traffic flows are
substantially unbalanced: let us suppose, of 1,000,000 minutes of use,
750,000 are CMRS-to-LEC and 250,000 LEC-to-CMRS. Thus, under symmetric
compensation at 0.3 cents per minute, the LEC receives 0.3 cents times
500,000, or $1,500.00. If it reduced its per-minute cost, for some
reason only on terminating CMRS-to-LEC traffic, to 0.2 cents per
minute, it would save 0.1 cent times 750,000, or $750.00, in reduced
costs, whereas its terminating revenues would fall by only 0.1 cent
times 500,000, or $500.00. Thus, it would still have substantial
incentive to make the cost reduction in question. In situations closer
to traffic balance, the incentive is even more favorable. And, of
course, the LEC probably also reduces its cost of switching on many
millions of other minutes that do not involve other networks at the
same time. For example, in the case where traffic is balanced, net
termination charges are zero, a figure that is unaffected by changes in
the incumbent LEC's costs, and the incumbent LEC is provided with
correct incentives to minimize termination costs.
720. We also find that symmetrical rates may reduce an incumbent
LEC's ability to use its bargaining strength to negotiate excessively
high termination charges that competitors would pay the incumbent LEC
and excessively low termination rates that the incumbent LEC would pay
interconnecting carriers. As discussed by commenters in the LEC-CMRS
Interconnection proceeding, LECs have used their unequal bargaining
position to impose asymmetrical rates for CMRS providers and, in some
instances, have charged CMRS providers origination as well as
termination charges. On the other hand, symmetrical rates largely
eliminate such advantages because they require incumbent LECs, as well
as competing carriers, to pay the same rate for reciprocal
compensation.
721. Symmetrical compensation rates are also administratively
easier to derive and manage than asymmetrical rates based on the costs
of each of the respective carriers. In addition, we believe that using
the incumbent LEC's cost studies to establish the presumptive
symmetrical rates will establish reasonable opportunities for local
competition, including opportunities for small telecommunications
companies entering the local exchange market. We have considered the
economic impact of our rules in this section on small incumbent LECs.
For example, RTC argues that symmetrical rates do not consider the
costs involved in the use of another carrier's network. We find,
however, that incumbent LECs' costs, including small incumbent LECs'
costs, serve as reasonable proxies for other carriers' costs of
transport and termination for the purpose of reciprocal compensation.
We also note that certain small incumbent LECs are not subject to our
rules under section 251(f)(1) of the 1996 Act, unless otherwise
determined by a state commission, and certain other small incumbent
LECs may seek relief from their state commissions from our rules under
section 251(f)(2) of the 1996 Act. In addition, symmetry will avoid the
need for small businesses to conduct forward-looking economic cost
studies in order for the states to arbitrate reciprocal compensation
disputes.
722. Given the advantages of symmetrical rates, we direct states to
establish presumptive symmetrical rates based on the incumbent LEC's
costs for transport and termination of traffic when arbitrating
disputes under section 252(d)(2) and in reviewing BOC statements of
generally available terms and conditions. If a competing local service
provider believes that its cost will be greater than that of the
incumbent LEC for transport and termination, then it must submit a
forward-looking economic cost study to rebut this presumptive
symmetrical rate. In that case, we direct state commissions, when
arbitrating interconnection arrangements, to depart from symmetrical
rates only if they find that the costs of efficiently configured and
operated systems are not symmetrical and justify a different
compensation rate. In doing so, however, state commissions must give
full and fair effect to the economic costing methodology we set forth
in this order, and create a factual record, including the cost study,
sufficient for purposes of review after notice and opportunity for the
affected parties to participate. In the absence of such a cost study
justifying a departure from the presumption of symmetrical
compensation, reciprocal compensation for the transport and termination
of traffic shall be based on the incumbent local exchange carrier's
cost studies.
723. We find that the ``additional costs'' incurred by a LEC when
transporting and terminating a call that originated on a competing
carrier's network are likely to vary depending on whether tandem
switching is involved. We, therefore, conclude that states may
establish transport and termination rates in the arbitration process
that vary according to whether the traffic is routed through a tandem
switch or directly to the end-office switch. In such event, states
shall also consider whether new technologies (e.g., fiber ring or
wireless networks) perform functions similar to those performed by an
incumbent LEC's tandem switch and thus, whether some or all calls
terminating on the new entrant's network should be priced the same as
the sum of transport and termination via the incumbent LEC's tandem
switch. Where the interconnecting carrier's switch serves a geographic
area comparable to that served by the incumbent LEC's tandem switch,
the appropriate proxy for the interconnecting carrier's additional
costs is the LEC tandem interconnection rate.
724. We disagree with TCI's claim that higher charges for routing
calls through tandem switches rather than directly through incumbent
LECs' end offices will materially discourage carriers from routing
traffic through tandem switches, even when it is efficient to do so.
New entrants will only be encouraged to interconnect at end-office
switches, rather than tandem switches, when the decrease in incumbent
LEC transport charges justifies the extra costs incurred by the new
entrant to route traffic directly through the incumbent LEC's end-
office switches. Carriers will interconnect in a way that minimizes
their costs of interconnection, including the use of cost-based LEC
network elements. In addition, the flexibility given to states may
allow carriers, including small entities, with different network
architectures to establish rates for terminating calls originating on
other carriers' networks that are asymmetrical, if they can show that
the costs of efficiently configured and operated systems are not
symmetrical and justify different compensation rates, instead of being
based on competitors' network architectures.
725. We believe, with respect to interconnection between LECs and
paging providers, that there should be an exception to our rule that
states must establish presumptive symmetrical rates based on the
incumbent LEC's costs for transport and termination of traffic. While
paging providers, as telecommunications carriers, are entitled to
mutual compensation for the
[[Page 45585]]
transport and termination of local traffic, and should not be required
to pay charges for traffic that originates on other carriers' networks,
we believe that incumbent LECs' forward-looking costs may not be
reasonable proxies for the costs of paging providers. Paging is
typically a significantly different service than wireline or wireless
voice service and uses different types and amounts of equipment and
facilities. PageNet's own network, for example, is based on a regional
hub and spoke network that transmits paging calls from radio
transmitters to provide regional or national coverage. This
configuration is distinctly different from either LEC wireline
networks, with their hierarchy of switches and transmission facilities,
or cellular carriers, with their multiple cells and sophisticated
systems for handing off calls as a vehicle moves across cell
boundaries. In addition, most calls terminated by paging companies are
brief (averaging 15 seconds) in duration and contain no voice message,
but only an alpha-numeric message of a few characters. Using incumbent
LEC's costs for termination of traffic as a proxy for paging providers'
costs, when the LECs' costs are likely higher than paging providers'
cost, might create uneconomic incentives for paging providers to
generate traffic simply in order to receive termination compensation.
Thus, using LEC costs for termination of voice calls thus may not be a
reasonable proxy for paging costs as the types of switching and
transport that paging carriers perform are different from those of LECs
and other voice carriers.
726. Given the lack of information in the record concerning paging
providers' costs to terminate local traffic, we have decided to
initiate a further proceeding to try to determine what an appropriate
proxy for paging costs would be and, if necessary, to set a specific
paging default proxy. In the interim, however, in the event that LECs
and paging companies cannot negotiate agreed-upon rates, we direct
states, when arbitrating disputes under section 252(d)(2), to establish
rates for the termination of traffic by paging providers based on the
forward-looking economic costs of such termination to the paging
provider. The paging provider seeking termination fees must prove to
the state commission the costs of terminating local calls. Given the
lack of information in the record concerning paging providers' costs,
we further conclude that the default price for termination of traffic
from the end office that we adopt in this proceeding in Section
XI.B.3., supra, does not apply to termination of traffic by paging
providers. This default price is based on estimates in the record of
the costs to LECs of termination from the end office or end-office
switching. There are no such estimates with respect to paging in the
record, and as discussed above, we find that estimates of LEC costs may
not reflect paging providers' costs.
(2) Existing Non-Reciprocal Agreements Between Incumbent LECs and CMRS
Providers
727. Section 20.11 of our rules, which predates enactment of the
1996 Act, requires that interconnection agreements between incumbent
LECs and CMRS providers comply with principles of mutual compensation,
and that each carrier pay reasonable compensation for transport and
termination of the other carrier's calls. Based on the extensive record
in the LEC-CMRS Interconnection proceeding, as well as that in this
proceeding, we conclude that, in many cases, incumbent LECs appear to
have imposed arrangements that provide little or no compensation for
calls terminated on wireless networks, and in some cases imposed
charges for traffic originated on CMRS providers' networks, both in
violation of section 20.11 of our rules. Accordingly, we conclude that
CMRS providers that are party to pre-existing agreements with incumbent
LECs that provide for non-mutual compensation have the option to
renegotiate these agreements with no termination liabilities or other
contract penalties. Pending the successful completion of negotiations
or arbitration, symmetrical reciprocal compensation provisions shall
apply, with the transport and termination rate that the incumbent LEC
charges the CMRS provider from the pre-existing agreement applying to
both carriers, as of the effective date of the rules we adopt pursuant
to this order.
728. In addition, we conclude that this opportunity for CMRS
providers currently operating under arrangements with non-mutual
transport and termination rates to renegotiate such arrangements
advances the mutual compensation regime contemplated under section
251(b)(5) of the 1996 Act. We use the term ``reciprocal compensation''
and ``mutual compensation'' synonymously to mean that compensation
flows in both directions between interconnecting networks. LEC-CMRS
Interconnection NPRM. We find that extending the opportunity to
establish symmetrical reciprocal compensation for the transport and
termination of traffic addresses inequalities in bargaining power that
incumbent LECs may use to disadvantage interconnecting wireless
carriers. At the same time, our rule will place wireless carriers with
non-mutual, existing agreements on the same footing as other new
entrants, who will be able to negotiate more equitable interconnection
agreements because of the rules we put in place with this Report and
Order. We find that we have ample authority under section 4(i) of the
1934 Act as well as section 251 of the 1996 Act, to order this remedy.
Courts have held that ``the Commission has the power to prescribe a
change in contract rates when it finds them to be unlawful * * * and to
modify other provisions of private contracts when necessary to serve
the public interest.'' Western Union Tel. Co. v. FCC, 815 F.2d 1495,
1501 (D.C. Cir. 1987). The Commission has adopted similar ``fresh
look'' requirements in the past. The opportunity that we are affording
to CMRS providers in this context is consistent with similar ``fresh
look'' requirements that we have adopted in the past. See, e.g.,
Expanded Interconnection with Local Telephone Company Facilities Report
and Order and NPRM, 57 FR 54323 (November 18, 1992), recon., 58 FR
48752 (September 17, 1993) (fresh look to enable customers to take
advantage of new competitive opportunities under special access
expanded interconnection), vacated on other grounds and remanded for
further proceedings sub nom. Bell Atlantic Tel. Cos. v. FCC, 24 F.3d
1441 (1994); Competition in the Interstate Interexchange Marketplace
Memorandum Opinion and Order on Reconsideration, 57 FR 20206 (May 12,
1992) (``fresh look'' in context of 800 bundling with interexchange
offerings); Amendment of the Commission's Rules Relative to Allocation
of the 849-851/894-896 MHz Bands Memorandum Opinion and Order on
Reconsideration, 56 FR 37853 (August 9, 1991) (``fresh look''
requirements imposed in context of air-ground radiotelephone service as
condition of grant of Title III license).
5. Bill and Keep
a. Background
729. Local Competition NPRM. In the NPRM, we defined bill-and-keep
arrangements as those in which neither of two interconnecting networks
charges the other network for terminating traffic that originated on
the other network. Instead, each network recovers from its own end
users the cost of both originating traffic delivered to the other
network and terminating traffic received from the other network. A
bill-and-keep approach for termination of traffic does
[[Page 45586]]
not, however, preclude a positive flat-rated charge for transport of
traffic between carriers' networks.
730. We sought comment on what guidance we should give state
commissions regarding the use of bill-and-keep arrangements in
arbitrated interconnection arrangements. We sought comment on whether
section 252(d)(2)(B)(ii) specifically authorizes states to impose bill-
and-keep arrangements in the arbitration process, at least when certain
conditions are met. We also sought comment on whether we should
interpret the statute as placing any limits on the circumstances in
which states may adopt bill-and-keep arrangements. We also asked for
comment on the meaning of the statutory description of bill-and-keep
arrangements as ``arrangements that waive mutual recovery.'' In
addition, we sought comment on whether there are any circumstances in
which the statute requires states to establish bill-and-keep
arrangements.
731. LEC-CMRS Interconnection NPRM. In the LEC-CMRS Interconnection
NPRM, we proposed bill and keep as an interim arrangement. LEC-CMRS
Interconnection NPRM, 61 FR 3644 (February 1, 1996). We noted there
that proponents have argued that bill-and-keep would be economically
efficient if either of two conditions are met: (1) traffic flows
between competing LECs are balanced; or (2) the per-unit cost of
interconnection is de minimis. We, therefore, address whether interim
bill-and-keep arrangements for LEC-CMRS traffic should be imposed.
b. Discussion
732. As an additional option for reciprocal compensation
arrangements for termination services, we conclude that state
commissions may impose bill-and-keep arrangements if neither carrier
has rebutted the presumption of symmetrical rates and if the volume of
terminating traffic that originates on one network and terminates on
another network is approximately equal to the volume of terminating
traffic flowing in the opposite direction, and is expected to remain
so, as defined below. We disagree with commenters who contend that the
Commission and states do not have the authority to mandate bill-and-
keep arrangements under any circumstances. Section 252(d)(2)(B)(i)
provides that the definition of what may be considered ``just and
reasonable'' terms and conditions for reciprocal compensation ``shall
not be construed to preclude arrangements that afford mutual recovery
(such as bill-and-keep arrangements).'' We conclude that section
252(d)(2) would be superfluous if bill-and-keep arrangements were
limited to negotiated agreements, because none of the standards in
section 252(d) apply to voluntarily-negotiated agreements. Therefore,
it is clear that bill-and-keep arrangements may be imposed in the
context of the arbitration process for termination of traffic, at least
in some circumstances.
733. Section 252(d)(2)(A)(i) provides that to be just and
reasonable, reciprocal compensation must ``provide for the mutual and
reciprocal recovery by each carrier of costs associated with transport
and termination.'' In general, we find that carriers incur costs in
terminating traffic that are not de minimis, and consequently, bill-
and-keep arrangements that lack any provisions for compensation do not
provide for recovery of costs. In addition, as long as the cost of
terminating traffic is positive, bill-and-keep arrangements are not
economically efficient because they distort carriers' incentives,
encouraging them to overuse competing carriers' termination facilities
by seeking customers that primarily originate traffic. On the other
hand, when states impose symmetrical rates for the termination of
traffic, payments from one carrier to the other can be expected to be
offset by payments in the opposite direction when traffic from one
network to the other is approximately balanced with the traffic flowing
in the opposite direction. In such circumstances, bill-and-keep
arrangements may minimize administrative burdens and transaction costs.
We find that, in certain circumstances, the advantages of bill-and-keep
arrangements outweigh the disadvantages, but no party has convincingly
explained why, in such circumstances, parties themselves would not
agree to bill-and-keep arrangements. We are mindful, however, that
negotiations may fail for a variety of reasons. We conclude, therefore,
that states may impose bill-and-keep arrangements if traffic is roughly
balanced in the two directions and neither carrier has rebutted the
presumption of symmetrical rates.
734. We further conclude that states may adopt specific thresholds
for determining when traffic is roughly balanced. If state commissions
impose bill-and-keep arrangements, those arrangements must either
include provisions that impose compensation obligations if traffic
becomes significantly out of balance or permit any party to request
that the state commission impose such compensation obligations based on
a showing that the traffic flows are inconsistent with the threshold
adopted by the state. For example, the Michigan Commission adopted a
five percent threshold for the difference between the traffic flows in
the two directions. States may, however, also apply a general
presumption that traffic between carriers is balanced and is likely to
remain so. In that case, a party asserting imbalanced traffic
arrangements must prove to the state commission that such imbalance
exists. Under such a presumption, bill-and-keep arrangements would be
justified unless a carrier seeking to rebut this presumption satisfies
its burden of proof. We also find that states that have adopted bill-
and-keep arrangements prior to the date that this order becomes
effective, either in arbitration or rulemaking proceedings, may retain
such arrangements, unless a party proves to the state commission that
traffic is not roughly balanced. In that case, the state commission is
to determine the transport and termination rates based either on the
forward-looking economic cost-based methodology or consistent with the
default proxies in this order. Finally, we observe that carriers have
an incentive to agree to bill-and-keep arrangements if it is
economically efficient to do so, and that nothing in the Act prevents
parties from agreeing to bill-and-keep arrangements even if a state
declines to mandate such arrangements. For example, we note that Time
Warner/BellSouth interconnection agreement provides for a bill-and-keep
arrangement based on a ``roughly balanced traffic'' concept.
735. In determining whether traffic is balanced, we find that
precise traffic measurement is not necessary. It is sufficient to use
approximations based on samples and studies comparable to reports on
percentages of interstate use often used for access charge billing.
Such an approach is likely to reduce implementation costs and
complexities. Alternatively, state commissions may require that traffic
flowing in the two directions be measured as accurately as possible
during some defined period of time, which may commence no later than
six months after an interconnection arrangement goes into effect. All
affected carriers are required to cooperate with the state commission
in implementing this measurement. A state commission that adopts a
traffic flow measurement approach may adopt a ``true-up'' mechanism to
ensure that no carrier is disadvantaged by an interim rate that differs
from the rate established once such a measurement is undertaken.
Finally, state commissions may require that local traffic and access
traffic be carried on separate trunk groups if they deem such measures
to be necessary to
[[Page 45587]]
ensure accurate measurement and billing.
736. We have considered the economic impact of our rules in this
section on small incumbent LECs. For example, RTC argues that bill-and-
keep arrangements fail to adequately deal with each carrier's costs. In
addition to basing reciprocal compensation on the incumbent LECs costs,
we believe that by allowing carriers to rebut a presumption of balanced
traffic volumes, the concern that bill-and-keep arrangements fail to
adequately deal with each carrier's costs are addressed. We also note
that certain small incumbent LECs are not subject to our rules under
section 251(f)(1) of the 1996 Act, unless otherwise determined by a
state commission, and certain other small incumbent LECs may seek
relief from their state commissions from our rules under section
251(f)(2) of the 1996 Act.
737. We disagree with commenters that argue that mandating bill-
and-keep arrangements in these circumstances violates the taking clause
of Fifth Amendment. We reject BellSouth's argument that mandating bill-
and-keep mechanisms would constitute a physical intrusion of LEC
property. As NCTA observes, bill-and-keep arrangements are not a
``physical occupation'' of incumbent LEC property and thus per se
takings cases are irrelevant. See Loretto v. Telepromter Manhattan CATV
Corp., 458 U.S. 419, 426 (1982); Lucas v. South Carolina Coastal
Council, 112 S.Ct. 2886, 2893 (1992). We also reject arguments that the
bill-and-keep arrangements we adopt here would not adequately
compensate incumbent LECs for transport and termination. As Congress
recognized, bill-and-keep arrangements allow each carrier compensation
``in-kind'' in the form of access to the other carrier's network.
Therefore, the type of bill-and-keep arrangements that we have
permitted states to adopt are not unconstitutionally confiscatory.
738. Commenters in the LEC-CMRS Interconnection NPRM assert that
the estimated per minute cost of LEC termination ranges from 0.2 to 1.3
cents, and most of the estimates are clustered near the lower end of
this range. These estimates are based primarily on interconnection at a
LEC end office, while most interconnections occur at tandem offices
where LECs' costs of call completion are higher than terminations
routed directly through the end office switch. Moreover, the record
contains no estimates of the cost of CMRS termination. That cost is
generally considered to be greater than the cost of LEC termination;
but only one oral, ex parte estimate of CMRS cost has been offered:
2.25 to 4.0 cents per minute. Further, there is no showing that the
transaction costs of measuring traffic flows and making net payments
would be so high that a bill-and-keep regime would be more efficient.
Moreover, no party has demonstrated that aggregate cost flows between
interconnecting LECs and CMRS providers are in balance.
739. In light of the overall transport and termination policy we
are adopting, we do not adopt the interim bill and keep arrangement
tentatively proposed in the LEC-CMRS Interconnection NPRM.
Notwithstanding our conclusions about bill and keep above, under which
states may rule on bill and keep for particular pairs of firms based on
the circumstances prevailing between them, we conclude that we are
correct in not adopting bill and keep as a single, nationwide policy
that would govern all LEC-CMRS transport and termination of traffic.
Thus, we reject our tentative conclusion in the LEC-CMRS
Interconnection NPRM. We expect, however, that when it is economically
efficient to do so, parties will adopt bill and keep arrangements in
the negotiation process. Also, as described above, a state commission
may impose bill-and-keep arrangements with respect to CMRS-LEC traffic
when it finds that traffic is roughly balanced and is expected to
remain so.
B. Access to Rights of Way
1. Overview
740. Section 251(b)(4) imposes upon each LEC the ``duty to afford
access to the poles, ducts, conduits, and rights-of-way of such carrier
to competing providers of telecommunications services on rates, terms,
and conditions that are consistent with section 224.'' The access
provisions of section 224, as amended by the 1996 Act, differ from the
requirements of section 251(b)(4) with respect to both the entities
required to grant access and the entities that may demand access.
Section 224(f)(1) imposes upon all utilities, including LECs, the duty
to ``provide a cable television system or any telecommunications
carrier with nondiscriminatory access to any pole, duct, conduit, or
right-of-way owned or controlled by it.'' For purposes of section 224,
the term ``telecommunications carrier'' excludes any incumbent LEC as
that term is defined in section 251(h).
741. In the NPRM, we sought comment on various aspects of this
access requirement, as well as on section 224(f)(2) which creates the
following limited exception to the obligations of section 224(f)(1):
Notwithstanding paragraph (1), a utility providing electric
service may deny a cable television system or any telecommunications
carrier access to its poles, ducts, conduits, or rights-of-way, on a
non-discriminatory basis where there is insufficient capacity and
for reasons of safety, reliability and generally applicable
engineering purposes.
742. Additionally, we sought comment on section 224(h), which
provides:
Whenever the owner of a pole, duct, conduit, or right-of-way
intends to modify or alter such pole, duct, conduit, or right-of-
way, the owner shall provide written notification of such action to
any entity that has obtained an attachment to such conduit or right-
of-way so that such entity may have a reasonable opportunity to add
to or modify its existing attachment. Any entity that adds to or
modifies its existing attachment after receiving such notification
shall bear a proportionate share of the costs incurred by the owner
in making such pole, duct, conduit, or right-of-way accessible.
743. In this Order, we establish rules implementing these
provisions. Based on the comments received and the plain language of
the statute, and in furtherance of our original mandate to institute an
expeditious procedure for determining just and reasonable pole
attachment rates with a minimum of administrative costs and consistent
with fair and efficient regulation, we adopt herein a program for
nondiscriminatory access to poles, ducts, conduits and rights-of-way.
This Order includes several specific rules as well as a number of more
general guidelines that are designed to give parties flexibility to
reach agreements on access to utility-controlled poles, ducts,
conduits, and rights-of-way, without the need for regulatory
intervention. We provide for expedited dispute resolution when good
faith negotiations fail, and we establish requirements concerning
modifications to pole attachments and the allocation of the cost of
such modifications. We also explain the division of responsibility
between federal and state regulation envisioned by the 1996 Act.
2. Section 224(f): Non-Discriminatory Access
a. Background
744. Pursuant to section 224(f)(1), a utility must grant
telecommunications carriers and cable operators nondiscriminatory
access to all poles, ducts, conduits, and rights-of-way owned or
controlled by the utility. This directive seeks to ensure that no party
can use its control of the enumerated facilities and property to
impede, inadvertently or otherwise, the
[[Page 45588]]
installation and maintenance of telecommunications and cable equipment
by those seeking to compete in those fields. Section 224(f)(1) appears
to mandate access every time a telecommunications carrier or cable
operator seeks access to the utility facilities or property identified
in that section, with a limited exception allowing electric utilities
to deny access ``where there is insufficient capacity and for reasons
of safety, reliability and generally applicable engineering purposes.''
While Congress recognized the legitimate interests of utilities in
protecting and promoting the safety and reliability of their core
services, on balance we believe section 224(f) reflects Congress'
determination that utilities generally must accommodate requests for
access by telecommunications carriers and cable operators.
b. Discussion
(1) Generally
745. We conclude that the reasonableness of particular conditions
of access imposed by a utility should be resolved on a case-specific
basis. We discuss below the forum for such resolutions. The record
makes clear that there are simply too many variables to permit any
other approach with respect to access to the millions of utility poles
and untold miles of conduit in the nation. The broader access mandated
by the Act, in conjunction with the reasonableness variables mentioned
here, will likely increase the number of disputes over access. In turn,
this may cause small incumbent LECs and small entities to incur the
need for additional resources to evaluate, process, and resolve such
disputes, as well as to make poles and conduits physically accessible.
We will not enumerate a comprehensive regime of specific rules, but
instead establish a few rules supplemented by certain guidelines and
presumptions that we believe will facilitate the negotiation and mutual
performance of fair, pro-competitive access agreements. We will monitor
the effect of this approach and propose more specific rules at a later
date if reasonably necessary to facilitate access and the development
of competition in telecommunications and cable services. We believe
that the rules, guidelines and presumptions established herein strike
the appropriate balance between the need for uniformity, on the one
hand, and the need for flexibility, on the other, which should minimize
the regulatory burdens and economic impact for both small entities and
small incumbent LECs.
746. We also address the impact on small incumbent LECs. For
example, the Rural Telephone Coalition opposes adoption of sweeping
national rules because local circumstances will be relevant to disputes
over access to poles or rights-of-way. We have considered the economic
impact of our rules in this section on small incumbent LECs. For
example, we have adopted a flexible regulatory approach to pole
attachment disputes that ensures consideration of local conditions and
circumstances.
747. Our determination not to prescribe numerous specific rules is
supported by acknowledgements in the relevant national industry codes
that no single set of rules can take into account all of the issues
that can arise in the context of a single installation or attachment.
The NESC, one of the national codes that virtually all commenters
regard as containing reasonable attachment requirements, contains
thousands of rules and dozens of tables and figures, all designed to
ensure ``the practical safeguarding of persons during the installation,
operation, or maintenance of electric supply and communication lines
and associated equipment.''
748. For example, with respect to overhead wires, the NESC contains
64 pages of rules dictating minimum ``clearances,'' i.e., the minimum
separations between a particular wire, cable, or other piece of
equipment and other wires, cables, equipment, structures, and property.
A short list of only a few of the variables in that discussion
includes: the type of wire or equipment in question; the type of
current being transmitted; the nature of the structure supporting the
wires; the proximity and nature of other equipment and structures; the
temperature of the conducting element; and the use of the land below
the wires. These separation requirements dictate the required distances
between various wires and other transmission and distribution
equipment, as well as distances between such equipment and other
objects that are not a part of the transmission and distribution
network. Prescribed separations between wires will vary between the
point at which wires are attached to a pole and at mid-points between
poles, with the latter separations dictated by the predicted amount of
sag that the wires will experience. The amount of sag will itself
depend upon additional variables. Changing just one variable can
radically alter the separation requirements. Other rules dictate:
electrical loading requirements that vary depending upon wind and ice
conditions and the predicted sag of the lines being installed;
structural strength requirements that vary depending upon the amount
and type of installations and the nature of the supporting structure;
and line insulation requirements. A wholly separate and equally
extensive array of rules apply to underground lines.
749. Despite this specificity, the introduction to the NESC states
that the code ``is not intended as a design specification or an
instruction manual.'' Indeed, utilities typically impose requirements
more stringent than those prescribed by NESC and other industry codes.
In some cases stricter requirements and restrictions are dictated by
federal, state, or local law. Potentially applicable federal
regulations include rules promulgated by the Federal Energy Regulatory
Commission (``FERC'') and by the Occupational Safety and Health
Administration (``OSHA''). Various restrictions can apply at the state
level as well. Some local requirements governing zoning, aesthetics, or
road clearances impose more stringent or more specific requirements
than those of the national industry codes or of federal or state law.
750. In addition to operating under federal, state, and local
requirements, a utility normally will have its own operating standards
that dictate conditions of access. Utilities have developed their own
individual standards and incorporated them into pole attachment
agreements because industry-wide standards and applicable legal
requirements are too general to take into account all of the variables
that can arise. A utility's individual standards cover not simply its
policy with respect to attachments, but all aspects of its business.
Standards vary between companies and across different regions of the
country based on the experiences of each utility and on local
conditions. As Duquesne notes, the provision of electricity is the
result of varied engineering factors that continue to evolve. Because
there is no fixed manner in which to provide electricity, there is no
way to develop an exhaustive list of specific safety and reliability
standards. In addition, increasing competition in the provision of
electricity is forcing electric utilities to engineer their systems
more precisely, in a way that is tailored to meet the specific needs of
the electric company and its customers. As a result, each utility has
developed its own internal operating standards to suit its individual
needs and experiences.
751. The record contains numerous factors that may vary from region
to region, necessitating different operating
[[Page 45589]]
procedures particularly with respect to attachments. Extreme
temperatures, ice and snow accumulation, wind, and other weather
conditions all affect a utility's safety and engineering practices. In
some instances, machinery used by local industries requires higher than
normal clearances. Particular utility work methods and equipment may
require specific separations between attachments and may restrict the
height of the poles that a utility will use. The installation and
maintenance of underground facilities raise distinct safety and
reliability concerns. It is important that such variables be taken into
account when drafting pole attachment agreements and considering an
individual attachment request. The number of variables makes it
impossible to identify and account for them all for purposes of
prescribing uniform standards and requirements. Universally accepted
codes such as the NESC do not attempt to prescribe specific
requirements applicable to each attachment request and neither shall
we.
752. We are sensitive to concerns of cable operators and
telecommunications carriers regarding utility-imposed restrictions that
could be used unreasonably to prevent access. We note in particular
that a utility that itself is engaged in video programming or
telecommunications services has the ability and the incentive to use
its control over distribution facilities to its own competitive
advantage. A number of utilities have obtained, or are seeking, the
right and ability to provide telecommunications or video programming
services. We agree, however, with Duquesne that the best safeguard is
not the adoption of a comprehensive set of substantive engineering
standards, but the establishment of procedures that will require
utilities to justify any conditions they place on access. These
procedures are outlined in section E below. In the next two sections,
we set forth rules of general applicability and broader guidelines
relating to specific issues that are intended to govern access
negotiations between the parties.
(2) Specific Rules
753. We establish five rules of general applicability. First, in
evaluating a request for access, a utility may continue to rely on such
codes as the NESC to prescribe standards with respect to capacity,
safety, reliability, and general engineering principles. We have no
reason to question the reasonableness of the virtually unanimous
judgment of the commenters, many of whom have otherwise diverse and
conflicting interests, in this regard. Utilities may incorporate such
standards into their pole attachment agreements in accordance with
section 224(f)(2). Other industry codes also will be presumed
reasonable if shown to be widely-accepted objective guides for the
installation and maintenance of electrical and communications
facilities.
754. Second, federal requirements, such as those imposed by FERC
and OSHA, will continue to apply to utilities to the extent such
requirements affect requests for attachments to utility facilities
under section 224(f)(1). We see no reason to supplant or modify
applicable federal regulations promulgated by FERC, OSHA, or other
federal agencies acting in accordance with their lawful authority.
755. Third, we will consider state and local requirements affecting
pole attachments. We note that section 224(c)(1) provides:
Nothing in this section shall be construed to apply to, or to
give the Commission jurisdiction with respect to rates, terms and
conditions, or access to poles, ducts, conduits, and rights-of-way
as provided in subsection (f), for pole attachments in any case
where such matters are regulated by the State.
756. In a separate section we discuss the authority of a state to
preempt federal regulation of pole attachments. For present purposes,
we conclude that state and local requirements affecting attachments are
entitled to deference even if the state has not sought to preempt
federal regulations under section 224(c). The 1996 Act increased
significantly the Commission's role with respect to attachments by
creating federal access rights and obligations, which for decades had
been the subject of state and local regulation. Such regulations often
relate to matters of local concern that are within the knowledge of
local authorities and are not addressed by standard codes such as the
NESC. We do not believe that regulations of this sort necessarily
conflict with the scheme established in this Order. More specifically,
we see nothing in the statute or in the record that compels us to
preempt such local regulations as a matter of course. Regulated
entities and other interested parties are familiar with existing state
and local requirements and have adopted operating procedures and
practices in reliance on those requirements. We believe it would be
unduly disruptive to invalidate summarily all such local requirements.
We thus agree with commenters who suggest that such state and local
requirements should be presumed reasonable. Thus, even where a state
has not asserted preemptive authority in accordance with section
224(c), state and local requirements affecting pole attachments remain
applicable, unless a complainant can show a direct conflict with
federal policy. Where a local requirement directly conflicts with a
rule or guideline we adopt herein, our rules will prevail. We note that
a standard prescribed by the NESC is not a specific Commission rule,
and therefore a state requirement that is more restrictive than the
corresponding NESC standard may still apply.
757. It is important to note that the discretion of state and local
authorities to regulate in the area of pole attachments is tempered by
section 253, which invalidates all state or local legal requirements
that ``prohibit or have the effect of prohibiting the ability of any
entity to provide any interstate or intrastate telecommunications
service.'' This restriction does not prohibit a state from imposing
``on a competitively neutral basis and consistent with section 254,
requirements necessary to preserve and advance universal service,
protect the public safety and welfare, ensure the continued quality of
telecommunications services, and safeguard the rights of consumers.''
In addition, section 253 specifically recognizes the authority of state
and local governments to manage public rights-of-way and to require
fair and reasonable compensation for the use of such rights-of-way.
758. Fourth, where access is mandated, the rates, terms, and
conditions of access must be uniformly applied to all
telecommunications carriers and cable operators that have or seek
access. Except as specifically provided herein, the utility must charge
all parties an attachment rate that does not exceed the maximum amount
permitted by the formula we have devised for such use, and that we will
revise from time to time as necessary. Other terms and conditions also
must be applied on a nondiscriminatory basis.
759. Fifth, except as specifically noted below, a utility may not
favor itself over other parties with respect to the provision of
telecommunications or video programming services. We interpret the
statutory requirement of nondiscriminatory access as compelling this
result, particularly when read in the context of other provisions of
the statute. This element of nondiscrimination is evident in section
224(g), which requires a utility to impute to itself or to its
affiliate the pole attachment rate such entity would be charged were it
a non-affiliated entity. Further, we believe it unlikely that Congress
intended to allow an
[[Page 45590]]
incumbent LEC to favor itself over its competitors with respect to
attachments to the incumbent LEC's facilities, given that section
224(a)(5) has just the opposite effect in that it operates to preclude
the incumbent LEC from obtaining access to the facilities of other
LECs. A utility will be able to discriminate in favor of itself with
respect to the provision of telecommunications or cable services only
as expressly provided herein.
760. Aside from the conditions described above, we will not adopt
specific rules to determine when access may be denied because of
capacity, safety, reliability, or engineering concerns. In addition, we
reject the contention of some utilities that they are the primary
arbiters of such concerns, or that their determinations should be
presumed reasonable. We recognize that the public welfare depends upon
safe and reliable provision of utility services, yet we also note that
the 1996 Act reinforces the vital role of telecommunications and cable
services. As noted above, section 224(f)(1) in particular reflects
Congress' intention that utilities must be prepared to accommodate
requests for attachments by telecommunications carriers and cable
operators.
(3) Guidelines Governing Certain Issues
761. In addition to the rules articulated above, we will establish
guidelines concerning particular issues that have been raised in this
proceeding. These guidelines are intended to provide general ground
rules upon which we expect the parties to be able to implement pro-
competitive attachment polices and procedures through arms-length
negotiations, rather than having to rely on multiple adjudications by
the Commission in response to complaints or by other forums. We do not
discuss herein every issue raised in the comments. Rather, we discuss
only major issues that we believe will arise often. Issues not
discussed herein may be important in a particular case, but are not
susceptible to any general observation or presumption.
762. We note that a utility's obligation to permit access under
section 224(f) does not depend upon the execution of a formal written
attachment agreement with the party seeking access. We understand that
such agreements are the norm and encourage their continued use, subject
to the requirements of section 224. Complaint or arbitration procedures
will, of course, be available when parties are unable to negotiate
agreements.
(a) Capacity Expansions
763. When a utility cannot accommodate a request for access because
the facility in question has no available space, it often must modify
the facility to increase its capacity. In some cases, a request for
access can be accommodated by rearranging existing facilities to make
room for a new attachment. Another method of maximizing useable
capacity is to permit ``overlashing,'' by which a new cable is wrapped
around an existing wire, rather than being strung separately. A utility
pole filled to capacity often can be replaced with a taller pole. New
underground installations can be accommodated by the installation of
new duct, including subducts that divide a standard duct into four
separate, smaller ducts. Cable companies and others contend that there
is rarely a lack of capacity given the availability of taller poles and
additional conduits. These commenters suggest that utilities should
rarely be permitted to deny access on the basis of a lack of capacity,
particularly since under section 224(h) the party or parties seeking to
increase capacity will be responsible for all associated costs.
Utilities argue that neither the statute nor its legislative history
requires facility owners to expand or alter their facilities to
accommodate entities seeking to lease space. These commenters argue
that, if Congress intended such a result, the statute would have
imposed the requirement explicitly.
764. A utility is able to take the steps necessary to expand
capacity if its own needs require such expansion. The principle of
nondiscrimination established by section 224(f)(1) requires that it do
likewise for telecommunications carriers and cable operators. In
addition, we note that section 224(f)(1) mandates access not only to
physical utility facilities (i.e., poles, ducts, and conduit), but also
to the rights-of-way held by the utility. The lack of capacity on a
particular facility does not necessarily mean there is no capacity in
the underlying right-of-way that the utility controls. For these
reasons, we agree with commenters who argue that a lack of capacity on
a particular facility does not automatically entitle a utility to deny
a request for access. Since the modification costs will be borne only
by the parties directly benefitting from the modification, neither the
utility nor its ratepayers will be harmed, despite the assertions of
utilities to the contrary.
765. In some cases, however, increasing capacity involves more than
rearranging existing attachments or installing a new pole or duct. For
example, the record suggests that utility poles of 35 and 40 feet in
height are relatively standard, but that taller poles may not always be
readily available. The transportation, installation, and maintenance of
taller poles can entail different and more costly practices. Many
utilities have trucks and other service equipment designed to maintain
poles of up to 45 feet, but no higher. Installing a 50 foot pole may
require the utility to invest in new and costly service equipment.
Expansion of underground conduit space entails a very complicated
procedure, given the heightened safety and reliability concerns
associated with such facilities. Local regulators may seek to restrict
the frequency of underground excavations. We find it inadvisable to
attempt to craft a specific rule that prescribes the circumstances in
which, on the one hand, a utility must replace or expand an existing
facility in response to a request for access and, on the other hand, it
is reasonable for the utility to deny the request due to the
difficulties involved in honoring the request. We interpret sections
224 (f)(1) and (f)(2) to require utilities to take all reasonable steps
to accommodate requests for access in these situations. Before denying
access based on a lack of capacity, a utility must explore potential
accommodations in good faith with the party seeking access.
766. We will not require telecommunications providers or cable
operators seeking access to exhaust any possibility of leasing capacity
from other providers, such as through a resale agreement, before
requesting a modification to expand capacity. As indicated elsewhere in
this Order, resale will play an important role in the development of
competition in telecommunications. However, as we also have noted,
there are benefits to facilities-based competition as well. We do not
wish to discourage unduly the latter form of competition solely because
the former might better suit the preferences of incumbent utilities
with respect to pole attachments.
(b) Reservation of Space by Utility
767. Utilities routinely reserve space on their facilities to meet
future needs. Local economic growth and property development may
require an electric utility to install additional lines or transformers
that use previously available space on the pole. A utility may install
an underground duct in which it can later install additional
distribution lines, if necessitated by a subsequent increase in demand
or by
[[Page 45591]]
damage to the original lines. Reserving space allows the utility to
respond quickly and efficiently to changed circumstances. This
practice, however, also can result in a utility denying access to a
telecommunications carrier or a cable operator even though there is
unused capacity on the pole or duct.
768. This issue is of particular concern because section 224(h)
imposes the cost of modifying attachments on those parties that benefit
from the modification. If, for example, a cable operator seeks to make
an attachment on a facility that has no available capacity, the
operator would bear the full cost of modifying the facility to create
new capacity, such as by replacing an existing pole with a taller pole.
Other parties with attachments would not share in the cost, unless they
expanded their own use of the facilities at the same time. If the
electric utility decides to change a pole for its own benefit, and no
other parties derive a benefit from the modification, then the electric
company would bear the full cost of the new pole.
769. Some commenters contend that utilities will reserve space on a
pole and then claim there is no capacity available, as a way of forcing
cable operators and telecommunications carriers to pay for new utility
facilities. These commenters contend that we should restrict or
eliminate the authority of utilities to reserve space. Utilities
respond that it is unfair to force a utility to accommodate full
occupation of its facility by third parties and then to saddle the
utility with the cost of modifying the facility when the utility's own
needs change and require a costly increase in capacity.
770. The near-universal public demand for their core utility
services, while imposing certain obligations, arguably entitles
utilities to certain prerogatives vis-a-vis other parties, including
the right to reserve capacity to meet anticipated future demand for
those utility services. Recognition of such a right, however, could
conflict with the nondiscrimination requirement of section 224(f)(1)
which prohibits a utility from favoring itself or its affiliates with
respect to the provision of telecommunications and video services. In
addition, allowing space to go unused when a cable operator or
telecommunications carrier could make use of it is directly contrary to
the goals of Congress.
771. Balancing these concerns leads us to the following
conclusions. We will permit an electric utility to reserve space if
such reservation is consistent with a bona fide development plan that
reasonably and specifically projects a need for that space in the
provision of its core utility service. The electric utility must permit
use of its reserved space by cable operators and telecommunication
carriers until such time as the utility has an actual need for that
space. At that time, the utility may recover the reserved space for its
own use. The utility shall give the displaced cable operator or
telecommunications carrier the opportunity to pay for the cost of any
modifications needed to expand capacity and to continue to maintain its
attachment. An electric utility may not reserve or recover reserved
space to provide telecommunications or video programming service and
then force a previous attaching party to incur the cost of modifying
the facility to increase capacity, even if the reservation of space
were pursuant to a reasonable development plan. The record does not
contain sufficient data for us to establish a presumptively reasonable
amount of pole or conduit space subject that an electric utility may
reserve. If parties cannot agree, disputes will be resolved on a case-
by-case approach based on the reasonableness of the utility's forecast
of its future needs and any additional information that is relevant
under the circumstances.
772. With respect to a utility providing telecommunications or
video services, we believe the statute requires a different result.
Section 224(f)(1) requires nondiscriminatory treatment of all providers
of such services and does not contain an exception for the benefit of
such a provider on account of its ownership or control of the facility
or right-of-way. Congress seemed to perceive such ownership and control
as a threat to the development of competition in these areas, thus
leading to the enactment of the provision in question. Allowing the
pole or conduit owner to favor itself or its affiliate with respect to
the provision of telecommunications or video services would nullify, to
a great extent, the nondiscrimination that Congress required.
Permitting an incumbent LEC, for example, to reserve space for local
exchange service, to the detriment of a would-be entrant into the local
exchange business, would favor the future needs of the incumbent LEC
over the current needs of the new LEC. Section 224(f)(1) prohibits such
discrimination among telecommunications carriers. As indicated above,
this prohibition does not apply when an electric utility asserts a
future need for capacity for electric service, to the detriment of a
telecommunications carrier's needs, since the statute does not require
nondiscriminatory treatment of all utilities; rather, it requires
nondiscriminatory treatment of all telecommunications and video
providers.
(c) Definition of ``Utility''
773. The access obligations of section 224(f) apply to any
``utility,'' which is defined as:
any person who is a local exchange carrier or an electric, gas,
water, steam, or other public utility, and who owns or controls
poles, ducts, conduits, or other rights-of-way used, in whole or in
part, for any wire communications. Such term does not include any
railroad, any person who is cooperatively organized, or any person
owned by the Federal Government or any State.
774. Arguably a provider of utility service does not fall within
this definition if it has refused to permit any wired communications
use of its facilities and rights-of-way since, in that case, its
facilities and rights-of-way are not ``used, in whole or in part, for
wire communications.'' Under this construction, an electric utility
would have no obligation to grant access under section 224(f) until the
utility voluntarily has granted access to one communications provider
or has used its facilities for wire communications. Only after its
facilities were being used for wire communications would the utility
have to grant access to all telecommunications carriers and cable
operators on a nondiscriminatory basis.
775. We conclude that this construction of the statute is mandated
by its plain language and is indeed nondiscriminatory, since denial of
access to all discriminates against none. We see no statutory basis,
however, for the argument made by some utilities that they should be
permitted to devote a portion of their poles, ducts, conduits, and
rights-of-way to wire communications without subjecting all such
property to the access obligations of section 224(f)(1). Those
obligations apply to any ``utility,'' which section 224(a)(1) defines
to include an entity that controls ``poles, ducts, conduits, or rights-
of-way used, in whole or in part, for any wire communications.'' The
use of the phrase ``in whole or in part'' demonstrates that Congress
did not intend for a utility to be able to restrict access to the exact
path used by the utility for wire communications. We further conclude
that use of any utility pole, duct, conduit, or right-of-way for wire
communications triggers access to all poles, ducts, conduits, and
rights-of-way owned or controlled by the utility, including those not
currently used for wire communications.
[[Page 45592]]
776. We reject the contention that, because an electric utility's
internal communications do not pose a competitive threat to third party
cable operators or telecommunications carriers, such internal
communications are not ``wire communications'' and do not trigger
access obligations. Although internal communications are used solely to
promote the efficient distribution of electricity, the definition of
``wire communication'' is broad and clearly encompasses an electric
utility's internal communications.
(d) Application of Section 224(f)(2) to Non-Electric Utilities
777. While all utilities are subject to the access obligations of
section 224(f)(1), the provisions of section 224(f)(2), permitting a
utility to deny access due to a lack of capacity or for reasons of
safety, reliability, and generally applicable engineering purposes,
apply only to ``a utility providing electric service * * *.'' Based on
this statutory language, some commenters suggest that LECs and other
utilities that do not provide electric service must grant requests for
access, regardless of any concerns relating to safety, reliability, and
general engineering principles. If there is a lack of capacity, a LEC
must create more capacity, according to these commenters.
778. While the express language of sections 224 (f)(1) and (f)(2)
suggests that only utilities providing electric service can take into
consideration concerns relating to safety and reliability, we are
reluctant to ignore these concerns simply because the pole owner is not
an electric utility. Even parties seeking broad access rights under
section 224 recognize that, in some circumstances, a LEC will have
legitimate safety or engineering concerns that may need to be
accommodated. We believe that Congress could not have intended for a
telecommunications carrier to ignore safety concerns when making pole
attachment decisions. Rather than reach this dangerous result which
would require us to ignore the dictates of sections 1 and 4(o) of the
Communications Act, we conclude that any utility may take into account
issues of capacity, safety, reliability and engineering when
considering attachment requests, provided the assessment of such
factors is done in a nondiscriminatory manner.
779. Nevertheless, we believe that section 224(f)(2) reflected
Congress' acknowledgment that issues involving capacity, safety,
reliability and engineering raise heightened concerns when electricity
is involved, because electricity is inherently more dangerous than
telecommunications services. Accordingly, although we determine that it
is proper for non-electric utilities to raise these matters, they will
be scrutinized very carefully, particularly when the parties concerned
have a competitive relationship.
(e) Third-Party Property Owners
780. Section 224(f)(1) mandates that the utility grant access to
any pole, duct, conduit, or right-of-way that is ``owned or controlled
by it.'' Some utilities and LECs argue that certain private easement
agreements, when interpreted under the applicable state property laws,
deprive the utilities of the ownership or control that triggers their
obligation to accommodate a request for access. Moreover, they contend,
access to public rights-of-way may be restricted by state law or local
ordinances. Opposing commenters contend that the addition of cable
television or telecommunications facilities is compatible with electric
service and therefore does not violate easements that have been granted
for the provision of electric service. These commenters also assert
that the statute does not draw specific distinctions between private
and public easements. Further, some cable operators contend that
utility easements are accessible to cable operators pursuant to section
621(a)(2) of the Communications Act as long as the easements are
physically compatible with such use, regardless of the terms of a
written easement agreement. Another commenter suggests utilities are
best positioned to determine when access requests would affect a
private easement, foreclosing the need to determine whether a private
owner would consent to the requested attachment. As for local
ordinances restricting access to public rights-of-way, one commenter
suggests that such restrictions would violate section 253(a) of the
Act, which blocks state or local rules that prohibit competition.
781. The scope of a utility's ownership or control of an easement
or right-of-way is a matter of state law. We cannot structure general
access requirements where the resolution of conflicting claims as to a
utility's control or ownership depends upon variables that cannot now
be ascertained. We reiterate that the access obligations of section
224(f) apply when, as a matter of state law, the utility owns or
controls the right-of-way to the extent necessary to permit such
access.
782. Section 621(a)(2) states that a cable franchise shall be
construed as authorizing the construction of cable facilities in public
rights-of-way and ``through easements * * * which have been dedicated
for compatible uses * * * .'' The scope of a cable operator's access to
easements under this provision has been the subject of a number of
court opinions. To the extent section 621(a)(2) has been construed to
permit access to easements, a cable operator must be permitted to
attach to utility poles, ducts, and conduits within such easements in
accordance with section 224(f).
783. Finally, we disagree with those utilities that contend that
they should not be forced to exercise their powers of eminent domain to
establish new rights-of-way for the benefit of third parties. We
believe a utility should be expected to exercise its eminent domain
authority to expand an existing right-of-way over private property in
order to accommodate a request for access, just as it would be required
to modify its poles or conduits to permit attachments. Congress seems
to have contemplated an exercise of eminent domain authority in such
cases when it made provisions for an owner of a right-of-way that
``intends to modify or alter such * * * right-of-way * * * .''
(f) Other Matters
784. Utilities stress the importance of ensuring that only
qualified workers be permitted in the proximity of utility facilities.
Some utilities seek to limit access to their facilities to the
utility's own specially trained employees or contractors, particularly
with respect to underground conduits. According to these commenters,
parties seeking to make attachments to utility facilities should be
required to pay for the use of the utility's workers if the utility
concludes that only its workers are fit for the job. While we agree
that utilities should be able to require that only properly trained
persons work in the proximity of the utilities' lines, we will not
require parties seeking to make attachments to use the individual
employees or contractors hired or pre-designated by the utility. A
utility may require that individuals who will work in the proximity of
electric lines have the same qualifications, in terms of training, as
the utility's own workers, but the party seeking access will be able to
use any individual workers who meet these criteria. Allowing a utility
to dictate that only specific employees or contractors be used would
impede the access that Congress sought to bestow on telecommunications
providers and cable operators and would inevitably lead to disputes
over rates to be paid to the workers.
[[Page 45593]]
785. Some electric utilities argue that high voltage transmission
facilities should not be accessible by telecommunications carriers or
cable operators under section 224(f)(1). These commenters contend that
transmission facilities, which are used for high voltage transmissions
over great distances, are far more delicate and dangerous than local
distribution facilities. Permitting attachments to transmission
facilities, they argue, poses a greater risk to the safety and
reliability of the electric distribution system than is the case with
distribution lines. They further state that transmission facilities
generally are not located where cable operators and telecommunications
carriers need to install facilities. ConEd suggests that transmission
towers do not even fall within the scope of the statute.
786. Section 224(f)(1) mandates access to ``any pole, duct,
conduit, or right-of-way,'' owned or controlled by the utility. The
utilities do not suggest that transmission facilities do not use poles
or rights-of-way, for which the statute does mandate the right of
access. The utilities' arguments for excepting transmission facilities
from access requirements are based on safety and reliability concerns.
We believe that the breadth of the language contained in section
224(f)(1) precludes us from making a blanket determination that
Congress did not intend to include transmission facilities. As with any
facility to which access is sought, however, section 224(f)(2) permits
the electric utility to impose conditions on access to transmission
facilities, if necessary for reasons of safety and reliability. To the
extent safety and reliability concerns are greater at a transmission
facility, the statute permits a utility to impose stricter conditions
on any grant of access or, in appropriate circumstances, to deny access
if legitimate safety or reliability concerns cannot be reasonably
accommodated.
787. We note that some commenters favor a broad interpretation of
``pole, duct, conduit, or right-of-way'' because that approach would
minimize the risk that a ``pathway'' vital to competition could be shut
off to new competitors. Others argue for a narrow construction of this
statutory phrase, contending that Congress addressed access to other
LEC facilities elsewhere in the 1996 Act. We recognize that an overly
broad interpretation of this phrase could impact the owners and mangers
of small buildings, as well as small incumbent LECs, by requiring
additional resources to effectively control and monitor such rights-of-
way located on their properties. We do not believe that section
224(f)(1) mandates that a utility make space available on the roof of
its corporate offices for the installation of a telecommunications
carrier's transmission tower, although access of this nature might be
mandated pursuant to a request for interconnection or for access to
unbundled elements under section 251(c)(6). The intent of Congress in
section 224(f) was to permit cable operators and telecommunications
carriers to ``piggyback'' along distribution networks owned or
controlled by utilities, as opposed to granting access to every piece
of equipment or real property owned or controlled by the utility.
788. The statute does not describe the specific type of
telecommunications or cable equipment that may be attached when access
to utility facilities is mandated. We do not believe that establishing
an exhaustive list of such equipment is advisable or even possible. We
presume that the size, weight, and other characteristics of attaching
equipment have an impact on the utility's assessment of the factors
determined by the statute to be pertinent--capacity, safety,
reliability, and engineering principles. The question of access should
be decided based on those factors.
3. Constitutional Takings
a. Background
789. The access provisions of section 224(f) restrict the right of
a utility to exclude third parties from its property and therefore may
raise Fifth Amendment issues. While we have no jurisdiction to
determine the constitutionality of a federal statute, constitutional
concerns are relevant for purposes of construing a statute.
b. Discussion
790. Section 224(f)(1) mandates that a utility grant access to a
requesting telecommunications provider or cable system operator,
subject to certain conditions that we discuss elsewhere in this Order.
That provision is not reasonably susceptible of a reading that gives
the pole owner the choice of whether to grant telecommunications
carriers or cable television systems access. Even if such mandatory
access results in a taking, we cannot agree that it necessarily raises
a constitutional issue. The Fifth Amendment permits takings as long the
property owner receives just compensation for the property taken.
791. As for the amount of compensation provided under the statute,
GTE suggests that mandatory access will result in an unconstitutional
taking when considered in conjunction with the methodology for pole
attachment rates set forth in section 224(e)(2). We, of course, have no
power to declare any provision of the Communications Act
unconstitutional. In any event, we cannot agree. Congress has provided
for compensation to pole owners, in the event that they cannot resolve
a dispute with telecommunications carriers regarding the charges for
use of the owners' poles, that would allow them to recover the cost of
providing usable space to each entity and two-thirds of the cost of the
unusable space apportioned among such users. The Commission soon will
initiate a separate rulemaking proceeding that will give greater
content to this statutory standard. GTE and others may present their
just compensation arguments with respect to the ratemaking standards
the Commission adopts in that proceeding. GTE has not shown here,
however, how the statutory standard contained in section 224(e)
necessarily would deny pole owners just compensation.
4. Modifications
a. Background
792. In the NPRM we sought comment on section 224(h) which
provides:
Whenever the owner of a pole, duct, conduit, or right-of-way
intends to modify or alter such pole, duct, conduit, or right-of-
way, the owner shall provide written notification of such action to
any entity that has obtained an attachment to such conduit or right-
of-way so that such entity may have a reasonable opportunity to add
to or modify its existing attachment. Any entity that adds to or
modifies its existing attachment after receiving such notification
shall bear a proportionate share of the costs incurred by the owner
in making such pole, duct, conduit, or right-of-way accessible.
793. The NPRM requested comments addressing the manner and timing
of the notice that must be provided to ensure a reasonable opportunity
to add to or modify its attachment. In addition, we sought comment
regarding the establishment of rules apportioning the cost of a
modification among the various users of the modified facility. Finally,
we requested comment on whether any payment of costs should be offset
by the potential increase in revenues to the owner. If, for example, an
owner modifies a pole to allow additional attachments that generate
additional fees for the owner, should such revenues offset the share of
modification costs borne by entities with preexisting access to the
pole?
[[Page 45594]]
b. Discussion
794. We recognize that, when a modification is planned, parties
with preexisting attachments to a pole or conduit need time to evaluate
how the proposed modification affects their interest and whether
activity related to the modification presents an opportunity to adjust
the attachment in a desirable manner. At the same time, we also
recognize that not all adjustments to utility facilities are alike.
Some adjustments may be sufficiently routine or minor as to not create
the type of opportunity that triggers the notice requirement. Indeed,
it is possible that in some cases lengthy notice requirements could
delay unnecessarily the kinds of modifications that would expedite the
onset of meaningful competition in the provision of telecommunications
services. Although the period of advance notice has varied widely among
commenters, we note that 60 days has been advocated by several parties.
795. Several commenters expressed a preference for negotiated
notification terms. They have explained that circumstances will vary
among owners of facilities. The time needed to commence a modification
could vary according to pole conditions, technological improvements and
demand growth. Attaching parties in rural markets may need more time to
study facilities than facility users in urban markets. To demonstrate
their ability to develop appropriate negotiated agreements, some
commenters have described notice requirements in existing agreements.
Such cases, they contend, illustrate that notification rules are
unnecessary.
796. We conclude that, absent a private agreement establishing
notification procedures, written notification of a modification must be
provided to parties holding attachments on the facility to be modified
at least 60 days prior to the commencement of the physical modification
itself. Notice should be sufficiently specific to apprise the recipient
of the nature and scope of the planned modification. These notice
requirements should provide small entities with sufficient time to
evaluate the impact of or opportunities made possible by the proposed
modifications on their interests and plan accordingly. If the
contemplated modification involves an emergency situation for which
advanced written notice would prove impractical, the notice requirement
does not apply except that notice should be given as soon as reasonably
practicable, which in some cases may be after the modification is
completed. Further, we believe that the burden of requiring specific
written notice of routine maintenance activities would not produce a
commensurate benefit. Utilities and parties with attachments should
exchange maintenance handbooks or other written descriptions of their
standard maintenance practices. Changes to these practices should be
made only upon 60 days written notice. Recognizing that the parties
themselves are best able to determine the circumstances where notice
would be reasonable and sufficient, as well as the types of
modifications that should trigger notice obligations, we encourage the
owner of a facility and parties with attachments to negotiate
acceptable notification terms.
797. Even with the adoption of a specific notice period, however,
we still encourage communication among owners and attaching parties.
Indeed, in cases where owners and users routinely share information
about upgrades and modifications, agreements regarding notice periods
and procedures are ancillary matters.
798. With respect to the allocation of modification costs, we
conclude that, to the extent the cost of a modification is incurred for
the specific benefit of any particular party, the benefiting party will
be obligated to assume the cost of the modification, or to bear its
proportionate share of cost with all other attaching entities
participating in the modification. If a user's modification affects the
attachments of others who do not initiate or request the modification,
such as the movement of other attachments as part of a primary
modification, the modification cost will be covered by the initiating
or requesting party. Where multiple parties join in the modification,
each party's proportionate share of the total cost shall be based on
the ratio of the amount of new space occupied by that party to the
total amount of new space occupied by all of the parties joining in the
modification. For example, a CAP's access request might require the
installation of a new pole that is five feet taller than the old pole,
even though the CAP needs only two feet of space. At the same time, a
cable operator may claim one foot of the newly-created capacity. If
these were the only parties participating in the modification, the CAP
would pay two-thirds of the modification costs and the cable operator
one-third.
799. As a general approach, requiring that modification costs be
paid only by entities for whose benefit the modification is made
simplifies the modification process. For these purposes, however, if an
entity uses a proposed modification as an opportunity to adjust its
preexisting attachment, the ``piggybacking'' entity should share in the
overall cost of the modification to reflect its contribution to the
resulting structural change. A utility or other party that uses a
modification as an opportunity to bring its facilities into compliance
with applicable safety or other requirements will be deemed to be
sharing in the modification and will be responsible for its share of
the modification cost. This will discourage parties from postponing
necessary repairs in an effort to avoid the associated costs.
800. We recognize that limiting cost burdens to entities that
initiate a modification, or piggyback on another's modification, may
confer incidental benefits on other parties with preexisting
attachments on the newly modified facility. Nevertheless, if a
modification would not have occurred absent the action of the
initiating party, the cost should not be borne by those that did not
take advantage of the opportunity by modifying their own facilities.
Indeed, the Conference Report accompanying the passage of the 1996 Act
imposes cost sharing obligations on an entity ``that takes advantage of
such opportunity to modify its own attachments.'' This suggests that an
attaching party, incidentally benefiting from a modification, but not
initiating or affirmatively participating in one, should not be
responsible for the resulting cost. As for pole owners themselves, the
imposition of cost burdens for modifications they do not initiate could
be particularly cumbersome if excess space created by modifications
remained unused for extended periods.
801. Apart from entities that initiate modifications and
preexisting attachers that use the opportunity to modify their own
attachments, some entities may seek to add new attachments to the
modified facility after the modification is completed to avoid any
obligation to share in the cost. If this occurs, the entity initiating
and paying for the modification might pay the entire cost of expanding
a facility's capacity only to see a new competitor take advantage of
the additional capacity without sharing in the cost. Moreover, entities
with preexisting attachments may, due to cost considerations, forgo the
opportunity to adjust their attachment only to see a new entrant attach
to a pole without sharing the modification cost. To protect the
initiators of modifications from absorbing costs that should be shared
by others, we will allow the modifying party or parties to
[[Page 45595]]
recover a proportionate share of the modification costs from parties
that later are able to obtain access as a result of the modification.
The proportionate share of the subsequent attacher should be reduced to
take account of depreciation to the pole or other facility that has
occurred since the modification. These provisions are intended to
ensure that new entrants, especially small entities with limited
resources, bear only their proportionate costs and are not forced to
subsidize their later-entering competitors. To the extent small
entities avail themselves of this cost-saving mechanism, however, they
will incur certain record keeping obligations.
802. Parties requesting or joining in a modification also will be
responsible for resulting costs to maintain the facility on an ongoing
basis. We believe determining the method by which to allocate such
costs can best be resolved in the context of a proceeding addressing
the determination of appropriate rates for pole attachments or other
facility uses. We will postpone consideration of these issues until
such time.
803. We recognize that in some cases a facility modification will
create excess capacity that eventually becomes a source of revenue for
the facility owner, even though the owner did not share in the costs of
the modification. We do not believe that this requires the owner to use
those revenues to compensate the parties that did pay for the
modification. Section 224(h) limits responsibility for modification
costs to any party that ``adds to or modifies its existing attachment
after receiving notice'' of a proposed modification. The statute does
not give that party any interest in the pole or conduit other than
access. Creating a right for that party to share in future revenues
from the modification would be tantamount to bestowing an interest that
the statute withholds. Requiring an owner to offset modification costs
by the amount of future revenues emanating from the modification
expands the category of responsible parties based on factors that
Congress did not identify as relevant. Since Congress did not provide
for an offset, we will not impose it ourselves. Indeed, a requirement
that utilities pass additional attachment fees back to parties with
preexisting attachments may be a disincentive to add new competitors to
modified facilities, in direct contravention of the general intent of
Congress.
5. Dispute Resolution
a. Background
804. Implementation of the access requirements of sections 224 and
251(b)(4) require the adoption of enforcement procedures. In the NPRM,
we sought comment on, among other things, whether to impose upon a
utility the burden of justifying its denial of access to its poles,
ducts, conduits, and rights-of-way due to lack of capacity, safety,
reliability, and engineering issues.
b. Discussion
(1) General Complaint Procedures Under Section 224
805. Section 224(f)(2) provides that an electric utility may deny
non-discriminatory access ``where there is insufficient capacity and
for reasons of safety, reliability and generally applicable engineering
purposes.'' We have determined that other utilities also may consider
these concerns when faced with an access request. A denial of access,
while proper in some cases, is an exception to the general mandate of
section 224(f). We note that utilities contend that they are in the
best position to determine when access should be denied, because they
possess the information and expertise to make such decisions and
because of the varied circumstances impacting these decisions. We think
it appropriate that the utility bear the burden of justifying why its
denial of access to a cable television or telecommunications carrier
fits within that exception. We therefore agree that utilities have the
ultimate burden of proof in denial-of-access cases. We believe this
will minimize uncertainty and reduce litigation and transaction costs,
because new entrants generally, and small entities in particular, are
unlikely to have access to the relevant information without cooperation
from the utilities.
806. We also agree with Virginia Power that a telecommunications
carrier or cable television provider filing a complaint with the
Commission must establish a prima facie case. A petitioner's complaint,
in addition to showing that it is timely filed, must state the grounds
given for the denial of access, the reasons those grounds are unjust or
unreasonable, and the remedy sought. The complaint must be supported by
the written request for access, the utility's response, and information
supporting its position. The Commission will deny the petitioner's
claim if a prima facie case is not established. A complaint will not be
dismissed if a petitioner is unable to obtain a utility's written
response, or if a petitioner is denied any other relevant information
by the utility needed to establish a prima facie case. Thus, we expect
a utility that receives a legitimate inquiry regarding access to its
facilities or property to make its maps, plats, and other relevant data
available for inspection and copying by the requesting party, subject
to reasonable conditions to protect proprietary information. This
provision eliminates the need for costly discovery in pursuing a claim
of improper denial of access, allowing attaching parties, including
small entities with limited resources, to seek redress of such denials.
807. We agree with the Joint Cable Commenters that ``time is of the
essence.'' The Joint Cable Commenters contend that the Commission
should implement an expedited review process for denial of access
cases. By implementing specific complaint procedures for denial of
access cases, we seek to establish swift and specific enforcement
procedures that will allow for competition where access can be
provided. In order to provide a complete record, written requests for
access must be provided to the utility. If access is not granted within
45 days of the request, the utility must confirm the denial in writing
by the 45th day. Although these written requirements involve some
recordkeeping obligations, which could impose a burden on small
incumbent LECs and small entities, we believe that burden is outweighed
by the benefits of certainty and expedient resolution of disputes which
this procedure encourages. The denial must be specific, and include all
relevant evidence or information supporting its denial. It must
enumerate how the evidence relates to one of the reasons that access
can be denied under section 224(f)(2), i.e., lack of capacity, safety,
reliability or engineering standards.
808. For example, a utility may attempt to deny access because of
lack of capacity on a 40-foot pole. We would expect a utility to
provide the information demonstrating why there is no capacity. In
addition, the utility should show why it declined to replace the pole
with a 45-foot pole. Upon the receipt of a denial notice from the
utility, the requesting party shall have 60 days to file its complaint
with the Commission. We anticipate that by following this procedure the
Commission will, upon receipt of a complaint, have all relevant
information upon which to make its decision. The petition must be
served pursuant to section 1.1404(b) of the Commission's rules. Final
decisions relating to access will be resolved by the Commission
[[Page 45596]]
expeditiously. Because we are using the expedited process described
herein, we do not believe stays or other equitable relief will be
granted in the absence of a specific showing, beyond the prima facie
case, that such relief is warranted.
(2) Procedures Under Section 251
809. A telecommunications carrier seeking access to the facilities
or property of a LEC may invoke section 251(b)(4) in lieu of, or in
addition to, section 244(f)(1). Because section 251(b)(4) mandates
access ``on rates terms, and conditions that are consistent with
section 224,'' we believe that the section 224 complaint procedures
established above should be available regardless of whether a
telecommunications provider invokes section 224(f)(1) or section
251(b)(4), or both.
810. If a telecommunications carrier seeks access to the facilities
or property of an incumbent LEC, however, it shall have the option of
invoking the procedures established by section 252 in lieu of filing a
complaint under section 224. Section 252 governs procedures for the
negotiation, arbitration, and approval of certain agreements between
incumbent LECs and telecommunications carriers. In pertinent part,
section 252(a)(1) provides:
Upon receiving a request for interconnection, services, or
network elements pursuant to section 251, an incumbent local
exchange carrier may negotiate and enter into a binding agreement
with the requesting telecommunications carrier or carriers without
regard to the standards set sforth in subsections (b) or (c) of
section 251.
811. Where parties are unable to reach an agreement under this
section, any party may petition the relevant state commission to
arbitrate the open issues. In resolving the dispute, the state
commission must ensure, among other things, that the ultimate
resolution ``meet[s] the requirements of section 251, including the
regulations prescribed by the Commission pursuant to section 251 * *
*.'' The Commission may assume the state's authority under section 252
if the state ``fails to carry out its responsibility'' under that
section.
812. Section 251(c)(1) creates an obligation on the part of an
incumbent LEC ``to negotiate in good faith in accordance with section
252 the particular terms and conditions of agreements * * *'' to
fulfill its section 251(b)(4) obligation. Therefore, a
telecommunications carrier may seek access to the facilities or
property of an incumbent LEC pursuant to section 251(b)(4) and trigger
the negotiation and arbitration procedures of section 252. If a
telecommunications carrier intends to invoke the section 252
procedures, it should affirmatively state such intent in its formal
request for access to the incumbent LEC. We impose this requirement
because the two procedures have separate deadlines by which the parties
may or must take certain steps, and therefore the incumbent LEC
receiving the request has a need to know which procedure has been
invoked. Section 224 shall be the default procedure that will apply if
the telecommunications carrier fails to make an affirmative election.
813. We note that section 252 does not impose any obligations on
utilities other than incumbent LECs, and does not grant rights to
entities that are not telecommunications providers. Therefore, section
252 may be invoked in lieu of section 224 only by a telecommunications
carrier and only if it is seeking access to the facilities or property
of an incumbent LEC.
814. In addition, incumbent LECs cannot use section 251(b)(4) as a
means of gaining access to the facilities or property of a LEC. A LEC's
obligation under section 251(b)(4) is to afford access ``on rates,
terms, and conditions that are consistent with section 224.'' Section
224 does not prescribe rates, terms, or conditions governing access by
an incumbent LEC to the facilities or rights-of-way of a competing LEC.
Indeed, section 224 does not provide access rights to incumbent LECs.
We cannot infer that section 251(b)(4) restores to an incumbent LEC
access rights expressly withheld by section 224. We give deference to
the specific denial of access under section 224 over the more general
access provisions of section 251(b)(4). Accordingly, no incumbent LEC
may seek access to the facilities or rights-of-way of a LEC or any
utility under either section 224 or section 251(b)(4).
6. Reverse Preemption
a. Background
815. Even prior to enactment of the 1996 Act, section 224(b)(1)
gave the Commission jurisdiction to ``regulate the rates, terms, and
conditions for pole attachments * * *.'' Under former section
224(c)(1), that jurisdiction was preempted where a state regulated such
matters. Such reverse preemption was conditioned upon the state
following a certification procedure and meeting certain compliance
requirements set forth in sections 224(c) (2) and (3). The 1996 Act
expanded the Commission's jurisdiction to include not just rates,
terms, and conditions, but also the authority to regulate non-
discriminatory access to poles, ducts, conduits and rights-of-way under
section 224(f). At the same time, the 1996 Act expanded the preemptive
authority of states to match the expanded scope of the Commission's
jurisdiction. Section 224(c)(1) now provides:
Nothing in this section shall be construed to apply to, or to
give the Commission jurisdiction with respect to rates, terms and
conditions, or access to poles, ducts, conduits, and rights-of-way
as provided in subsection (f), for pole attachments in any case
where such matters are regulated by the State.
b. Discussion
816. To resolve this issue, we will begin with access requests that
can arise solely under section 224(f)(1). These circumstances include
when a cable system or telecommunications carrier seeks access to the
facilities or rights-of-way of a non-LEC utility. In such cases, the
expansion of the Commission's authority to require utilities to provide
nondiscriminatory access under section 224(f) is countered by a
corresponding expansion in the scope of a state's authority under
section 224(c)(1) to preempt federal requirements. The authority of a
state under section 224(c)(1) to preempt federal regulation in these
cases is clear.
817. The issue becomes more complicated when a telecommunications
carrier seeks access to LEC facilities or property under section
251(b)(4). By its express terms, section 251(b)(4) imposes upon LECs,
``[t]he duty to afford access to the poles, ducts, conduits, and
rights-of-way of such a carrier to competing providers of
telecommunications services on rates, terms and conditions that are
consistent with section 224.'' We believe the reference in section
251(b)(4) to section 224 incorporates all aspects of the latter
section, including the state preemption authority of section 224(c)(1).
This interpretation is consistent not only with the plain meaning of
the statute but with the overall application of sections 251 and 252.
818. In the 1996 Act, Congress expanded section 224(c)(1) to reach
access issues. Congress' clear grant of authority to the states to
preempt federal regulation in these cases undercuts the suggestion that
Congress sought to establish federal access regulations of universal
applicability. Moreover, we do not find it significant that the access
provisions of sections 251 and 271 contain no specific reference to the
preemptive authority of states under section 224(c)(1), since both
provisions expressly refer to section 224 generally.
[[Page 45597]]
819. Thus, when a state has exercised its preemptive authority
under section 224(c)(1), a LEC satisfies its duty under section
251(b)(4) to afford access by complying with the state's regulations.
If a state has not exercised such preemptive authority, the LEC must
comply with the federal rules. Similarly, when a telecommunications
carrier seeks access rights from an incumbent LEC by choosing to avail
itself of the negotiation and arbitration procedures established in
section 252, a state that has exercised its preemption rights will
apply its own set of regulations in the arbitration process pursuant to
section 252 (c)(1). Finally, we note that state regulation in this area
is subject to the provisions of section 253.
820. We note that Congress did not amend section 224(c)(2) to
prescribe a certification procedure with respect to access (as distinct
from the rates, terms, and conditions of access). Therefore, upon the
filing of an access complaint with the Commission, the defending party
or the state itself should come forward to apprise us whether the state
is regulating such matters. If so, we shall dismiss the complaint
without prejudice to it being brought in the appropriate state forum. A
party seeking to show that a state regulates access issues should cite
to state laws and regulations governing access and establishing a
procedure for resolving access complaints in a state forum. Especially
probative will be a requirement that the relevant state authority
resolve an access complaint within a set period of time following the
filing of the complaint.
C. Imposing Additional Obligations on LECS
1. Background
821. Section 251(c) imposes obligations on incumbent LECs in
addition to the obligations set forth in sections 251 (a) and (b). It
establishes obligations of incumbent LECs regarding: (1) good faith
negotiation; (2) interconnection; (3) unbundling network elements; (4)
resale; (5) providing notice of network changes; and (6) collocation.
822. Section 251(h)(1) defines an incumbent LEC as a LEC within a
particular service area that: (1) as of the enactment of the 1996 Act,
provided telephone exchange service in such area; and (2) as of the
enactment of the 1996 Act, was deemed to be a member of the exchange
carrier association pursuant to 47 CFR Sec. 69.601(b) or, on or after
the enactment of the 1996 Act, became a successor or assign of such
carrier. Section 252(h)(2) provides that, ``[t]he Commission may, by
rule, provide for the treatment of a local exchange carrier (or class
or category thereof) as an incumbent local exchange carrier for
purposes of this section if (A) such carrier occupies a position in the
market for telephone exchange service within an area that is comparable
to the position occupied by a carrier described in paragraph (1); (B)
such carrier has substantially replaced an incumbent local exchange
carrier described in paragraph (1); and (C) such treatment is
consistent with the public interest, convenience, and necessity and the
purposes of this section.''
823. In the NPRM, we sought comment on whether we should establish
at this time standards and procedures by which interested parties could
prove that a particular LEC should be treated as an incumbent LEC. We
also sought comment on whether carriers that are not deemed to be
incumbent LECs under section 251(h) may be required to comply with any
or all of the obligations that apply to incumbent LECs, and whether
states may impose on non-incumbent LECs the obligations that are
imposed on incumbent LECs under section 251(c).
2. Discussion
824. We conclude that allowing states to impose on non-incumbent
LECs obligations that the 1996 Act designates as ``Additional
Obligations on Incumbent Local Exchange Carriers,'' distinct from
obligations on all LECs, would be inconsistent with the statute. We
understand that some states may be imposing on non-incumbent LECs
obligations set forth in section 251(c). See, e.g., Colorado Commission
comments at 11-12; Draft Decision, State of Connecticut Department of
Public Utility Control, Docket No. 94-10-04 at 60, 65 (Connecticut
Commission July 11, 1996); Illinois Commission comments at 19. We
believe that these actions may be inconsistent with the 1996 Act. Some
parties assert that certain provisions of the 1996 Act, such as
sections 252(e)(3) and 253(b), explicitly permit states to impose
additional obligations. Such additional obligations, however, must be
consistent with the language and purposes of the 1996 Act.
825. Section 251(h)(2) sets forth a process by which the FCC may
decide to treat LECs as incumbent LECs. Thus, when the conditions set
forth in section 251(h)(2) are met, the 1996 Act contemplates that new
entrants will be subject to the same obligations imposed on incumbents.
While we find that states may not unilaterally impose on non-incumbent
LECs obligations the 1996 Act expressly imposes only on incumbent LECs,
we find that state commissions or other interested parties could ask
the FCC to classify a carrier as an incumbent LEC pursuant to section
251(h)(2). At this time, we decline to adopt specific procedures or
standards for determining whether a LEC should be treated as an
incumbent LEC. Instead, we will permit interested parties to ask the
FCC to issue an order declaring a particular LEC or a class or category
of LECs to be treated as incumbent LECs. We expect to give particular
consideration to filings from state commissions. We further anticipate
that we will not impose incumbent LEC obligations on non-incumbent LECs
absent a clear and convincing showing that the LEC occupies a position
in the telephone exchange market comparable to the position held by an
incumbent LEC, has substantially replaced an incumbent LEC, and that
such treatment would serve the public interest, convenience, and
necessity and the purposes of section 251.
XI. Exemptions, Suspensions, and Modifications of Section 251
Requirements
A. Background
826. Section 251(f)(1) grants rural telephone companies an
exemption from section 251(c), until the rural telephone company has
received a bona fide request for interconnection, services, or network
elements, and the state commission determines that the exemption should
be terminated. A rural telephone company is defined as a local exchange
carrier operating entity to the extent that such entity ``(A) provides
common carrier service to any local exchange carrier study area that
does not include either-- (i) any incorporated place of 10,000
inhabitants or more, or any part thereof * * *; or (ii) any territory,
incorporated or unincorporated, included in an urbanized area * * *;
(B) provides telephone exchange service, including exchange access, to
fewer than 50,000 access lines; (C) provides telephone exchange service
to any local exchange carrier study area with fewer than 100,000 access
lines; or (D) has less than 15 percent of its access lines in
communities of more than 50,000 on the date of enactment of the
Telecommunications Act of 1996.'' 47 U.S.C. 153(37). Section 251(f)(2)
allows LECs with fewer than two percent of the nation's subscriber
lines to petition a state commission for a suspension or modification
of any requirements of sections 251 (b) and (c). Section 251(f)
[[Page 45598]]
imposes a duty on state commissions to make determinations under this
section, and establishes the criteria and procedures for the state
commissions to follow. In the NPRM, we tentatively concluded that state
commissions have the sole authority to make determinations under
section 251(f). In addition, we sought comment on whether we should
issue guidelines to assist state commissions when they make
determinations regarding exemptions, suspensions, or modifications
under section 251(f).
827. Although subsections (f)(1) and (f)(2) both address the
circumstances under which an incumbent LEC could be relieved of duties
otherwise imposed by section 251, subsection 251(f)(2) also applies to
non-incumbent LECs. The standard for determining whether to exempt a
carrier under subsection 251(f)(1) is different from the standard for
determining whether to grant a suspension or modification under
subsection (f)(2). Subsection 251(f)(1)(B) requires state commissions
to determine that terminating a rural exemption is consistent with the
universal service provisions of the 1996 Act. Subsection
251(f)(2)(A)(i) requires state commissions to grant a suspension or
modification if it is necessary to ``avoid a significant adverse
economic impact on users of telecommunications services generally,''
and subsection 251(f)(2)(B) requires a suspension or modification to be
``consistent with the public interest, convenience, and necessity.''
Although we address these two subsections together, we highlight
instances in which we believe that differences in statutory language
require different treatment by state commissions.
828. We discuss below issues raised by the commenters, and
establish some rules regarding the requirements of section 251(f) that
we believe will assist state commissions as they carry out their duties
under section 251(f). For the most part, however, we expect that states
will interpret the requirements of section 251(f) through rulemaking
and adjudicative proceedings. We may in the future initiate a Notice of
Proposed Rulemaking on certain additional issues raised by section
251(f) if it appears that further action by the Commission is
warranted.
B. Need for National Rules
1. Discussion
829. We agree with parties, including small incumbent LECs, who
argue that determining whether a telephone company is entitled,
pursuant to section 251(f), to exemption, suspension, or modification
of the requirements of section 251 generally should be left to state
commissions. Requests made pursuant to section 251(f) seek to carve out
exceptions to application of the section 251 rules that we are
establishing in this proceeding. We find that Congress intended the
section 251 requirements, and the Commission's implementing rules
thereunder, to apply to all carriers throughout the country, except in
the circumstances delineated in the statute. We find convincing
assertions that it would be an overwhelming task at this time for the
Commission to try to anticipate and establish national rules for
determining when our generally-applicable rules should not be imposed
upon carriers. Therefore, we establish in this Order a very limited set
of rules that will assist states in their application of the provisions
in section 251(f).
830. Many parties have proposed varying interpretations of the
provisions in section 251(f), and have asked for Commission
determination or a statement of agreement. Because it appears that many
parties welcome some guidance from the Commission, we briefly set forth
our interpretation of certain provisions of section 251(f). Such
statements will assist parties and, in particular, state commissions
that must make determinations regarding requests for exemption,
suspension, and modification.
C. Application of Section 251(f)
1. Discussion
831. Congress generally intended the requirements in section 251 to
apply to carriers across the country, but Congress recognized that in
some cases, it might be unfair or inappropriate to apply all of the
requirements to smaller or rural telephone companies. We believe that
Congress intended exemption, suspension, or modification of the section
251 requirements to be the exception rather than the rule, and to apply
only to the extent, and for the period of time, that policy
considerations justify such exemption, suspension, or modification. We
believe that Congress did not intend to insulate smaller or rural LECs
from competition, and thereby prevent subscribers in those communities
from obtaining the benefits of competitive local exchange service.
Thus, we believe that, in order to justify continued exemption once a
bona fide request has been made, or to justify suspension, or
modification of the Commission's section 251 requirements, a LEC must
offer evidence that application of those requirements would be likely
to cause undue economic burdens beyond the economic burdens typically
associated with efficient competitive entry. State commissions will
need to decide on a case-by-case basis whether such a showing has been
made.
832. Given the pro-competitive focus of the 1996 Act, we find that
rural LECs must prove to the state commission that they should continue
to be exempt pursuant to section 251(f)(1) from requirements of section
251(c), once a bona-fide request has been made, and that smaller
companies must prove to the state commission, pursuant to section
251(f)(2), that a suspension or modification of requirements of
sections 251 (b) or (c) should be granted. We conclude that it is
appropriate to place the burden of proof on the party seeking relief
from otherwise applicable requirements. Moreover, the party seeking
exemption, suspension, or modification is in control of the relevant
information necessary for the state to make a determination regarding
the request. A rural company that falls within section 251(f)(1) is not
required to make any showing until it receives a bona fide request for
interconnection, services, or network elements. We decline at this time
to establish guidelines regarding what constitutes a bona fide request.
We also decline in this Report and Order to adopt national rules or
guidelines regarding other aspects of section 251(f). For example, we
will not rule in this proceeding on the universal service duties of
requesting carriers that seek to compete with rural LECs. We may offer
guidance on these matters at a later date, if we believe it is
necessary and appropriate.
833. We find that Congress intended section 251(f)(2) only to apply
to companies that, at the holding company level, have fewer than two
percent of subscriber lines nationwide. This is consistent with the
fact that the standard is based on the percent of subscriber lines that
a carrier has ``in the aggregate nationwide.'' Moreover, any other
interpretation would permit almost any company, including Bell
Atlantic, Ameritech, and GTE affiliates, to take advantage of the
suspension and modification provisions in section 251(f)(2). Such a
conclusion would render the two percent limitation virtually
meaningless.
834. We note that some parties recommend that, in adopting rules
pursuant to section 251, the Commission provide different treatment or
impose different obligations on smaller or rural carriers. We conclude
that section 251(f) adequately provides for varying treatment for
smaller or rural LECs where such variances are justified in particular
instances. We conclude
[[Page 45599]]
that there is no basis in the record for adopting other special rules,
or limiting the application of our rules to smaller or rural LECs.
XIII. Advanced Telecommunications Capabilities
835. Section 706(a) provides that the Commission ``shall encourage
the deployment on a reasonable and timely basis of advanced
telecommunications capability to all Americans (including, in
particular, elementary and secondary schools and classrooms) by
utilizing, in a manner consistent with the public interest,
convenience, and necessity, price cap regulation, regulatory
forbearance, measures that promote competition in the local
telecommunications market, or other regulating methods that remove
barriers to infrastructure investment.'' In the NPRM, we sought comment
on how we can advance Congress's section 706(a) goal within the context
of our implementation of sections 251 and 252.
836. A number of parties suggest that rules allowing them to
compete effectively and earn a profit in the telecommunications
industry would assist the industry in providing telecommunications
services to all Americans. MFS suggests that ``all LECs should be
required, as a condition of eligibility for universal service
subsidies, to meet network modernization standards for rural telephone
companies.'' Several state commissions indicate that they have already
established programs to assist institutions eligible under section 706
in deploying advanced telecommunications services. The Alliance for
Public Technology asserts that section 706 should underlie all of the
FCC's proceedings. Ericsson states that the industry should work with
government agencies to promote leading edge technology to ensure that
it is introduced on a reasonably timely basis. For example, it contends
that ``Plug and Play Internet use'' will greatly help the public and
schools access information, and that advanced technology such as
asynchronous transfer mode (ATM), wireless data/video, and AIN will
enhance interconnection capabilities of public and private networks.
The Illinois Commission contends that, depending on the pricing
standard the Commission adopts for interconnection and access to
unbundled elements, and the Commission's interpretation of the
prohibition against discrimination, the Commission should adopt special
rules for carriers when they provide interconnection or access to
unbundled network elements to serve a school, library, or healthcare
provider.
837. We decline to adopt rules regarding section 706 in this
proceeding. We intend to address issues related to section 706 in a
separate proceeding.
XIV. Provisions of Section 252
A. Section 252(e)(5)
1. Background
838. Section 252(e)(5) directs the Commission to assume
responsibility for any proceeding or matter in which the state
commission ``fails to act to carry out its responsibility'' under
section 252. In the NPRM, we asked whether the Commission should
establish rules and regulations necessary to carry out our obligation
under section 252(e)(5). In addition, we sought comment on whether in
this proceeding we should establish regulations necessary and
appropriate to carry out our obligations under section 252(e)(5). In
particular, we sought comment on what constitutes notice of failure to
act, what procedures, if any, we should establish for parties to notify
the Commission, and what are the circumstances under which a state
commission should be deemed to have ``fail[ed] to act'' under section
252(e)(5).
839. Section 252(e)(4) provides that, if the state commission does
not approve or reject (1) a negotiated agreement within 90 days, or (2)
an arbitrated agreement within 30 days, from the time the agreement is
submitted by the parties, the agreement shall be ``deemed approved.''
We sought comment on the relationship between this provision and our
obligation to assume responsibility under section 252(e)(5). We also
sought comment on whether the Commission, once it assumes the
responsibility of the state commission, is bound by all of the laws and
standards that would have applied to the state commission, and whether
the Commission is authorized to determine whether an agreement is
consistent with applicable state law as the state commission would have
been under section 252(e)(3). In addition, we sought comment on
whether, once the Commission assumes responsibility under section
252(e)(5), it retains jurisdiction, or whether that matter or
proceeding subsequently should be remanded to the state.
840. Finally, we sought comment on whether we should adopt, in this
proceeding, some standards or methods for arbitrating disputes in the
event we must conduct an arbitration under section 252(e)(5). We noted
some of the benefits and drawbacks of both ``final offer'' arbitration
and open-ended arbitration, and asked for comment on both.
2. Discussion
841. After careful review of the record, we are convinced that
establishing regulations to carry out our obligations under section
252(e)(5) will provide for an efficient and fair transition from state
jurisdiction should we have to assume the responsibility of the state
commission under Section 252(e)(5). The rules we establish in this
section with respect to arbitration under section 252 apply only to
instances where the Commission assumes jurisdiction under section
252(e)(5); we do not purport to advise states on how to conduct
arbitration when the Commission has not assumed jurisdiction. The rules
we establish will give notice of the procedures and standards the
Commission would apply to mediation and arbitration, avoid delay if the
Commission had to arbitrate disputes in the near future, and may also
offer guidance the states may, at their discretion, wish to consider in
implementing their own mediation and arbitration procedures and
standards. We decline to adopt national rules governing state
arbitration procedures. We believe the states are in a better position
to develop mediation and arbitration rules that support the objectives
of the 1996 Act. States may develop specific measures that address the
concerns of small entities and small incumbent LECs participating in
mediation or arbitration.
842. The rules we adopt herein are minimum, interim procedures.
Adopting minimum interim procedures now will allow the Commission to
learn from the initial experiences and gain a better understanding of
what types of situations may arise that require Commission action. We
note that the Commission is not required to adopt procedures and
standards for mediation and arbitration within the six-month statutory
deadline and that, by adopting minimum interim procedures, the
Commission can better direct its resources to more pressing matters
that fall within the six-month statutory deadline.
843. Regarding what constitutes a state's ``failure to act to carry
out its responsibility under'' section 252, the Commission was
presented with numerous options. The Commission will not take an
expansive view of what constitutes a state's ``failure to act.''
Instead, the Commission interprets ``failure to act'' to mean a state's
failure to complete its duties in a timely manner. This would limit
Commission action to instances where a state commission fails to
respond, within a reasonable time, to a request for
[[Page 45600]]
mediation or arbitration, or fails to complete arbitration within the
time limits of section 252(b)(4)(C). The Commission will place the
burden of proof on parties alleging that the state commission has
failed to respond to a request for mediation or arbitration within a
reasonable time frame. We note the work done by states to date in
putting in place procedures and regulations governing arbitration and
believe that states will meet their responsibilities and obligations
under the 1996 Act. See, e.g., In the Matter of the Implementation of
the Mediation and Arbitration Provisions of the Federal
Telecommunications Act of 1996, Case No. 96-463-TP-UNC, Ohio
Commission, (May 30, 1996); Illinois Commerce Commission On Its Own
Motion Adoption of 83 Ill. Adm. Code 761 to Implement the Arbitration
Provisions of Section 252 of the Telecommunications Act of 1996, Docket
No. 96-0297, Illinois Commission (June 14, 1996).
844. We agree with the majority of commenters that argue that our
authority to assume the state commission's responsibilities is not
triggered when an agreement is ``deemed approved'' under section
252(e)(4) due to state commission inaction. Section 252(e)(4) provides
for automatic approval if a state fails to approve or reject a
negotiated or arbitrated agreement within 90 days or 30 days,
respectively. Rules of statutory construction require us to give
meaning to all provisions and to read provisions consistently, where it
is possible to do so. We thus conclude that the most reasonable
interpretation is that automatic approval under section 252(e)(4) does
not constitute a failure to act.
845. We also believe that we should establish interim procedures
for interested parties to notify the Commission that a state commission
has failed to act under section 252. We believe that parties should be
required to file a detailed written petition, backed by affidavit, that
will, at the outset, give the Commission a better understanding of the
issues involved and the action, or lack of action, taken by the state
commission. Allowing less detailed notification increases the
likelihood that frivolous requests will be made. With less detailed
notification, the Commission's investigations would be broader and more
burdensome. A detailed written petition will facilitate a decision
about whether the Commission should assume jurisdiction based on
section 252(e)(5).
846. The moving party should submit a petition to the Secretary of
the Commission stating with specificity the basis for the petition and
any information that supports the claim that the state has failed to
act, including, but not limited to the applicable provision(s) of the
Act and the factual circumstances which support a finding that a state
has failed to act. The moving party must ensure that the applicable
state commission and the parties to the proceeding or matter for which
preemption is sought are served with the petition on the same date the
party serves the petition on the Commission. The petition will serve as
notice to parties to the state proceeding and the state commission who
will have fifteen days from the date the petition is filed with the
Commission to comment. Under section 252(e)(5), the Commission must
``issue an order preempting the state commission's jurisdiction of that
proceeding or matter'' no later than 90 days from the date the petition
is filed. If the Commission takes notice, as section 252(e)(5) permits,
that a state commission has failed to act, it will, on its own motion,
issue a public notice and provide fifteen days for interested parties
to submit comment on whether the Commission should assume
responsibility under section 252(e)(5).
847. If the Commission assumes authority under section 252(e)(5),
the Commission must also decide whether it retains authority for that
proceeding or matter. We agree with those parties who argue that, once
the Commission assumes jurisdiction of a proceeding or matter, it
retains authority for that proceeding or matter. For example, if the
Commission obtains jurisdiction after a state commission fails to
respond to a request for arbitration, the Commission maintains
jurisdiction over the arbitration proceeding. Therefore, once the
proceeding is before the Commission, any and all further action
regarding that proceeding or matter will be before the Commission. We
note that there is no provision in the Act for returning jurisdiction
to the state commission; moreover, the Commission, with significant
knowledge of the issues at hand, would be in the best position
efficiently to conclude the matter. Thus, as both a legal and policy
matter, we believe that the Commission retains jurisdiction over any
matter and proceeding for which it assumes responsibility under Section
252(e)(5).
848. We reject the suggestion by some parties that, once the
Commission has mediated or arbitrated an agreement, the agreement must
be submitted to the state commission for approval under state law. We
note that section 252(e)(5) provides for the Commission to ``assume the
responsibility of the State commission under this section with respect
to the proceeding or matter and act for the State commission.'' This
includes acting for the state commission under section 252(e)(1), which
calls for state commission approval of ``any interconnection agreement
adopted by negotiation or arbitration.'' We, therefore, do not read
section 252(e)(1) or any other provision as calling for state
commission approval or rejection of agreements mediated or arbitrated
by the Commission. In those instances where a state has failed to act,
the Commission acts on behalf of the state and no additional state
approval is required.
849. Requirements set forth in section 252(c) for arbitrated
agreements would apply to arbitration conducted by the Commission. We
see no reason, and no party has suggested a policy or legal basis, for
not applying such standards when the Commission conducts arbitration.
Thus, arbitrated agreements must: (1) meet the requirements of section
251, including regulations prescribed by the Commission pursuant to
section 251; (2) establish any rates for interconnection, services, or
network elements according to section 252(d); and (3) provide a
schedule for implementation of the terms and conditions by the parties
to the agreement. We reject the suggestion made by some parties that,
if the Commission steps into the state commission role, it is bound by
state laws and standards that would have applied to the state
commission. While states are permitted to establish and enforce other
requirements, these are not binding standards for arbitrated agreements
under section 252(c). Moreover, the resources and time potentially
needed to review adequately and interpret the different laws and
standards of each state render this suggestion untenable. Finally, we
conclude that it would not make sense to apply to the Commission the
timing requirements that section 252(b)(4)(c) imposes on state
commissions. The Commission, in some instances, might not even assume
jurisdiction until nine months (or more) have lapsed since a section
251 request was initiated.
850. Based on the comments of the parties, we conclude that a
``final offer'' method of arbitration, similar to the approach
recommended by Vanguard, would best serve the public interest. Under
``final offer'' arbitration, each party to the negotiation proposes its
best and final offer and the arbitrator determines which of the
proposals become binding. The arbitrator would
[[Page 45601]]
have the option of choosing one of the two proposals in its entirety,
or the arbitrator could decide on an issue-by-issue basis. Each final
offer must: (1) meet the requirements of section 251, including the
Commission's rules thereunder; (2) establish rates for interconnection,
services, or network elements according to section 252(d); and (3)
provide a schedule for implementation of the terms and conditions by
the parties to the agreement. If a final offer submitted by one or more
parties fails to comply with these requirements, the arbitrator would
have discretion to take steps designed to result in an arbitrated
agreement that satisfies the requirements of section 252(c), including
requiring parties to submit new final offers within a time frame
specified by the arbitrator, or adopting a result not submitted by any
party that is consistent with the requirements in section 252(c).
851. The parties could continue to negotiate an agreement after
they submit their proposals and before the arbitrator makes a decision.
Under this approach, the Commission will encourage negotiations, with
or without the assistance of the arbitrator, to continue after
arbitration offers are exchanged. Parties are not precluded from
submitting subsequent final offers following such negotiations. We
believe that permitting post-offer negotiations will increase the
likelihood that the parties will reach consensus on unresolved issues.
In addition, permitting post-offer negotiations will increase
flexibility and will allow parties to tailor counter-proposals after
arbitration offers are exchanged. To provide an opportunity for final
post-offer negotiation, the arbitrator will not issue a decision for at
least 15 days after submission of the final offers by the parties. In
addition, the offers must be consistent with section 251, including the
regulations prescribed by the Commission. We reject SBC's suggestion
that an arbitrated agreement is not binding on the parties. Absent
mutual agreement to different terms, the decision reached through
arbitration is binding. We conclude that it would be inconsistent with
the 1996 Act to require incumbent LECs to provide interconnection,
services, and unbundled elements, impose a duty to negotiate in good
faith and a right to arbitration, and then permit incumbent LECs to not
be bound by an arbitrated determination. We also believe that, although
competing providers do not have an affirmative duty to enter into
agreements under section 252, a requesting carrier might face penalties
if, by refusing to enter into an arbitrated agreement, that carrier is
deemed to have failed to negotiate in good faith. Such penalties should
serve as a disincentive for requesting carriers to force an incumbent
LEC to expand resources in arbitration if the requesting carrier does
not intend to abide by the arbitrated decision.
852. Adopting a ``final offer'' method of arbitration and
encouraging negotiations to continue allows us to maintain the benefits
of final offer arbitration, giving parties an incentive to submit
realistic ``final offers,'' while providing additional flexibility for
the parties to agree to a resolution that best serves their interests.
To the extent that these procedures encourage parties to negotiate
voluntarily rather than arbitrate, such negotiated agreements will be
subject to review pursuant to section 252(e)(2)(A), which would allow
the Commission to reject agreements if they are inconsistent with the
public interest. This approach also addresses the argument that under
``final offer'' arbitration neither offer might best serve the public
interest, because it allows the parties to obtain feedback from the
arbitrator on public interest matters.
853. We believe that the arbitration proceedings generally should
be limited to the requesting carrier and the incumbent local exchange
provider. This will allow for a more efficient process and minimize the
amount of time needed to resolve disputed issues. We believe that
opening the process to all third parties would be unwieldy and would
delay the process. We will, however, consider requests by third parties
to submit written pleadings. This may, in some instances, allow
interested parties to identify important public policy issues not
raised by parties to an arbitration.
B. Requirements of Section 252(i)
1. Background
854. Section 251 requires that interconnection, unbundled element,
and collocation rates be ``nondiscriminatory'' and prohibits the
imposition of ``discriminatory conditions'' on the resale of
telecommunications services. Section 252(i) of the 1996 Act provides
that a ``local exchange carrier shall make available any
interconnection, service, or network element provided under an
agreement approved under [section 252] to which it is a party to any
other requesting telecommunications carrier upon the same terms and
conditions as those provided in the agreement.'' In the NPRM, we
expressed the view that section 252(i) appears to be a primary tool of
the 1996 Act for preventing discrimination under section 251, and we
sought comment on whether we should adopt national standards for
resolving disputes under section 252(i) in the event that we must
assume the state's responsibilities pursuant to section 252(e)(5). In
addition, because we may need to interpret section 252(i) if we assume
the state commission's responsibilities, we sought comment on the
meaning of section 252(i).
855. We also sought comment in the NPRM on whether section 252(i)
requires that only similarly-situated carriers may enforce against
incumbent LECs provisions of agreements filed with state commissions,
and, if so, how ``similarly-situated carrier'' should be defined. In
particular, we asked whether section 252(i) requires that the same
rates for interconnection must be offered to all requesting carriers
regardless of the cost of serving that carrier, or whether it would be
consistent with the statute to permit different rates if the costs of
serving carriers are different. We also asked whether the section can
be interpreted to allow incumbent LECs to make available
interconnection, services, or network elements only to requesting
carriers serving a comparable class of subscribers or providing the
same service (i.e., local, access, or interexchange) as the original
parties to the agreement. In the NPRM, we tentatively concluded that
the language of the statute appears to preclude such differential
treatment among carriers.
856. Additionally, we sought comment in the NPRM on whether section
252(i) permits requesting telecommunications carriers to choose among
individual provisions of publicly-filed interconnection agreements or
whether they must subscribe to an entire agreement. We also sought
comment regarding what time period an agreement must remain available
for use by other requesting telecommunications carriers.
2. Discussion
857. We conclude that it will assist the carriers in determining
their respective obligations, facilitate the development of a single,
uniform legal interpretation of the Act's requirements and promote a
procompetitive, national policy framework to adopt national standards
to implement section 252(i). Issues such as whether section 252(i)
allows requesting telecommunications carriers to choose among
provisions of prior interconnection agreements or requires them to
accept an entire agreement are issues of law that should not vary from
state to state and are also central to the statutory scheme and to
[[Page 45602]]
the emergence of competition. National standards will help state
commissions and parties to expedite the resolution of disputes under
section 252(i).
858. We conclude that the text of section 252(i) supports
requesting carriers' ability to choose among individual provisions
contained in publicly filed interconnection agreements. As we note
above, section 252(i) provides that a ``local exchange carrier shall
make available any interconnection, service, or network element
provided under an agreement * * * to which it is a party to any other
requesting telecommunications carrier upon the same terms and
conditions as those provided in the agreement.'' Thus, Congress drew a
distinction between ``any interconnection, service, or network
element[s] provided under an agreement,'' which the statute lists
individually, and agreements in their totality. Requiring requesting
carriers to elect entire agreements, instead of the provisions relating
to specific elements, would render as mere surplusage the words ``any
interconnection, service, or network element.''
859. We disagree with BellSouth regarding the significance of the
legislative history quoted in the NPRM. The Conference Committee
amended section 251(g), S. 652's predecessor to section 252(i), and
changed ``service, facility, or function'' to ``interconnection,
service, or element.'' The House of Representatives' bill did not
contain a version of section 252(i). Although H.R. 1555's section
244(d) contained similar ideas, its language and structure are
sufficiently different from that of section 252(i) that we do not
consider section 244(d) to be a prior version of section 252(i). We
find that section 252(i)'s language does not differ substantively from
the text of the Senate bill's section 251(g). The Senate Commerce
Committee stated its provision, section 251(g), was intended to ``make
interconnection more efficient by making available to other carriers
the individual elements of agreements that have been previously
negotiated.''
860. We also find that practical concerns support our
interpretation. As observed by AT&T and others, failure to make
provisions available on an unbundled basis could encourage an incumbent
LEC to insert into its agreement onerous terms for a service or element
that the original carrier does not need, in order to discourage
subsequent carriers from making a request under that agreement. In
addition, we observe that different new entrants face differing
technical constraints and costs. Since few new entrants would be
willing to elect an entire agreement that would not reflect their costs
and the specific technical characteristics of their networks or would
not be consistent with their business plans, requiring requesting
carriers to elect an entire agreement would appear to eviscerate the
obligation Congress imposed in section 252(i).
861. We also choose this interpretation despite concerns voiced by
some incumbent LECs that allowing carriers to choose among provisions
will harm the public interest by slowing down the process of reaching
interconnection agreements by making incumbent LECs less likely to
compromise. In reaching this conclusion, we observe that new entrants,
who stand to lose the most if negotiations are delayed, generally do
not argue that concern over slow negotiations would outweigh the
benefits they would derive from being able to choose among terms of
publicly filed agreements. Unbundled access to agreement provisions
will enable smaller carriers who lack bargaining power to obtain
favorable terms and conditions--including rates--negotiated by large
IXCs, and speed the emergence of robust competition.
862. We conclude that incumbent LECs must permit third parties to
obtain access under section 252(i) to any individual interconnection,
service, or network element arrangement on the same terms and
conditions as those contained in any agreement approved under section
252. We find that this level of disaggregation is mandated by section
252(a)(1), which requires that agreements shall include ``charges for
interconnection and each service or network element included in the
agreement,'' and section 251(c)(3), which requires incumbent LECs to
provide ``non-discriminatory access to network elements on an unbundled
basis.'' In practical terms, this means that a carrier may obtain
access to individual elements such as unbundled loops at the same
rates, terms, and conditions as contained in any approved agreement. We
agree with ALTS that such a view comports with the statute, and lessens
the concerns of carriers that argue that unbundled availability will
delay negotiations.
863. We reject GTE's argument that section 252(i)'s statement, that
requesting carriers must receive individual elements ``upon the same
terms and conditions'' as those contained in the agreement, precludes
unbundled availability of individual elements. GTE's argument fails to
give meaning to Congress's distinction between agreements and elements,
and ignores the 1996 Act's prime goals of nondiscriminatory treatment
of carriers and promotion of competition. Instead, we conclude that the
``same terms and conditions'' that an incumbent LEC may insist upon
shall relate solely to the individual interconnection, service, or
element being requested under section 252(i). For instance, where an
incumbent LEC and a new entrant have agreed upon a rate contained in a
five-year agreement, section 252(i) does not necessarily entitle a
third party to receive the same rate for a three-year commitment.
Similarly, that one carrier has negotiated a volume discount on loops
does not automatically entitle a third party to obtain the same rate
for a smaller amount of loops. Given the primary purpose of section
252(i) of preventing discrimination, we require incumbent LECs seeking
to require a third party agree to certain terms and conditions to
exercise its rights under section 252(i) to prove to the state
commission that the terms and conditions were legitimately related to
the purchase of the individual element being sought. By contrast,
incumbent LECs may not require as a ``same'' term or condition the new
entrant's agreement to terms and conditions relating to other
interconnection, services, or elements in the approved agreement.
Moreover, incumbent LEC efforts to restrict availability of
interconnection, services, or elements under section 252(i) also must
comply with the 1996 Act's general nondiscrimination provisions. See
Section VII.d.3.
864. We further conclude that section 252(i) entitles all parties
with interconnection agreements to ``most favored nation'' status
regardless of whether they include ``most favored nation'' clauses in
their agreements. Congress's command under section 252(i) was that
parties may utilize any individual interconnection, service, or element
in publicly filed interconnection agreements and incorporate it into
the terms of their interconnection agreement. This means that any
requesting carrier may avail itself of more advantageous terms and
conditions subsequently negotiated by any other carrier for the same
individual interconnection, service, or element once the subsequent
agreement is filed with, and approved by, the state commission. We
believe the approach we adopt will maximize competition by ensuring
that carriers' obtain access to terms and elements on a
nondiscriminatory basis.
865. We find that section 252(i) permits differential treatment
based on the LEC's cost of serving a carrier. We
[[Page 45603]]
further observe that section 252(d)(1) requires that unbundled element
rates be cost-based, and sections 251(c)(2) and (c)(3) require
incumbent LECs to provide only technically-feasible forms of
interconnection and access to unbundled elements, while section 252(i)
mandates that the availability of publicly-filed agreements be limited
to carriers willing to accept the same terms and conditions as the
carrier who negotiated the original agreement with the incumbent LEC.
We conclude that these provisions, read together, require that
publicly-filed agreements be made available only to carriers who cause
the incumbent LEC to incur no greater costs than the carrier who
originally negotiated the agreement, so as to result in an
interconnection arrangement that is both cost-based and technically
feasible. However, as discussed in Section VII regarding
discrimination, where an incumbent LEC proposes to treat one carrier
differently than another, the incumbent LEC must prove to the state
commission that that differential treatment is justified based on the
cost to the LEC of providing that element to the carrier.
866. We conclude, however, that section 252(i) does not permit LECs
to limit the availability of any individual interconnection, service,
or network element only to those requesting carriers serving a
comparable class of subscribers or providing the same service (i.e.,
local, access, or interexchange) as the original party to the
agreement. In our view, the class of customers, or the type of service
provided by a carrier, does not necessarily bear a direct relationship
with the costs incurred by the LEC to interconnect with that carrier or
on whether interconnection is technically feasible. Accordingly, we
conclude that an interpretation of section 252(i) that attempts to
limit availability by class of customer served or type of service
provided would be at odds with the language and structure of the
statute, which contains no such limitation.
867. We agree with those commenters who suggest that agreements
remain available for use by requesting carriers for a reasonable amount
of time. Such a rule addresses incumbent LEC concerns over technical
incompatibility, while at the same time providing requesting carriers
with a reasonable time during which they may benefit from previously
negotiated agreements. In addition, this approach makes economic sense,
since the pricing and network configuration choices are likely to
change over time, as several commenters have observed. Given this
reality, it would not make sense to permit a subsequent carrier to
impose an agreement or term upon an incumbent LEC if the technical
requirements of implementing that agreement or term have changed.
868. We observe that section 252(h) expressly provides that state
commissions maintain for public inspection copies of interconnection
agreements approved under section 252(e). We therefore decline Jones
Intercable's suggestion that we require carriers to file agreements at
the FCC, in addition to section 252(h)'s filing requirement. However,
when the Commission performs the state's responsibilities under section
252(e)(5), parties must file their agreements with the Commission, as
well as with the state commission. We note section 22.903(d) of our
rules, which remains in effect, requires the BOCs to file with us their
interconnection agreements with their affiliated cellular providers. 47
CFR Sec. 22.903(d).
869. We further conclude that a carrier seeking interconnection,
network elements, or services pursuant to section 252(i) need not make
such requests pursuant to the procedures for initial section 251
requests, but shall be permitted to obtain its statutory rights on an
expedited basis. We find that this interpretation furthers Congress's
stated goals of opening up local markets to competition and permitting
interconnection on just, reasonable, and nondiscriminatory terms, and
that we should adopt measures that ensure competition occurs as quickly
and efficiently as possible. We conclude that the nondiscriminatory,
pro-competition purpose of section 252(i) would be defeated were
requesting carriers required to undergo a lengthy negotiation and
approval process pursuant to section 251 before being able to utilize
the terms of a previously approved agreement. Since agreements shall
necessarily be filed with the states pursuant to section 252(h), we
leave to state commissions in the first instance the details of the
procedures for making agreements available to requesting carriers on an
expedited basis. Because of the importance of section 252(i) in
preventing discrimination, however, we conclude that carriers seeking
remedies for alleged violations of section 252(i) shall be permitted to
obtain expedited relief at the Commission, including the resolution of
complaints under section 208 of the Communications Act, in addition to
their state remedies.
870. We conclude as well that agreements negotiated prior to
enactment of the 1996 Act must be available for use by subsequent,
requesting carriers. Section 252(i) must be read in conjunction with
section 252(a)(1), which clearly states that ``agreement'' for purposes
of section 252, ``includ[es] any interconnection agreement negotiated
before the date of enactment * * *.'' We conclude that this language
demonstrates that Congress intended 252(i) to apply to agreements
negotiated prior to enactment of the 1996 Act and approved by the state
commission pursuant to section 252(e), as well as those approved under
the section 251/252 negotiation process. Accordingly, we find that
agreements negotiated prior to enactment of the 1996 Act must be
disclosed publicly, and be made available to requesting
telecommunications carriers pursuant to section 252(i).
871. We also find that section 252(i) applies to interconnection
agreements between adjacent, incumbent LECs. We note that section
252(i) requires a local exchange carrier to make available to
requesting telecommunications carriers ``any interconnection service,
or network element provided under an agreement approved under this
section * * *.'' The plain meaning of this section is that any
interconnection agreement approved by a state commission, including one
between adjacent LECs, must be made available to requesting carriers
pursuant to section 252(i). Requiring availability of such agreements
will provide new entrants with a realistic benchmark upon which to base
negotiations, and this will further the Congressional purpose of
increasing competition. As stated in Section III of this Order,
adjacent, incumbent LECs will be given an opportunity to renegotiate
such agreements before they become subject to section 252(i)'s
requirements. In Section III, we also consider, and reject, the Rural
Tel. Coalition's argument that making agreements between adjacent, non-
competing LECs available under section 252 will have a detrimental
effect on small, rural carriers. See Section III, supra.
XV. Final Regulatory Flexibility Analysis
872. As required by Section 603 of the Regulatory Flexibility Act
(RFA), 5 U.S.C. Sec. 603, an Initial Regulatory Flexibility Analysis
(IRFA) was incorporated in the NPRM. The Commission sought written
public comment on the proposals in the NPRM. The Commission's Final
Regulatory Flexibility Analysis (FRFA) in this Order conforms to the
RFA, as amended by the Contract With America Advancement Act of 1996
(CWAAA),
[[Page 45604]]
Public Law No. 104-121, 110 Stat. 847 (1996).
A. Need for and Objectives of This Report and Order and the Rules
Adopted Herein
873. The Commission, in compliance with section 251(d)(1) of the
Communications Act of 1934, as amended by the Telecommunications Act of
1996 (the 1996 Act), promulgates the rules in this Order to ensure the
prompt implementation of sections 251 and 252 of the 1996 Act, which
are the local competition provisions. Congress sought to establish
through the 1996 Act ``a pro-competitive, de-regulatory national policy
framework'' for the United States telecommunications industry. Three
principal goals of the telephony provisions of the 1996 Act are: (1)
opening local exchange and exchange access markets to competition; (2)
promoting increased competition in telecommunications markets that are
already open to competition, particularly long distance services
markets; and, (3) reforming our system of universal service so that
universal service is preserved and advanced as local exchange and
exchange access markets move from monopoly to competition.
874. The rules adopted in this Order implement the first of these
goals--opening local exchange and exchange access markets to
competition. The objective of the rules adopted in this Order is to
implement as quickly and effectively as possible the national
telecommunications policies embodied in the 1996 Act and to promote the
development of competitive, deregulated markets envisioned by Congress.
In doing so, we are mindful of the balance that Congress struck between
this goal of bringing the benefits of competition to all consumers and
its concern for the impact of the 1996 Act on small incumbent local
exchange carriers, particularly rural carriers, as evidenced in section
251(f) of the 1996 Act.
B. Analysis of Significant Issues Raised in Response to the IRFA
875. Summary of the Initial Regulatory Flexibility Analysis (IRFA).
In the NPRM, the Commission performed an IRFA. In the IRFA, the
Commission found that the rules it proposed to adopt in this proceeding
may have a significant impact on a substantial number of small business
as defined by section 601(3) of the RFA. The Commission stated that its
regulatory flexibility analysis was inapplicable to incumbent LECs
because such entities are dominant in their field of operation. The
Commission noted, however, that it would take appropriate steps to
ensure that the special circumstances of smaller incumbent LECs are
carefully considered in our rulemaking. The Commission also found that
the proposed rules may overlap or conflict with the Commission's Part
69 access charge and Expanded Interconnection rules. Finally, the IRFA
solicited comment on alternatives to our proposed rules that would
minimize the impact on small entities consistent with the objectives of
this proceeding.
1. Treatment of Small LECs
876. Discussion. In essence, SBA and Rural Tel. Coalition argue
that we exceeded our authority under the RFA by certifying all
incumbent LECs as dominant in their field of operation, and concluding
on that basis that they are not small businesses under the RFA. SBA and
Rural Tel. Coalition contend that the authority to make a size
determination rests solely with SBA and that, by excluding a group
(small incumbent LECs) from coverage under the RFA, the Commission made
an unauthorized size determination. Neither SBA nor Rural Tel.
Coalition cites any specific authority for this latter proposition.
877. We have found incumbent LECs to be ``dominant in their field
of operation'' since the early 1980's, and we consistently have
certified under the RFA that incumbent LECs are not subject to
regulatory flexibility analyses because they are not small businesses.
We have made similar determinations in other areas. We recognize SBA's
special role and expertise with regard to the RFA, and intend to
continue to consult with SBA outside the context of this proceeding to
ensure that the Commission is fully implementing the RFA. Although we
are not fully persuaded on the basis of this record that our prior
practice has been incorrect, in light of the special concerns raised by
SBA and Rural Tel. Coalition in this proceeding, we will, nevertheless,
include small incumbent LECs in this FRFA to remove any possible issue
of RFA compliance. We, therefore, need not address Rural Tel.
Coalition's arguments that incumbent LECs are not dominant.
2. Other Issues
878. Discussion. We disagree with SBA's assessment of our IRFA.
Although the IRFA referred only generally to the reporting and
recordkeeping requirements imposed on incumbent LECs, our Federal
Register notice set forth in detail the general reporting and
recordkeeping requirements as part of our Paperwork Reduction Act
statement. The IRFA also sought comment on the many alternatives
discussed in the body of the NPRM, including the statutory exemption
for certain rural telephone companies. The numerous general public
comments concerning the impact of our proposal on small entities in
response to the NPRM, including comments filed directly in response to
the IRFA, enabled us to prepare this FRFA. Thus, we conclude that the
IRFA was sufficiently detailed to enable parties to comment
meaningfully on the proposed rules and, thus, for us to prepare this
FRFA. We have been working with, and will continue to work with SBA, to
ensure that both our IRFAs and FRFAs fully meet the requirements of the
RFA.
879. SBA also objects to the NPRM's requirement that responses to
the IRFA be filed under a separate and distinct heading, and proposes
that we integrate RFA comments into the body of general comments on a
rule. Almost since the adoption of the RFA, we have requested that IRFA
comments be submitted under a separate and distinct heading. Neither
the RFA nor SBA's rules prescribe the manner in which comments may be
submitted in response to an IRFA and, in such circumstances, it is well
established that an administrative agency can structure its proceedings
in any manner that it concludes will enable it to fulfill its statutory
duties. Based on our past practice, we find that separation of comments
responsive to the IRFA facilitates our preparation of a compulsory
summary of such comments and our responses to them, as required by the
RFA. Comments on the impact of our proposed rules on small entities
have been integrated into our analysis and consideration of the final
rules. We, therefore, reject SBA's argument that we improperly required
commenters to include their comments on the IRFA in a separate section.
880. We also reject SBA's assertion that none of the alternatives
in the NPRM is designed to minimize the impact of the proposed rules on
small businesses. For example, we proposed that incumbent LECs be
required to offer competitors access to unbundled local loop,
switching, and transport facilities. These proposals permit potential
competitors to enter the market by relying, in part or entirely, on the
incumbent LEC's facilities. Reduced economic entry barriers are
designed to provide reasonable opportunities for new entrants,
particularly small entities, to enter the market by minimizing the
initial investment needed to begin providing service. In addition, we
[[Page 45605]]
believe section 251(f) and our rules provide states with significant
flexibility to ``deal with the needs of individual companies in light
of public interest concerns,'' as requested by the Idaho Commission.
With regard to the potential burdens on small entities other than
incumbent LECs, we believe our rules permit states to structure
arbitration procedures, for example, in ways that minimize filing or
other burdens on new entrants that are small entities.
881. We also disagree with SCBA's assertion that the IRFA was
deficient because it did not identify small cable operators as entities
that would be affected by the proposed rules. The IRFA in the NPRM
states: ``Insofar as the proposals in this Notice apply to
telecommunications carriers other than incumbent LECs (generally
interexchange carriers and new LEC entrants), they may have a
significant impact on a substantial number of small entities.'' The
phrase ``new LEC entrants'' clearly encompasses small cable operators
that become providers of local exchange service. The NPRM even
identifies cable operators as potential new entrants.
882. We agree with SCBA's argument that the Commission should
identify certain minimum standards to provide guidance on the
requirement that parties negotiate in good faith. As discussed in
Section III.B, we conclude that we should establish minimum standards
that will offer parties guidance in determining whether they are acting
in good faith. We believe that these minimum standards address SCBA's
assertion that federal guidelines for good faith negotiations may be
particularly important for small entities because unreasonable delays
in negotiations could represent an entry barrier for small entities.
883. We also agree with SCBA's recommendation that we should
establish guidelines for the application of section 251(f) regarding
exemptions, suspensions, and modifications of our rules governing
interconnection with rural carriers. As discussed in section XII.B, we
find that a rural incumbent LEC should not be able to obtain an
exemption, suspension, or modification of its obligations under section
251 unless it offers evidence that the application of those
requirements would be likely to cause injury beyond the financial harm
typically associated with efficient competitive entry. We are also
persuaded by the suggestion of SCBA and others that incumbent LECs
should bear the burden of showing that they should be exempt pursuant
to section 251(f)(1) from national interconnection requirements. We
believe that this finding is consistent with the pro-competitive goals
of the 1996 Act and our determination in Section XII that Congress did
not intend to withhold from consumers the benefits of local telephone
competition that could be provided by small entities, such as small
cable operators.
884. We do not adopt SCBA's proposal to establish abbreviated
arbitration procedures. Most commenters oppose adoption of federal
rules to govern state mediation and arbitration proceedings. As set out
in Section XIV.A, we conclude that state commissions are better
positioned to develop rules for mediation and arbitration that support
the objectives of the 1996 Act. The rules we adopt in Section XIV.A
apply only where the Commission assumes a state commission's
responsibilities pursuant to section 252(e)(5). States may develop
specific measures that address the concerns of small entities
participating in mediation or arbitration, as suggested by SCBA. In
addition, although we do not specifically incorporate SCBA's request
that the Commission designate a ``small company contact person at
incumbent LECs and state commissions,'' we find that a refusal
throughout the negotiation process to designate a representative with
authority to make binding representations on behalf of the party, and
thereby significantly delay resolution of issues, would constitute
failure to negotiate in good faith. Therefore, we conclude that the
potential benefits of SCBA's proposal are achieved by our determination
that the failure of an incumbent LEC to designate a person authorized
to bind his or her company in negotiations is a violation of the good
faith obligation of section 251.
C. Description and Estimates of the Number of Small Entities Affected
by this Report and Order
885. For the purposes of this Order, the RFA defines a ``small
business'' to be the same as a ``small business concern'' under the
Small Business Act, 15 U.S.C. 632, unless the Commission has developed
one or more definitions that are appropriate to its activities. Under
the Small Business Act, a ``small business concern'' is one that: (1)
Is independently owned and operated; (2) is not dominant in its field
of operation; and (3) meets any additional criteria established by the
Small Business Administration (SBA). SBA has defined businesses for
Standard Industrial Classification (SIC) categories 4812
(Radiotelephone Communications) and 4813 (Telephone Communications,
Except Radiotelephone) to be small entities when they have fewer than
1,500 employees. We first discuss generally the total number of small
telephone companies falling within both of those SIC categories. Then,
we discuss the number of small businesses within the two subcategories,
and attempt to refine further those estimates to correspond with the
categories of telephone companies that are commonly used under our
rules.
886. Consistent with our prior practice, we shall continue to
exclude small incumbent LECs from the definition of a small entity for
the purpose of this FRFA. Nevertheless, as mentioned above, we include
small incumbent LECs in our FRFA. Accordingly, our use of the terms
``small entities'' and ``small businesses'' does not encompass ``small
incumbent LECs.'' We use the term ``small incumbent LECs'' to refer to
any incumbent LECs that arguably might be defined by SBA as ``small
business concerns.''
1. Telephone Companies (SIC 481)
887. Total Number of Telephone Companies Affected. Many of the
decisions and rules adopted herein may have a significant effect on a
substantial number of the small telephone companies identified by SBA.
The United States Bureau of the Census (``the Census Bureau'') reports
that, at the end of 1992, there were 3,497 firms engaged in providing
telephone services, as defined therein, for at least one year. This
number contains a variety of different categories of carriers,
including local exchange carriers, interexchange carriers, competitive
access providers, cellular carriers, mobile service carriers, operator
service providers, pay telephone operators, PCS providers, covered SMR
providers, and resellers. It seems certain that some of those 3,497
telephone service firms may not qualify as small entities or small
incumbent LECs because they are not ``independently owned and
operated.'' For example, a PCS provider that is affiliated with an
interexchange carrier having more than 1,500 employees would not meet
the definition of a small business. It seems reasonable to conclude,
therefore, that fewer than 3,497 telephone service firms are small
entity telephone service firms or small incumbent LECs that may be
affected by this Order.
888. Wireline Carriers and Service Providers. SBA has developed a
definition of small entities for telephone communications companies
other than radiotelephone (wireless) companies.
[[Page 45606]]
The Census Bureau reports that, there were 2,321 such telephone
companies in operation for at least one year at the end of 1992.
According to SBA's definition, a small business telephone company other
than a radiotelephone company is one employing fewer than 1,500
persons. All but 26 of the 2,321 non-radiotelephone companies listed by
the Census Bureau were reported to have fewer than 1,000 employees.
Thus, even if all 26 of those companies had more than 1,500 employees,
there would still be 2,295 non-radiotelephone companies that might
qualify as small entities or small incumbent LECs. Although it seems
certain that some of these carriers are not independently owned and
operated, we are unable at this time to estimate with greater precision
the number of wireline carriers and service providers that would
qualify as small business concerns under SBA's definition.
Consequently, we estimate that there are fewer than 2,295 small entity
telephone communications companies other than radiotelephone companies
that may be affected by the decisions and rules adopted in this Order.
889. Local Exchange Carriers. Neither the Commission nor SBA has
developed a definition of small providers of local exchange services
(LECs). The closest applicable definition under SBA rules is for
telephone communications companies other than radiotelephone (wireless)
companies. The most reliable source of information regarding the number
of LECs nationwide of which we are aware appears to be the data that we
collect annually in connection with the Telecommunications Relay
Service (TRS). According to our most recent data, 1,347 companies
reported that they were engaged in the provision of local exchange
services. Although it seems certain that some of these carriers are not
independently owned and operated, or have more than 1,500 employees, we
are unable at this time to estimate with greater precision the number
of LECs that would qualify as small business concerns under SBA's
definition. Consequently, we estimate that there are fewer than 1,347
small incumbent LECs that may be affected by the decisions and rules
adopted in this Order.
890. Interexchange Carriers. Neither the Commission nor SBA has
developed a definition of small entities specifically applicable to
providers of interexchange services (IXCs). The closest applicable
definition under SBA rules is for telephone communications companies
other than radiotelephone (wireless) companies. The most reliable
source of information regarding the number of IXCs nationwide of which
we are aware appears to be the data that we collect annually in
connection with TRS. According to our most recent data, 97 companies
reported that they were engaged in the provision of interexchange
services. Although it seems certain that some of these carriers are not
independently owned and operated, or have more than 1,500 employees, we
are unable at this time to estimate with greater precision the number
of IXCs that would qualify as small business concerns under SBA's
definition. Consequently, we estimate that there are fewer than 97
small entity IXCs that may be affected by the decisions and rules
adopted in this Order.
891. Competitive Access Providers. Neither the Commission nor SBA
has developed a definition of small entities specifically applicable to
providers of competitive access services (CAPs). The closest applicable
definition under SBA rules is for telephone communications companies
other than radiotelephone (wireless) companies. The most reliable
source of information regarding the number of CAPs nationwide of which
we are aware appears to be the data that we collect annually in
connection with the TRS. According to our most recent data, 30
companies reported that they were engaged in the provision of
competitive access services. Although it seems certain that some of
these carriers are not independently owned and operated, or have more
than 1,500 employees, we are unable at this time to estimate with
greater precision the number of CAPs that would qualify as small
business concerns under SBA's definition. Consequently, we estimate
that there are fewer than 30 small entity CAPs that may be affected by
the decisions and rules adopted in this Order.
892. Operator Service Providers. Neither the Commission nor SBA has
developed a definition of small entities specifically applicable to
providers of operator services. The closest applicable definition under
SBA rules is for telephone communications companies other than
radiotelephone (wireless) companies. The most reliable source of
information regarding the number of operator service providers
nationwide of which we are aware appears to be the data that we collect
annually in connection with the TRS. According to our most recent data,
29 companies reported that they were engaged in the provision of
operator services. Although it seems certain that some of these
companies are not independently owned and operated, or have more than
1,500 employees, we are unable at this time to estimate with greater
precision the number of operator service providers that would qualify
as small business concerns under SBA's definition. Consequently, we
estimate that there are fewer than 29 small entity operator service
providers that may be affected by the decisions and rules adopted in
this Order.
893. Pay Telephone Operators. Neither the Commission nor SBA has
developed a definition of small entities specifically applicable to pay
telephone operators. The closest applicable definition under SBA rules
is for telephone communications companies other than radiotelephone
(wireless) companies. The most reliable source of information regarding
the number of pay telephone operators nationwide of which we are aware
appears to be the data that we collect annually in connection with the
TRS. According to our most recent data, 197 companies reported that
they were engaged in the provision of pay telephone services. Although
it seems certain that some of these carriers are not independently
owned and operated, or have more than 1,500 employees, we are unable at
this time to estimate with greater precision the number of pay
telephone operators that would qualify as small business concerns under
SBA's definition. Consequently, we estimate that there are fewer than
197 small entity pay telephone operators that may be affected by the
decisions and rules adopted in this Order.
894. Wireless (Radiotelephone) Carriers. SBA has developed a
definition of small entities for radiotelephone (wireless) companies.
The Census Bureau reports that there were 1,176 such companies in
operation for at least one year at the end of 1992. According to SBA's
definition, a small business radiotelephone company is one employing
fewer than 1,500 persons. The Census Bureau also reported that 1,164 of
those radiotelephone companies had fewer than 1,000 employees. Thus,
even if all of the remaining 12 companies had more than 1,500
employees, there would still be 1,164 radiotelephone companies that
might qualify as small entities if they are independently owned or
operated. Although it seems certain that some of these carriers are not
independently owned and operated, we are unable at this time to
estimate with greater precision the number of radiotelephone carriers
and service providers that would qualify as small business concerns
under SBA's definition. Consequently, we estimate that there are fewer
than 1,164 small entity radiotelephone companies that may be
[[Page 45607]]
affected by the decisions and rules adopted in this Order.
895. Cellular Service Carriers. Neither the Commission nor SBA has
developed a definition of small entities specifically applicable to
providers of cellular services. The closest applicable definition under
SBA rules is for telephone communications companies other than
radiotelephone (wireless) companies. The most reliable source of
information regarding the number of cellular service carriers
nationwide of which we are aware appears to be the data that we collect
annually in connection with the TRS. According to our most recent data,
789 companies reported that they were engaged in the provision of
cellular services. Although it seems certain that some of these
carriers are not independently owned and operated, or have more than
1,500 employees, we are unable at this time to estimate with greater
precision the number of cellular service carriers that would qualify as
small business concerns under SBA's definition. Consequently, we
estimate that there are fewer than 789 small entity cellular service
carriers that may be affected by the decisions and rules adopted in
this Order.
896. Mobile Service Carriers. Neither the Commission nor SBA has
developed a definition of small entities specifically applicable to
mobile service carriers, such as paging companies. The closest
applicable definition under SBA rules is for telephone communications
companies other than radiotelephone (wireless) companies. The most
reliable source of information regarding the number of mobile service
carriers nationwide of which we are aware appears to be the data that
we collect annually in connection with the TRS. According to our most
recent data, 117 companies reported that they were engaged in the
provision of mobile services. Although it seems certain that some of
these carriers are not independently owned and operated, or have more
than 1,500 employees, we are unable at this time to estimate with
greater precision the number of mobile service carriers that would
qualify under SBA's definition. Consequently, we estimate that there
are fewer than 117 small entity mobile service carriers that may be
affected by the decisions and rules adopted in this Order.
897. Broadband PCS Licensees. The broadband PCS spectrum is divided
into six frequency blocks designated A through F. As set forth in 47
CFR Sec. 24.720(b), the Commission has defined ``small entity'' in the
auctions for Blocks C and F as a firm that had average gross revenues
of less than $40 million in the three previous calendar years. Our
definition of a ``small entity'' in the context of broadband PCS
auctions has been approved by SBA. The Commission has auctioned
broadband PCS licenses in Blocks A, B, and C. We do not have sufficient
data to determine how many small businesses bid successfully for
licenses in Blocks A and B. There were 90 winning bidders that
qualified as small entities in the Block C auction. Based on this
information, we conclude that the number of broadband PCS licensees
affected by the decisions in this Order includes, at a minimum, the 90
winning bidders that qualified as small entities in the Block C
broadband PCS auction.
898. At present, no licenses have been awarded for Blocks D, E, and
F of broadband PCS spectrum. Therefore, there are no small businesses
currently providing these services. However, a total of 1,479 licenses
will be awarded in the D, E, and F Block broadband PCS auctions, which
are scheduled to begin on August 26, 1996. Eligibility for the 493 F
Block licenses is limited to entrepreneurs with average gross revenues
of less than $125 million. We cannot estimate, however, the number of
these licenses that will be won by small entities under our definition,
nor how many small entities will win D or E Block licenses. Given that
nearly all radiotelephone companies have fewer than 1,000 employees and
that no reliable estimate of the number of prospective D, E, and F
Block licensees can be made, we assume for purposes of this FRFA, that
all of the licenses in the D, E, and F Block Broadband PCS auctions may
be awarded to small entities under our rules, which may be affected by
the decisions and rules adopted in this Order.
899. SMR Licensees. Pursuant to 47 CFR Sec. 90.814(b)(1), the
Commission has defined ``small entity'' in auctions for geographic area
800 MHz and 900 MHz SMR licenses as a firm that had average annual
gross revenues of less than $15 million in the three previous calendar
years. This definition of a ``small entity'' in the context of 800 MHz
and 900 MHz SMR has been approved by the SBA. The rules adopted in this
Order may apply to SMR providers in the 800 MHz and 900 MHz bands that
either hold geographic area licenses or have obtained extended
implementation authorizations. We do not know how many firms provide
800 MHz or 900 MHz geographic area SMR service pursuant to extended
implementation authorizations, nor how many of these providers have
annual revenues of less than $15 million. We assume, for purposes of
this FRFA, that all of the extended implementation authorizations may
be held by small entities, which may be affected by the decisions and
rules adopted in this Order.
900. The Commission recently held auctions for geographic area
licenses in the 900 MHz SMR band. There were 60 winning bidders who
qualified as small entities in the 900 MHz auction. Based on this
information, we conclude that the number of geographic area SMR
licensees affected by the rule adopted in this Order includes these 60
small entities. No auctions have been held for 800 MHz geographic area
SMR licenses. Therefore, no small entities currently hold these
licenses. A total of 525 licenses will be awarded for the upper 200
channels in the 800 MHz geographic area SMR auction. However, the
Commission has not yet determined how many licenses will be awarded for
the lower 230 channels in the 800 MHz geographic area SMR auction.
There is no basis, moreover, on which to estimate how many small
entities will win these licenses. Given that nearly all radiotelephone
companies have fewer than 1,000 employees and that no reliable estimate
of the number of prospective 800 MHz licensees can be made, we assume,
for purposes of this FRFA, that all of the licenses may be awarded to
small entities who, thus, may be affected by the decisions in this
Order.
901. Resellers. Neither the Commission nor SBA has developed a
definition of small entities specifically applicable to resellers. The
closest applicable definition under SBA rules is for all telephone
communications companies. The most reliable source of information
regarding the number of resellers nationwide of which we are aware
appears to be the data that we collect annually in connection with the
TRS. According to our most recent data, 206 companies reported that
they were engaged in the resale of telephone services. Although it
seems certain that some of these carriers are not independently owned
and operated, or have more than 1,500 employees, we are unable at this
time to estimate with greater precision the number of resellers that
would qualify as small business concerns under SBA's definition.
Consequently, we estimate that there are fewer than 206 small entity
resellers that may be affected by the decisions and rules adopted in
this Order.
2. Cable System Operators (SIC 4841)
902. SBA has developed a definition of small entities for cable and
other pay television services, which includes all such companies
generating less than
[[Page 45608]]
$10 million in revenue annually. This definition includes cable systems
operators, closed circuit television services, direct broadcast
satellite services, multipoint distribution systems, satellite master
antenna systems and subscription television services. According to the
Census Bureau, there were 1,323 such cable and other pay television
services generating less than $11 million in revenue that were in
operation for at least one year at the end of 1992.
903. The Commission has developed its own definition of a small
cable system operator for the purposes of rate regulation. Under the
Commission's rules, a ``small cable company'' is one serving fewer than
400,000 subscribers nationwide. The Commission developed this
definition based on its determination that a small cable system
operator is one with annual revenues of $100 million or less.
Implementation of Sections of the 1992 Cable Act: Rate Regulation,
Sixth Report and Order and Eleventh Order on Reconsideration, 60 FR
544919 (September 15, 1995). Based on our most recent information, we
estimate that there were 1,439 cable operators that qualified as small
cable system operators at the end of 1995. Since then, some of those
companies may have grown to serve over 400,000 subscribers, and others
may have been involved in transactions that caused them to be combined
with other cable operators. Consequently, we estimate that there are
fewer than 1,468 small entity cable system operators that may be
affected by the decisions and rules adopted in this Order.
904. The Communications Act also contains a definition of a small
cable system operator, which is ``a cable operator that, directly or
through an affiliate, serves in the aggregate fewer than 1 percent of
all subscribers in the United States and is not affiliated with any
entity or entities whose gross annual revenues in the aggregate exceed
$250,000,000.'' There were 63,196,310 basic cable subscribers at the
end of 1995, and 1,450 cable system operators serving fewer than one
percent (631,960) of subscribers. Although it seems certain that some
of these cable system operators are affiliated with entities whose
gross annual revenues exceed $250,000,000, we are unable at this time
to estimate with greater precision the number of cable system operators
that would qualify as small cable operators under the definition in the
Communications Act.
D. Summary Analysis of the Projected Reporting, Recordkeeping, and
Other Compliance Requirements and Steps Taken to Minimize the
Significant Economic Impact of this Report and Order on Small Entities
and Small Incumbent LECs, Including the Significant Alternatives
Considered and Rejected
905. Structure of the Analysis. In this section of the FRFA, we
analyze the projected reporting, recordkeeping, and other compliance
requirements that may apply to small entities and small incumbent LECs
as a result of this Order. As a part of this discussion, we mention
some of the types of skills that will be needed to meet the new
requirements. We also describe the steps taken to minimize the economic
impact of our decisions on small entities and small incumbent LECs,
including the significant alternatives considered and rejected. Due to
the size of this Order, we set forth our analysis separately for
individual sections of the item, using the same headings as were used
above in the corresponding sections of the Order.
906. We provide this summary analysis to provide context for our
analysis in this FRFA. To the extent that any statement contained in
this FRFA is perceived as creating ambiguity with respect to our rules
or statements made in preceding sections of this Order, the rules and
statements set forth in those preceding sections shall be controlling.
Summary Analysis of Section II--Scope of the Commission's Rules
907. Summary of Projected Reporting, Recordkeeping and Other
Compliance Requirements. As discussed in Section II.E, a common
carrier, which may be a small entity or a small incumbent LEC, may be
subject to an action for relief in several different fora if a party
believes that small entity or incumbent LEC violated the standards
under section 251 or 252. Should a small entity or a small incumbent
LEC be subjected to such an action for relief, it will require the use
of legal skills.
908. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered. We
believe that our actions establishing minimum national rules will
facilitate the development of competition in the local exchange and
exchange access markets for the reasons discussed in Sections II.A and
II.B above. For example, national rules may: help equalize bargaining
power; minimize the need for duplicative marketing strategies and
multiple network configurations; lower administrative costs; lessen the
need to re-litigate the same issue in multiple jurisdictions; and
reduce delay and transaction costs, which can pose particular burdens
for small businesses. In addition, our rules are designed to
accommodate differences among regions and carriers, and the reduced
regulatory burdens and increased certainty produced by national rules
may be expected to minimize the economic impact of our decisions for
all parties, including any small entities and small incumbent LECs. As
set forth in Section II.A above, we reject suggestions to adopt more,
or fewer, national rules than we ultimately adopt in this Order. We
reject the arguments that we should establish ``preferred outcomes''
from which parties could deviate upon an adequate showing, or that we
establish a process by which state commissions could seek a waiver from
the Commission's rules, for the reasons set forth in Section II.B
above.
909. We believe that our determination that there are multiple
methods for bringing enforcement actions against parties regarding
their obligations under sections 251 and 252 will assist all parties,
including small entities and small incumbent LECs, by providing a
variety of methods and fora for seeking enforcement of such
obligations. (Section II.E--Authority to Take Enforcement Action.)
Similarly, our conclusion that Bell Operating Company (BOC) statements
of generally available terms and conditions are governed by the same
national rules that apply to agreements arbitrated under section 252
should ease administrative burdens for all parties in markets served by
BOCs, which may include small entities, because they will not need to
evaluate and comply with different sets of rules. (Section II.F--BOC
Statements of Generally Available Terms.) Finally, we decline to adopt
different requirements for agreements arbitrated under section 252 and
BOC statements of generally available terms and conditions for the
reasons set forth in section II.F above.
Summary Analysis of Section III--Duty To Negotiate in Good Faith
910. Summary of Projected Reporting, Recordkeeping and Other
Compliance Requirements. Incumbent LECs, including small incumbent LECs
that receive requests for access to network elements and/or services
pursuant to sections 251 and 252 of the Act will be required to
negotiate in good faith over the terms of interconnection agreements.
As set forth in section III.C, above, this Order identifies several
practices as violations of the duty to
[[Page 45609]]
negotiate in good faith, including: (1) a party's seeking or entering
into an agreement prohibiting disclosure of information requested by
the FCC or a state commission, or supplied in support of a request for
arbitration pursuant to section 252(b)(2)(B); (2) seeking or entering
into an agreement precluding amendment of the agreement to account for
changes in federal or state rules; (3) an incumbent's denial of a
reasonable request for cost data during negotiations; and (4) an
entrant's failure to provide to the incumbent LEC information necessary
to reach agreement. Complying with the projected requirements of this
section may require the use of legal skills. In addition, incumbent
LECs and new entrants having interconnection agreements that predate
the 1996 Act must file such agreements with the state commission for
approval under section 252(e), as discussed above in section III.D.
911. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered. As set
forth above, we believe our decision to establish national rules and a
review process concerning parties' duties to negotiate in good faith
are designed to facilitate good faith negotiations, which should
minimize regulatory burdens and the economic impact of our decisions
for all parties, including small entities and small incumbent LECs.
(Section III.B--Advantages and Disadvantages of National Rules.) We
also expect economic impacts to be minimized for small entities seeking
to enter into agreements with incumbent LECs as a result of the
decision that incumbent LECs may not impose a bona fide request
requirement on carriers seeking agreements pursuant to sections 251 and
252. (Section III.C--Specific Practices that may Constitute a Violation
of Good Faith Negotiation.) For the reasons set forth in Section III.C
above, we also find that certain additional practices are not always
violations of the duty to negotiate in good faith, including the
suggested alternative that all nondisclosure agreements violate the
good faith duty.
912. We do not require immediate filing of preexisting
interconnection agreements, including those involving small incumbent
LECs and small entities. We set an outer time limit of June 30, 1997,
by which preexisting agreements between Class A carriers must be filed
with the relevant state commission. This decision will ensure that
third parties, including small entities, are not prevented indefinitely
from reviewing and taking advantage of the terms of preexisting
agreements. It also limits burdens that a national filing deadline
might impose on small carriers. In addition, the determination that
preexisting agreements must be filed with state commissions seems
likely to foster opportunities for small entities and small incumbent
LECs to gain access to such agreements without requiring investigation
or discovery proceedings or other administrative burdens that could
increase regulatory burdens. (Section III.C--Applicability of Section
252 to Preexisting Agreements). For the reasons set forth in Section
III.C above, we reject the alternative of not requiring certain
agreements to be filed with state commissions.
Summary Analysis of Section IV--Interconnection
913. Summary of Projected Reporting, Recordkeeping and Other
Compliance Requirements. Incumbent LECs, including small incumbent
LECs, are required by section 251(c) to provide interconnection to all
requesting telecommunications carriers for the transmission and routing
of telephone exchange service and exchange access service. Such
interconnection must be: (1) provided at any technically feasible
point; (2) at least equal in quality to that provided to the incumbent
LEC itself and to any other parties with interconnection agreements;
and (3) provided on rates, terms, and conditions that are ``just,
reasonable, and nondiscriminatory * * *.'' We conclude that
interconnection refers solely to the physical linking of networks for
the mutual exchange of traffic, and identify a minimum set of
technically feasible points of interconnection. The minimum points at
which an incumbent LEC, which may be a small incumbent LEC, must
provide interconnection are: (1) the line side of a local switch; (2)
the trunk side of a local switch; (3) the trunk interconnection points
for a tandem switch; (4) central office cross-connect points; and (5)
out-of-band signaling facilities. In addition, the points of access to
unbundled elements (discussed below) are also technically feasible
points of interconnection. Compliance with these requests may require
the use of engineering, technical, operational, accounting, billing,
and legal skills.
914. To obtain interconnection pursuant to section 251(c)(2),
telecommunications carriers must seek interconnection for the purpose
of transmitting and routing telephone exchange traffic, or exchange
access traffic, or both. (Section IV.D.--Definition of ``Technically
Feasible.'') This will require new entrants to provide either local
exchange service or exchange access service to obtain section 251(c)(2)
interconnection. A requesting carrier will be required to bear the
additional costs imposed on incumbent LECs as a result of
interconnection. (Section IV.E.--Technically Feasible Points of
Interconnection.) Carriers seeking interconnection, including small
entities, may be required to collect information to refute claims by
incumbent LECs that the requested interconnection poses a legitimate
threat to network reliability. (Id.)
915. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered. The
decision to adopt clear national rules in this section of the Order is
also intended to help equalize bargaining power between incumbent LECs
and requesting carriers, expedite and simplify negotiations, and
facilitate comprehensive business and network planning. This could
decrease entry barriers and provide reasonable opportunities for all
carriers, including small entities and small incumbent LECs, to provide
service in markets for local exchange and exchange access services.
(Section IV.B.--National Interconnection Rules). National rules should
also facilitate the consistent development of standards and resolution
of issues, such as technical feasibility, without imposing additional
litigation costs on parties, including small entities and small
incumbent LECs. We determine that successful interconnection at a
particular point in a network creates a rebuttable presumption that
interconnection is technically feasible at other comparable points in
the network. (Section IV.E--Definition of ``Technically Feasible.'') We
also identify minimum points of interconnection where interconnection
is presumptively technically feasible: (1) the line side of a switch;
(2) the trunk side of a switch; (3) trunk interconnection points at a
tandem switch; (4) central office cross-connect points; and (5) out-of-
band signaling facilities. (Section IV.F--Technically Feasible Points
of Interconnection.) These decisions may be expected to facilitate
negotiations by promoting certainty and reducing transaction costs,
which should minimize regulatory burdens and the economic impact of our
decisions for all parties, including small entities and small incumbent
LECs. We decline, however, to identify additional points where
interconnection is technically feasible for the reasons set forth in
section IV.F above.
[[Page 45610]]
916. The ability to enter local markets by offering only telephone
exchange service or only exchange access service may minimize
regulatory burdens and the economic impact of our decisions for some
entrants, including small entities. We decline, however, to interpret
section 251(c)(2) as requiring incumbent LECs to provide
interconnection to carriers seeking to offer only interexchange
services for the reasons set forth in section IV.C above. In addition,
we determine that an incumbent LEC may refuse to interconnect on the
grounds that specific, significant, and demonstrable network
reliability concerns may make interconnection at a particular point
sufficiently infeasible. We further determine that the incumbent LEC
must prove such infeasibility to the state commission. (Section IV.E.
Definition of ``Technically Feasible.'')
917. Competitive carriers, many of whom may be small entities, will
be permitted to request interconnection at any technically feasible
point, and the determination of feasibility must be conducted without
consideration of the cost of providing interconnection at a particular
point. (Section IV.D.--Definition of ``Technically Feasible.'')
Consequently, our rules permit the party requesting interconnection,
which may be a small entity, and not the incumbent LEC to decide the
points that are necessary to compete effectively. (Section IV.E.--
Definition of ``Technically Feasible.'') We decline, however, to impose
reciprocal terms and conditions for interconnection on carriers
requesting interconnection. Our decision that a party requesting
interconnection must pay the costs of interconnecting should minimize
regulatory burdens and the economic impact of our interconnection
decisions for small incumbent LECs. Similarly, regulatory burdens and
the economic impact of our decisions may be minimized through the
decision that, while a requesting party is permitted to obtain
interconnection that is of higher quality than that which the incumbent
LEC provides to itself, the requesting party must pay the additional
costs of receiving the higher quality interconnection. (Section IV.H.--
Interconnection that is Equal in Quality.)
Summary Analysis of Section V--Access to Unbundled Network Elements
918. Summary of Projected Reporting, Recordkeeping and Other
Compliance Requirements. Under section 251(c), incumbent LECs are
required to provide nondiscriminatory access to unbundled network
elements. We identify a minimum set of network elements: (1) local
loops; (2) local and tandem switches; (3) interoffice transmission
facilities; (4) network interface devices; (5) signaling and call-
related database facilities; (6) operations support systems and
functions; and (7) operator and directory assistance facilities.
(Section V.J.--Specific Unbundling Requirements.) Incumbent LECs are
required to provide nondiscriminatory access to operations support
systems and information by January 1, 1997. States may require
incumbent LECs to provide additional network elements on an unbundled
basis. As discussed in Section V.F., above, LECs must perform the
functions necessary to combine unbundled elements in a manner that
allows requesting carriers to offer a telecommunications service, and
the incumbent LEC may not impose restrictions on the subsequent use of
network elements. Compliance with these requests may require the use of
engineering, technical, operational, accounting, billing, and legal
skills.
919. If a requesting carrier, which may be a small entity, seeks
access to an incumbent LEC's unbundled elements, the requesting carrier
is required to compensate the incumbent LEC for any costs incurred to
provide such access. For example, in the case of operation support
systems functions, such work may include the development of interfaces
for competing carriers to access incumbent LEC functions for pre-
ordering, ordering, provisioning, maintenance and repair, and billing.
Requesting carriers may also have to deploy their own operations
support systems interfaces, including electronic interfaces, in order
to access the incumbent LEC's operations support systems functions. The
development of interfaces may require new entrants, including small
entities, to perform engineering work. (Section V.J.5--Operations
Support Systems Unbundling.)
920. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered. The
establishment of minimum national requirements for unbundled elements
should facilitate negotiations and reduce regulatory burdens and
uncertainty for all parties, including small entities and small
incumbent LECs. National requirements for unbundling may allow new
entrants, including small entities, to take advantage of economies of
scale in network design, which may minimize the economic impact of our
decision. As set forth in Section V.B, above, we reject several
alternatives in making this determination, including proposals
suggesting that the Commission should: (1) not identify any required
elements; (2) allow the states exclusively to identify required
elements; or (3) adopt an exhaustive list of elements.
921. As set forth above, the 1996 Act defines a network element to
include ``all facilit(ies) or equipment used in the provision of a
telecommunications service,'' and all ``features, functions, and
capabilities that are provided by means of such facility or equipment,
including subscriber numbers, databases, signaling systems and
information sufficient for billing and collection or used in the
transmission, routing or other provision of a telecommunications
service.'' (Section V.C--Network Elements.) As a result, new entrants,
which may include small entities, should have access to the same
technologies and economies of scale and scope that are available to
incumbent LECs. In reaching our determination, we reject for the
reasons set forth in Section V.C above, the following alternatives: (1)
that we should not adopt a method for identifying elements beyond those
identified in the 1996 Act; and (2) that features sold directly to end
users as retail services are not network elements. Finally, we reject
the argument that requesting carriers, which may include small
entities, are required to provide all services typically furnished by
means of an element they purchase. (Id.) Our rejection of this last
alternative may reduce burdens for some small entities by permitting
them to offer some, but not all, of the services provided by the
incumbent LEC.
922. We conclude that the requirement to provide ``access'' to
unbundled network elements is independent of the interconnection duty
imposed by section 251(c)(2), and that such ``access'' must be
provisioned under the rates, terms and conditions applicable to
unbundled network elements. We believe these conclusions may provide
small entities seeking to compete with incumbent LECs with the
flexibility to offer other telecommunications services in addition to
local exchange and exchange access services. (Section V.D.--Access to
Network Elements.) For the reasons set forth above in Section V.D, we
reject the argument that incumbent LECs are not required to provide
access to an element's functionality, and that ``access'' to unbundled
elements can only be achieved by interconnecting under the terms of
section 251(c)(2).
923. As set forth above, we conclude that an incumbent LEC, which
may be a small incumbent LEC, may decline to provide a network element
beyond
[[Page 45611]]
those identified by the Commission where it can demonstrate that the
network element is proprietary, and that the competing provider could
offer the proposed telecommunications service using other
nonproprietary elements within the incumbent's network. (Section V.E--
Standards Necessary to Identify Unbundled Network Elements.) This
should minimize regulatory burdens and the economic impact of our
decisions for incumbent LECs, including small incumbent LECs, by
permitting such entities to retain exclusive use of certain proprietary
network elements.
924. We conclude that incumbent LECs: (1) cannot impose
restrictions, requirements or limitations on requests for, or the sale
or use of, unbundled network elements; (2) must provide requesting
carriers with all of the functionalities of a particular element so
that requesting carriers can provide any telecommunications services
that can be offered by means of that element; (3) must permit new
entrants to combine network elements which new entrants purchase access
to, if so requested; (4) must prove to a state commission that they
cannot combine elements that are not ordinarily combined within their
network, or that are not ordinarily combined in that manner, because
such combination is not technically feasible or it would impair the
ability of other carriers to access unbundled elements and interconnect
with the incumbent LEC; and (5) must provide the operational and
support systems necessary to purchase and combine network elements. As
a result of these conclusions, many small entities should face
significantly reduced barriers to entry in markets for local exchange
services. (Section V.F--Provision of a Telecommunications Service Using
Unbundled Elements.) For the reasons set forth in section V.F, we
reject the following alternatives: (1) that incumbent LECs, in all
instances, must combine elements that are not ordinarily combined in
their networks; and (2) that incumbent LECs are not obligated to
combine elements for requesting carriers.
925. By establishing minimum national rules concerning
nondiscriminatory access to unbundled network elements, requesting
carriers, including small entities, may face reduced transaction and
regulatory costs in seeking to enter local telecommunications markets.
Among these minimum rules are: (1) access and elements which new
entrants receive are to be equal in quality between carriers; (2)
incumbent LECs must prove technical infeasibility; (3) the rates, terms
and conditions established for the provisioning of unbundled elements
must be equal between all carriers, and where applicable, between
requesting carriers and the incumbent LEC itself, and they must provide
efficient competitors with a meaningful opportunity to compete; and (4)
incumbent LECs must provide carriers purchasing unbundled elements with
access to electronic interfaces if incumbents use such functions
themselves in provisioning telecommunications services. (Section V.G--
Nondiscriminatory Access to Unbundled Network Elements.)
926. As set forth above, we conclude that section 251(c)(3) does
not require new entrants to own or control their own local exchange
facilities in order to purchase and use unbundled network elements and,
thus, new entrants can provide services solely by recombining unbundled
network elements. (Section V.H--The Relationship Between Sections
251(c)(3) and 251(c)(4).)
927. As discussed in Section V.J above, we adopt a minimum list of
required unbundled network elements that incumbent LECs, including
small incumbent LECs, must make available to requesting carriers. In
adopting this list, we sought to minimize the regulatory burdens and
economic impact for small incumbent LECs. For example, we declined to
adopt a detailed list including many additional elements, as set forth
in Section V.B. We also provided for the fact that certain LECs may
possess switches that are incapable of performing customized routing
for competitors, as discussed in Section V.J.2.(c).(ii).
Summary Analysis of Section VI--Methods of Obtaining Interconnection
and Access to Unbundled Network Elements
928. Summary of Projected Reporting, Recordkeeping, and Other
Compliance Requirements. We conclude that Section 251(c)(6) requires
incumbent LECs, including small incumbent LECs, to provide for any
technically feasible method of interconnection or access to unbundled
network elements, including physical collocation, virtual collocation,
and meet-point interconnection. With certain modifications, we adopt
some of the requirements concerning physical and virtual collocation
that we adopted in the Expanded Interconnection proceeding. Compliance
with these requests may require the use of engineering, technical,
operational, accounting, billing, and legal skills.
929. In a meet-point arrangement the new entrant will build out
facilities to the agreed-upon point, which will likely entail the use
of engineering and installation personnel as well as the acquisition of
equipment. We allow incumbent LECs to impose reasonable restrictions on
the warehousing of space by collocators. Therefore, small entities
collocating equipment may be required to use the provided space for the
collocation of equipment necessary for interconnection or access to
unbundled network elements or risk losing the right to use that space.
(Section VI.B.1.e--Allocation of Space.) To take advantage of its right
to collocate equipment on an incumbent LEC's premises, competitive
entrants, which may include small entities, will be required to build
or lease transmission facilities between their own equipment, located
outside of the incumbent LECs' premises, and the collocated space.
(Section VI.B.1.f--Leasing Transport Facilities.) We allow incumbent
LECs to require reasonable security arrangements to separate an
entrant's collocation space from the incumbent LEC's facilities. Small
entities collocating equipment may therefore be required to pay for
such security arrangements. (Section VI.B.1.h--Security Arrangements.)
930. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered. By
readopting our Expanded Interconnection terms and conditions, which
allow competitors to collocate equipment for interconnection with the
incumbent LEC, regulatory burdens have likely been reduced because the
terms and conditions for collocation have already been established.
(Section VI.B.1.b--Readoption of Expanded Interconnection Terms and
Conditions.) This seems likely to benefit all parties, including small
entities and small incumbent LECs, since it should reduce the time and
expense of negotiation, and reduce the costs of adapting to new terms
and conditions for collocation.
931. Due to our conclusion that requesting carriers may choose any
method of technically feasible interconnection or access to unbundled
elements, new entrants, including small entities, should have the
flexibility to obtain interconnection or access in the manner that best
suits their needs. (Section VI.A.--Methods of Obtaining Interconnection
and Access to Unbundled Elements.) In particular, as discussed in
Section VI.A.3, we recognize that carriers, including small entities,
may find virtual collocation or meet-point arrangements more efficient
than physical collocation in certain circumstances, particularly if
they lack the resources to collocate physically in
[[Page 45612]]
a large number of incumbent LEC premises.
932. We adopt a broad definition of the term ``premises,'' which
should allow carriers, including small entities, to collocate equipment
for interconnection and access to unbundled network elements at a range
of incumbent LEC locations. (Section VI.B.1.c--The Meaning of the Term
``Premises.'') For the reasons set forth in Section VI.B above, we
interpret the term ``premises'' broadly to include incumbent LEC
central offices, serving wire centers and tandem offices, as well as
all buildings or similar structures owned or leased by the incumbent
LEC that house incumbent LEC facilities. However, as set forth above,
we reject the suggestion that security measures be provided only at the
request of the entrant, which should minimize regulatory burdens and
the economic impact of our decisions for small incumbent LECs. (Id.)
933. We interpret the statute broadly to allow collocation of any
equipment used for interconnection or access to unbundled network
elements. (Section VI.B.1.d--Collocation Equipment.) This standard
should offer all competitors, including small entities, flexibility in
collocating equipment they need to interconnect their networks to those
of incumbent LECs. Incumbent LECs will also be required to make space
available to requesting carriers on a first-come, first-served basis,
and collocators seeking to expand their collocated space should be
allowed to use contiguous space where available. (Section VI.B.1.e--
Allocation of Space.) These provisions should minimize regulatory
burdens and economic impacts for small entity entrants by reducing
opportunities for discriminatory treatment based on the size of the
requesting carrier. We decline, however, to require incumbent LECs to
file reports on the status, planned increase, and use of space for the
reasons set forth in Section VI.B.1. above, which will reduce the
regulatory burdens and economic impact of our decisions for small
incumbent LECs.
934. We conclude that a competitive entrant should be permitted to
lease transmission facilities from the incumbent LEC. (Section
VI.B.1.f--Leasing Transport Facilities). This provision will allow
small entities to lease transmission facilities from incumbent LECs to
transmit traffic between the collocated space and their own networks,
which may be comparatively less burdensome for small entities than the
alternative of bringing their own facilities to the collocated
equipment on the incumbent LEC's premises. We also require incumbent
LECs to permit two or more carriers that are collocating at the
incumbent LEC's premises to interconnect their networks. (Section
VI.B.1.g--Co-Carrier Cross-Connect.) This requirement should make it
easier for new entrants to interconnect their networks with those of
competitors.
935. We require incumbent LECs to provide the relevant state
commissions with detailed floor plans or diagrams of any premises where
the incumbent LEC alleges that there are space constraints. (Section
VI.B.1.i.--Allowing Virtual Collocation in Lieu of Physical). This
requirement may reduce burdens for all parties, including small
entities and small incumbent LECs, by aiding state commissions with
their evaluation of incumbent LEC refusals to allow physical
collocation on the grounds of space constraints. For the reasons set
forth in Section VI.B.1 above, however, we decline to require incumbent
LECs to lease additional space or provide trunking at no cost where
they have insufficient space for physical collocation, which should
minimize the regulatory burdens and economic impact of our decisions
for incumbent LECs, including small incumbent LECs.
Summary Analysis of Section VII--Pricing of Interconnection and
Unbundled Network Elements
936. Summary of Projected Reporting, Recordkeeping, and Other
Compliance Requirements. Pursuant to sections 251(c) and 252(d) of the
1996 Act, incumbent LECs must provide interconnection and access to
unbundled network elements on rates, terms, and conditions that are
just, reasonable, and nondiscriminatory. In Section VII above, we adopt
a methodology for setting arbitrated prices for interconnection and
unbundled elements on the basis of forward-looking economic cost
studies prepared in conformance with a methodology prescribed by the
Commission. Until states utilize economic studies to develop cost-based
prices, they must use default proxies established by the Commission.
Small incumbent LECs may be required, therefore, to prepare economic
cost studies. In addition, small entities seeking arbitration for rates
for interconnection or unbundled elements may find it useful to prepare
economic cost studies or prepare critiques of cost studies prepared by
incumbent LECs and others. In both cases, this may entail the use of
economic experts, legal advice, and possibly accounting personnel.
937. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered. Our
conclusion that prices for interconnection and unbundled elements
should be set at forward-looking long-run economic cost, including a
reasonable share of forward-looking joint and common costs, should
permit new entrants, including small entities, to interconnect with,
and acquire unbundled elements from, incumbent LECs at prices that
replicate, to the extent possible, those in a competitive market.
(Section VII.B.2--Pricing of Interconnection and Unbundled Elements,
Cost-Based Pricing Methodology, Rate Levels.) Our forward-looking
economic cost methodology for determining prices is designed to permit
incumbent LECs to recover their economic costs of providing
interconnection and unbundled elements, which should minimize the
economic impact of our decisions on small incumbent LECs.
938. Our conclusion that embedded costs, opportunity costs and
universal service subsidies may not be included in the rates for
interconnection and unbundled elements is intended, in part, to avoid
distortions in investment decisions, which should lead to more
efficient allocation of resources, thereby reducing regulatory burdens
and economic impacts for some small entities and small incumbent LECs.
(Section VII.B.2--Pricing of Interconnection and Unbundled Elements,
Cost-Based Pricing Methodology, Rate Levels.) We reject proposals that
would have permitted incumbent LECs to recover their embedded costs in
prices for interconnection and unbundled elements as discussed above in
Section VII.B.2.a.(3)(b). As discussed in Section VII.B.2.a.(3)(b), we
reject the use of the efficient component pricing rule (ECPR) to set
prices for interconnection and unbundled elements.
939. Our conclusion that forward-looking common costs should be
allocated in a reasonable manner should ensure that the prices of
network elements that are least likely to be subject to competition are
not artificially inflated by large allocations of common costs. This,
in turn, may also produce more efficient allocations of resources,
thereby minimizing regulatory burdens and economic effects for many
parties, including small entities and small incumbent LECs. (Section
VII.B.2--Pricing of Interconnection and Unbundled Elements, Cost-Based
Pricing Methodology, Rate Levels.) We permit, but do not require,
states to impose peak-sensitive pricing systems for
[[Page 45613]]
shared facilities as discussed in Section VII.B.3.b.
940. We conclude that incumbent LECs should not recover access
charges from entrants that use unbundled network facilities to provide
access services to customers that they win from incumbent LECs. We do,
however, permit incumbent LECs to impose on purchasers of unbundled
local switching the carrier common line charge and a charge equal to
seventy-five percent of the transport interconnection charge for an
interim period that shall end no later than June 30, 1997, as discussed
in Section VII.B.2.a.(3)(b). As further explained in that section, this
mechanism should serve to reduce any short-term disruptive impact of
our decisions on incumbent LECs, including small incumbent LECs.
941. We conclude that the Act requires rates for interconnection
and unbundled elements to be geographically deaveraged, using a minimum
of three geographic zones, in a manner that appropriately reflects the
costs of the underlying elements. (Section VII.B.3.c--Geographic/Class-
of-Service Averaging.) We also conclude that distinctions between the
rates charged to requesting carriers for network elements should not
vary based on the classes of service that the requesting carriers
provide to their customers. We expect these decisions to lead to
increased competition and a more efficient allocation of resources.
942. The default proxies we adopt for rates for interconnection and
unbundled elements, which states may use to establish prices, are
designed to approximate prices that will enable efficient competitors,
including small entities, to enter local exchange markets. (Section
VII.C.--Default Proxy Ceilings and Ranges.) We reject the use of rates
in interconnection agreements that predate the 1996 Act as proxy-based
ceilings for interconnection and unbundled element rates as discussed
in Section VII.C.1. We also decline to adopt a generic cost model at
this time, as discussed in Section VII.C.3.
943. We determine that the nondiscrimination provisions in the Act
prohibit price differences that are not based on cost differences. This
should permit small entities to obtain the same terms and conditions of
agreements reached by larger carriers that possess greater bargaining
power without having to incur the costs of negotiation and/or
arbitration. (Section VII.D.3--Discrimination.)
Summary Analysis of Section VIII--Resale
944. Summary of Projected Reporting, Recordkeeping, and Other
Compliance Requirements. Pursuant to section 251(b)(1), all LECs, which
may include small entity competing LECs and small incumbent LECs, may
not impose unreasonable or discriminatory conditions on, or limit the
resale of, their telecommunications services. Pursuant to section
251(c)(4), incumbent LECs are required to offer for resale at wholesale
rates any telecommunications services that they offer to subscribers
other than telecommunications carriers. Providing such services for
resale may require some small entities and small incumbent LECs to use
additional billing, technical, and operational skills.
945. Under section 252(a), resellers, which may include small
entities, are required to prepare and present to incumbent LECs
requests for services to resell. We do not establish guidelines for the
content of these requests. Such requests may involve legal,
engineering, and accounting skills. Resellers may also have to engage
in arbitration proceedings with incumbent LECs if voluntary
negotiations resulting from the initial request fail to yield an
agreement. This may involve legal and general negotiation skills. Where
a reseller is negotiating or arbitrating with an incumbent LEC, the
reseller may choose to offer arguments concerning economic and
accounting data presented by state commissions or incumbent LECs.
Resellers may also choose to make legal and economic arguments that
certain resale restrictions are unreasonable. These tasks may require
legal, economic, and accounting skills.
946. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered. As set
forth in Section VIII.B, above, our decision to adopt clear national
rules should reduce regulatory burdens and uncertainty for all parties,
including small entities and small incumbent LECs. Moreover, our
decision not to impose eligibility requirements on resellers should
minimize regulatory burdens for resellers. We reject proposals that the
Commission not require resale of bundled service offerings, promotions
and discounts lasting longer than 90 days, residential service, and
services offered at rates below cost for reasons set forth in Section
VIII.A.
947. As discussed in Section VIII.B, we expect that the opportunity
to resell telecommunications services currently offered exclusively by
incumbent LECs will lead to increased competition in the provision of
telecommunications services. We also determine that non-cost-based
factors shall not be considered when arriving at wholesale discounts,
and we reject the argument that indirect costs should not be considered
avoided costs. We also reject proposals that we either require or
forbid a state to include a measure of profit in its avoided cost
calculation. As set forth in Section VIII.B, we considered the concerns
of small incumbent LECs and small entity resellers when adopting the
default range for wholesale discounts. In addition, we allow a state to
consider including in wholesale rates the costs that incumbent LECs
incur in selling services on a wholesale basis, which may minimize the
economic impact for small incumbent LECs.
948. As discussed in Section VIII.C, we remove obstacles faced by
small businesses in reselling telecommunications services by
establishing a presumption, applicable to incumbent and non-incumbent
LECs, that most restrictions on resale are unreasonable. This
presumption should reduce unnecessary burdens on resellers, which may
include small entities. It may also produce increased opportunities for
resale competition, which may be expected to be beneficial for some
small entities and small incumbent LECs. We do not permit state
commissions to require non-incumbent LECs to offer their services at
wholesale rates for the reasons set forth in Section VIII.D. For the
reasons discussed in Section VIII.C, above, we decline to forbear from
the application of section 251(b)(1) to non-incumbent LECs. We also
conclude that incumbent LECs are to continue to receive access charge
revenues when local services are resold under section 251(c)(4) for
reasons set forth in Section VIII.E, and that such access services are
not subject to resale at wholesale rates for reasons set forth in
Section VIII.A.
Summary Analysis of Section IX--Duties Imposed on ``Telecommunications
Carriers'' by Section 251(a)
949. Summary of Projected Reporting, Recordkeeping, and Other
Compliance Requirements. Small entities that provide telecommunications
services are subject to the same obligations imposed on all
telecommunications carriers under section 251(a)(1) and section
251(a)(2), and any reporting requirements that attend such obligations.
Among these duties is the duty to interconnect, directly or indirectly,
with requesting
[[Page 45614]]
telecommunications carriers. (Section IX--Duties Imposed on
``Telecommunications Carriers'' By Section 251(a).) This will likely
require small entities to comply with the technical, economic, and
legal requirements involved with interconnection, including negotiating
contracts, utilizing engineering studies, and adding operational
capacity. (Id.) Small incumbent LECs may incur similar compliance
requirements to the extent they are required to interconnect with
entities that qualify as ``telecommunications carriers.''
950. Small incumbent LECs and small entities providing
telecommunications services will also be under a duty not to install
network features, functions, and capabilities that do not comply with
standards and guidelines under sections 255 and 256. (Section IX--
Duties Imposed on ``Telecommunications Carriers'' By Section
251(a)(2).) In addition, small entities that provide both information
services and telecommunications services are classified as
telecommunications carriers and are subject to certain requirements
under 251(a). (Section IX--Duties Imposed on ``Telecommunications
Carriers'' By Section 251(a)(2).)
951. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered. Small
entities who provide for a fee local, interexchange and international
services are defined as telecommunications carriers and, thus, also
receive the benefits of section 251 including interconnection,
services, and network elements, which may increase their ability to
compete. (Section IX--Duties Imposed on ``Telecommunications Carriers''
By Section 251(a)(2).) We reject the suggestion that CMRS providers,
some of which likely are small entities, should not be included in the
definition of a ``telecommunications carrier.'' (Id.) We determine that
entities operating private, internal or shared communications networks
do not qualify as telecommunications carriers, however, which excludes
them from the obligations and benefits under section 251(a). Small
entities providing information services but not telecommunications
services are also not classified as telecommunications carriers and,
thus, will not be bound by the duties of section 251(a). A carrier that
provides both information and telecommunications services is deemed
subject to the requirements of section 251(a). We also conclude that
telecommunications carriers that have interconnected under either
section 251(a)(1) or 251(c)(2) may offer information services through
the same arrangement or agreement. This will permit new entrants, many
of which may be small entities, to offer full ranges of services to end
users without having to provide some of those services inefficiently
through distinct facilities or agreements.
952. We decide that competitive telecommunications carriers that
have the obligation to interconnect with requesting carriers may
choose, based upon their own characteristics, whether to allow direct
or indirect interconnection. (Section IX--Duties Imposed on
``Telecommunications Carriers'' By Section 251(a).) This should allow
significant flexibility for small entities to choose the most efficient
and economical arrangement for their particular strategy. As set forth
in Section IX, we reject an argument to forbear, under section 10 of
the Communications Act, from imposing any interconnection requirements
on non-dominant carriers.
Summary Analysis of Section X--Commercial Mobile Radio Services
953. Summary of Projected Reporting, Recordkeeping and Other
Compliance Requirements. We are applying sections 251 and 252 to LEC-
CMRS interconnection at this time. (Section X.D--Jurisdictional
Authority for Regulation of LEC-CMRS Interconnection Rates.) We may
revisit our determination not to invoke jurisdiction under section 332
to regulate LEC-CMRS interconnection rates if we determine that the
regulatory scheme established by sections 251 and 252 does not
sufficiently address the problems encountered by CMRS providers, many
of which may be small entities, in obtaining interconnection on terms
and conditions that are just, reasonable, and nondiscriminatory.
954. Pursuant to our findings in Section X.D, a small CMRS entity
seeking to enter into a reciprocal compensation agreement with an
incumbent LEC, which may be a small incumbent LEC, will have to comply
with sections 251 and 252, and state law. The reporting, recordkeeping,
and other compliance requirements associated with reciprocal
compensation are summarized in the following section concerning
obligations under section 251(b).
955. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered. The
Commission's actions may minimize the economic impact on CMRS
providers, many of which are small entities, by declaring that CMRS
providers are not required to comply with the obligations of LECs under
section 251(b)(5). We decline to adopt the alternative of finding that
a CMRS provider is a LEC for the reasons set forth in Section X.A. We
also determine that CMRS providers are entitled to request reciprocal
compensation under section 251(b)(5), and that certain CMRS providers
are also entitled to request interconnection under section 251(c)(2).
As discussed in the following section concerning obligations under
section 251(b), these decisions may permit small entity CMRS providers
the opportunity to considerably expand their businesses.
Summary Analysis of Section XI--Obligations Imposed on LECS by 251(b)
A. Reciprocal Compensation for Transport and Termination of
Telecommunications
956. Summary of Projected Reporting, Recordkeeping, and Other
Compliance Requirements. All local exchange carriers, including small
incumbent LECs and perhaps some small entities offering competing local
exchange services, have a duty to establish reciprocal compensation for
the transport and termination of local telecommunications traffic, as
defined by state commissions. As such, small incumbent LECs and small
entities offering competitive local exchange services may be required
to measure the exchange of traffic, and to bill and collect payment
from other carriers. (Section XI.A--Reciprocal Compensation for
Transport and Termination of Telecommunications.) Reciprocal
compensation for the transport and termination of traffic may be based
on the incumbent LEC's cost studies, which may require small incumbent
LECs to use economic skills to perform cost studies. To the extent that
a competing provider of local exchange services, which may include a
small entity, believes its costs for the transportation and termination
of traffic differ from those of the incumbent LEC, it would also be
required to provide a forward-looking, economic cost study. (Id.)
957. If a CMRS provider entered into an agreement with an incumbent
LEC prior to August 8, 1996 that does not provide for mutual
compensation, the CMRS provider may demand to renegotiate the
agreement. This may impose the burden of re-negotiation on small
incumbent LECs, which may require legal, accounting, and economic
skills. In addition, pending the successful completion of negotiation
or arbitration, symmetrical reciprocal
[[Page 45615]]
compensation shall apply, which may have the effect of raising the
amount small incumbent LECs currently pay CMRS providers to terminate
LEC-originated traffic. This may have the effect of increasing small
incumbent LECs' costs. Finally, a state commission may impose bill-and-
keep arrangements between carriers if the state commission determines
that the amount of local telecommunications traffic from one network to
the other is approximately equal to the amount of local
telecommunications traffic flowing in the opposite directions, and is
expected to remain thus. This could have the effect of reducing small
incumbent LECs' revenues and decreasing the expenses of small entities.
It also might place a burden on small entities and small incumbent LECs
of establishing that traffic volumes are imbalanced, which might
require accounting, economic, and legal skills.
958. We require paging companies seeking to recover fees for
terminating local calls to demonstrate to the state the costs of
terminating such calls. (Section XI.A.--Reciprocal Compensation for
Transport and Termination of Traffic.) Consequently, small entity
paging companies and possibly small incumbent LECs may be required to
use legal, economic, and possibly accounting skills.
959. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered. Our
adoption of national default price ceilings and ranges for
transportation and termination of local traffic being arbitrated by the
states should provide all parties, including small incumbent LECs and
many new entrant small entities, with a clear understanding of the
terms and conditions that will govern should they fail to reach an
agreement. This should minimize regulatory burdens and economic impacts
for those companies, in part by reducing the transaction costs of
arbitration. (Section XI.A.3.c.(4)--Default Proxies.) Permitting CMRS
providers with non-reciprocal agreements to renegotiate their
agreements, and imposing symmetrical reciprocal compensation pending
completion of negotiation or arbitration, will provide all parties with
certainty as to applicable rates as of the date of this order, and
minimize litigation and regulatory costs. We believe this decision is
consistent with the pro-competitive goals of the 1996 Act.
960. We define transport and termination as separate functions--
each with its own cost calculation for the purposes of sections 251 and
252. This definition may permit interconnecting carriers, including
small entities, to obtain transport and termination services at lower
rates and avoid paying above-cost rates or rates for unneeded services.
(Section XI.A.2--Definition of Transport and Termination of
Telecommunications.) We also conclude that a LEC may not charge a CMRS
provider or other carrier, which may be a small entity, for receiving
and terminating LEC-originated traffic. (Section XI.A.4--Symmetry.) We
do not permit interexchange carriers to use transport and termination
services to avoid the obligation to pay access charges for terminating
interexchange traffic with incumbent LECs. (Section XI.A.2--Definition
of Transport and Termination of Telecommunications.)
961. Our decision to permit new entrants to base reciprocal
compensation arrangements on incumbent LECs' cost studies may reduce
barriers to entry by permitting competing LECs to avoid performing
their own forward-looking, economic cost studies, which may be expected
to reduce the overall burdens and minimize the economic impact of
regulation on these small entities. (Section XI.A.4--Symmetry.) The
ability of state commissions to impose bill and keep arrangements where
the costs of terminating traffic are nearly symmetrical, traffic volume
is roughly balanced, and both are expected to remain so, may allow
small entities and small incumbent LECs to avoid the cost of measuring
traffic exchange. (Section XI.A.5--Bill and Keep.) For the reasons set
forth in Section XI.A.5 above, we reject the proposed alternative of
permitting states to adopt bill-and-keep arrangements for the transport
and termination of traffic where the cost of terminating traffic is not
nearly symmetrical.
962. By requiring that rates for transport and termination be cost
based, we believe that all parties in telecommunications markets,
including small incumbent LECs and small entities, may benefit from
increased opportunities to compete effectively in local exchange
markets. (Section XI.A.3--Pricing Methodology.) In addition, we
conclude that termination rates for LECs, including small incumbent
LECs, should include an allocation of forward-looking common costs, but
not an element for the recovery of lost contributions. These decisions
may be expected to minimize the economic impact of our decisions on
small incumbent LECs and small entities.
963. This Order eliminates certain charges paging companies may now
be assessed by LECs and enables paging companies to claim new revenues
from LECs for terminating paging calls. (Section XI.A--Reciprocal
Compensation for Transport and Termination of Telecommunications.)
Paging companies, including small entities, may thereby incur lower
costs. Such entities also may increase their revenues, depending on the
outcome of any proceedings concerning their termination costs. For the
reasons set forth in Section XI.A.3 above, we cannot conclude, at this
time, that a LEC's forward looking costs may be used as a reasonable
proxy for the costs of call termination by paging providers. We further
conclude that the default price for termination of traffic from the end
office that we adopt in this proceeding in Section XI.A.3 above does
not apply to termination of traffic by paging providers. This default
price is based on estimates in the record of the costs to LECs of
termination from the end office or end-office switching.
B. Access to Rights-of-Way
964. Summary of Projected Reporting, Recordkeeping, and Other
Compliance Requirements. Small incumbent LECs that meet the definition
of a utility (The Act defines ``utility'' as ``any person who is a
local exchange carrier or an electric, gas, water, steam, or other
public utility, and who owns or controls poles, ducts, conduits, or
rights-of-way used, in whole or in part, for any wire communication.'')
and own poles, ducts, conduits and rights-of-way where access was not
previously mandated are now required to provide access to requesting
telecommunications carriers (other than incumbent LECs and cable
television systems) which may require the use of legal, engineering,
and accounting resources for evaluation and processing of attachment
requests. (Section XI.B.2--Section 224(f): Non-discriminatory Access.)
This may also require small incumbent LECs and small entities to employ
technical personnel to modify pole attachment arrangements.
965. A complaint of unjustified denial of access must be supported
by a written request for access, the utility's response, and
information supporting the complainant's position. This will likely
impose some recordkeeping requirements on small incumbent LECs and
small entities seeking access to rights-of-way. Our requirements may
also impose administrative requirements, including legal and
engineering expertise, on small governmental jurisdictions (Under the
Regulatory Flexibility Act, a ``small governmental jurisdiction'' is
one type
[[Page 45616]]
of ``small entity,'' and is defined as the ``governments of cities,
counties, towns, townships, villages, school districts, or special
districts with a population of less than fifty thousand * * * .'' 5
U.S.C. 601(5).) that resolve disputes arising under section 224 of the
Communications Act. (Section XI.B.5.c.2--Dispute Resolution.) In
addition, small governmental jurisdictions that have established rules
and regulations for access to poles, ducts and conduits specifically,
and interconnection generally, are also likely to have some level of
reporting and recordkeeping requirements for competing
telecommunications carriers that use the poles, some of which may be
small entities. (Section XI.B.6--Reverse Preemption.)
966. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered. In
placing the burden of proof on the denying utility with respect to the
propriety of a denial of access, we recognize that new entrants, which
may be small entities, are not likely to have access to such
information without cooperation from the utilities. Complaints should
not be dismissed where the petitioner was unable to obtain a written
response from the denying utility, or where the utility also denied the
petitioner any relevant information needed to establish a prima facie
case. These provisions should allow an entrant to pursue a claim
without the need for expensive discovery, and should not preclude or
discourage entities with limited resources from seeking redress where
access is denied. (Section XI.B.5--Dispute Resolution.) For the reasons
set forth in Section XI.B.5, we reject the recommendation that an
applicant be allowed to seek injunctive relief in federal court and
select federal jurisdiction for enforcement or appeal of any matter
regarding pole attachments. Our conclusion that state and local pole
attachment requirements are presumed reasonable may minimize burdens on
small governmental jurisdictions by preserving existing rules and
procedures, and the local government's expertise with its own rules.
(Section XI.B.2--Specific Rules.) In reaching this result, we reject
the alternative of invalidating such state regulations in favor of
federal rules for the reasons stated in Section XI.B.2. Our
determination not to prescribe numerous specific rules in this area
recognizes the varying technologies and facilities deployed by
incumbent LECs, including small incumbent LECs. For example, we
recognize that utilities, including small incumbent LECs, normally have
their own operating standards that dictate conditions of access. Thus,
we leave in place such conditions of access. For the reasons set forth
in Section XI.B, we reject the alternative of prescribing a
comprehensive set of substantive engineering standards governing access
to rights-of-way.
967. When an attaching entity modifies poles for its use, it will
be entitled to recover a share of its expenses from any later-attaching
entities. (Section XI.B.4--Modifications.) This should permit attaching
entities that modify poles, some of which may be small entities, to
bear only their proportionate costs and prevent them from effectively
subsidizing their later-entering competitors. The requirement that
utilities provide attaching entities with 60 days' notice prior to
commencing modifications to any pole, duct or conduit should provide
attaching entities, some of which may be small entities, with
sufficient time to evaluate the impact of the proposed modification on
their interests and to plan and coordinate any modifications to their
own attachments. (Id.)
C. Imposing Additional Obligations on LECs
968. Summary of Projected Reporting, Recordkeeping and Other
Compliance Requirements. Our decisions in this section of the Order do
not subject any small entities to reporting, recordkeeping or other
compliance requirements.
969. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered. The
determination that the 1996 Act does not permit the particular
obligations for incumbent LECs set forth in section 251(c) to be
imposed on non-incumbent carriers, absent a finding by the Commission
under section 251(h)(2), should limit potential burdens on new
entrants, including small entities. (Section XI.C--Imposing Obligations
on LECs.)
Summary Analysis of Section XII--Exemptions, Suspensions and
Modifications of Section 251 Requirements
970. Summary of Projected Reporting, Recordkeeping and Other
Compliance Requirements. Section 251(f)(1) grants rural telephone
companies, which may be small incumbent LECs, an exemption from the
requirements of section 251(c) (which only apply to incumbent LECs)
until the rural telephone company has received a bona fide request for
interconnection, services, or network elements, and the state
determines that the exemption should be terminated. Section 251(f)(2)
provides that LECs with fewer than two percent of the nation's
subscriber lines may petition a state commission for a suspension or
modification of any requirements of sections 251(b) and 251(c). The
latter provision, section 251(f)(2), is available to all LECs including
competitive LECs, which may be small entities.
971. After a carrier has made a bona fide request under Section
251, a rural telephone company, which may be a small incumbent LEC,
seeking to retain its exemption under section 251(f)(1) must prove to
the state commission that it should retain its exemption. To remove the
exemption, a state commission must find that the bona fide
interconnection request is not unduly economically burdensome, is
technically feasible, and is consistent with section 254. The parties
involved in such a proceeding may need to use legal, accounting,
economic and/or engineering services. A small incumbent LEC or a
competitive LEC, which may be a small entity, seeking under 251(f)(2)
to modify or suspend the national interconnection requirements imposed
by section 251(b) or 251(c) bears the burden of proving that
interconnection would: (1) create a significant adverse economic impact
on telecommunications users; (2) be unduly economically burdensome; or
(3) be technically infeasible.
972. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered. As set
forth in Section XII above, the determination whether a section 251(f)
exemption, suspension, or modification should be continued or granted
lies primarily with the relevant state commission. By largely leaving
this determination to the states, our decisions permit this fact-
specific inquiry to be administered in a manner that minimizes
regulatory burdens and the economic impact on small entities and small
incumbent LECs. However, to further minimize regulatory burdens and
minimize the economic impact of our decision, we adopt several rules as
set forth in Section XII above, which may facilitate the efficient
resolution of such inquiries, provide guidance, and minimize
uncertainty. As set forth in Section XII above, we find that the rural
LEC or smaller LEC must prove to the state commission that the
financial harm shown to justify an exemption, suspension, or
modification would be greater than the harm that might
[[Page 45617]]
typically be expected as a result of competition. Finally, we conclude
that section 251(f) adequately provides for varying treatment for
smaller or rural LECs where such variances are justified. As a result,
we expect that section 251(f) will significantly minimize regulatory
burdens and economic impacts from the rules adopted in this Order.
Summary Analysis of Section XIII--Advanced Telecommunications
Capabilities
973. Summary of Projected Reporting, Recordkeeping and Other
Compliance Requirements. Our decision to defer consideration of rules
in this section of the Order does not subject any small entities or
small incumbent LECs to reporting, recordkeeping or other compliance
requirements.
974. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered. We do
not anticipate that our decision to defer consideration of rules in
this section of the Order will have any economic impact on small
entities or small incumbent LECs.
Summary Analysis of Section XIV--Provisions of Section 252
A. Section 252(e)(5)
975. Summary of Projected Reporting, Recordkeeping, and Other
Compliance Requirements. Pursuant to section 252(b)(1), a party to
negotiation may petition a state commission to arbitrate any open
issues. Small entities and small incumbent LECs negotiating
interconnection agreements may, therefore, participate in state
arbitration in order to obtain an interconnection agreement, which may
impose significant legal costs. (Section XIV.A--Section 252(e)(5).)
Section 252(e)(5) requires the Commission to assume the state's
responsibility under section 252 if the state ``fails to act to carry
out its responsibility'' under the section. We require an aggrieved
party, which may be a small entity or a small incumbent LEC, to notify
the FCC that a state commission has failed to act under section 252 by
filing a detailed written petition, backed by affidavit. As set forth
above in Section XIV.A, if the Commission, following a notice and
comment period, determines that the state has failed to act, the
Commission will assume authority under section 252(e)(5) and mediate or
arbitrate the dispute. This process may also entail significant legal
expertise.
976. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered. In this
Order, the Commission adopts a minimum set of rules that will provide
notice of the standards and procedures that the Commission will use if
it has to assume the responsibility of a state commission under section
252(e)(5). These rules should benefit small entities and small
incumbent LECs by limiting uncertainty and minimizing transaction costs
associated with the arbitration process. (Section XIV.A--Section
252(e)(5).)
977. The Commission concludes that, if it arbitrates agreements, it
will use a ``final offer'' arbitration method, whereby each party to
the arbitration proposes its best and final offer, and the arbitrator
chooses between the proposals. The arbitrator may choose either
proposal in its entirety, or could choose different parties' proposals
on an issue-by-issue basis. This method of arbitration should minimize
the economic impact on small entities and small incumbent LECs by
reducing the transaction costs associated with arbitration. Our rules
should also encourage parties, to negotiate after offers are submitted
which should provide additional flexibility for parties including small
entities and small incumbent LECs, to agree to a resolution tailored to
their interests. (Section XIV.A--Section 252(e)(5).)
978. For the reasons set forth above in Section XIV.A, we reject
the alternative of adopting national rules governing state arbitration
procedures. We believe the states are in a better position to develop
mediation and arbitration rules that support the objectives of the 1996
Act. States may develop specific measures that best address the
concerns of small entities and small incumbent LECs participating in
mediation or arbitration.
979. As set forth above in Section XIV.A, we reject the suggestion
that the Commission return jurisdiction over an arbitration to the
state commission. We further reject the argument that, once the
Commission has mediated or arbitrated an agreement, the agreement must
be submitted to the state commission for approval under state law. We
decline to adopt the alternative suggested by some parties that, if the
Commission steps into the state commission role, it is bound by state
laws and standards that would have applied to the state commission.
(Section XIV.A--Section 252(e)(5).).
980. As explained above in Section XIV.A, we also reject the
alternative that an arbitrated agreement not be binding on the parties.
Finally, we reject the alternative of opening the arbitration process
to all third parties, which should minimize the costs involved in such
proceedings.
B. Requirements of Section 252(i)
981. Summary of Projected Reporting, Recordkeeping and Other
Compliance Requirements. Our decisions in this section of the Order do
not subject any small entities to reporting, recordkeeping or other
compliance requirements. Incumbent LECs, including small incumbent
LECs, are required to file with state commissions all interconnection
agreements entered into with other carriers, including adjacent
incumbent LECs. Incumbent LECs must also permit third parties to obtain
any individual interconnection, service or network element arrangement
on the same terms and conditions as those contained in any agreement
approved under section 252. Moreover, incumbent LECs must prove with
specificity that terms and conditions contained in filed agreements are
legitimately related to the purchase of the individual element or
service being sought. Incumbent LECs must provide ``most favored
nation'' status with regard to subsequent carriers regardless of
whether they include ``most favored nation'' clauses in their
agreements. Complying with these requirements may require small
incumbent LECs and requesting small entities to use legal and
negotiation skills.
982. Steps Taken to Minimize Significant Economic Impact on Small
Entities and Small Incumbent LECs, and Alternatives Considered. Our
decision to adopt national standards to implement section 252(i) should
minimize the economic impact of our decision on both small entities and
small incumbent LECs by expediting the resolution of disputes, thereby
reducing transaction costs associated with interconnection. Our
decision that section 252(i) permits requesting carriers to choose
among individual provisions contained in publicly-filed interconnection
agreements should minimize the economic impact for small new entrants
by permitting them to obtain the provisions they desire without having
to adopt entire agreements that would not reflect their costs or the
specific technical characteristics of their networks. (Section XIV.B--
Section 252(i).) Moreover, small entities may be able to obtain the
same terms and conditions of agreements reached by larger carriers that
possess greater bargaining power without having to incur the costs of
negotiation and/or arbitration.
983. We also determine that publicly-filed agreements need only be
made available to carriers who cause
[[Page 45618]]
incumbent LECs to incur no greater costs than did the original carrier,
which should minimize the economic impact on small incumbent LECs. We
also minimize the regulatory burden for small entities and small
incumbent LECs by finding that a new entrant seeking interconnection,
network elements, or services pursuant to section 252(i) need not make
such requests pursuant to the procedures for initial section 251
requests, but shall be permitted to obtain access to agreements on an
expedited basis.
984. As set forth above, we conclude that section 252(i) permits
differential treatment of carriers based on differences in the costs of
serving those carriers, but does not permit incumbent LECs to limit the
availability of interconnection, services, or network elements only to
those requesting carriers serving a comparable class of subscribers or
providing the same service as the original party to the agreement.
(Section XIV--Section 252(i).) These decisions should minimize the
impact on small entities by preventing discrimination and enabling them
to obtain the same terms and conditions as larger carriers that possess
greater bargaining power. For the reasons set forth in Section XIV, we
reject the interpretation favored by commenters arguing that new
entrants should not be able to choose among provisions of
interconnection agreements filed with state commissions.
E. Report to Congress
985. The Commission shall send a copy of this FRFA, along with this
Order, in a report to Congress pursuant to the Small Business
Regulatory Enforcement Fairness Act of 1996, 5 U.S.C.
Sec. 801(a)(1)(A). A copy of this FRFA will also be published in the
Federal Register.
XVI. Ordering Clauses
986. Accordingly, it is ordered that, pursuant to Sections 1-4,
201-209, 214, 218, 224, 251, 252, and 303(r) of the Communications Act
of 1934, as amended, and Section 601 of the Telecommunications Act of
1996, 47 U.S.C. 151-154, 201-209, 214, 218, 224, 251, 252, 303(r), the
Report and order is adopted, effective September 30, 1996. The
collections of information contained within are contingent upon
approval by the Office of Management and Budget.
987. It is further ordered that Part 51 of the Commission's rules,
47 CFR Sec. 51 is Added as set forth below.
988. It is further ordered that, to the extent issues from CC
Docket No. 95-185, In the Matter of Interconnection Between Local
Exchange Carriers and Commercial Mobile Service Providers, are resolved
here, we incorporate the relevant portions of the record in that
docket.
989. It is further ordered that, to the extent issues from CC
Docket No. 91-346, In the Matter of Intelligent Networks, are resolved
here, we incorporate the relevant portions of the record in that
docket.
990. It is further ordered, light of the United States Court of
Appeals for the District of Columbia Circuit in Pacific Bell v. FCC, 81
F.3d 1147 (D.C. Cir. 1996) (table) and the Telecommunications Act of
1996, that the rules and policies adopted in Expanded Interconnection
with Local Telephone Company Facilities, CC Docket No. 91-141, 9 FCC
Rcd 5154 (1994), shall remain in effect.
List of Subjects
47 CFR Part 1
Access to rights of way, Telecommunications.
47 CFR Part 20
Communications common carriers, Interconnection.
47 CFR Part 51
Collocation, Communications common carriers, Interconnection,
Network elements, Pricing standard, Proxies, Reciprocal compensation,
Resale, Transport and termination.
47 CFR Part 90
Common carriers.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Rule Changes
Parts 1, 20, 51 and 90 of Title 47 of the Code of Federal
Regulations are amended as follows:
PART 1--PRACTICE AND PROCEDURE
1. The authority citation for part 1 is revised to read as follows:
Authority: 47 U.S.C. 151, 154, 251, 252, 303, and 309(j) unless
otherwise noted.
2. Section 1.1401 is revised to read as follows:
Sec. 1.1401 Purpose.
The rules and regulations contained in subpart J of this part
provide complaint and enforcement procedures to ensure that
telecommunications carriers and cable system operators have
nondiscriminatory access to utility poles, ducts, conduits, and rights-
of-way on rates, terms, and conditions that are just and reasonable.
3. Section 1.1402 is amended by revising paragraph (d) to read as
follows:
Sec. 1.1402 Definitions.
* * * * *
(d) The term complaint means a filing by a cable television system
operator, a cable television system association, a utility, an
association of utilities, a telecommunications carrier, or an
association of telecommunications carriers alleging that it has been
denied access to a utility pole, duct, conduit, or right-of-way in
violation of this subpart and/or that a rate, term, or condition for a
pole attachment is not just and reasonable.
* * * * *
4. Section 1.1403 is revised to read as follows:
Sec. 1.1403 Duty to provide access; modifications; notice of removal,
increase or modification; petition for temporary stay.
(a) A utility shall provide a cable television system or any
telecommunications carrier with nondiscriminatory access to any pole,
duct, conduit, or right-of-way owned or controlled by it.
Notwithstanding this obligation, a utility may deny a cable television
system or any telecommunications carrier access to its poles, ducts,
conduits, or rights-of-way, on a non-discriminatory basis where there
is insufficient capacity or for reasons of safety, reliability and
generally applicable engineering purposes.
(b) Requests for access to a utility's poles, ducts, conduits or
rights-of-way by a telecommunications carrier or cable operator must be
in writing. If access is not granted within 45 days of the request for
access, the utility must confirm the denial in writing by the 45th day.
The utility's denial of access shall be specific, shall include all
relevant evidence and information supporting its denial, and shall
explain how such evidence and information relate to a denial of access
for reasons of lack of capacity, safety, reliability or engineering
standards.
(c) A utility shall provide a cable television system operator or
telecommunications carrier no less than 60 days written notice prior
to:
(1) Removal of facilities or termination of any service to those
facilities, such removal or termination arising out of a rate, term or
condition of the cable television system operator's of
telecommunications carrier's pole attachment agreement;
[[Page 45619]]
(2) Any increase in pole attachment rates; or
(3) Any modification of facilities other than routine maintenance
or modification in response to emergencies.
(d) A cable television system operator or telecommunications
carrier may file a ``Petition for Temporary Stay'' of the action
contained in a notice received pursuant to paragraph (c) of this
section within 15 days of receipt of such notice. Such submission shall
not be considered unless it includes, in concise terms, the relief
sought, the reasons for such relief, including a showing of irreparable
harm and likely cessation of cable television service or
telecommunication service, a copy of the notice, and certification of
service as required by Sec. 1.1404(b). The named respondent may file an
answer within 7 days of the date the Petition for Temporary Stay was
filed. No further filings under this section will be considered unless
requested or authorized by the Commission and no extensions of time
will be granted unless justified pursuant to Sec. 1.46.5. Section
1.1404 is amended by revising paragraphs (b) and (c) and by adding new
paragraph (k) to read as follows:
Sec. 1.1404 Complaint.
* * * * *
(b) The complaint shall be accompanied by a certification of
service on the named respondent, and each of the Federal, State, and
local governmental agencies that regulate any aspect of the services
provided by the complainant or respondent.
(c) In a case where it is claimed that a rate, term, or condition
is unjust or unreasonable, the complaint shall contain a statement that
the State has not certified to the Commission that it regulates the
rates, terms and conditions for pole attachments. The complaint shall
include a statement that the utility is not owned by any railroad, any
person who is cooperatively organized or any person owned by the
Federal Government or any State.
* * * * *
(k) In a case where a cable television system operator or
telecommunications carrier claims that it has been denied access to a
pole, duct, conduit or right-of-way despite a request made pursuant to
section 47 U.S.C. Sec. 224(f), the complaint shall be filed within 30
days of such denial. In addition to meeting the other requirements of
this section, the complaint shall include the data and information
necessary to support the claim, including:
(1) The reasons given for the denial of access to the utility's
poles, ducts, conduits and rights-of-way;
(2) The basis for the complainant's claim that the denial of access
is improper;
(3) The remedy sought by the complainant;
(4) A copy of the written request to the utility for access to its
poles, ducts, conduits or rights-of-way; and
(5) A copy of the utility's response to the written request
including all information given by the utility to support its denial of
access. A complaint alleging improper denial of access will not be
dismissed if the complainant is unable to obtain a utility's written
response, or if the utility denies the complainant any other
information needed to establish a prima facie case.
6. Section 1.1409 is amended by revising paragraphs (b) and (d) to
read as follows:
Sec. 1.1409 Commission consideration of the complaint.
* * * * *
(b) The complainant shall have the burden of establishing a prima
facie case that the rate, term, or condition is not just and reasonable
or that the denial of access violates 47 U.S.C. Sec. 224(f). If,
however, a utility argues that the proposed rate is lower than its
incremental costs, the utility has the burden of establishing that such
rate is below the statutory minimum just and reasonable rate. In a case
involving a denial of access, the utility shall have the burden of
proving that the denial was lawful, once a prima facie case is
established by the complainant.
* * * * *
(d) The Commission shall deny the complaint if it determines that
the complainant has not established a prima facie case, or that the
rate, term or condition is just and reasonable, or that the denial of
access was lawful.
* * * * *
7. Section 1.1416 is amended by revising the section-heading and
paragraph (b) to read as follows:
Sec. 1.1416 Imputation of rates; modification costs.
* * * * *
(b) The costs of modifying a facility shall be borne by all parties
that obtain access to the facility as a result of the modification and
by all parties that directly benefit from the modification. Each party
described in the preceding sentence shall share proportionately in the
cost of the modification. A party with a preexisting attachment to the
modified facility shall be deemed to directly benefit from a
modification if, after receiving notification of such modification as
provided in subpart J of this part, it adds to or modifies its
attachment. Notwithstanding the foregoing, a party with a preexisting
attachment to a pole, conduit, duct or right-of-way shall not be
required to bear any of the costs of rearranging or replacing its
attachment if such rearrangement or replacement is necessitated solely
as a result of an additional attachment or the modification of an
existing attachment sought by another party. If a party makes an
attachment to the facility after the completion of the modification,
such party shall share proportionately in the cost of the modification
if such modification rendered possible the added attachment.
PART 20--COMMERCIAL MOBILE RADIO SERVICES
8. The authority citation for part 20 is revised to read as
follows:
Authority: Secs. 4, 251-2, 303, and 332, 48 Stat. 1066, 1062, as
amended; 47 U.S.C. 154, 251-4, 303, and 332 unless otherwise noted.
9. Section 20.11 is amended by adding paragraph (c) to read as
follows:
Sec. 20.11 Interconnection to facilities of local exchange carriers.
* * * * *
(c) Local exchange carriers and commercial mobile radio service
providers shall also comply with applicable provisions of part 51 of
this chapter.
* * * * *
10. A new part 51 is added to read as follows:
PART 51--INTERCONNECTION
Subpart A--General Information
Sec.
51.1 Basis and purpose.
51.3 Applicability to negotiated agreements.
51.5 Terms and definitions.
Subpart B--Telecommunications Carriers
51.100 General duty.
Subpart C--Obligations of All Local Exchange Carriers
51.201 Resale.
51.203 Number portability.
51.219 Access to rights of way.
51.221 Reciprocal compensation.
51.223 Application of additional requirements.
Subpart D--Additional Obligations of Incumbent Local Exchange Carriers
51.301 Duty to negotiate.
51.303 Preexisting agreements.
51.305 Interconnection.
51.307 Duty to provide access on an unbundled basis to network
elements.
[[Page 45620]]
51.309 Use of unbundled network elements.
51.311 Nondiscriminatory access to unbundled network elements.
51.313 Just, reasonable and nondiscriminatory terms and conditions
for the provision of unbundled network elements.
51.315 Combination of unbundled network elements.
51.317 Standards for identifying network elements to be made
available.
51.319 Specific unbundling requirements.
51.321 Methods of obtaining interconnection and access to unbundled
elements under section 251 of the Act.
51.323 Standards for physical collocation and virtual collocation.
Subpart E--Exemptions, Suspensions, and Modifications of Requirements
of Section 251 of the Act
51.401 State authority.
51.403 Carriers eligible for suspension or modification under
section 251(f)(2) of the Act.
51.405 Burden of proof.
Subpart F--Pricing of Elements
51.501 Scope.
51.503 General pricing standard.
51.505 Forward-looking economic cost.
51.507 General rate structure standard.
51.509 Rate structure standards for specific elements.
51.511 Forward-looking economic cost per unit.
51.513 Proxies for forward-looking economic cost.
51.515 Application of access charges.
Subpart G--Resale
51.601 Scope of resale rules.
51.603 Resale obligation of all local exchange carriers.
51.605 Additional obligations of incumbent local exchange carriers.
51.607 Wholesale pricing standard.
51.609 Determination of avoided retail costs.
51.611 Interim wholesale rates.
51.613 Restrictions on resale.
51.615 Withdrawal of services.
51.617 Assessment of end user common line charge on resellers.
Subpart H--Reciprocal Compensation for Transport and Termination of
Local Telecommunications Traffic
51.701 Scope of transport and termination pricing rules.
51.703 Reciprocal compensation obligation of LECs.
51.705 Incumbent LECs' rates for transport and termination.
51.707 Default proxies for incumbent LECs' transport and
termination rates.
51.709 Rate structure for transport and termination.
51.711 Symmetrical reciprocal compensation.
51.713 Bill-and-keep arrangements for reciprocal compensation.
51.715 Interim transport and termination pricing.
51.717 Renegotiation of existing non-reciprocal arrangements.
Subpart I--Procedures for Implementation of Section 252 of the Act
51.801 Commission action upon a state commission's failure to act
to carry out its responsibility under section 252 of the Act.
51.803 Procedures for Commission notification of a state
commission's failure to act.
51.805 The Commission's authority over proceedings and matters.
51.807 Arbitration and mediation of agreements by the Commission
pursuant to section 252(e)(5) of the Act.
51.809 Availability of provisions of agreements to other
telecommunications carriers under section 252(i) of the Act.
Authority: Sections 1-5, 7, 201-05, 218, 225-27, 251-54, 271, 48
Stat. 1070, as amended, 1077; 47 U.S.C. 151-55, 157, 201-05, 218,
225-27, 251-54, 271, unless otherwise noted.
Subpart A--General Information
Sec. 51.1 Basis and purpose.
(a) Basis. These rules are issued pursuant to the Communications
Act of 1934, as amended.
(b) Purpose. The purpose of these rules is to implement sections
251 and 252 of the Communications Act of 1934, as amended, 47 U.S.C.
251 and 252.
Sec. 51.3 Applicability to negotiated agreements.
To the extent provided in section 252(e)(2)(A) of the Act, a state
commission shall have authority to approve an interconnection agreement
adopted by negotiation even if the terms of the agreement do not comply
with the requirements of this part.
Sec. 51.5 Terms and definitions.
Terms used in this part have the following meanings:
Act. The Communications Act of 1934, as amended.
Advanced intelligent network. ``Advanced Intelligent Network'' is a
telecommunications network architecture in which call processing, call
routing, and network management are provided by means of centralized
databases located at points in an incumbent local exchange carrier's
network.
Arbitration, final offer. ``Final offer arbitration'' is a
procedure under which each party submits a final offer concerning the
issues subject to arbitration, and the arbitrator selects, without
modification, one of the final offers by the parties to the arbitration
or portions of both such offers. ``Entire package final offer
arbitration,'' is a procedure under which the arbitrator must select,
without modification, the entire proposal submitted by one of the
parties to the arbitration. ``Issue-by-issue final offer arbitration,''
is a procedure under which the arbitrator must select, without
modification, on an issue-by-issue basis, one of the proposals
submitted by the parties to the arbitration.
Billing. ``Billing'' involves the provision of appropriate usage
data by one telecommunications carrier to another to facilitate
customer billing with attendant acknowledgements and status reports. It
also involves the exchange of information between telecommunications
carriers to process claims and adjustments.
Commercial Mobile Radio Service (CMRS). ``CMRS'' has the same
meaning as that term is defined in Sec. 20.3 of this chapter.
Commission. ``Commission'' refers to the Federal Communications
Commission.
Directory assistance service. ``Directory assistance service''
includes, but is not limited to, making available to customers, upon
request, information contained in directory listings.
Directory listings. ``Directory listings'' are any information:
(1) Identifying the listed names of subscribers of a
telecommunications carrier and such subscriber's telephone numbers,
addresses, or primary advertising classifications (as such
classifications are assigned at the time of the establishment of such
service), or any combination of such listed names, numbers, addresses
or classifications; and
(2) That the telecommunications carrier or an affiliate has
published, caused to be published, or accepted for publication in any
directory format.
Downstream database. A ``downstream database'' is a database owned
and operated by an individual carrier for the purpose of providing
number portability in conjunction with other functions and services.
Equipment necessary for interconnection or access to unbundled
network elements. For purposes of section 251(c)(2) of the Act, the
equipment used to interconnect with an incumbent local exchange
carrier's network for the transmission and routing of telephone
exchange service, exchange access service, or both. For the purposes of
section 251(c)(3) of the Act, the equipment used to gain access to an
incumbent local exchange carrier's unbundled network elements for the
provision of a telecommunications service.
Incumbent Local Exchange Carrier (Incumbent LEC). With respect to
an area, the local exchange carrier that:
[[Page 45621]]
(1) On February 8, 1996, provided telephone exchange service in
such area; and
(2)(i) On February 8, 1996, was deemed to be a member of the
exchange carrier association pursuant to Sec. 69.601(b) of this
chapter; or
(ii) Is a person or entity that, on or after February 8, 1996,
became a successor or assign of a member described in paragraph (2)(i)
of this section.
Interconnection. ``Interconnection'' is the linking of two networks
for the mutual exchange of traffic. This term does not include the
transport and termination of traffic.
Local Exchange Carrier (LEC). A ``LEC'' is any person that is
engaged in the provision of telephone exchange service or exchange
access. Such term does not include a person insofar as such person is
engaged in the provision of a commercial mobile service under section
332(c) of the Act, except to the extent that the Commission finds that
such service should be included in the definition of the such term.
Maintenance and repair. ``Maintenance and repair'' involves the
exchange of information between telecommunications carriers where one
initiates a request for maintenance or repair of existing products and
services or unbundled network elements or combination thereof from the
other with attendant acknowledgements and status reports.
Meet point. A ``meet point'' is a point of interconnection between
two networks, designated by two telecommunications carriers, at which
one carrier's responsibility for service begins and the other carrier's
responsibility ends.
Meet point interconnection arrangement. A ``meet point
interconnection arrangement'' is an arrangement by which each
telecommunications carrier builds and maintains its network to a meet
point.
Network element. A ``network element'' is a facility or equipment
used in the provision of a telecommunications service. Such term also
includes, but is not limited to, features, functions, and capabilities
that are provided by means of such facility or equipment, including but
not limited to, subscriber numbers, databases, signaling systems, and
information sufficient for billing and collection or used in the
transmission, routing, or other provision of a telecommunications
service.
Operator services. ``Operator services'' are any automatic or live
assistance to a consumer to arrange for billing or completion of a
telephone call. Such services include, but are not limited to, busy
line verification, emergency interrupt, and operator-assisted directory
assistance services.
Physical collocation. ``Physical collocation'' is an offering by an
incumbent LEC that enables a requesting telecommunications carrier to:
(1) Place its own equipment to be used for interconnection or
access to unbundled network elements within or upon an incumbent LEC's
premises;
(2) Use such equipment to interconnect with an incumbent LEC's
network facilities for the transmission and routing of telephone
exchange service, exchange access service, or both, or to gain access
to an incumbent LEC's unbundled network elements for the provision of a
telecommunications service;
(3) Enter those premises, subject to reasonable terms and
conditions, to install, maintain, and repair equipment necessary for
interconnection or access to unbundled elements; and
(4) Obtain reasonable amounts of space in an incumbent LEC's
premises, as provided in this part, for the equipment necessary for
interconnection or access to unbundled elements, allocated on a first-
come, first-served basis.
Premises. ``Premises'' refers to an incumbent LEC's central offices
and serving wire centers, as well as all buildings or similar
structures owned or leased by an incumbent LEC that house its network
facilities, and all structures that house incumbent LEC facilities on
public rights-of-way, including but not limited to vaults containing
loop concentrators or similar structures.
Pre-ordering and ordering. ``Pre-ordering and ordering'' includes
the exchange of information between telecommunications carriers about
current or proposed customer products and services or unbundled network
elements or some combination thereof.
Provisioning. ``Provisioning'' involves the exchange of information
between telecommunications carriers where one executes a request for a
set of products and services or unbundled network elements or
combination thereof from the other with attendant acknowledgements and
status reports.
Rural telephone company. A ``rural telephone company'' is a LEC
operating entity to the extent that such entity:
(1) Provides common carrier service to any local exchange carrier
study area that does not include either:
(i) Any incorporated place of 10,000 inhabitants or more, or any
part thereof, based on the most recently available population
statistics of the Bureau of the Census; or
(ii) Any territory, incorporated or unincorporated, included in an
urbanized area, as defined by the Bureau of the Census as of August 10,
1993;
(2) Provides telephone exchange service, including exchange access,
to fewer than 50,000 access lines;
(3) Provides telephone exchange service to any local exchange
carrier study area with fewer than 100,000 access lines; or
(4) Has less than 15 percent of its access lines in communities of
more than 50,000 on February 8, 1996.
Service control point. A ``service control point'' is a computer
database in the public switched network which contains information and
call processing instructions needed to process and complete a telephone
call.
Service creation environment. A ``service creation environment'' is
a computer containing generic call processing software that can be
programmed to create new advanced intelligent network call processing
services.
Signal transfer point. A ``signal transfer point'' is a packet
switch that acts as a routing hub for a signaling network and transfers
messages between various points in and among signaling networks.
State commission. A ``state commission'' means the commission,
board, or official (by whatever name designated) which under the laws
of any State has regulatory jurisdiction with respect to intrastate
operations of carriers. As referenced in this part, this term may
include the Commission if it assumes the responsibility of the state
commission, pursuant to section 252(e)(5) of the Act. This term shall
also include any person or persons to whom the state commission has
delegated its authority under section 251 and 252 of the Act.
State proceeding. A ``state proceeding'' is any administrative
proceeding in which a state commission may approve or prescribe rates,
terms, and conditions including, but not limited to, compulsory
arbitration pursuant to section 252(b) of the Act, review of a Bell
operating company statement of generally available terms pursuant to
section 252(f) of the Act, and a proceeding to determine whether to
approve or reject an agreement adopted by arbitration pursuant to
section 252(e) of the Act.
Technically feasible. Interconnection, access to unbundled network
elements, collocation, and other methods of achieving interconnection
or access to
[[Page 45622]]
unbundled network elements at a point in the network shall be deemed
technically feasible absent technical or operational concerns that
prevent the fulfillment of a request by a telecommunications carrier
for such interconnection, access, or methods. A determination of
technical feasibility does not include consideration of economic,
accounting, billing, space, or site concerns, except that space and
site concerns may be considered in circumstances where there is no
possibility of expanding the space available. The fact that an
incumbent LEC must modify its facilities or equipment to respond to
such request does not determine whether satisfying such request is
technically feasible. An incumbent LEC that claims that it cannot
satisfy such request because of adverse network reliability impacts
must prove to the state commission by clear and convincing evidence
that such interconnection, access, or methods would result in specific
and significant adverse network reliability impacts.
Telecommunications carrier. A ``telecommunications carrier'' is any
provider of telecommunications services, except that such term does not
include aggregators of telecommunications services (as defined in
section 226 of the Act). A telecommunications carrier shall be treated
as a common carrier under the Act only to the extent that it is engaged
in providing telecommunications services, except that the Commission
shall determine whether the provision of fixed and mobile satellite
service shall be treated as common carriage. This definition includes
CMRS providers, interexchange carriers (IXCs) and, to the extent they
are acting as telecommunications carriers, companies that provide both
telecommunications and information services. Private Mobile Radio
Service providers are telecommunications carriers to the extent they
provide domestic or international telecommunications for a fee directly
to the public.
Virtual collocation. ``Virtual collocation'' is an offering by an
incumbent LEC that enables a requesting telecommunications carrier to:
(1) Designate or specify equipment to be used for interconnection
or access to unbundled network elements to be located within or upon an
incumbent LEC's premises, and dedicated to such telecommunications
carrier's use;
(2) Use such equipment to interconnect with an incumbent LEC's
network facilities for the transmission and routing of telephone
exchange service, exchange access service, or both, or for access to an
incumbent LEC's unbundled network elements for the provision of a
telecommunications service; and
(3) Electronically monitor and control its communications channels
terminating in such equipment.
Subpart B--Telecommunications Carriers
Sec. 51.100 General duty.
(a) Each telecommunications carrier has the duty:
(1) To interconnect directly or indirectly with the facilities and
equipment of other telecommunications carriers; and
(2) To not install network features, functions, or capabilities
that do not comply with the guidelines and standards as provided in the
Commission's rules or section 255 or 256 of the Act.
(b) A telecommunication carrier that has interconnected or gained
access under sections 251(a)(1), 251(c)(2), or 251(c)(3) of the Act,
may offer information services through the same arrangement, so long as
it is offering telecommunications services through the same arrangement
as well.
Subpart C--Obligations of All Local Exchange Carriers
Sec. 51.201 Resale.
The rules governing resale of services by an incumbent LEC are set
forth in subpart G of this part.
Sec. 51.203 Number portability.
The rules governing number portability are set forth in part 52,
subpart C of this chapter.
Sec. 51.219 Access to rights of way.
The rules governing access to rights of way are set forth in part
1, subpart J of this chapter.
Sec. 51.221 Reciprocal compensation.
The rules governing reciprocal compensation are set forth in
subpart H of this part.
Sec. 51.223 Application of additional requirements.
(a) A state may not impose the obligations set forth in section
251(c) of the Act on a LEC that is not classified as an incumbent LEC
as defined in section 251(h)(1) of the Act, unless the Commission
issues an order declaring that such LECs or classes or categories of
LECs should be treated as incumbent LECs.
(b) A state commission, or any other interested party, may request
that the Commission issue an order declaring that a particular LEC be
treated as an incumbent LEC, or that a class or category of LECs be
treated as incumbent LECs, pursuant to section 251(h)(2) of the Act.
Subpart D--Additional Obligations of Incumbent Local Exchange
Carriers
Sec. 51.301 Duty to negotiate.
(a) An incumbent LEC shall negotiate in good faith the terms and
conditions of agreements to fulfill the duties established by sections
251(b) and (c) of the Act.
(b) A requesting telecommunications carrier shall negotiate in good
faith the terms and conditions of agreements described in paragraph (a)
of this section.
(c) If proven to the Commission, an appropriate state commission,
or a court of competent jurisdiction, the following actions or
practices, among others, violate the duty to negotiate in good faith:
(1) Demanding that another party sign a nondisclosure agreement
that precludes such party from providing information requested by the
Commission, or a state commission, or in support of a request for
arbitration under section 252(b)(2)(B) of the Act;
(2) Demanding that a requesting telecommunications carrier attest
that an agreement complies with all provisions of the Act, federal
regulations, or state law;
(3) Refusing to include in an arbitrated or negotiated agreement a
provision that permits the agreement to be amended in the future to
take into account changes in Commission or state rules;
(4) Conditioning negotiation on a requesting telecommunications
carrier first obtaining state certifications;
(5) Intentionally misleading or coercing another party into
reaching an agreement that it would not otherwise have made;
(6) Intentionally obstructing or delaying negotiations or
resolutions of disputes;
(7) Refusing throughout the negotiation process to designate a
representative with authority to make binding representations, if such
refusal significantly delays resolution of issues; and
(8) Refusing to provide information necessary to reach agreement.
Such refusal includes, but is not limited to:
(i) Refusal by an incumbent LEC to furnish information about its
network that a requesting telecommunications carrier reasonably
requires to identify the network elements that it needs in order to
serve a particular customer; and
[[Page 45623]]
(ii) Refusal by a requesting telecommunications carrier to furnish
cost data that would be relevant to setting rates if the parties were
in arbitration.
Sec. 51.303 Preexisting agreements.
(a) All interconnection agreements between an incumbent LEC and a
telecommunications carrier, including those negotiated before February
8, 1996, shall be submitted by the parties to the appropriate state
commission for approval pursuant to section 252(e) of the Act.
(b) Interconnection agreements negotiated before February 8, 1996,
between Class A carriers, as defined by Sec. 32.11(a)(1) of this
chapter, shall be filed by the parties with the appropriate state
commission no later than June 30, 1997, or such earlier date as the
state commission may require.
(c) If a state commission approves a preexisting agreement, it
shall be made available to other parties in accordance with section
252(i) of the Act and Sec. 51.809 of this part. A state commission may
reject a preexisting agreement on the grounds that it is inconsistent
with the public interest, or for other reasons set forth in section
252(e)(2)(A) of the Act.
Sec. 51.305 Interconnection.
(a) An incumbent LEC shall provide, for the facilities and
equipment of any requesting telecommunications carrier, interconnection
with the incumbent LEC's network:
(1) For the transmission and routing of telephone exchange traffic,
exchange access traffic, or both;
(2) At any technically feasible point within the incumbent LEC's
network including, at a minimum:
(i) The line-side of a local switch;
(ii) The trunk-side of a local switch;
(iii) The trunk interconnection points for a tandem switch;
(iv) Central office cross-connect points;
(v) Out-of-band signaling transfer points necessary to exchange
traffic at these points and access call-related databases; and
(vi) The points of access to unbundled network elements as
described in Sec. 51.319;
(3) That is at a level of quality that is equal to that which the
incumbent LEC provides itself, a subsidiary, an affiliate, or any other
party, except as provided in paragraph (4) of this section. At a
minimum, this requires an incumbent LEC to design interconnection
facilities to meet the same technical criteria and service standards
that are used within the incumbent LEC's network. This obligation is
not limited to a consideration of service quality as perceived by end
users, and includes, but is not limited to, service quality as
perceived by the requesting telecommunications carrier;
(4) That, if so requested by a telecommunications carrier and to
the extent technically feasible, is superior in quality to that
provided by the incumbent LEC to itself or to any subsidiary,
affiliate, or any other party to which the incumbent LEC provides
interconnection. Nothing in this section prohibits an incumbent LEC
from providing interconnection that is lesser in quality at the sole
request of the requesting telecommunications carrier; and
(5) On terms and conditions that are just, reasonable, and
nondiscriminatory in accordance with the terms and conditions of any
agreement, the requirements of sections 251 and 252 of the Act, and the
Commission's rules including, but not limited to, offering such terms
and conditions equally to all requesting telecommunications carriers,
and offering such terms and conditions that are no less favorable than
the terms and conditions upon which the incumbent LEC provides such
interconnection to itself. This includes, but is not limited to, the
time within which the incumbent LEC provides such interconnection.
(b) A carrier that requests interconnection solely for the purpose
of originating or terminating its interexchange traffic on an incumbent
LEC's network and not for the purpose of providing to others telephone
exchange service, exchange access service, or both, is not entitled to
receive interconnection pursuant to section 251(c)(2) of the Act.
(c) Previous successful interconnection at a particular point in a
network, using particular facilities, constitutes substantial evidence
that interconnection is technically feasible at that point, or at
substantially similar points, in networks employing substantially
similar facilities. Adherence to the same interface or protocol
standards shall constitute evidence of the substantial similarity of
network facilities.
(d) Previous successful interconnection at a particular point in a
network at a particular level of quality constitutes substantial
evidence that interconnection is technically feasible at that point, or
at substantially similar points, at that level of quality.
(e) An incumbent LEC that denies a request for interconnection at a
particular point must prove to the state commission that
interconnection at that point is not technically feasible.
(f) If technically feasible, an incumbent LEC shall provide two-way
trunking upon request.
Sec. 51.307 Duty to provide access on an unbundled basis to network
elements.
(a) An incumbent LEC shall provide, to a requesting
telecommunications carrier for the provision of a telecommunications
service, nondiscriminatory access to network elements on an unbundled
basis at any technically feasible point on terms and conditions that
are just, reasonable, and nondiscriminatory in accordance with the
terms and conditions of any agreement, the requirements of sections 251
and 252 of the Act, and the Commission's rules.
(b) The duty to provide access to unbundled network elements
pursuant to section 251(c)(3) of the Act includes a duty to provide a
connection to an unbundled network element independent of any duty to
provide interconnection pursuant to this part and section 251(c)(2) of
the Act.
(c) An incumbent LEC shall provide a requesting telecommunications
carrier access to an unbundled network element, along with all of the
unbundled network element's features, functions, and capabilities, in a
manner that allows the requesting telecommunications carrier to provide
any telecommunications service that can be offered by means of that
network element.
(d) An incumbent LEC shall provide a requesting telecommunications
carrier access to the facility or functionality of a requested network
element separate from access to the facility or functionality of other
network elements, for a separate charge.
Sec. 51.309 Use of unbundled network elements.
(a) An incumbent LEC shall not impose limitations, restrictions, or
requirements on requests for, or the use of, unbundled network elements
that would impair the ability of a requesting telecommunications
carrier to offer a telecommunications service in the manner the
requesting telecommunications carrier intends.
(b) A telecommunications carrier purchasing access to an unbundled
network element may use such network element to provide exchange access
services to itself in order to provide interexchange services to
subscribers.
(c) A telecommunications carrier purchasing access to an unbundled
network facility is entitled to exclusive use of that facility for a
period of time,
[[Page 45624]]
or when purchasing access to a feature, function, or capability of a
facility, a telecommunications carrier is entitled to use of that
feature, function, or capability for a period of time. A
telecommunications carrier's purchase of access to an unbundled network
element does not relieve the incumbent LEC of the duty to maintain,
repair, or replace the unbundled network element.
Sec. 51.311 Nondiscriminatory access to unbundled network elements.
(a) The quality of an unbundled network element, as well as the
quality of the access to the unbundled network element, that an
incumbent LEC provides to a requesting telecommunications carrier shall
be the same for all telecommunications carriers requesting access to
that network element, except as provided in paragraph (c) of this
section.
(b) Except as provided in paragraph (c) of this section, to the
extent technically feasible, the quality of an unbundled network
element, as well as the quality of the access to such unbundled network
element, that an incumbent LEC provides to a requesting
telecommunications carrier shall be at least equal in quality to that
which the incumbent LEC provides to itself. If an incumbent LEC fails
to meet this requirement, the incumbent LEC must prove to the state
commission that it is not technically feasible to provide the requested
unbundled network element, or to provide access to the requested
unbundled network element, at a level of quality that is equal to that
which the incumbent LEC provides to itself.
(c) To the extent technically feasible, the quality of an unbundled
network element, as well as the quality of the access to such unbundled
network element, that an incumbent LEC provides to a requesting
telecommunications carrier shall, upon request, be superior in quality
to that which the incumbent LEC provides to itself. If an incumbent LEC
fails to meet this requirement, the incumbent LEC must prove to the
state commission that it is not technically feasible to provide the
requested unbundled network element or access to such unbundled network
element at the requested level of quality that is superior to that
which the incumbent LEC provides to itself. Nothing in this section
prohibits an incumbent LEC from providing interconnection that is
lesser in quality at the sole request of the requesting
telecommunications carrier.
(d) Previous successful access to an unbundled element at a
particular point in a network, using particular facilities, is
substantial evidence that access is technically feasible at that point,
or at substantially similar points, in networks employing substantially
similar facilities. Adherence to the same interface or protocol
standards shall constitute evidence of the substantial similarity of
network facilities.
(e) Previous successful provision of access to an unbundled element
at a particular point in a network at a particular level of quality is
substantial evidence that access is technically feasible at that point,
or at substantially similar points, at that level of quality.
Sec. 51.313 Just, reasonable and nondiscriminatory terms and
conditions for the provision of unbundled network elements.
(a) The terms and conditions pursuant to which an incumbent LEC
provides access to unbundled network elements shall be offered equally
to all requesting telecommunications carriers.
(b) Where applicable, the terms and conditions pursuant to which an
incumbent LEC offers to provide access to unbundled network elements,
including but not limited to, the time within which the incumbent LEC
provisions such access to unbundled network elements, shall, at a
minimum, be no less favorable to the requesting carrier than the terms
and conditions under which the incumbent LEC provides such elements to
itself.
(c) An incumbent LEC must provide a carrier purchasing access to
unbundled network elements with the pre-ordering, ordering,
provisioning, maintenance and repair, and billing functions of the
incumbent LEC's operations support systems.
Sec. 51.315 Combination of unbundled network elements.
(a) An incumbent LEC shall provide unbundled network elements in a
manner that allows requesting telecommunications carriers to combine
such network elements in order to provide a telecommunications service.
(b) Except upon request, an incumbent LEC shall not separate
requested network elements that the incumbent LEC currently combines.
(c) Upon request, an incumbent LEC shall perform the functions
necessary to combine unbundled network elements in any manner, even if
those elements are not ordinarily combined in the incumbent LEC's
network, provided that such combination is:
(1) Technically feasible; and
(2) Would not impair the ability of other carriers to obtain access
to unbundled network elements or to interconnect with the incumbent
LEC's network.
(d) Upon request, an incumbent LEC shall perform the functions
necessary to combine unbundled network elements with elements possessed
by the requesting telecommunications carrier in any technically
feasible manner.
(e) An incumbent LEC that denies a request to combine elements
pursuant to paragraph (c)(1) or paragraph (d) of this section must
prove to the state commission that the requested combination is not
technically feasible.
(f) An incumbent LEC that denies a request to combine elements
pursuant to paragraph (c)(2) of this section must prove to the state
commission that the requested combination would impair the ability of
other carriers to obtain access to unbundled network elements or to
interconnect with the incumbent LEC's network.
Sec. 51.317 Standards for identifying network elements to be made
available.
(a) In determining what network elements should be made available
for purposes of section 251(c)(3) of the Act beyond those identified in
Sec. 51.319, a state commission shall first determine whether it is
technically feasible for the incumbent LEC to provide access to a
network element on an unbundled basis.
(b) If the state commission determines that it is technically
feasible for the incumbent LEC to provide access to the network element
on an unbundled basis, the state commission may decline to require
unbundling of the network element only if:
(1) The state commission concludes that:
(i) The network element is proprietary, or contains proprietary
information that will be revealed if the network element is provided on
an unbundled basis; and
(ii) A requesting telecommunications carrier could offer the same
proposed telecommunications service through the use of other,
nonproprietary unbundled network elements within the incumbent LEC's
network; or
(2) The state commission concludes that the failure of the
incumbent LEC to provide access to the network element would not
decrease the quality of, and would not increase the financial or
administrative cost of, the telecommunications service a requesting
telecommunications carrier seeks to offer, compared with providing that
service over other unbundled network elements in the incumbent LEC's
network.
Sec. 51.319 Specific unbundling requirements.
An incumbent LEC shall provide nondiscriminatory access in
accordance
[[Page 45625]]
with Sec. 51.311 and section 251(c)(3) of the Act to the following
network elements on an unbundled basis to any requesting
telecommunications carrier for the provision of a telecommunications
service:
(a) Local Loop. The local loop network element is defined as a
transmission facility between a distribution frame (or its equivalent)
in an incumbent LEC central office and an end user customer premises.
(b) Network Interface Device.
(1) The network interface device network element is defined as a
cross-connect device used to connect loop facilities to inside wiring.
(2) An incumbent LEC shall permit a requesting telecommunications
carrier to connect its own local loops to the inside wiring of premises
through the incumbent LEC's network interface device. The requesting
telecommunications carrier shall establish this connection through an
adjoining network interface device deployed by such telecommunications
carrier.
(c) Switching Capability.
(1) Local Switching Capability.
(i) The local switching capability network element is defined as:
(A) Line-side facilities, which include, but are not limited to,
the connection between a loop termination at a main distribution frame
and a switch line card;
(B) Trunk-side facilities, which include, but are not limited to,
the connection between trunk termination at a trunk-side cross-connect
panel and a switch trunk card; and
(C) All features, functions, and capabilities of the switch, which
include, but are not limited to:
(1) The basic switching function of connecting lines to lines,
lines to trunks, trunks to lines, and trunks to trunks, as well as the
same basic capabilities made available to the incumbent LEC's
customers, such as a telephone number, white page listing, and dial
tone; and
(2) All other features that the switch is capable of providing,
including but not limited to custom calling, custom local area
signaling service features, and Centrex, as well as any technically
feasible customized routing functions provided by the switch.
(ii) An incumbent LEC shall transfer a customer's local service to
a competing carrier within a time period no greater than the interval
within which the incumbent LEC currently transfers end users between
interexchange carriers, if such transfer requires only a change in the
incumbent LEC's software;
(2) Tandem Switching Capability. The tandem switching capability
network element is defined as:
(i) Trunk-connect facilities, including but not limited to the
connection between trunk termination at a cross-connect panel and a
switch trunk card;
(ii) The basic switching function of connecting trunks to trunks;
and
(iii) The functions that are centralized in tandem switches (as
distinguished from separate end-office switches), including but not
limited to call recording, the routing of calls to operator services,
and signaling conversion features.
(d) Interoffice Transmission Facilities.
(1) Interoffice transmission facilities are defined as incumbent
LEC transmission facilities dedicated to a particular customer or
carrier, or shared by more than one customer or carrier, that provide
telecommunications between wire centers owned by incumbent LECs or
requesting telecommunications carriers, or between switches owned by
incumbent LECs or requesting telecommunications carriers.
(2) The incumbent LEC shall:
(i) Provide a requesting telecommunications carrier exclusive use
of interoffice transmission facilities dedicated to a particular
customer or carrier, or use of the features, functions, and
capabilities of interoffice transmission facilities shared by more than
one customer or carrier;
(ii) Provide all technically feasible transmission facilities,
features, functions, and capabilities that the requesting
telecommunications carrier could use to provide telecommunications
services;
(iii) Permit, to the extent technically feasible, a requesting
telecommunications carrier to connect such interoffice facilities to
equipment designated by the requesting telecommunications carrier,
including, but not limited to, the requesting telecommunications
carrier's collocated facilities; and
(iv) Permit, to the extent technically feasible, a requesting
telecommunications carrier to obtain the functionality provided by the
incumbent LEC's digital cross-connect systems in the same manner that
the incumbent LEC provides such functionality to interexchange
carriers.
(e) Signaling Networks and Call-Related Databases.
(1) Signaling Networks.
(i) Signaling networks include, but are not limited to, signaling
links and signaling transfer points.
(ii) When a requesting telecommunications carrier purchases
unbundled switching capability from an incumbent LEC, the incumbent LEC
shall provide access to its signaling network from that switch in the
same manner in which it obtains such access itself.
(iii) An incumbent LEC shall provide a requesting
telecommunications carrier with its own switching facilities access to
the incumbent LEC's signaling network for each of the requesting
telecommunications carrier's switches. This connection shall be made in
the same manner as an incumbent LEC connects one of its own switches to
a signal transfer point.
(iv) An incumbent LEC is not required to unbundle those signaling
links that connect service control points to switching transfer points
or to permit a requesting telecommunications carrier to link its own
signal transfer points directly to the incumbent LEC's switch or call-
related databases;
(2) Call-Related Databases.
(i) Call-related databases are defined as databases, other than
operations support systems, that are used in signaling networks for
billing and collection or the transmission, routing, or other provision
of a telecommunications service.
(ii) For purposes of switch query and database response through a
signaling network, an incumbent LEC shall provide access to its call-
related databases, including, but not limited to, the Line Information
Database, Toll Free Calling database, downstream number portability
databases, and Advanced Intelligent Network databases, by means of
physical access at the signaling transfer point linked to the unbundled
database.
(iii) An incumbent LEC shall allow a requesting telecommunications
carrier that has purchased an incumbent LEC's local switching
capability to use the incumbent LEC's service control point element in
the same manner, and via the same signaling links, as the incumbent LEC
itself.
(iv) An incumbent LEC shall allow a requesting telecommunications
carrier that has deployed its own switch, and has linked that switch to
an incumbent LEC's signaling system, to gain access to the incumbent
LEC's service control point in a manner that allows the requesting
carrier to provide any call-related, database-supported services to
customers served by the requesting telecommunications carrier's switch.
(v) A state commission shall consider whether mechanisms mediating
access to an incumbent LEC's Advanced Intelligent Network service
control points are necessary, and if so, whether they will adequately
safeguard against intentional or unintentional misuse of
[[Page 45626]]
the incumbent LEC's Advanced Intelligent Network facilities.
(vi) An incumbent LEC shall provide a requesting
telecommunications carrier with access to call-related databases in a
manner that complies with section 222 of the Act;
(3) Service Management Systems.
(i) A service management system is defined as a computer database
or system not part of the public switched network that, among other
things:
(A) Interconnects to the service control point and sends to that
service control point the information and call processing instructions
needed for a network switch to process and complete a telephone call;
and
(B) Provides telecommunications carriers with the capability of
entering and storing data regarding the processing and completing of a
telephone call.
(ii) An incumbent LEC shall provide a requesting
telecommunications carrier with the information necessary to enter
correctly, or format for entry, the information relevant for input into
the particular incumbent LEC service management system.
(iii) An incumbent LEC shall provide a requesting
telecommunications carrier the same access to design, create, test, and
deploy Advanced Intelligent Network-based services at the service
management system, through a service creation environment, that the
incumbent LEC provides to itself.
(iv) A state commission shall consider whether mechanisms
mediating access to Advanced Intelligent Network service management
systems and service creation environments are necessary, and if so,
whether they will adequately safeguard against intentional or
unintentional misuse of the incumbent LEC's Advanced Intelligent
Network facilities.
(v) An incumbent LEC shall provide a requesting telecommunications
carrier access to service management systems in a manner that complies
with section 222 of the Act.
(f) Operations Support Systems Functions.
(1) Operations support systems functions consist of pre-ordering,
ordering, provisioning, maintenance and repair, and billing functions
supported by an incumbent LEC's databases and information.
(2) An incumbent LEC that does not currently comply with this
requirement shall do so as expeditiously as possible, but, in any
event, no later than January 1, 1997.
(g) Operator Services and Directory Assistance. An incumbent LEC
shall provide access to operator service and directory assistance
facilities where technically feasible.
Sec. 51.321 Methods of obtaining interconnection and access to
unbundled elements under section 251 of the Act.
(a) Except as provided in paragraph (e) of this section, an
incumbent LEC shall provide, on terms and conditions that are just,
reasonable, and nondiscriminatory in accordance with the requirements
of this part, any technically feasible method of obtaining
interconnection or access to unbundled network elements at a particular
point upon a request by a telecommunications carrier.
(b) Technically feasible methods of obtaining interconnection or
access to unbundled network elements include, but are not limited to:
(1) Physical collocation and virtual collocation at the premises of
an incumbent LEC; and
(2) Meet point interconnection arrangements.
(c) A previously successful method of obtaining interconnection or
access to unbundled network elements at a particular premises or point
on an incumbent LEC's network is substantial evidence that such method
is technically feasible in the case of substantially similar network
premises or points.
(d) An incumbent LEC that denies a request for a particular method
of obtaining interconnection or access to unbundled network elements on
the incumbent LEC's network must prove to the state commission that the
requested method of obtaining interconnection or access to unbundled
network elements at that point is not technically feasible.
(e) An incumbent LEC shall not be required to provide for physical
collocation of equipment necessary for interconnection or access to
unbundled network elements at the incumbent LEC's premises if it
demonstrates to the state commission that physical collocation is not
practical for technical reasons or because of space limitations. In
such cases, the incumbent LEC shall be required to provide virtual
collocation, except at points where the incumbent LEC proves to the
state commission that virtual collocation is not technically feasible.
If virtual collocation is not technically feasible, the incumbent LEC
shall provide other methods of interconnection and access to unbundled
network elements to the extent technically feasible.
(f) An incumbent LEC shall submit to the state commission detailed
floor plans or diagrams of any premises where the incumbent LEC claims
that physical collocation is not practical because of space
limitations.
(g) An incumbent LEC that is classified as a Class A company under
Sec. 32.11 of this chapter and that is not a National Exchange Carrier
Association interstate tariff participant as provided in part 69,
subpart G, shall continue to provide expanded interconnection service
pursuant to interstate tariff in accordance with Secs. 64.1401,
64.1402, 69.121 of this chapter, and the Commission's other
requirements.
Sec. 51.323 Standards for physical collocation and virtual
collocation.
(a) An incumbent LEC shall provide physical collocation and virtual
collocation to requesting telecommunications carriers.
(b) An incumbent LEC shall permit the collocation of any type of
equipment used for interconnection or access to unbundled network
elements. Whenever an incumbent LEC objects to collocation of equipment
by a requesting telecommunications carrier for purposes within the
scope of section 251(c)(6) of the Act, the incumbent LEC shall prove to
the state commission that the equipment will not be actually used by
the telecommunications carrier for the purpose of obtaining
interconnection or access to unbundled network elements. Equipment used
for interconnection and access to unbundled network elements includes,
but is not limited to:
(1) Transmission equipment including, but not limited to, optical
terminating equipment and multiplexers; and
(2) Equipment being collocated to terminate basic transmission
facilities pursuant to Secs. 64.1401 and 64.1402 of this chapter as of
August 1, 1996.
(c) Nothing in this section requires an incumbent LEC to permit
collocation of switching equipment or equipment used to provide
enhanced services.
(d) When an incumbent LEC provides physical collocation, virtual
collocation, or both, the incumbent LEC shall:
(1) Provide an interconnection point or points, physically
accessible by both the incumbent LEC and the collocating
telecommunications carrier, at which the fiber optic cable carrying an
interconnector's circuits can enter the incumbent LEC's premises,
provided that the incumbent LEC shall designate interconnection points
as close as reasonably possible to its premises;
(2) Provide at least two such interconnection points at each
incumbent LEC premises at which there are at least two entry points for
the incumbent LEC's cable facilities, and at which space is available
for new
[[Page 45627]]
facilities in at least two of those entry points;
(3) Permit interconnection of copper or coaxial cable if such
interconnection is first approved by the state commission; and
(4) Permit physical collocation of microwave transmission
facilities except where such collocation is not practical for technical
reasons or because of space limitations, in which case virtual
collocation of such facilities is required where technically feasible.
(e) When providing virtual collocation, an incumbent LEC shall, at
a minimum, install, maintain, and repair collocated equipment
identified in paragraph (b) of this section within the same time
periods and with failure rates that are no greater than those that
apply to the performance of similar functions for comparable equipment
of the incumbent LEC itself.
(f) An incumbent LEC shall allocate space for the collocation of
the equipment identified in paragraph (b) of this section in accordance
with the following requirements:
(1) An incumbent LEC shall make space available within or on its
premises to requesting telecommunications carriers on a first-come,
first-served basis, provided, however, that the incumbent LEC shall not
be required to lease or construct additional space to provide for
physical collocation when existing space has been exhausted;
(2) To the extent possible, an incumbent LEC shall make contiguous
space available to requesting telecommunications carriers that seek to
expand their existing collocation space;
(3) When planning renovations of existing facilities or
constructing or leasing new facilities, an incumbent LEC shall take
into account projected demand for collocation of equipment;
(4) An incumbent LEC may retain a limited amount of floor space for
its own specific future uses, provided, however, that the incumbent LEC
may not reserve space for future use on terms more favorable than those
that apply to other telecommunications carriers seeking to reserve
collocation space for their own future use;
(5) An incumbent LEC shall relinquish any space held for future use
before denying a request for virtual collocation on the grounds of
space limitations, unless the incumbent LEC proves to the state
commission that virtual collocation at that point is not technically
feasible; and
(6) An incumbent LEC may impose reasonable restrictions on the
warehousing of unused space by collocating telecommunications carriers,
provided, however, that the incumbent LEC shall not set maximum space
limitations applicable to such carriers unless the incumbent LEC proves
to the state commission that space constraints make such restrictions
necessary.
(g) An incumbent LEC shall permit collocating telecommunications
carriers to collocate equipment and connect such equipment to unbundled
network transmission elements obtained from the incumbent LEC, and
shall not require such telecommunications carriers to bring their own
transmission facilities to the incumbent LEC's premises in which they
seek to collocate equipment.
(h) An incumbent LEC shall permit a collocating telecommunications
carrier to interconnect its network with that of another collocating
telecommunications carrier at the incumbent LEC's premises and to
connect its collocated equipment to the collocated equipment of another
telecommunications carrier within the same premises provided that the
collocated equipment is also used for interconnection with the
incumbent LEC or for access to the incumbent LEC's unbundled network
elements.
(1) An incumbent LEC shall provide the connection between the
equipment in the collocated spaces of two or more telecommunications
carriers, unless the incumbent LEC permits one or more of the
collocating parties to provide this connection for themselves; and
(2) An incumbent LEC is not required to permit collocating
telecommunications carriers to place their own connecting transmission
facilities within the incumbent LEC's premises outside of the actual
physical collocation space.
(i) An incumbent LEC may require reasonable security arrangements
to separate a collocating telecommunications carrier's space from the
incumbent LEC's facilities.
(j) An incumbent LEC shall permit a collocating telecommunications
carrier to subcontract the construction of physical collocation
arrangements with contractors approved by the incumbent LEC, provided,
however, that the incumbent LEC shall not unreasonably withhold
approval of contractors. Approval by an incumbent LEC shall be based on
the same criteria it uses in approving contractors for its own
purposes.
Subpart E--Exemptions, Suspensions, and Modifications of
Requirements of Section 251 of the Act
Sec. 51.401 State authority.
A state commission shall determine whether a telephone company is
entitled, pursuant to section 251(f) of the Act, to exemption from, or
suspension or modification of, the requirements of section 251 of the
Act. Such determinations shall be made on a case-by-case basis.
Sec. 51.403 Carriers eligible for suspension or modification under
section 251(f)(2) of the Act.
A LEC is not eligible for a suspension or modification of the
requirements of section 251(b) or section 251(c) of the Act pursuant to
section 251(f)(2) of the Act if such LEC, at the holding company level,
has two percent or more of the subscriber lines installed in the
aggregate nationwide.
Sec. 51.405 Burden of proof.
(a) Upon receipt of a bona fide request for interconnection,
services, or access to unbundled network elements, a rural telephone
company must prove to the state commission that the rural telephone
company should be entitled, pursuant to section 251(f)(1) of the Act,
to continued exemption from the requirements of section 251(c) of the
Act.
(b) A LEC with fewer than two percent of the nation's subscriber
lines installed in the aggregate nationwide must prove to the state
commission, pursuant to section 251(f)(2) of the Act, that it is
entitled to a suspension or modification of the application of a
requirement or requirements of section 251(b) or 251(c) of the Act.
(c) In order to justify continued exemption under section 251(f)(1)
of the Act once a bona fide request has been made, an incumbent LEC
must offer evidence that the application of the requirements of section
251(c) of the Act would be likely to cause undue economic burden beyond
the economic burden that is typically associated with efficient
competitive entry.
(d) In order to justify a suspension or modification under section
251(f)(2) of the Act, a LEC must offer evidence that the application of
section 251(b) or section 251(c) of the Act would be likely to cause
undue economic burden beyond the economic burden that is typically
associated with efficient competitive entry.
Subpart F--Pricing of Elements
Sec. 51.501 Scope.
(a) The rules in this subpart apply to the pricing of network
elements, interconnection, and methods of obtaining access to unbundled
elements, including physical collocation and virtual collocation.
(b) As used in this subpart, the term ``element'' includes network
elements,
[[Page 45628]]
interconnection, and methods of obtaining interconnection and access to
unbundled elements.
Sec. 51.503 General pricing standard.
(a) An incumbent LEC shall offer elements to requesting
telecommunications carriers at rates, terms, and conditions that are
just, reasonable, and nondiscriminatory.
(b) An incumbent LEC's rates for each element it offers shall
comply with the rate structure rules set forth in Secs. 51.507 and
51.509, and shall be established, at the election of the state
commission--
(1) Pursuant to the forward-looking economic cost-based pricing
methodology set forth in Secs. 51.505 and 51.511; or
(2) Consistent with the proxy ceilings and ranges set forth in
Sec. 51.513.
(c) The rates that an incumbent LEC assesses for elements shall not
vary on the basis of the class of customers served by the requesting
carrier, or on the type of services that the requesting carrier
purchasing such elements uses them to provide.
Sec. 51.505 Forward-looking economic cost.
(a) In general. The forward-looking economic cost of an element
equals the sum of:
(1) The total element long-run incremental cost of the element, as
described in paragraph (b); and
(2) A reasonable allocation of forward-looking common costs, as
described in paragraph (c).
(b) Total element long-run incremental cost. The total element
long-run incremental cost of an element is the forward-looking cost
over the long run of the total quantity of the facilities and functions
that are directly attributable to, or reasonably identifiable as
incremental to, such element, calculated taking as a given the
incumbent LEC's provision of other elements.
(1) Efficient network configuration. The total element long-run
incremental cost of an element should be measured based on the use of
the most efficient telecommunications technology currently available
and the lowest cost network configuration, given the existing location
of the incumbent LEC's wire centers.
(2) Forward-looking cost of capital. The forward-looking cost of
capital shall be used in calculating the total element long-run
incremental cost of an element.
(3) Depreciation rates. The depreciation rates used in calculating
forward-looking economic costs of elements shall be economic
depreciation rates.
(c) Reasonable allocation of forward-looking common costs.
(1) Forward-looking common costs. Forward-looking common costs are
economic costs efficiently incurred in providing a group of elements or
services (which may include all elements or services provided by the
incumbent LEC) that cannot be attributed directly to individual
elements or services.
(2) Reasonable allocation.
(i) The sum of a reasonable allocation of forward-looking common
costs and the total element long-run incremental cost of an element
shall not exceed the stand-alone costs associated with the element. In
this context, stand-alone costs are the total forward-looking costs,
including corporate costs, that would be incurred to produce a given
element if that element were provided by an efficient firm that
produced nothing but the given element.
(ii) The sum of the allocation of forward-looking common costs for
all elements and services shall equal the total forward-looking common
costs, exclusive of retail costs, attributable to operating the
incumbent LEC's total network, so as to provide all the elements and
services offered.
(d) Factors that may not be considered. The following factors shall
not be considered in a calculation of the forward-looking economic cost
of an element:
(1) Embedded costs. Embedded costs are the costs that the incumbent
LEC incurred in the past and that are recorded in the incumbent LEC's
books of accounts;
(2) Retail costs. Retail costs include the costs of marketing,
billing, collection, and other costs associated with offering retail
telecommunications services to subscribers who are not
telecommunications carriers, described in Sec. 51.609;
(3) Opportunity costs. Opportunity costs include the revenues that
the incumbent LEC would have received for the sale of
telecommunications services, in the absence of competition from
telecommunications carriers that purchase elements; and
(4) Revenues to subsidize other services. Revenues to subsidize
other services include revenues associated with elements or
telecommunications service offerings other than the element for which a
rate is being established.
(e) Cost study requirements. An incumbent LEC must prove to the
state commission that the rates for each element it offers do not
exceed the forward-looking economic cost per unit of providing the
element, using a cost study that complies with the methodology set
forth in this section and Sec. 51.511.
(1) A state commission may set a rate outside the proxy ranges or
above the proxy ceilings described in Sec. 51.513 only if that
commission has given full and fair effect to the economic cost based
pricing methodology described in this section and Sec. 51.511 in a
state proceeding that meets the requirements of paragraph (e)(2) of
this section.
(2) Any state proceeding conducted pursuant to this section shall
provide notice and an opportunity for comment to affected parties and
shall result in the creation of a written factual record that is
sufficient for purposes of review. The record of any state proceeding
in which a state commission considers a cost study for purposes of
establishing rates under this section shall include any such cost
study.
Sec. 51.507 General rate structure standard.
(a) Element rates shall be structured consistently with the manner
in which the costs of providing the elements are incurred.
(b) The costs of dedicated facilities shall be recovered through
flat-rated charges.
(c) The costs of shared facilities shall be recovered in a manner
that efficiently apportions costs among users. Costs of shared
facilities may be apportioned either through usage-sensitive charges or
capacity-based flat-rated charges, if the state commission finds that
such rates reasonably reflect the costs imposed by the various users.
(d) Recurring costs shall be recovered through recurring charges,
unless an incumbent LEC proves to a state commission that such
recurring costs are de minimis. Recurring costs shall be considered de
minimis when the costs of administering the recurring charge would be
excessive in relation to the amount of the recurring costs.
(e) State commissions may, where reasonable, require incumbent LECs
to recover nonrecurring costs through recurring charges over a
reasonable period of time. Nonrecurring charges shall be allocated
efficiently among requesting telecommunications carriers, and shall not
permit an incumbent LEC to recover more than the total forward-looking
economic cost of providing the applicable element.
(f) State commissions shall establish different rates for elements
in at least three defined geographic areas within the state to reflect
geographic cost differences.
(1) To establish geographically-deaveraged rates, state commissions
may use existing density-related zone pricing plans described in
Sec. 69.123 of this chapter, or other such cost-related
[[Page 45629]]
zone plans established pursuant to state law.
(2) In states not using such existing plans, state commissions must
create a minimum of three cost-related rate zones.
Sec. 51.509 Rate structure standards for specific elements.
In addition to the general rules set forth in Sec. 51.507, rates
for specific elements shall comply with the following rate structure
rules.
(a) Local loops. Loop costs shall be recovered through flat-rated
charges.
(b) Local switching. Local switching costs shall be recovered
through a combination of a flat-rated charge for line ports and one or
more flat-rated or per-minute usage charges for the switching matrix
and for trunk ports.
(c) Dedicated transmission links. Dedicated transmission link costs
shall be recovered through flat-rated charges.
(d) Shared transmission facilities between tandem switches and end
offices. The costs of shared transmission facilities between tandem
switches and end offices may be recovered through usage-sensitive
charges, or in another manner consistent with the manner that the
incumbent LEC incurs those costs.
(e) Tandem switching. Tandem switching costs may be recovered
through usage-sensitive charges, or in another manner consistent with
the manner that the incumbent LEC incurs those costs.
(f) Signaling and call-related database services. Signaling and
call-related database service costs shall be usage-sensitive, based on
either the number of queries or the number of messages, with the
exception of the dedicated circuits known as signaling links, the cost
of which shall be recovered through flat-rated charges.
(g) Collocation. Collocation costs shall be recovered consistent
with the rate structure policies established in the Expanded
Interconnection proceeding, CC Docket No. 91-141.
Sec. 51.511 Forward-looking economic cost per unit.
(a) The forward-looking economic cost per unit of an element equals
the forward-looking economic cost of the element, as defined in
Sec. 51.505, divided by a reasonable projection of the sum of the total
number of units of the element that the incumbent LEC is likely to
provide to requesting telecommunications carriers and the total number
of units of the element that the incumbent LEC is likely to use in
offering its own services, during a reasonable measuring period.
(b)(1) With respect to elements that an incumbent LEC offers on a
flat-rate basis, the number of units is defined as the discrete number
of elements (e.g., local loops or local switch ports) that the
incumbent LEC uses or provides.
(2) With respect to elements that an incumbent LEC offers on a
usage-sensitive basis, the number of units is defined as the unit of
measurement of the usage (e.g., minutes of use or call-related database
queries) of the element.
Sec. 51.513 Proxies for forward-looking economic cost.
(a) A state commission may determine that the cost information
available to it with respect to one or more elements does not support
the adoption of a rate or rates that are consistent with the
requirements set forth in Secs. 51.505 and 51.511. In that event, the
state commission may establish a rate for an element that is consistent
with the proxies specified in this section, provided that:
(1) Any rate established through use of such proxies shall be
superseded once the state commission has completed review of a cost
study that complies with the forward-looking economic cost based
pricing methodology described in Secs. 51.505 and 51.511, and has
concluded that such study is a reasonable basis for establishing
element rates; and
(2) The state commission sets forth in writing a reasonable basis
for its selection of a particular rate for the element.
(b) The constraints on proxy-based rates described in this section
apply on a geographically averaged basis. For purposes of determining
whether geographically deaveraged rates for elements comply with the
provisions of this section, a geographically averaged proxy-based rate
shall be computed based on the weighted average of the actual,
geographically deaveraged rates that apply in separate geographic areas
in a state.
(c) Proxies for specific elements.
(1) Local loops. For each state listed below, the proxy-based
monthly rate for unbundled local loops, on a statewide weighted average
basis, shall be no greater than the figures listed in the table below.
(The Commission has not established a default proxy ceiling for loop
rates in Alaska.)
Table
------------------------------------------------------------------------
Proxy
State ceiling
------------------------------------------------------------------------
Alabama....................................................... $17.25
Arizona....................................................... 12.85
Arkansas...................................................... 21.18
California.................................................... 11.10
Colorado...................................................... 14.97
Connecticut................................................... 13.23
Delaware...................................................... 13.24
District of Columbia.......................................... 10.81
Florida....................................................... 13.68
Georgia....................................................... 16.09
Hawaii........................................................ 15.27
Idaho......................................................... 20.16
Illinois...................................................... 13.12
Indiana....................................................... 13.29
Iowa.......................................................... 15.94
Kansas........................................................ 19.85
Kentucky...................................................... 16.70
Louisiana..................................................... 16.98
Maine......................................................... 18.69
Maryland...................................................... 13.36
Massachusetts................................................. 9.83
Michigan...................................................... 15.27
Minnesota..................................................... 14.81
Mississippi................................................... 21.97
Missouri...................................................... 18.32
Montana....................................................... 25.18
Nebraska...................................................... 18.05
Nevada........................................................ 18.95
New Hampshire................................................. 16.00
New Jersey.................................................... 12.47
New Mexico.................................................... 18.66
New York...................................................... 11.75
North Carolina................................................ 16.71
North Dakota.................................................. 25.36
Ohio.......................................................... 15.73
Oklahoma...................................................... 17.63
Oregon........................................................ 15.44
Pennsylvania.................................................. 12.30
Puerto Rico................................................... 12.47
Rhode Island.................................................. 11.48
South Carolina................................................ 17.07
South Dakota.................................................. 25.33
Tennessee..................................................... 17.41
Texas......................................................... 15.49
Utah.......................................................... 15.12
Vermont....................................................... 20.13
Virginia...................................................... 14.13
Washington.................................................... 13.37
West Virginia................................................. 19.25
Wisconsin..................................................... 15.94
Wyoming....................................................... 25.11
------------------------------------------------------------------------
(2) Local switching. The blended proxy-based rate for unbundled
local switching shall be no greater than 0.4 cents ($0.004) per minute,
and no less than 0.2 cents ($0.002) per minute, except that, where a
state commission has, before August 8, 1996, established a rate less
than or equal to 0.5 cents ($0.005) per minute, that rate may be
retained pending completion of a forward-looking economic cost study.
The blended rate for unbundled local switching shall be calculated as
the sum of the following:
(i) The applicable flat-rated charges for subelements associated
with unbundled local switching, such as line ports, divided by the
projected average minutes of use per flat-rated subelement; and
(ii) The applicable usage-sensitive charges for subelements
associated with
[[Page 45630]]
unbundled local switching, such as switching and trunk ports. A
weighted average of such charges shall be used in appropriate
circumstances, such as when peak and off-peak charges are used.
(3) Dedicated transmission links. The proxy-based rates for
dedicated transmission links shall be no greater than the incumbent
LEC's tariffed interstate charges for comparable entrance facilities or
direct-trunked transport offerings, as described in Secs. 69.110 and
69.112 of this chapter.
(4) Shared transmission facilities between tandem switches and end
offices. The proxy-based rates for shared transmission facilities
between tandem switches and end offices shall be no greater than the
weighted per-minute equivalent of DS1 and DS3 interoffice dedicated
transmission link rates that reflects the relative number of DS1 and
DS3 circuits used in the tandem to end office links (or a surrogate
based on the proportion of copper and fiber facilities in the
interoffice network), calculated using a loading factor of 9,000
minutes per month per voice-grade circuit, as described in Sec. 69.112
of this chapter.
(5) Tandem switching. The proxy-based rate for tandem switching
shall be no greater than 0.15 cents ($0.0015) per minute of use.
(6) Collocation. To the extent that the incumbent LEC offers a
comparable form of collocation in its interstate expanded
interconnection tariffs, as described in Secs. 64.1401 and 69.121 of
this chapter, the proxy-based rates for collocation shall be no greater
than the effective rates for equivalent services in the interstate
expanded interconnection tariff. To the extent that the incumbent LEC
does not offer a comparable form of collocation in its interstate
expanded interconnection tariffs, a state commission may, in its
discretion, establish a proxy-based rate, provided that the state
commission sets forth in writing a reasonable basis for concluding that
its rate would approximate the result of a forward-looking economic
cost study, as described in Sec. 51.505.
(7) Signaling, call-related database, and other elements. To the
extent that the incumbent LEC has established rates for offerings
comparable to other elements in its interstate access tariffs, and has
provided cost support for those rates pursuant to Sec. 61.49(h) of this
chapter, the proxy-based rates for those elements shall be no greater
than the effective rates for equivalent services in the interstate
access tariffs. In other cases, the proxy-based rate shall be no
greater than a rate based on direct costs plus a reasonable allocation
of overhead loadings, pursuant to Sec. 61.49(h) of this chapter.
Sec. 51.515 Application of access charges.
(a) Neither the interstate access charges described in part 69 of
this chapter nor comparable intrastate access charges shall be assessed
by an incumbent LEC on purchasers of elements that offer telephone
exchange or exchange access services.
(b) Notwithstanding Secs. 51.505, 51.511, and 51.513(d)(2) and
paragraph (a) of this section, an incumbent LEC may assess upon
telecommunications carriers that purchase unbundled local switching
elements, as described in Sec. 51.319(c)(1), for interstate minutes of
use traversing such unbundled local switching elements, the carrier
common line charge described in Sec. 69.105 of this chapter, and a
charge equal to 75% of the interconnection charge described in
Sec. 69.124 of this chapter, only until the earliest of the following,
and not thereafter:
(1) June 30, 1997;
(2) The later of the effective date of a final Commission decision
in CC Docket No. 96-45, Federal-State Joint Board on Universal Service,
or the effective date of a final Commission decision in a proceeding to
consider reform of the interstate access charges described in part 69;
or
(3) With respect to a Bell operating company only, the date on
which that company is authorized to offer in-region interLATA service
in a state pursuant to section 271 of the Act. The end date for Bell
operating companies that are authorized to offer interLATA service
shall apply only to the recovery of access charges in those states in
which the Bell operating company is authorized to offer such service.
(c) Notwithstanding Secs. 51.505, 51.511, and 51.513(d)(2) and
paragraph (a) of this section, an incumbent LEC may assess upon
telecommunications carriers that purchase unbundled local switching
elements, as described in Sec. 51.319(c)(1), for intrastate toll
minutes of use traversing such unbundled local switching elements,
intrastate access charges comparable to those listed in paragraph (b)
and any explicit intrastate universal service mechanism based on access
charges, only until the earliest of the following, and not thereafter:
(1) June 30, 1997;
(2) The effective date of a state commission decision that an
incumbent LEC may not assess such charges; or
(3) With respect to a Bell operating company only, the date on
which that company is authorized to offer in-region interLATA service
in the state pursuant to section 271 of the Act. The end date for Bell
operating companies that are authorized to offer interLATA service
shall apply only to the recovery of access charges in those states in
which the Bell operating company is authorized to offer such service.
Subpart G--Resale
Sec. 51.601 Scope of resale rules.
The provisions of this subpart govern the terms and conditions
under which LECs offer telecommunications services to requesting
telecommunications carriers for resale.
Sec. 51.603 Resale obligation of all local exchange carriers.
(a) A LEC shall make its telecommunications services available for
resale to requesting telecommunications carriers on terms and
conditions that are reasonable and non-discriminatory.
(b) A LEC must provide services to requesting telecommunications
carriers for resale that are equal in quality, subject to the same
conditions, and provided within the same provisioning time intervals
that the LEC provides these services to others, including end users.
Sec. 51.605 Additional obligations of incumbent local exchange
carriers.
(a) An incumbent LEC shall offer to any requesting
telecommunications carrier any telecommunications service that the
incumbent LEC offers on a retail basis to subscribers that are not
telecommunications carriers for resale at wholesale rates that are, at
the election of the state commission--
(1) Consistent with the avoided cost methodology described in
Secs. 51.607 and 51.609; or
(2) Interim wholesale rates, pursuant to Sec. 51.611.
(b) Except as provided in Sec. 51.613, an incumbent LEC shall not
impose restrictions on the resale by a requesting carrier of
telecommunications services offered by the incumbent LEC.
Sec. 51.607 Wholesale pricing standard.
(a) The wholesale rate that an incumbent LEC may charge for a
telecommunications service provided for resale to other
telecommunications carriers shall equal the incumbent LEC's existing
retail rate for the telecommunications service, less avoided retail
costs, as described in Sec. 51.609.
(b) For purposes of this subpart, exchange access services, as
defined in section 3 of the Act, shall not be considered to be
telecommunications services that incumbent LECs must make available for
resale at wholesale
[[Page 45631]]
rates to requesting telecommunications carriers.
Sec. 51.609 Determination of avoided retail costs.
(a) Except as provided in Sec. 51.611, the amount of avoided retail
costs shall be determined on the basis of a cost study that complies
with the requirements of this section.
(b) Avoided retail costs shall be those costs that reasonably can
be avoided when an incumbent LEC provides a telecommunications service
for resale at wholesale rates to a requesting carrier.
(c) For incumbent LECs that are designated as Class A companies
under Sec. 32.11 of this chapter, except as provided in paragraph (d)
of this section, avoided retail costs shall:
(1) Include, as direct costs, the costs recorded in USOA accounts
6611 (product management), 6612 (sales), 6613 (product advertising),
6621 (call completion services), 6622 (number services), and 6623
(customer services) (Secs. 32.6611, 32.6612, 32.6613, 32.6621, 32.6622,
and 32.6623 of this chapter);
(2) Include, as indirect costs, a portion of the costs recorded in
USOA accounts 6121-6124 (general support expenses), 6711, 6712, 6721-
6728 (corporate operations expenses), and 5301 (telecommunications
uncollectibles) (Secs. 32.6121-32.6124, 32.6711, 32.6712, 32.6721-
32.6728, and 32.5301 of this chapter); and
(3) Not include plant-specific expenses and plant non-specific
expenses, other than general support expenses (Secs. 32.6110-32.6116,
32.6210-32.6565 of this chapter).
(d) Costs included in accounts 6611-6613 and 6621-6623 described in
paragraph (c) of this section (Secs. 32.6611-32.6613 and 32.6621-
32.6623 of this chapter) may be included in wholesale rates only to the
extent that the incumbent LEC proves to a state commission that
specific costs in these accounts will be incurred and are not avoidable
with respect to services sold at wholesale, or that specific costs in
these accounts are not included in the retail prices of resold
services. Costs included in accounts 6110-6116 and 6210-6565 described
in paragraph (c) of this section (Secs. 32.6110-32.6116, 32.6210-
32.6565 of this chapter) may be treated as avoided retail costs, and
excluded from wholesale rates, only to the extent that a party proves
to a state commission that specific costs in these accounts can
reasonably be avoided when an incumbent LEC provides a
telecommunications service for resale to a requesting carrier.
(e) For incumbent LECs that are designated as Class B companies
under Sec. 32.11 of this chapter and that record information in summary
accounts instead of specific USOA accounts, the entire relevant summary
accounts may be used in lieu of the specific USOA accounts listed in
paragraphs (c) and (d) of this section.
Sec. 51.611 Interim wholesale rates.
(a) If a state commission cannot, based on the information
available to it, establish a wholesale rate using the methodology
prescribed in Sec. 51.609, then the state commission may elect to
establish an interim wholesale rate as described in paragraph (b) of
this section.
(b) The state commission may establish interim wholesale rates that
are at least 17 percent, and no more than 25 percent, below the
incumbent LEC's existing retail rates, and shall articulate the basis
for selecting a particular discount rate. The same discount percentage
rate shall be used to establish interim wholesale rates for each
telecommunications service.
(c) A state commission that establishes interim wholesale rates
shall, within a reasonable period of time thereafter, establish
wholesale rates on the basis of an avoided retail cost study that
complies with Sec. 51.609.
Sec. 51.613 Restrictions on resale.
(a) Notwithstanding Sec. 51.605(b), the following types of
restrictions on resale may be imposed:
(1) Cross-class selling. A state commission may permit an incumbent
LEC to prohibit a requesting telecommunications carrier that purchases
at wholesale rates for resale, telecommunications services that the
incumbent LEC makes available only to residential customers or to a
limited class of residential customers, from offering such services to
classes of customers that are not eligible to subscribe to such
services from the incumbent LEC.
(2) Short term promotions. An incumbent LEC shall apply the
wholesale discount to the ordinary rate for a retail service rather
than a special promotional rate only if:
(i) Such promotions involve rates that will be in effect for no
more than 90 days; and
(ii) The incumbent LEC does not use such promotional offerings to
evade the wholesale rate obligation, for example by making available a
sequential series of 90-day promotional rates. r
(b) With respect to any restrictions on resale not permitted under
paragraph (a), an incumbent LEC may impose a restriction only if it
proves to the state commission that the restriction is reasonable and
nondiscriminatory.
(c) Branding. Where operator, call completion, or directory
assistance service is part of the service or service package an
incumbent LEC offers for resale, failure by an incumbent LEC to comply
with reseller unbranding or rebranding requests shall constitute a
restriction on resale.
(1) An incumbent LEC may impose such a restriction only if it
proves to the state commission that the restriction is reasonable and
nondiscriminatory, such as by proving to a state commission that the
incumbent LEC lacks the capability to comply with unbranding or
rebranding requests.
(2) For purposes of this subpart, unbranding or rebranding shall
mean that operator, call completion, or directory assistance services
are offered in such a manner that an incumbent LEC's brand name or
other identifying information is not identified to subscribers, or that
such services are offered in such a manner that identifies to
subscribers the requesting carrier's brand name or other identifying
information.
Sec. 51.615 Withdrawal of services.
When an incumbent LEC makes a telecommunications service available
only to a limited group of customers that have purchased such a service
in the past, the incumbent LEC must also make such a service available
at wholesale rates to requesting carriers to offer on a resale basis to
the same limited group of customers that have purchased such a service
in the past.
Sec. 51.617 Assessment of end user common line charge on resellers.
(a) Notwithstanding the provision in Sec. 69.104(a) of this chapter
that the end user common line charge be assessed upon end users, an
incumbent LEC shall assess this charge, and the charge for changing the
designated primary interexchange carrier, upon requesting carriers that
purchase telephone exchange service for resale. The specific end user
common line charge to be assessed will depend upon the identity of the
end user served by the requesting carrier.
(b) When an incumbent LEC provides telephone exchange service to a
requesting carrier at wholesale rates for resale, the incumbent LEC
shall continue to assess the interstate access charges provided in part
69 of this chapter, other than the end user common line charge, upon
interexchange carriers that use the incumbent LEC's facilities to
provide interstate or international
[[Page 45632]]
telecommunications services to the interexchange carriers' subscribers.
Subpart H--Reciprocal Compensation for Transport and Termination of
Local Telecommunications Traffic
Sec. 51.701 Scope of transport and termination pricing rules.
(a) The provisions of this subpart apply to reciprocal compensation
for transport and termination of local telecommunications traffic
between LECs and other telecommunications carriers.
(b) Local telecommunications traffic. For purposes of this subpart,
local telecommunications traffic means:
(1) Telecommunications traffic between a LEC and a
telecommunications carrier other than a CMRS provider that originates
and terminates within a local service area established by the state
commission; or
(2) Telecommunications traffic between a LEC and a CMRS provider
that, at the beginning of the call, originates and terminates within
the same Major Trading Area, as defined in Sec. 24.202(a) of this
chapter.
(c) Transport. For purposes of this subpart, transport is the
transmission and any necessary tandem switching of local
telecommunications traffic subject to section 251(b)(5) of the Act from
the interconnection point between the two carriers to the terminating
carrier's end office switch that directly serves the called party, or
equivalent facility provided by a carrier other than an incumbent LEC.
(d) Termination. For purposes of this subpart, termination is the
switching of local telecommunications traffic at the terminating
carrier's end office switch, or equivalent facility, and delivery of
such traffic to the called party's premises.
(e) Reciprocal compensation. For purposes of this subpart, a
reciprocal compensation arrangement between two carriers is one in
which each of the two carriers receives compensation from the other
carrier for the transport and termination on each carrier's network
facilities of local telecommunications traffic that originates on the
network facilities of the other carrier.
Sec. 51.703 Reciprocal compensation obligation of LECs.
(a) Each LEC shall establish reciprocal compensation arrangements
for transport and termination of local telecommunications traffic with
any requesting telecommunications carrier.
(b) A LEC may not assess charges on any other telecommunications
carrier for local telecommunications traffic that originates on the
LEC's network.
Sec. 51.705 Incumbent LECs' rates for transport and termination.
(a) An incumbent LEC's rates for transport and termination of local
telecommunications traffic shall be established, at the election of the
state commission, on the basis of:
(1) The forward-looking economic costs of such offerings, using a
cost study pursuant to Secs. 51.505 and 51.511;
(2) Default proxies, as provided in Sec. 51.707; or
(3) A bill-and-keep arrangement, as provided in Sec. 51.713.
(b) In cases where both carriers in a reciprocal compensation
arrangement are incumbent LECs, state commissions shall establish the
rates of the smaller carrier on the basis of the larger carrier's
forward-looking costs, pursuant to Sec. 51.711.
Sec. 51.707 Default proxies for incumbent LECs' transport and
termination rates.
(a) A state commission may determine that the cost information
available to it with respect to transport and termination of local
telecommunications traffic does not support the adoption of a rate or
rates for an incumbent LEC that are consistent with the requirements of
Secs. 51.505 and 51.511. In that event, the state commission may
establish rates for transport and termination of local
telecommunications traffic, or for specific components included
therein, that are consistent with the proxies specified in this
section, provided that:
(1) Any rate established through use of such proxies is superseded
once that state commission establishes rates for transport and
termination pursuant to Secs. 51.705(a)(1) or 51.705(a)(3); and
(2) The state commission sets forth in writing a reasonable basis
for its selection of a particular proxy for transport and termination
of local telecommunications traffic, or for specific components
included within transport and termination.
(b) If a state commission establishes rates for transport and
termination of local telecommunications traffic on the basis of default
proxies, such rates must meet the following requirements:
(1) Termination. The incumbent LEC's rates for the termination of
local telecommunications traffic shall be no greater than 0.4 cents
($0.004) per minute, and no less than 0.2 cents ($0.002) per minute,
except that, if a state commission has, before August 8, 1996,
established a rate less than or equal to 0.5 cents ($0.005) per minute
for such calls, that rate may be retained pending completion of a
forward-looking economic cost study.
(2) Transport. The incumbent LEC's rates for the transport of local
telecommunications traffic, under this section, shall comply with the
proxies described in Sec. 51.513(d) (3), (4), and (5) that apply to the
analogous unbundled network elements used in transporting a call to the
end office that serves the called party.
Sec. 51.709 Rate structure for transport and termination.
(a) In state proceedings, a state commission shall establish rates
for the transport and termination of local telecommunications traffic
that are structured consistently with the manner that carriers incur
those costs, and consistently with the principles in Secs. 51.507 and
51.509.
(b) The rate of a carrier providing transmission facilities
dedicated to the transmission of traffic between two carriers' networks
shall recover only the costs of the proportion of that trunk capacity
used by an interconnecting carrier to send traffic that will terminate
on the providing carrier's network. Such proportions may be measured
during peak periods.
Sec. 51.711 Symmetrical reciprocal compensation.
(a) Rates for transport and termination of local telecommunications
traffic shall be symmetrical, except as provided in paragraphs (b) and
(c) of this section.
(1) For purposes of this subpart, symmetrical rates are rates that
a carrier other than an incumbent LEC assesses upon an incumbent LEC
for transport and termination of local telecommunications traffic equal
to those that the incumbent LEC assesses upon the other carrier for the
same services.
(2) In cases where both parties are incumbent LECs, or neither
party is an incumbent LEC, a state commission shall establish the
symmetrical rates for transport and termination based on the larger
carrier's forward-looking costs.
(3) Where the switch of a carrier other than an incumbent LEC
serves a geographic area comparable to the area served by the incumbent
LEC's tandem switch, the appropriate rate for the carrier other than an
incumbent LEC is the incumbent LEC's tandem interconnection rate.
(b) A state commission may establish asymmetrical rates for
transport and termination of local telecommunications traffic only if
the carrier other than the incumbent LEC (or the smaller of two
incumbent LECs) proves to the state commission on the basis of a cost
study using the forward-looking economic cost based pricing methodology
described in Secs. 51.505 and 51.511, that the forward-looking costs
for a network
[[Page 45633]]
efficiently configured and operated by the carrier other than the
incumbent LEC (or the smaller of two incumbent LECs), exceed the costs
incurred by the incumbent LEC (or the larger incumbent LEC), and,
consequently, that such that a higher rate is justified.
(c) Pending further proceedings before the Commission, a state
commission shall establish the rates that licensees in the Paging and
Radiotelephone Service (defined in part 22, subpart E of this chapter),
Narrowband Personal Communications Services (defined in part 24,
subpart D of this chapter), and Paging Operations in the Private Land
Mobile Radio Services (defined in part 90, subpart P of this chapter)
may assess upon other carriers for the transport and termination of
local telecommunications traffic based on the forward-looking costs
that such licensees incur in providing such services, pursuant to
Secs. 51.505 and 51.511. Such licensees' rates shall not be set based
on the default proxies described in Sec. 51.707.
Sec. 51.713 Bill-and-keep arrangements for reciprocal compensation.
(a) For purposes of this subpart, bill-and-keep arrangements are
those in which neither of the two interconnecting carriers charges the
other for the termination of local telecommunications traffic that
originates on the other carrier's network.
(b) A state commission may impose bill-and-keep arrangements if the
state commission determines that the amount of local telecommunications
traffic from one network to the other is roughly balanced with the
amount of local telecommunications traffic flowing in the opposite
direction, and is expected to remain so, and no showing has been made
pursuant to Sec. 51.711(b).
(c) Nothing in this section precludes a state commission from
presuming that the amount of local telecommunications traffic from one
network to the other is roughly balanced with the amount of local
telecommunications traffic flowing in the opposite direction and is
expected to remain so, unless a party rebuts such a presumption.
Sec. 51.715 Interim transport and termination pricing.
(a) Upon request from a telecommunications carrier without an
existing interconnection arrangement with an incumbent LEC, the
incumbent LEC shall provide transport and termination of local
telecommunications traffic immediately under an interim arrangement,
pending resolution of negotiation or arbitration regarding transport
and termination rates and approval of such rates by a state commission
under sections 251 and 252 of the Act.
(1) This requirement shall not apply when the requesting carrier
has an existing interconnection arrangement that provides for the
transport and termination of local telecommunications traffic by the
incumbent LEC.
(2) A telecommunications carrier may take advantage of such an
interim arrangement only after it has requested negotiation with the
incumbent LEC pursuant to Sec. 51.301.
(b) Upon receipt of a request as described in paragraph (a) of this
section, an incumbent LEC must, without unreasonable delay, establish
an interim arrangement for transport and termination of local
telecommunications traffic at symmetrical rates.
(1) In a state in which the state commission has established
transport and termination rates based on forward-looking economic cost
studies, an incumbent LEC shall use these state-determined rates as
interim transport and termination rates.
(2) In a state in which the state commission has established
transport and termination rates consistent with the default price
ranges and ceilings described in Sec. 51.707, an incumbent LEC shall
use these state-determined rates as interim rates.
(3) In a state in which the state commission has neither
established transport and termination rates based on forward-looking
economic cost studies nor established transport and termination rates
consistent with the default price ranges described in Sec. 51.707, an
incumbent LEC shall set interim transport and termination rates at the
default ceilings for end-office switching (0.4 cents per minute of
use), tandem switching (0.15 cents per minute of use), and transport
(as described in Sec. 51.707(b)(2)).
(c) An interim arrangement shall cease to be in effect when one of
the following occurs with respect to rates for transport and
termination of local telecommunications traffic subject to the interim
arrangement:
(1) A voluntary agreement has been negotiated and approved by a
state commission;
(2) An agreement has been arbitrated and approved by a state
commission; or
(3) The period for requesting arbitration has passed with no such
request.
(d) If the rates for transport and termination of local
telecommunications traffic in an interim arrangement differ from the
rates established by a state commission pursuant to Sec. 51.705, the
state commission shall require carriers to make adjustments to past
compensation. Such adjustments to past compensation shall allow each
carrier to receive the level of compensation it would have received had
the rates in the interim arrangement equalled the rates later
established by the state commission pursuant to Sec. 51.705.
Sec. 51.717 Renegotiation of existing non-reciprocal arrangements.
(a) Any CMRS provider that operates under an arrangement with an
incumbent LEC that was established before August 8, 1996 and that
provides for non-reciprocal compensation for transport and termination
of local telecommunications traffic is entitled to renegotiate these
arrangements with no termination liability or other contract penalties.
(b) From the date that a CMRS provider makes a request under
paragraph (a) of this section until a new agreement has been either
arbitrated or negotiated and has been approved by a state commission,
the CMRS provider shall be entitled to assess upon the incumbent LEC
the same rates for the transport and termination of local
telecommunications traffic that the incumbent LEC assesses upon the
CMRS provider pursuant to the pre-existing arrangement.
Subpart I--Procedures for Implementation of Section 252 of the Act
Sec. 51.801 Commission action upon a state commission's failure to act
to carry out its responsibility under section 252 of the Act.
(a) If a state commission fails to act to carry out its
responsibility under section 252 of the Act in any proceeding or other
matter under section 252 of the Act, the Commission shall issue an
order preempting the state commission's jurisdiction of that proceeding
or matter within 90 days after being notified (or taking notice) of
such failure, and shall assume the responsibility of the state
commission under section 252 of the Act with respect to the proceeding
or matter and shall act for the state commission.
(b) For purposes of this part, a state commission fails to act if
the state commission fails to respond, within a reasonable time, to a
request for mediation, as provided for in section 252(a)(2) of the Act,
or for a request for arbitration, as provided for in section 252(b) of
the Act, or fails to complete an arbitration within the time limits
established in section 252(b)(4)(C) of the Act.
(c) A state shall not be deemed to have failed to act for purposes
of section 252(e)(5) of the Act if an agreement is
[[Page 45634]]
deemed approved under section 252(e)(4) of the Act.
Sec. 51.803 Procedures for Commission notification of a state
commission's failure to act.
(a) Any party seeking preemption of a state commission's
jurisdiction, based on the state commission's failure to act, shall
notify the Commission in accordance with following procedures:
(1) Such party shall file with the Secretary of the Commission a
petition, supported by an affidavit, that states with specificity the
basis for the petition and any information that supports the claim that
the state has failed to act, including, but not limited to, the
applicable provisions of the Act and the factual circumstances
supporting a finding that the state commission has failed to act;
(2) Such party shall ensure that the state commission and the other
parties to the proceeding or matter for which preemption is sought are
served with the petition required in paragraph (a)(1) of this section
on the same date that the petitioning party serves the petition on the
Commission; and
(3) Within fifteen days from the date of service of the petition
required in paragraph (a)(1) of this section, the applicable state
commission and parties to the proceeding may file with the Commission a
response to the petition.
(b) The party seeking preemption must prove that the state has
failed to act to carry out its responsibilities under section 252 of
the Act.
(c) The Commission, pursuant to section 252(e)(5) of the Act, may
take notice upon its own motion that a state commission has failed to
act. In such a case, the Commission shall issue a public notice that
the Commission has taken notice of a state commission's failure to act.
The applicable state commission and the parties to a proceeding or
matter in which the Commission has taken notice of the state
commission's failure to act may file, within fifteen days of the
issuance of the public notice, comments on whether the Commission is
required to assume the responsibility of the state commission under
section 252 of the Act with respect to the proceeding or matter.
(d) The Commission shall issue an order determining whether it is
required to preempt the state commission's jurisdiction of a proceeding
or matter within 90 days after being notified under paragraph (a) of
this section or taking notice under paragraph (c) of this section of a
state commission's failure to carry out its responsibilities under
section 252 of the Act.
Sec. 51.805 The Commission's authority over proceedings and matters.
(a) If the Commission assumes responsibility for a proceeding or
matter pursuant to section 252(e)(5) of the Act, the Commission shall
retain jurisdiction over such proceeding or matter. At a minimum, the
Commission shall approve or reject any interconnection agreement
adopted by negotiation, mediation or arbitration for which the
Commission, pursuant to section 252(e)(5) of the Act, has assumed the
state's commission's responsibilities.
(b) Agreements reached pursuant to mediation or arbitration by the
Commission pursuant to section 252(e)(5) of the Act are not required to
be submitted to the state commission for approval or rejection.
Sec. 51.807 Arbitration and mediation of agreements by the Commission
pursuant to section 252(e)(5) of the Act.
(a) The rules established in this section shall apply only to
instances in which the Commission assumes jurisdiction under section
252(e)(5) of the Act.
(b) When the Commission assumes responsibility for a proceeding or
matter pursuant to section 252(e)(5) of the Act, it shall not be bound
by state laws and standards that would have applied to the state
commission in such proceeding or matter.
(c) In resolving, by arbitration under section 252(b) of the Act,
any open issues and in imposing conditions upon the parties to the
agreement, the Commission shall:
(1) Ensure that such resolution and conditions meet the
requirements of section 251 of the Act, including the rules prescribed
by the Commission pursuant to that section;
(2) Establish any rates for interconnection, services, or network
elements according to section 252(d) of the Act, including the rules
prescribed by the Commission pursuant to that section; and
(3) Provide a schedule for implementation of the terms and
conditions by the parties to the agreement.
(d) An arbitrator, acting pursuant to the Commission's authority
under section 252(e)(5) of the Act, shall use final offer arbitration,
except as otherwise provided in this section:
(1) At the discretion of the arbitrator, final offer arbitration
may take the form of either entire package final offer arbitration or
issue-by-issue final offer arbitration.
(2) Negotiations among the parties may continue, with or without
the assistance of the arbitrator, after final arbitration offers are
submitted. Parties may submit subsequent final offers following such
negotiations.
(3) To provide an opportunity for final post-offer negotiations,
the arbitrator will not issue a decision for at least fifteen days
after submission to the arbitrator of the final offers by the parties.
(e) Final offers submitted by the parties to the arbitrator shall
be consistent with section 251 of the Act, including the rules
prescribed by the Commission pursuant to that section.
(f) Each final offer shall:
(1) Meet the requirements of section 251, including the rules
prescribed by the Commission pursuant to that section;
(2) Establish rates for interconnection, services, or access to
unbundled network elements according to section 252(d) of the Act,
including the rules prescribed by the Commission pursuant to that
section; and
(3) Provide a schedule for implementation of the terms and
conditions by the parties to the agreement. If a final offer submitted
by one or more parties fails to comply with the requirements of this
section, the arbitrator has discretion to take steps designed to result
in an arbitrated agreement that satisfies the requirements of section
252(c) of the Act, including requiring parties to submit new final
offers within a time frame specified by the arbitrator, or adopting a
result not submitted by any party that is consistent with the
requirements of section 252(c) of the Act, and the rules prescribed by
the Commission pursuant to that section.
(g) Participation in the arbitration proceeding will be limited to
the requesting telecommunications carrier and the incumbent LEC, except
that the Commission will consider requests by third parties to file
written pleadings.
(h) Absent mutual consent of the parties to change any terms and
conditions adopted by the arbitrator, the decision of the arbitrator
shall be binding on the parties.
Sec. 51.809 Availability of provisions of agreements to other
telecommunications carriers under section 252(i) of the Act.
(a) An incumbent LEC shall make available without unreasonable
delay to any requesting telecommunications carrier any individual
interconnection, service, or network element arrangement contained in
any agreement to which it is a party that is approved by a state
commission pursuant to section 252 of the Act, upon the same rates,
terms, and conditions as those provided in the agreement. An
[[Page 45635]]
incumbent LEC may not limit the availability of any individual
interconnection, service, or network element only to those requesting
carriers serving a comparable class of subscribers or providing the
same service (i.e., local, access, or interexchange) as the original
party to the agreement.
(b) The obligations of paragraph (a) of this section shall not
apply where the incumbent LEC proves to the state commission that:
(1) The costs of providing a particular interconnection, service,
or element to the requesting telecommunications carrier are greater
than the costs of providing it to the telecommunications carrier that
originally negotiated the agreement, or
(2) The provision of a particular interconnection, service, or
element to the requesting carrier is not technically feasible.
(c) Individual interconnection, service, or network element
arrangements shall remain available for use by telecommunications
carriers pursuant to this section for a reasonable period of time after
the approved agreement is available for public inspection under section
252(f) of the Act.
PART 90--PRIVATE LAND MOBILE RADIO SERVICES
11. The authority citation for Part 90 is revised to read as
follows:
Authority: Secs. 4, 251-2, 303, 309, and 332, 48 Stat. 1066,
1082, as amended; 47 U.S.C. 154, 251-2, 303, 309 and 332, unless
otherwise noted.
12. Section 90.5 is amended by redesignating paragraphs (k) and (l)
as paragraphs (l) and (m), and adding new paragraph (k) to read as
follows:
Sec. 90.5 Other applicable rule parts.
* * * * *
(k) Part 51 contains rules relating to interconnection.
* * * * *
This Attachment A will not be published in the Code of Federal
Regulations
Attachment A
List of Commenters in CC Docket No. 96-98
360 deg. Communications Company (360 Communications)
Ad Hoc Coalition of Corporate Telecommunications Managers
Ad Hoc Telecommunications Users Committee
AirTouch Communications, Inc. (AirTouch)
Alabama Public Service Commission (Alabama Commission)
Alaska Telephone Association (Alaska Tel. Ass'n)
Alaska Public Utilities Commission (Alaska Commission)
Alliance for Public Technology
Allied Association Partners, LP & Geld Information Systems (Allied
Ass'n)
ALLTEL Telephone Services Corporation (ALLTEL)
American Communications Services, Inc. (ACSI)
American Foundation for the Blind
American Mobile Telecommunications Association, Inc. (American
Mobile Telecomm. Ass'n)
American Network Exchange, Inc. & U.S. Long Distance, Inc. (American
Network Exchange)
American Personal Communications
American Petroleum Institute
American Public Communications Council
American Public Power Association (APPA)
America's Carriers Telecommunication Association (ACTA)
Ameritech
Anchorage Telephone Utility (Anchorage Tel. Utility)
Arch Communications Group, Inc. (Arch)
Arizona Corporation Commission (Arizona Commission)
Association for Study of Afro-American Life and History, Inc.
(ASALH)
Association for Local Telecommunications Services (ALTS)
Association of Telemessaging Services International
AT&T Corp. (AT&T)
Attorneys General of Connecticut, Delaware, Illinois, Iowa,
Massachusetts, Michigan, Minnesota, Missouri, New York, North
Dakota, Pennsylvania, West Virginia and Wisconsin (Attorneys
General)
Bay Springs Telephone Co., Crockett Telephone Co., National
Telephone Company of Alabama, Peoples Telephone Company, Roanoke
Telephone Co. & West Tennessee Telephone Company (Bay Springs, et
al.)
Black Data Processing Associates
Black Data Processors Association (Black Data Processors Ass'n)
Bell Atlantic Telephone Companies (Bell Atlantic)
Bell Atlantic NYNEX Mobile, Inc. (Bell Atlantic NYNEX Mobile)
BellSouth Corporation, Bell Enterprises, Inc., BellSouth
Telecommunications, Inc. (BellSouth)
Bogue, Kansas
Buckeye Cablevision, Inc. (Buckeye Cablevision)
Cable & Wireless, Inc. (Cable & Wireless)
Cellular Telecommunications Industry Association (CTIA)
Celpage, Inc. (Celpage)
Centennial Cellular Corp.
Chrysler Minority Dealers Association (Chrysler Minority Dealers
Ass'n)
Cincinnati Bell Telephone Company (Cincinnati Bell)
Citizens Utilities Company (Citizens Utilities)
Classic Telephone, Inc. (Classic Tel.)
Colorado Independent Telephone Association (Colorado Independent
Tel. Ass'n)
Colorado Public Utilities Commission (Colorado Commission)
COMAV, Corp. (COMAV)
Comcast Cellular Communications, Inc. (Comcast Cellular)
Comcast Corporation (Comcast)
Communications and Energy Dispute Resolution Associates (CEDRA)
Competition Policy Institute
Competitive Telecommunications Association (CompTel)
Connecticut Department of Public Utility Control (Connecticut
Commission)
Consumer Federation of America & Consumers Union (CFA/CU)
Consumer Project on Technology on Interconnection & Unbundling
(Consumer Project)
Continental Cablevision, Inc. (Continental)
Cox Communications, Inc. (Cox)
Defense, Secretary of
DeSoto County, Mississippi Economic Development Council
District of Columbia Public Service Commission (District of Columbia
Commission)
Economides, Nicholas (N. Economides)
Ericsson Corporation, The (Ericsson)
Excel Telecommunications, Inc. (Excel)
Florida Public Service Commission (Florida Commission)
Fred Williamson & Associates, Inc. (F. Williamson)
Frontier Corporation (Frontier)
General Communication, Inc. (GCI)
General Services Administration/Department of Defense (GSA/DOD)
Georgia Public Service Commission (Georgia Commission)
Greater Washington Urban League
GST Telecom, Inc. (GST)
GTE Service Corporation (GTE)
Guam Telephone Authority
GVNW Inc./Management (GVNW)
Hart Engineers/Robert A. Hart, IV (Hart Engineers)
Hawaii Public Utilities Commission (Hawaii Commission)
Home Telephone Company, Inc. (Home Tel.)
Hyperion Telecommunications, Inc. (Hyperion)
Idaho Public Utilities Commission (Idaho Commission)
Illinois Commerce Commission (Illinois Commission)
Illinois Independent Telephone Association (Illinois Ind. Tel.
Ass'n)
Independent Cable & Telecommunications Association (Ind. Cable &
Telecomm. Ass'n)
Independent Data Communications Manufacturers Association (IDCMA)
Indiana Utility Regulatory Commission Staff (Indiana Commission
Staff)
Information Technology Industry Council (ITIC)
Intelcom Group (U.S.A.), Inc. (Intelcom)
Intermedia Communications, Inc. (Intermedia)
International Communications Association (Intl. Comm. Ass'n)
Iowa Utilities Board (Iowa Commission)
John Staurulakis, Inc. (J. Staurulakis)
Joint Consumer Advocates
Jones Intercable, Inc. (Jones Intercable)
Justice, U. S. Department of (DoJ)
Kansas Corporation Commission (Kansas Commission)
[[Page 45636]]
Kentucky Public Service Commission (Kentucky Commission)
Koch, Richard N. (R. Koch)
LCI International Telecom Corp. (LCI)
LDDS Worldcom (LDDS)
Lincoln Telephone & Telegraph Company (Lincoln Tel.)
Louisiana Public Service Commission (Louisiana Commission)
Lucent Technologies, Inc. (Lucent)
Margaretville Telephone Co., Inc. (Margaretville Tel.)
Maryland Public Service Commission (Maryland Commission)
Massachusetts Assistive Technology Partnership Center World
Institute on Disability, Alliance for Technology Access, Trace
Research and Development Center, CPB/WGBH National Center For
Accessible Media (Mass. Assistive Tech. Partnership, et al.)
Massachusetts, Commonwealth of Department of Public Utilities (Mass.
Commission)
Massachusetts, Commonwealth of, Office of Attorney General (Mass.
Attorney General)
Matanuska Telephone Association, Inc. (Matanuska Tel.)
MCI
Metricom, Inc. (Metricom)
MFS
Michigan Exchange Carriers Association (MECA)
Michigan, Illinois, and Texas Communities, et al.
Michigan Public Service Commission Staff (Michigan Commission Staff)
Minnesota Independent Coalition (Minnesota Independent Coalition)
Minnesota Public Utilities Commission (Minnesota Commission)
Missouri Public Service Commission (Missouri Commission)
Missouri Public Service Commissioner, Harold Crumpton (Missouri
Commissioner)
Mobilemedia Communications, Inc. (Mobilemedia)
Motorola Satellite Communications, Inc. and U.S. Leo Services, Inc.
(Motorola)
Municipal Utilities
National Association of the Deaf
National Association of Development Organizations, Gray Panthers,
United Seniors Health Cooperative, United Homeowners Association,
National Hispanic Council on Aging, National Trust/Trustnet,
National Association of Commissions for Women, National Council of
Senior Citizens (NADO, et al.)
National Association of Regulatory Utility Commissioners (NARUC)
National Association of State Utility Consumer Advocates (National
Ass'n of State Utility Advocates)
National Bar Association (National Bar Ass'n)
National Cable Television Association, Inc. (NCTA)
National Exchange Carrier Association, Inc. (NECA)
National League of Cities & National Association of
Telecommunications Officers and Advisors (NLC/NATOA)
National Private Telecommunications Association
National Telecommunications & Information Administration (NTIA)
National Wireless Resellers Association (National Wireless Resellers
Ass'n)
Nebraska Rural Development Commission
Network Reliability Council, Secretariat of Second (Network
Reliability Council)
New Hampshire Public Utilities Commission, New Mexico State
Corporation Commission, Utah Division of Public Utilities, Vermont
Public Service Board, and Vermont Department of Public Service (New
Hampshire Commission, et al.)
New Jersey Cable Telecommunications Association, South Carolina
Cable Television Association & Texas Cable Telecommunications
Association (New Jersey Cable Ass'n, et al.)
New Jersey, Staff of Board of Public Utilities (New Jersey
Commission Staff)
New York State Consumer Protection Board (New York Consumer
Protection Board)
New York State Department of Public Service (New York Commission)
Nextel Communications, Inc. (Nextel)
NEXTLINK Communications, L.L.C. (NEXTLINK)
North Carolina Utility Commission Public Staff (North Carolina
Commission Staff)
North Dakota Public Service Commission (North Dakota Commission)
Northern Telecom, Inc. (Nortel)
NYNEX Telephone Companies (NYNEX)
Ohio Public Utilities Commission (Ohio Commission)
Office of the Ohio Consumers' Counsel (Ohio Consumers' Counsel)
Oklahoma Corporation Commission (Oklahoma Commission)
Omnipoint Corporation (Omnipoint)
Optel, Inc. (Optel)
Oregon Public Utility Commission (Oregon Commission)
Pacific Telesis Group (PacTel)
Paging Network, Inc. (PageNet)
Pennsylvania Public Utility Commission (Pennsylvania Commission)
People of the State of California and the Public Utility Commission
of the State of California (California Commission)
Personal Communications Industry Association (PCIA)
ProNet Inc. (ProNet)
Puerto Rico Telephone Company (Puerto Rico Tel.)
Roseville Telephone Company (Roseville Tel.)
Rural Telephone Coalition (Rural Tel. Coalition)
SBC Communications Inc. (SBC)
Scherers Communications Group, Inc. (SCG)
Small Business Administration, U.S. (SBA)
Small Cable Business Association (SCBA)
SDN Users Association
South Carolina Public Service Commission (South Carolina Commission)
Southern New England Telephone Company (SNET)
Southwestern Bell Telephone Company (SWBT)
Sprint Corporation (Sprint)
Sprint Spectrum & American Personal Communications (Sprint/APC)
State of Maine Public Utilities Commission, State of Montana Public
Service Commission, State of Nebraska Public Service Commission,
State of New Hampshire Public Utilities Commission, State of New
Mexico State Corporation Commission, State of Utah Public Service
Commission and Division of Public Utilities, State of Vermont
Department of Public Service and Public Service Board, and Public
Utilities Commission of South Dakota (Maine Commission, et al.)
TCA, Inc. (TCA)
TDS Telecommunications Corporation (TDS)
Telecommunication Industries Analysis Project
Telecommunications Carriers for Competition (TCC)
Tele-Communications, Inc. (TCI)
Telecommunications Industry Association (TIA)
Telecommunications Ratepayers Association for Cost-Based and
Equitable Rates (TRACER)
Telecommunications Resellers Association (Telecomm. Resellers Ass'n)
Telefonica Larga Distancia de Puerto Rico, Inc. (TLD)
Teleport Communications Group, Inc. (Teleport)
Texas Office of Public Utility Counsel (Texas Public Utility
Counsel)
Texas, Public Utilities Commission (Texas Commission)
Texas Statewide Telephone Cooperative, Inc.
Texas Telephone Association (Texas Tel. Ass'n)
Time Warner Communications Holdings, Inc. (Time Warner)
Unicom, Inc. (Unicom)
United Calling Network, Inc. (United Calling Network)
United Cerebral Palsy Association
United States Telephone Association (USTA)
USTN Services, Inc. (USTN)
U.S. Network Corporation (U.S. Network)
U S West, Inc. (U S West)
Utah Division of Public Utilities
UTC
Utilex, Inc. (Utilex)
Vanguard Cellular Systems, Inc. (Vanguard)
Vartec Telecom, Inc., Transtel, Telephone Express, CGI, &
CommuniGroup Inc. of Mississippi (Vartec, et al.)
Virginia State Corporation Commission Staff (Virginia Commission
Staff)
Washington Independent Telephone Association (Wash. Ind. Tel. Ass'n)
Washington Utilities and Transportation Commission (Washington
Commission)
Western Alliance
WinStar Communications, Inc. (WinStar)
Wisconsin, Public Service Commission (Wisconsin Commission)
Wyoming Public Service Commission (Wyoming Commission)
List of Commenters in CC Docket No. 95-185
360 Degree Communications Co. (360 Degrees)
AirTouch Communications, Inc. (Airtouch)
Alaska 3 Cellular Corporation (Alaska CellularOne)
Alaska Telephone Association (ATA)
Alliance of Wireless Service Providers (Alliance)
Allied Personal Communications Industry Association of California
(Allied)
ALLTEL Corporation (ALLTEL)
American Mobil Telecommunications Association (AMTA)
[[Page 45637]]
America's Carriers Telecommunications Association (ACTA)
American Personal Communications/Sprint Spectrum (APC/Sprint)
Ameritech
Anchorage Telephone Utility (ATU)
Arch Communications Group, Inc. (Arch)
AT&T Corporation (AT&T)
Bell Atlantic
Bell Atlantic Nynex Mobile (Bell Atlantic-NYNEX)
BellSouth Corporation (BellSouth)
State of California & the Public Utilities Commission (CPUC)
Cellular Communications of Puerto Rico, Inc. (CCPR)
Cellular Mobile Systems of St. Cloud G.P. (CMS)
Cellular Resellers Association (Cellular Resellers)
Cellular Telecommunications Industry Association (CTIA)
Celpage, Inc. (Celpage)
Centennial Cellular Corporation (Centennial)
Century Cellunet, Inc. (Century Cellunet)
Cincinnati Bell
CMT Partners (CMT)
Comcast Corporation (Comcast)
Competitive Telecommunications Association (CompTel)
Concord Telephone Company (Concord)
Connecticut Department of Public Utility (Connecticut)
Cox Enterprises, Inc. (Cox)
Florida Cellular RSA L.P. (Florida Cellular)
Frontier Corporation (Frontier)
GO Communications Corp. (GO)
General Services Administration (GSA)
GTE Services Corporation (GTE)
GVNW Inc., Management (GVNW)
Hart Engineers and 21st Century Telesis, Inc. (Hart Engineers)
Home Telephone Company, Inc. (HomeTel)
ICO Global Communications (ICO)
Illinois Commerce Commission (Illinois)
Illinois Independent Telephone Association (Illinois Ind. Tel.
Assoc.)
Illinois Telephone Association (Illinois Telephone Assoc.)
John Staurulakis, Inc. (JSI)
LDDS WorldCom (LDDS WorldCom)
MCI Telecommunications Corp. (MCI)
MFS Communications Company, Inc. (MFS)
Mercury Cellular & Paging (Mercury)
Mountain Solutions
National Association of Regulatory Utility Commissioners (NARUC)
National Exchange Carrier Association (NECA)
National Telephone Cooperative Association (NTCA)
New Par
New York State Department of Public Service (New York)
Nextel Communications, Inc. (Nextel)
North Carolina 4 Cellular L.P. (North Carolina Cellular)
NYNEX Telephone Companies (NYNEX)
Public Utilities Commission of Ohio (Ohio)
Omnipoint Corporation (Omnipoint)
OPASTCO
Pacific Bell, Pacific Bell Mobile Services, Nevada Bell (Pacific
Bell)
Paging Network, Inc. (PageNet)
Personal Communications Industry Association (PCIA)
Point Communications Company (Point)
Poka Lambro Telephone Cooperative (Poka Lambro)
Puerto Rico Telephone Company (PRTC)
Rural Cellular Association (RCA)
Rural Cellular Corporation (RCC)
SBC Communications, Inc. (SBC)
Smithville Telephone Company (Smithville)
Southeast Telephone Company (Southeast Telephone)
Sprint Corporation (Sprint)
Sprint Spectrum and American Personal Communications (Sprint/APC)
Telecommunications Resellers Association (TRA)
Teleport Communications Group (Teleport)
Time Warner Communications Holdings, Inc. (Time Warner)
Telecommunications Ratepayers Association for Cost-Based and
Equitable Rates (TRACER)
Union Telephone Company (Union)
United States Telephone Association (USTA)
US West, Inc. (US West)
Vanguard Cellular Systems, Inc. (Vanguard)
Western Radio Services Co., Inc. (Western)
Western Wireless Corporation (Western Wireless)
Westlink Company (Westlink)
List of Commenters in CC Docket No. 91-346
List of Commenters in CC Docket No. 91-346
Ad Hoc Telecommunications Users Committee (Ad Hoc)
Allnet Communication Services, Inc. (Allnet)
American Telephone and Telegraph Company (AT&T)
Ameritech Operating Companies (Ameritech)
Bell Atlantic Telephone Companies (Bell Atlantic)
BellSouth Corporation (BellSouth)
Cincinnati Bell Telephone (Cincinnati Bell)
Ericsson Corporation (Ericsson)
General Services Administration (GSA)
Geonet
GTE Service Corporation (GTE)
Information Technology Association of America (ITAA)
Joint Filers (includes Bell Atlantic, BellSouth, GTE, Lincoln,
Pacific Bell, Rochester, SNET, and US WEST)
MCI Telecommunications Corporation (MCI)
National Communications System (NCS)
Nextel Communications, Inc. (Nextel)
North American Telecommunications Association (NATA)
Northern Telecom Inc. (Northern Telecom)
NYNEX Telephone Companies (NYNEX)
Pacific Bell and Nevada Bell (Pacific Bell)
Pacific Telesis Corporation (Pactel)
Services-oriented Open Network Technologies, Inc. (SONetech)
Siemens Stromberg-Carlson (Siemens)
Southern New England Telephone Company (SNET)
Southwestern Bell Corporation (SWBT)
Sprint
Telecommunications Industry Association (TIA)
Teleport Communications Group (Teleport)
Teloquent Communications Corporation (Teloquent)
United and Central Telephone Companies (United and Central)
United States Telephone Association (USTA)
US WEST Communications, Inc. (US WEST)
This Attachment B will not be published in the Code of Federal
Regulations.
Attachment B.--State Proxy Ceilings for the Local Loop
------------------------------------------------------------------------
Proxy
State ceiling
------------------------------------------------------------------------
Alabama....................................................... $17.25
Arizona....................................................... 12.85
Arkansas...................................................... 21.18
California.................................................... 11.10
Colorado...................................................... 14.97
Connecticut................................................... 13.23
Delaware...................................................... 13.24
District of Columbia.......................................... 10.81
Florida....................................................... 13.68
Georgia....................................................... 16.09
Hawaii........................................................ 15.27
Idaho......................................................... 20.16
Illinois...................................................... 13.12
Indiana....................................................... 13.29
Iowa.......................................................... 15.94
Kansas........................................................ 19.85
Kentucky...................................................... 16.70
Louisiana..................................................... 16.98
Maine......................................................... 18.69
Maryland...................................................... 13.36
Massachusetts................................................. 9.83
Michigan...................................................... 15.27
Minnesota..................................................... 14.81
Mississippi................................................... 21.97
Missouri...................................................... 18.32
Montana....................................................... 25.18
Nebraska...................................................... 18.05
Nevada........................................................ 18.95
New Hampshire................................................. 16.00
New Jersey.................................................... 12.47
New Mexico.................................................... 18.66
New York...................................................... 11.75
North Carolina................................................ 16.71
North Dakota.................................................. 25.36
Ohio.......................................................... 15.73
Oklahoma...................................................... 17.63
Oregon........................................................ 15.44
Pennsylvania.................................................. 12.30
Puerto Rico................................................... 12.47
Rhode Island.................................................. 11.48
South Carolina................................................ 17.07
South Dakota.................................................. 25.33
Tennessee..................................................... 17.41
Texas......................................................... 15.49
Utah.......................................................... 15.12
Vermont....................................................... 20.13
Virginia...................................................... 14.13
Washington.................................................... 13.37
West Virginia................................................. 19.25
Wisconsin..................................................... 15.94
Wyoming....................................................... 25.11
------------------------------------------------------------------------
[FR Doc. 96-21589 Filed 8-28-96; 8:45 am]
BILLING CODE 6712-01-P
