[Federal Register Volume 60, Number 13 (Friday, January 20, 1995)]
[Rules and Regulations]
[Pages 4107-4110]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1358]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 61 and 69
[CC Docket No. 91-213; FCC 94-325]
Transport Rate Structure and Pricing
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: The Commission affirmed the interim transport rate structure,
the method used to establish initial transport rates under the interim
rate structure, and the price cap rules adopted to regulate future
changes in transport rates. The Commission also clarified certain
implementation procedures with respect to the interim transport rate
structure and pricing rules. In doing so, the Commission resolved all
the remaining issues raised on reconsideration in this proceeding.
EFFECTIVE DATE: February 21, 1995.
[[Page 4108]] FOR FURTHER INFORMATION CONTACT:
Matthew J. Harthun, (202) 418-1590 or David L. Sieradzki, (202) 418-
1576, Policy and Program Planning Division, Common Carrier Bureau.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's Third
Memorandum Opinion and Order on Reconsideration in CC Docket No. 91-
213, adopted December 15, 1994, and released December 22, 1994. The
complete text of this Third Memorandum Opinion and Order on
Reconsideration is available for inspection and copying during normal
business hours in the FCC Reference Center, 1919 M Street, N.W., Room
239, Washington, D.C. 20554.
Synopsis of Memorandum Opinion and Order
A. The Interim Rate Structure
1. The interim rate structure is a significant improvement over the
``equal charge'' rate structure. We believe that the interim rate
structure is consistent with all three of our goals in this proceeding:
(1) Encouraging efficient use of transport facilities by allowing
pricing that reflects the way costs are incurred; (2) facilitating full
and fair interexchange competition; and (3) avoiding interference with
the development of interstate access competition. Having weighed the
costs associated with an interim approach--namely, the effect on tandem
competition and the delay in implementing a full cost-based rate
structure--against the benefits associated with its balancing of our
three public interest goals, we conclude that our cautious approach of
adopting an interim rate structure and seeking comment on a long-term
rate structure was a reasonable step towards a more cost-based
transport rate structure.
2. We decline to hold open this proceeding, as suggested in the
record. We conclude that we have had sufficient time to evaluate the
interim restructure. We conclude, however, that continued monitoring of
the effects of the interim transport rate structure would be in the
public interest, and we delegate authority to the Chief, Common Carrier
Bureau, to continue and refine the Bureau's transport monitoring
program. With our affirmation of the interim transport rate structure,
we retain our conclusions that: (1) non-Tier 1 local exchange carriers
(LECs) are exempt from implementing the interim transport rate
structure; (2) if such LECs provide entrance facilities, they must
provide them on a flat-rated basis; and (3) such LECs must offer flat-
rated direct-trunked transport upon receipt of a bona fide request.
B. Initial Benchmark Level and Permanent Rate Relationships
3. We affirm the benchmark used in setting the initial transport
rates and our use of price cap rules to govern subsequent changes in
the price cap LECs' transport rates.
4. Adjusting the Benchmark or Applying It to Subsequent Rate
Changes. We decline to revise the benchmark used to establish initial
transport rates or establish rigid rate relationships based on such a
benchmark. We conclude that the small and medium interexchange
carriers' (IXCs') suggested level of the benchmark lacks adequate cost
justification. We continue to believe that special access rates provide
a rational framework for establishing the initial transport rates.
5. Further, fixed rate relationships are not consistent with LEC
price cap regulation. We believe that requiring permanent rate
relationships between DS3, DS1, and tandem-switched transport rates
would interfere with the efficient functioning of the market, and could
retard long-distance price reductions, depress telecommunications
usage, and inhibit economic growth. We reject the related
recommendation to require the LECs to reset their tandem-switched
transport rates annually based on DS3 and DS1 direct-trunked transport
rates, weighted based on updated fiber/copper ratios. We continue to
believe that price cap rules, rather than required annual adjustments
guided by cost factors, are the most appropriate means, in an
increasingly competitive access market, to govern ongoing changes in
rates for LEC services, including tandem-switched transport.
6. We also decline to require the LECs to place uniform overhead
loadings on their transport rates as a means of constraining changes to
the price relationships between DS3 and DS1 rates. We conclude that
even if it were demonstrated that different transport services are
``like services,'' differences between the levels of overhead loadings
recovered in those rates would not necessarily constitute unreasonable
discrimination. (We note that allegations that specific rates of
individual carriers are discriminatory are not before us in this
proceeding.)
7. While we continue to believe that a certain level of pricing
flexibility is needed to enable the LECs to meet increasing competition
in the local access market, we also recognize that without sufficient
regulatory constraints the LECs could price their transport services
anti-competitively. We have addressed this concern through special
safeguards in the price cap system: placing DS3 flat-rated transport,
DS1 flat-rated transport, and tandem-switched transport in separate
service categories and subcategories, and retaining the +2% upper
pricing band for tandem-switched transport services. We continue to
believe that this approach best balances our concerns about potential
anti-competitive LEC pricing and the LECs' need for some pricing
flexibility in the face of increased competition, and thus, best
promotes our public interest goals. We note, however, that this
decision does not limit our discretion in addressing the separate
record developed in our pending LEC Price Cap Review proceeding (Price
Cap Performance Review for Local Exchange Carriers, Notice of Proposed
Rulemaking, 59 FR 12888 (March 18, 1994)).
8. Applying the Benchmark Separately to Different Transport
Segments. The method we used to create the benchmark was based on a
typical configuration of LEC transport offerings, using rates from
analogous special access offerings--one IXCs would likely use to
purchase transport services, and competitive access providers would
likely use to offer services that could be substituted for both
entrance facilities and interoffice facilities. We decline to require
the LECs to satisfy separate benchmark requirements for entrance
facilities and for direct-trunked transport.
9. Methodology for LECs with Rate Ratios Below the Benchmark. We
decline to revise the method by which those LECs with September 1992
special access rates below the 9.6 to 1 benchmark established initial
transport rates.
C. Price Cap Service Categories and Price Bands
1. Tandem Switching
10. We decline to place tandem switching and local switching into
the same price cap basket, whether that basket is the traffic sensitive
basket or a new ``switching'' basket. We note also that this decision
does not limit our discretion in addressing the separate record
developed in the LEC Price Cap Review proceeding. We see no reason to
treat tandem switching differently from tandem-switched transport
transmission elements, and we retain the tandem switch element in the
tandem-switched transport service category.
11. We also reject SW Bell's proposal to place the interconnection
charge into a separate ``public policy'' basket. Until [[Page 4109]] we
have completed our evaluation of what underlying costs are recovered in
the interconnection charge and how the interconnection charge revenues
should be reallocated or otherwise disposed of, we conclude that the
interconnection charge service category should be included in the
trunking basket.
12. Finally, we decline to price the tandem switching element
incrementally, or to eliminate that element. We conclude that such
measures would not be in the public interest.
2. Price Cap Service Categories and Pricing Bands
13. In our 1994 Second Transport Order (Transport Rate Structure
and Pricing, Second Report and Order, 59 FR 10300 (March 4, 1994)), we
specifically placed tandem-switched transport, DS1, and DS3 flat-rated
services into separate service categories and service subcategories in
order to prevent the LECs from offsetting lower rates for services
subject to more competition with higher rates for less competitive
services. We concluded in that order, and continue to believe, that
separate price cap service categories and pricing bands are sufficient
to protect against potential anti-competitive behavior. Accordingly, we
decline to eliminate the separate service categories and subcategories
that apply to transport services.
14. We also decline to put entrance facilities and interoffice
facilities into separate service categories. No sufficient reason
exists to place entrance facilities and interoffice facilities in
separate service categories and to restrict the LECs' pricing
flexibility between these services. We decline to eliminate the limited
upward pricing flexibility permitted for tandem-switched transport.
D. The Interconnection Charge
1. Mid-Course Adjustment to the Interconnection Charge
15. We clarify that the period to be used in calculating the amount
of any mid-course adjustment to the interconnection charge is from the
effective date of the initial transport tariffs (December 30, 1993)
through December 31, 1994. This calculation will define the amount that
will prospectively establish the appropriate level for the
interconnection charge. We further clarify that the mid-course
adjustment to the interconnection charge permits recoupment of under-
recovered interconnection charge revenues from December 30, 1993 to the
effective date of the tariff implementing the mid-course adjustment. We
intended that the interconnection charge yield only an initial rate
restructure that was revenue-neutral. We interpret ``initial'' to apply
to the first year after the implementation of the new rates. Subsequent
changes to the interconnection charge will be governed by the price cap
rules. LECs must file requests for mid-course adjustments to the
interconnection charge no later than March 31, 1995. We delegate
authority to the Chief, Common Carrier Bureau, to specify the format
and content of such filings.
16. The mid-course adjustment to the interconnection charge, should
any LEC choose to avail itself of the adjustment, does not constitute
retroactive ratemaking. The adjustment will affect only rates in effect
after the date of the adjustment. It will not retroactively change the
interconnection charge rates that customers already paid before the
adjustment date. Nor will the adjustment require recoupment of revenues
from customers or refunds to customers without suspension and an
accounting order pursuant to Section 204(a) of the Communications Act,
47 U.S.C. 204(a).
17. That the mid-course adjustment will take into account revenues
the LECs under-recovered before the date of the adjustment does not
convert the adjustment into retroactive ratemaking. All interested
parties were on notice prior to the effective date of the transport
tariffs that the interconnection charge was subject to adjustment and
that the purpose of that adjustment was to achieve more fully our
objective of revenue neutrality during the transition from the old to
the new rate structure. Therefore, any adjustment at a later date
merely constitutes the implementation of a prospectively established
obligation affecting the LECs and all access customers. The prior
notice that the interconnection charge would be subject to adjustment,
and the unique nature of the interconnection charge mid-course
adjustment in the context of the major, Commission-required transport
rate restructure, distinguish this case from cases in which a carrier
generally seeks to adjust its rates prospectively to recoup costs from
an earlier period. We do not address whether or not such cases would
constitute retroactive ratemaking.
2. Burden of Proof for the Mid-Course Adjustment
18. We decline to modify the burden of proof associated with the
mid-course adjustment. The LECs have the burden of demonstrating a
significant under-recovery of revenues that justifies an adjustment to
the interconnection charge. We affirm our determination that the LECs
must prove the extent to which they have not been able to reuse
facilities no longer needed after IXC reconfigurations.
19. We clarify, however, that the burden of proving that facilities
could not be reused does not apply to facilities that are reused as a
result of the transport restructure itself. For example, if a customer
reconfigures its LEC entrance facility from 25 DS1 circuits to a lower-
priced DS3 circuit running over the same physical facility, the
``reuse'' of that facility in providing DS3 service instead of DS1
service is not excluded from the computation of the interconnection
charge. In such a case, the interconnection charge may reasonably
include recovery of the difference between the price of the 25 DS1
circuits and the price of the DS3 circuit. The requirement that LECs
show that they have been unable to reuse facilities applies to
situations in which facilities are no longer used for interstate
switched transport, and the LECs have not been able to put the
facilities to any alternative uses. For example, if the customer
terminates its use of the 25 DS1 circuits because, due to the transport
restructure, it has decided to consolidate its points of presence, and
the LEC is unable to put the entrance facility to any alternative uses
in its network, then the LEC may reasonably include recovery of the
lost DS1 revenues in the interconnection charge.
20. We also affirm our determination that the LECs should have the
burden of proving that demand losses result from the transport rate
restructure rather than competition. While we intend that the transport
rate restructure be revenue-neutral to the LECs, competition in the
provision of switched transport is likely to result in revenue losses
to the LECs. The interconnection charge should not be used to shield
LECs from the risks of revenue loss associated with growing
competition.
3. Waiver of Non-Recurring Charges
21. We decline to modify the scope of the NRC waiver. As a general
matter, we conclude that to broaden the scope of the NRC waiver to
include network reconfigurations not related to the rate restructure
would be unfair to the LECs and beyond the scope of this proceeding.
Specifically, we conclude that six months was ample time for the
mandated waiver to be held open, especially since IXCs had more than
one year to plan any network reconfigurations before the new rate
structure became effective. We reject [[Page 4110]] CompTel's
recommendation that we require waiver of termination penalties in
contracts for entrance facilities because we conclude that such a
waiver would deny the LECs recovery of capital expenditures made
specifically for a particular IXC. We also decline to adopt AT&T's
proposal to require LECs to waive NRCs for all IXC consolidations
because it is moot and beyond the scope of this proceeding. Moreover,
we decline to restrict the NRC waiver to once per trunk, as USTA
suggests, because, in light of the limited time period for which the
waiver was available, we have no reason to believe that the significant
churn envisioned by USTA occurred.
22. Finally, we conclude that, in their mid-course adjustment of
the interconnection charge, the LECs are entitled, upon a proper
showing, to take into account NRCs waived pursuant to the Commission's
requirement. Therefore, if a LEC can demonstrate that, as a result of
the Commission-mandated waiver of NRCs, the transport restructure
yielded revenues significantly less than the amount it realized
previously, in part, because the number of NRCs charged during the year
fell short of the demand level used in calculating the initial
interconnection charge, the LEC may seek a mid-course adjustment on
this basis. We conclude that the Commission has statutory authority to
allow this type of recovery through the interconnection charge because
it is necessary to maintain revenue neutrality and because carrying out
such an adjustment does not constitute retroactive ratemaking.
E. Miscellaneous
1. Pricing Flexibility
23. We reaffirm that the LECs may offer term and volume discounts
for switched transport services and may implement density zone pricing
of switched transport, as set forth in the Switched Transport Expanded
Interconnection Order (Expanded Interconnection with Local Telephone
Company Facilities, Second Report and Order and Third Notice of
Proposed Rulemaking, 58 FR 48756 (September 17, 1993)), and as
reaffirmed and slightly modified by the Expanded Interconnection Remand
Order, (Expanded Interconnection with Local Telephone Company
Facilities, Memorandum Opinion and Order, 59 FR 38922 (August 1,
1994)). We decided these issues in the expanded interconnection
proceeding, based on a separate and complete record. The present
record, however, does not refute the need for this additional pricing
flexibility in an increasingly competitive access market.
24. With respect to volume and term discounts, we clarify that the
rules we adopted in the expanded interconnection proceeding regarding
discounted transport offerings (47 U.S.C. 69.110(f)-(h), 69.111(i)-(k),
and 69.112(f)-(h)) contemplate only volume discounts (reduced per-unit
prices for a particular number of units of service) and term discounts
(reduced per-unit prices for a specified service for a particular
period of time). These rules do not provide for percentage or growth
discounts--reduced per-unit prices for customers that commit to
purchase a certain percentage of their past usage from a LEC, or
reduced prices based on growth in traffic placed over a LEC's network.
With respect to density zone pricing, we reaffirm our requirement that
the price subindexes (i.e., the upper and lower pricing bands--not the
rate levels) be the same in each zone when a LEC introduces density
zone pricing in a study area.
2. Intermediate Hubbing and Tandem-Switched Transport
25. We decline to adopt Sprint's proposal to modify the definition
of ``tandem-switched transport'' to include service between any
customer-designated telephone company office and an end office, thus
permitting IXCs to purchase (1) dedicated facilities to an intermediate
hub that is not collocated at the serving wire center or at the tandem
office; and (2) tandem-switched transport from that intermediate hub to
an end office, rated based on the distance between the hub and the end
offices without regard for the actual location of the intervening
tandem office. We have already adopted rules that enable tandem-
switched transport users to obtain efficiencies through intermediate
hubbing. Sprint's proposal would substantially change the transport
rate structure, and would lead to the pricing of more services in a
manner that does not reflect the way facilities are deployed. Given our
doubts about the efficiency benefits of Sprint's request and the fact
that the existing rules already provide reasonable opportunities for
tandem-switched transport users to compete with direct-trunked
transport users, we decline to amend our prior decisions.
3. Meet Point Billing
26. We conclude that specific methods for assessing, and avoiding
double billing for, the tandem charge and the interconnection charge
under meet point billing arrangements are better left to the individual
parties involved, given the wide variety and diversity of such
arrangements. If such issues cannot be settled among the parties, we
can address them in the future in the tariff process or pursuant to
specific complaints filed with the Commission.
4. Prohibition on Ratcheting
27. We continue to believe that ratcheting by interconnectors
benefits access customers and competition, and therefore, decline to
modify our rules with respect to ratcheting.
Ordering Clauses
28. Accordingly, it is ordered, pursuant to Sections 1, 4(i) and
(j), 201-205, 218, 220, 403, and 405 of the Communications Act of 1934,
as amended, 47 U.S.C. 151, 154(i) and (j), 201-205, 218, 220, 403, and
405, that the petitions for reconsideration and clarification
concerning the rate structure and pricing of local transport are
denied, except to the extent indicated herein.
29. It is further ordered that the decisions and policies adopted
herein shall be effective thirty days after the date of publication in
the Federal Register.
30. It is further ordered that WilTel's Motion for Acceptance of
Late-Filed Opposition to Petition for Reconsideration is granted.
31. It is further ordered that authority is delegated to the Chief,
Common Carrier Bureau, as set forth herein.
List of Subjects in 47 CFR Part 61 and 69
Communications common carriers, Reporting and recordkeeping
requirements, Telephone.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 95-1358 Filed 1-19-95; 8:45 am]
BILLING CODE 6712-01-M
