[Federal Register Volume 62, Number 21 (Friday, January 31, 1997)]
[Rules and Regulations]
[Pages 4657-4660]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2143]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Parts 61 and 69
[CC Docket No. 94-1; FCC 96-488]
Price Cap Performance Review for Local Exchange Carriers
AGENCY: Federal Communications Commission.
ACTION: Final Rule.
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SUMMARY: On September 14, 1995, the Commission adopted a Second Further
Notice of Proposed Rulemaking in this docket, seeking comment on how
its price cap regulation of local exchange carriers should be revised
as the competition faced by those carriers grows. In particular, the
Commission sought comment on relaxing the procedural requirements for
establishing new rate elements for new switched access services, and
eliminating the lower boundaries of the service band indices. In this
Third Report and Order, the Commission adopts the rules it proposed.
These rule revisions are intended to make it easier for local exchange
carriers to introduce new services, and to lower rates.
EFFECTIVE DATE: Effective June 30, 1997.
FOR FURTHER INFORMATION CONTACT: Richard Lerner, Attorney, Common
Carrier Bureau, Competitive Pricing Division, (202) 418-1530. 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 December 23, 1996, and released December 24, 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/Notices/fcc96488.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.
The Commission released a Second Further Notice of Proposed Rulemaking,
CC Docket No. 94-1, Further Notice of Proposed Rulemaking, CC Docket
No. 93-124, and Second Further Notice of Proposed Rulemaking CC Docket
No. 93-197 (all three published at 60 FR 49539 (September 25, 1995))
(Price Cap Second FNPRM) to seek comment on the rules adopted in the
Third Report and Order.
Regulatory Flexibility Analysis: As required by the Regulatory
Flexibility Act, the Third Report and Order contains a Final Regulatory
Flexibility Analysis which is set forth in Section XI.F of the Third
Report and Order. The Commission concluded that the Regulatory
Flexibility Act is not applicable because the rules adopted in the
Third Report and Order will not have a significant impact on a
substantial number of small entities.
Paperwork Reduction Act: Public burden for the collection of
information is estimated as follows:
OMB Approval Number: None.
Title: Third Report and Order, Price Cap Performance Review for
Local Exchange Carriers.
Form No.: N/A.
Type of Review: New collection.
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Annual hour Total
Information collection Number of burden per annual
respondents response burden
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Elimination of the lower Service Band Index and Petition to offer new
switched access services................................................ 13 10 130
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Total Annual Burden: 130 hours.
Respondents: Business or other for-profit.
Estimated costs per respondent: $0.
Needs and Uses: The agency will use the data submission to review
Local Exchange Carriers' proposed new switched access services. Public
reporting burden for the collection of information is estimated to
average 10 hours per response. Send comments on the agency's need for
this information, the accuracy of the provided burden estimates, and
any suggested methods for minimizing respondent burden, including
through the use of automated collection techniques to the Federal
Communications Commission, Records Management Branch, Washington, D.C.
20554.
Final Regulatory Flexibility Act Certification
In the Price Cap Second FNPRM, we certified that the Regulatory
Flexibility Act did not apply to this rulemaking proceeding because
none of the rule amendments under consideration would have a
significant economic impact on a substantial number of small entities.
We concluded that the proposed rules would apply only to carriers
subject to price cap regulation for local exchange access, and such
carriers are generally large corporations or affiliates of such
corporations. No comments were received concerning the proposed
certification. Since our initial certification, certain changes
occurred. The Regulatory Flexibility Act was amended by the Small
Business Regulatory Enforcement Fairness Act of 1996 (``SBREFA''), and
Citizens elected price cap regulation. Nonetheless, we certify that the
rules adopted herein will not have a significant economic impact
[[Page 4658]]
on a substantial number of small entities.
The Regulatory Flexibility Act defines a ``small business'' to be
the same as a ``small business concern'' under the Small Business Act.
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. Section 121.201 of the Small
Business Administration regulations defines a small telecommunications
entity in SIC code 4813 (Telephone Companies Except Radio Telephone) as
any entity with 1,500 or fewer employees at the holding company level.
Entities directly subject to these rule changes are carriers subject to
price cap regulation. These entities, including the newest carrier
subject to price cap regulation, Citizens, are generally large
corporations that have more than 1,500 employees, or they are either
dominant in their fields of operations or are not independently owned
or operated. Thus, they are not ``small entities'' as defined by the
Small Business Act.
We therefore certify that the rules adopted herein will not have a
significant economic impact on a substantial number of small entities.
The Commission shall provide a copy of this certification to the Chief
Counsel for Advocacy of the Small Business Administration, and include
it in the report to Congress pursuant to the SBREFA. The certification
will also be published in the Federal Register.
Summary of Report and Order: We conclude that certain revisions to
our rules should be made upon issuance of this Order. These changes
include eliminating the price caps lower service band indices, and
substantially easing the requirements necessary for the introduction of
new services. We make these adjustments in order to remove obstacles to
lower access prices, and allow incumbent LECs to recover their costs in
a manner consistent with the way that costs are incurred. Moreover, we
believe that these changes will not adversely affect the development of
a competitive marketplace.
A. Lower Service Band Indices
i. Background
1. Our price cap rules divide incumbent LEC services among four
baskets, with each basket being subject to a separate price cap index
(PCI). Selected categories of services within the trunking and traffic-
sensitive baskets are also subject to individual SBIs. Each tariff year
the carrier must establish, for each such group of services, new upper
and lower bands that are set at specified percentages above and below
the SBI. Price changes are presumptively lawful if the API for the
basket is at or below the PCI, and the prices for each category of
services within the basket are within the established pricing bands.
Most categories of services are currently subject to lower bands that
limit the annual price reductions for those categories to ten percent,
relative to the percentage change in the PCI for that basket, such as
the service categories in the traffic-sensitive and trunking baskets
other than the TIC. Where incumbent LECs are permitted to deaverage
rates, as when an expanded interconnection cross-connect for special
access or transport service has been taken in a LEC study area, annual
price reductions within any zone of the service category are limited to
fifteen percent, although price reductions for the service category as
a whole cannot go down by more than 10 percent.
2. In the Price Cap Second FNPRM, we proposed eliminating the lower
pricing bands for service categories to permit incumbent LECs to reduce
prices to any level above average variable cost. We tentatively
concluded that the price cap indices and upper service band limits
would continue to inhibit predatory pricing effectively.
ii. Discussion
3. We find that removing the lower service band indices would be in
the public interest, and we therefore eliminate them. As set forth in
the Price Cap Second FNPRM, we find that this will lead to lower
prices, particularly as competition emerges and puts pressure on
incumbent LECs to charge rates that are related to the underlying costs
of providing exchange access services. We believe that the current PCI
and upper SBIs adequately control predatory pricing, and that we do not
need AT&T's conditions for eliminating the lower SBIs to address
predation. If an incumbent LEC lowers its prices in one year, the upper
SBIs prevent the incumbent LEC from immediately raising its rates back
to its previous levels. In addition, we remain skeptical that incumbent
LECs in this context successfully could engage in predatory pricing
(lowering prices to eliminate competitors and then raising prices to
above-competitive levels). The lower service band indices do not
prohibit below-band tariff filings. Rather, they establish higher cost
support requirements for below-band filings, and a presumption that
below-cap, within-band tariff filings are lawful. Based on the comments
submitted in response to the Price Cap Second FNPRM, and in light of
our continuing skepticism about the potential for an incumbent LEC to
engage successfully in predatory pricing, we conclude that the
presumption of lawfulness that we have applied to within-band tariff
filings can now be extended to all rate decreases.
4. We also find that AT&T's suggested conditions are not necessary
to limit the ``headroom'' an incumbent LEC might create by lowering
certain access rates within a basket. We are retaining the SBI upper
bands. Those upper bands constrain the incumbent price cap LECs'
ability to use headroom to increase rates for any particular access
service beyond specified percentages. This decision is consistent with
our current treatment of below-band filings, which are included in the
calculation of an incumbent LEC's API. In addition, in this NPRM, we
invite comment on two alternative approaches to access reform.
Regardless of which approach we adopt, access reform should result in
incumbent LECs' access rates moving closer to forward-looking economic
cost, and so would limit the extent to which an incumbent LEC could
take advantage of any headroom that may be created by lowering certain
access rates.
B. Waiver Requirement for Introduction of New Services
i. Background
5. In the Price Cap Second FNPRM, we noted that many incumbent LECs
have argued that new services and technologies often do not fit the
existing Part 69 rate structure requirements, and that obtaining a
waiver to introduce a new rate element is costly, time-consuming, and
poses a significant impediment to the introduction of new services.
Because we found that our rules may unnecessarily hinder the
introduction of new services, we proposed to eliminate the current Part
69 requirement that incumbent price cap LECs seek a waiver each time
they want to establish new rate elements for a new switched access
service. Specifically, we proposed to modify Part 69 to permit an
incumbent price cap LEC to introduce a new service by filing a petition
for the new service based on a public interest standard. We further
proposed that after the first incumbent LEC had satisfied the public
interest requirement for establishing new rate elements for a new
switched access service, other incumbent price cap LECs could introduce
identical new services, and their petitions would be
[[Page 4659]]
reviewed in an expedited fashion (i.e., within ten days).
ii. Discussion
6. We conclude that the relaxed procedures for introducing new
switched access services that we set forth in the Price Cap Second
FNPRM will further the public interest, and we therefore adopt them. We
find that requiring an incumbent LEC to file a waiver to introduce a
new rate element imposes a costly, time-consuming, and unnecessary
burden on incumbent LECs, and significantly impedes the introduction of
new services. Also, we believe that delaying implementation would not
assist in the development of a competitive marketplace. We therefore
amend Part 69 so that an incumbent LEC may introduce a new service by
filing a petition for the new service based on a public interest
standard.
7. We also amend Part 69 so that after the first incumbent LEC has
satisfied the public interest requirement for establishing new rate
elements for a new switched access service, another incumbent price cap
LEC can file a petition seeking authority to introduce identical rate
elements for an identical new service, and its petition will be
reviewed within ten days of the release of a Public Notice. Parties may
file comments in response to such a petition within seven days of the
Public Notice. The incumbent LEC shall have authority to introduce
these new rate elements after expiration of the ten-day period, unless
the Common Carrier Bureau has informed the LEC that the LEC has not
demonstrated that its new service qualifies as a ``me-too'' service.
The incumbent LEC may then file one subsequent new petition for ``me-
too'' authorization for that service or may file a public interest
petition seeking to introduce that service. An incumbent LEC may not
seek expedited review based on our public interest authorization of a
new service based on a competitive showing, such as was the case with
the NYNEX USPP and Ameritech Customers First waivers. In such cases, an
incumbent LEC must file its own petition seeking approval for a new
rate element.
Ordering Clauses
8. It is further ordered that, pursuant to Sections 1-4, 201-205,
and 303(r) of the Communications Act of 1934, as amended, 47 U.S.C.
151-154, 201-205, and 303(r) that the third report and order is
adopted, effective June 30, 1997. The collections of information
contained within are contingent upon approval by the Office of
Management and Budget.
9. It is further ordered that Parts 61 and 69 of the Commission's
rules, 47 CFR Parts 61 and 69 are amended as set forth below.
List of Subjects
47 CFR Part 61
Communications common carriers, Reporting and recordkeeping
requirements, Tariffs.
47 CFR Part 69
Access charges, Communications common carriers, Reporting and
recordkeeping requirements.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
Rule Changes
Title 47 of the Code of Federal Regulations, Parts 61 and 69, are
amended as follows:
PART 61--TARIFFS
1. The authority citation for Part 61 continues to read as follows:
Authority: Secs. 1, 4(i), 4(j), 201-205, and 403 of the
Communications Act of 1934, as amended; 47 U.S.C. 151, 154(i),
154(j), 201-205, and 403, unless otherwise noted.
2. Section 61.47 is amended by revising paragraphs (e), (g)(1),
(g)(2), (g)(4), and (h)(2) and by removing paragraph (g)(6) to read as
follows:
Sec. 61.47 Adjustments to the SBI; pricing bands.
* * * * *
(e) Pricing bands shall be established each tariff year for each
service category and subcategory within a basket. Except as provided in
paragraphs (f), (g), and (h) of this section, each band shall limit the
pricing flexibility of the service category or subcategory, as
reflected in the SBI, to an annual increase of five percent, relative
to the percentage change in the PCI for that basket, measured from the
levels in effect on the last day of the preceding tariff year. For
local exchange carriers subject to price caps as that term is defined
in Sec. 61.3(x), there shall be no lower pricing band for any service
category or subcategory.
* * * * *
(g)(1) Local Exchange Carriers--Service Categories and
Subcategories. Local exchange carriers subject to price cap regulation
as that term is defined in Sec. 61.3(x) shall use the methodology set
forth in paragraphs (a) through (d) of this section to calculate two
separate subindexes: One for the DS1 services offered by such carriers
and the other for the DS3 services offered by such carriers. The annual
pricing flexibility for each of these two subindexes shall be limited
to an annual increase of five percent, relative to the percentage
change in the PCI for the special access services basket, measured from
the last day of the preceding tariff year. There shall be no lower
pricing band for these two subindexes.
(2) The upper pricing band for the tandem-switched transport
service category shall limit the annual upward pricing flexibility for
this service category, as reflected in its SBI, to two percent,
relative to the percentage change in the PCI for the trunking basket,
measured from the levels in effect on the last day of the preceding
tariff year. There shall be no lower pricing band for the tandem-
switched transport service category.
* * * * *
(4) Local exchange carriers subject to price cap regulation as that
term is defined in Sec. 61.3(x) shall use the methodology set forth in
paragraphs (a) through (d) of this section to calculate a separate
subindex for the 800 data base vertical features offered by such
carriers. The annual pricing flexibility for this subindex shall be
limited to an annual increase of five percent, relative to the
percentage change in the PCI for the traffic sensitive basket, measured
from the last day of the preceding tariff year. There shall be no lower
pricing band for this subindex.
* * * * *
(h) * * *
(2) The annual pricing flexibility for each of the subindexes
specified in paragraph (h)(1) of this section shall be limited to an
annual increase of five percent, relative to the percentage change in
the PCI for the trunking basket, measured from the levels in effect on
the last day of the preceding tariff year. There shall be no lower
pricing band for these subindexes.
Sec. 61.49 [Amended]
3. Section 61.49 is amended by removing paragraph (d) and
redesignating paragraphs (e) through (k) as paragraphs (d) through (j).
PART 69--ACCESS CHARGES
4. The authority citation for Part 69 continues to read as follows:
Authority: Sec. 4, 201, 202, 203, 205, 218, 403, 48 Stat. 1066,
1070, 1077, 1094, as amended; 47 U.S.C. 154, 201, 202, 203, 205,
218, 403.
5. Section 69.4 is amended by adding paragraph (g) to read as
follows:
Sec. 69.4 Charges to be filed.
* * * * *
[[Page 4660]]
(g)(1) Local exchange carriers subject to price cap regulation as
that term is defined in Sec. 61.3(x) of this chapter may establish one
or more switched access rate elements for a new service within the
meaning of Sec. 61.42(g) of this chapter, upon approval of a petition
demonstrating that:
(i) The establishment of the new rate element or elements would be
in the public interest; or
(ii) Another local exchange carrier has previously obtained
permission to establish one or more rate elements identical to those
proposed in the petition to offer the identical service; and the
original petition did not rely upon a competitive showing as part of
the public interest justification.
(2) The Chief, Common Carrier Bureau shall issue a Public Notice of
the filing of a petition under paragraph (g)(1)(ii) of this section.
Parties may file comments in response to such a petition within seven
days of the Public Notice. The local exchange carrier shall have
authority to introduce new rate elements under paragraph (g)(1)(ii) of
this section, after the expiration of ten days from issuance of the
Public Notice, unless the Chief, Common Carrier Bureau informs the LEC
that the LEC has not demonstrated that its new service meets the
standards of paragraph (g)(1)(ii) of this section. The incumbent LEC
may then file one subsequent petition for authorization of that service
under paragraph (g)(1)(ii) of this section.
[FR Doc. 97-2143 Filed 1-30-97; 8:45 am]
BILLING CODE 6712-01-P
