[Federal Register Volume 63, Number 205 (Friday, October 23, 1998)]
[Proposed Rules]
[Pages 56892-56900]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28477]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Chapter I
[CC Docket No. 96-61; FCC 98-258]
Policy and Rules Concerning the Interstate, Interexchange
Marketplace
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
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SUMMARY: The Further Notice of Proposed Rulemaking examines
restrictions that limit a common carrier's ability to bundle certain
goods and services together and offer such bundles to the public. The
goods and services at issue include telecommunications services,
enhanced services, and customer premises equipment (CPE). Our rules
currently prohibit telecommunications carriers from bundling
telecommunications services with CPE, and place restrictions on the
bundling of telecommunications services with enhanced services. Our
current restrictions not only prevent carriers from offering distinct
goods and/or services only on a bundled basis, but also prohibit
carriers from offering ``package discounts,'' which enable customers to
purchase an array of products in a package at a lower price than the
individual products could be purchased separately. In this proceeding,
we examine whether market conditions have changed sufficient to warrant
lifting our restrictions on the bundling of CPE and enhanced services
with basic telecommunications services.
DATES: Comments are due on or before November 23, 1998 and reply
comments are due on or before December 23, 1998.
ADDRESSES: Comments and reply comments should be sent to Office of the
Secretary, Federal Communications Commission, 1919 M Street, NW, Room
222, Washington, DC 20554, with a copy to Janice Myles of the Common
Carrier Bureau, 1919 M Street, NW, Room 544, Washington, DC 20554.
Parties should also file one copy of any documents filed in this docket
with the Commission's copy contractor, International Transcription
Services, Inc., 1231 20th St., NW, Washington, DC 20036.
FOR FURTHER INFORMATION CONTACT: Michael Pryor, Deputy Chief, Policy
and Program Planning Division, Common Carrier Bureau, (202) 418-1580.
Further information may also be obtained by calling the Common Carrier
Bureau's TTY number: 202-418-0484.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's
Further Notice of Proposed Rulemaking adopted October 1, 1998 and
released October 9, 1998 (FCC 99-258). The full text of this Notice of
Proposed Rulemaking is available for inspection and copying during
normal business hours in the FCC Reference Center, 1919 M St., NW, Room
239, Washington, DC. The complete text also may be obtained through the
World Wide Web, at http://www.fcc.gov/Bureaus/Common Carrier/Orders/
fcc9735.wp, or may be purchased from the Commission's copy contractor,
International Transcription Service, Inc., (202) 857-3800, 1231 20th
St., NW, Washington, DC 20036.
Initial Regulatory Flexibility Act Analysis: Pursuant to the
Regulatory Flexibility Act (RFA), the Commission has prepared an
Initial Regulatory Flexibility Analysis (IRFA) of the possible
significant economic impact on small entities of the policies and rules
in this Further NPRM of Proposed Rulemaking (Further NPRM). Written
public comments are requested on the IRFA. These comments must be filed
in accordance with the same filing deadlines as comments on the rest of
the Further NPRM, and should have a separate and distinct heading
designating them as responses to the IRFA. The Commission shall send a
copy of this Further NPRM, including the IRFA, to the Chief Counsel for
Advocacy of the Small Business Administration in accordance with the
RFA, 5 U.S.C. 603(a).
Synopsis of Notice of Proposed Rulemaking
I. Introduction
1. In this Further Notice of Proposed Rulemaking (Further NPRM), we
examine restrictions that limit a common carrier's ability to bundle
certain goods and services together and offer such bundles to the
public. The goods and services at issue include telecommunications
services, enhanced services, and customer premises equipment (CPE).
Bundling means selling different goods and/or services together in a
single package. Our rules currently prohibit telecommunications
carriers from bundling telecommunications services with CPE, and place
restrictions on the bundling of telecommunications services with
enhanced services. Our current restrictions not only prevent carriers
from offering distinct goods and/or services only on a bundled basis,
but also prohibit carriers from offering ``package discounts,'' which
enable ``customers [to] purchase an array of products in a package at a
lower price than the individual products could be purchased
separately.''
2. In this proceeding, we examine whether market conditions have
changed sufficiently to warrant lifting our restrictions on the
bundling of CPE and enhanced services with basic telecommunications
services. At the time the Commission adopted the CPE and enhanced
services bundling restrictions, the Commission recognized, ``[i]f the
markets for components of [a] commodity bundle are workably
competitive, bundling may present no major societal problems so long as
the consumer is not deceived concerning the content and quality of the
bundle.''
3. This review is consistent with our overall effort to reduce
regulation wherever conditions warrant. The review we take in this
notice is also consistent with our statutory obligation, as part of our
biennial review of regulations, to eliminate or modify regulations that
``are no longer necessary in the public interest as the result of
meaningful economic competition.''
II. Background
4. In light of changes in the interexchange market over the past
decade and the passage of the Telecommunications Act of 1996 (1996
Act), the Commission issued a Notice of Proposed Rulemaking, 61 FR
14717,
[[Page 56893]]
April 3, 1996, (Interexchange NPRM) on March 25, 1996, initiating a
review of the Commission's regulation of interstate, domestic,
interexchange services. The Interexchange NPRM, inter alia, sought
comment on the Commission's tentative conclusion to revise its rule
against bundling of common carrier communications services and CPE by
allowing nondominant interexchange carriers to bundle CPE with
interstate, domestic, interexchange telecommunications services.
5. In the Interexchange Second Report and Order, 61 FR 59340,
November 22, 1996, the Commission deferred action on its tentative
conclusion to modify the CPE bundling restriction. The Commission noted
that AT&T, in its comments on the Commission's tentative conclusions
regarding CPE bundling, raised the issue of whether the Commission
should also eliminate the restrictions on bundled packages of enhanced
and interexchange services offered by nondominant interexchange
carriers. The enhanced services restriction (which is not codified in
the Commission's rules) was adopted by the Commission in the Computer
II proceeding. In the Interexchange Second Report and Order, the
Commission stated that it would issue a Further NPRM addressing the
continued application of both the CPE and enhanced services bundling
restrictions.
6. We note, in addition, that Congress required the Commission to
conduct a biennial review of regulations that apply to operations or
activities of any provider of telecommunications service and to repeal
or modify any regulation it determines to be ``no longer necessary in
the public interest.'' Accordingly, the Commission has begun a
comprehensive 1998 biennial review of telecommunications and other
regulations to promote ``meaningful deregulation and streamlining where
competition or other considerations warrant such action.'' In this
Further NPRM, therefore, we seek comment on the extent to which the
continued application of both the CPE and enhanced services bundling
restrictions is ``no longer necessary in the public interest.''
7. In order to develop a more detailed and complete record than was
possible in the context of the much larger Interexchange Proceeding, we
issue this Further NPRM focused solely on the bundling and package
discount issues. In addition to developing a more complete record on
the issues surrounding bundling and discounts on packages of CPE and
interstate, domestic, interexchange services offered by nondominant
interexchange carriers, we seek further comment on the issues raised by
commenters. We believe that developing a more complete record on our
previous tentative conclusions, and the issues raised by the parties,
will facilitate more informed decision-making. We therefore ask
interested parties to respond to the issues raised in this Further
NPRM. To the extent that parties want any arguments made in response to
the Interexchange NPRM to be made part of the record for this Further
NPRM, we ask them to restate those arguments in their comments.
III. Discussion
A. CPE Unbundling
8. In the Computer II proceeding, the Commission adopted a rule
requiring all common carriers to sell or lease CPE separate and apart
from such carriers' regulated communications services, and to offer CPE
solely on a deregulated, non-tariffed basis. Section 64.702(e) of our
rules provides:
Except as otherwise ordered by the Commission, after March 1,
1982, the carrier provision of customer-premises equipment used in
conjunction with the interstate telecommunications network shall be
separate and distinct from provision of common carrier
communications services and not offered on a tariffed basis.
Carriers previously had provided CPE to customers as part of a bundled
package of services. The Commission required carriers to separate the
provision of CPE from the provision of telecommunications services
because it found that continued bundling of telecommunications services
with CPE could force customers to purchase unwanted CPE in order to
obtain necessary transmission services, thus restricting customer
choice and retarding the development of a competitive CPE market. The
Commission recognized, however, that there may not be any
anticompetitive effects of bundling ``[i]f the markets for components
of [a] commodity bundle are workably competitive.''
9. In the Interexchange NPRM, the Commission tentatively concluded
that it should modify the CPE bundling restriction codified in section
64.702(e) to allow nondominant interexchange carriers to bundle CPE
with their interstate, domestic, interexchange services. The Commission
noted that bundling may benefit consumers and promote competition, as
long as the markets for the components of the bundle are substantially
competitive so that carriers could not engage in anticompetitive
conduct. The Commission tentatively concluded that, in light of the
development of substantial competition in the markets for CPE and
interstate, interexchange services, it was unlikely that nondominant
interexchange carriers could engage in the type of anticompetitive
conduct that led the Commission to prohibit the bundling of CPE with
the provision, inter alia, of interstate, domestic, interexchange
services. In support of this tentative conclusion, we note that the
Commission has previously determined that the CPE market is
competitive, and that the interstate, domestic, interexchange market is
substantially competitive.
10. We seek comment on whether the restriction against bundling CPE
with interstate, domestic, interexchange services ``is no longer
necessary in the public interest due to meaningful economic
competition'' in both the CPE and interstate, domestic, interexchange
markets. In particular, we seek further comment on our tentative
conclusion that both the CPE market and the interstate, domestic,
interexchange services market demonstrate sufficient competition that
it is unlikely that nondominant interexchange carriers could engage in
anticompetitive behavior should the Commission allow the bundling of
CPE with interstate, domestic, interexchange services. Commenters
should provide empirical data on the level of competition in the
interexchange and CPE markets to support their comments on these
issues. We note that IDCMA previously submitted comments arguing that
an interexchange carrier, even if lacking market power, nevertheless
might have the ability to force consumers of their interstate,
interexchange service offerings to purchase CPE from that same
interexchange carrier. We seek comment on IDCMA's argument. We also
seek comment on whether interexchange carriers that lack market power
could ``lock in'' customers, through the use of long-term contracts and
early termination penalties, and thus impede competition in the CPE
market.
11. The Commission has previously found that bundling may be used
as an ``efficient distribution mechanism'' and an ``efficient
promotional device'' that may allow consumers to obtain goods and
services ``more economically than if it were prohibited.'' We seek
comment on whether we would benefit consumers and foster increased
competition in the CPE and interexchange services markets by
eliminating the CPE unbundling rule for nondominant interexchange
carriers. We also seek comment on whether other
[[Page 56894]]
benefits or costs would result from modifying the CPE unbundling rule
as it applies to these carriers. Parties should address whether
amending the CPE unbundling rule for nondominant interexchange carriers
would benefit consumers, by enabling carriers as well as CPE vendors to
offer consumers innovative packages at prices that reflect reduced
transaction costs. Parties should also address the contention raised by
IDCMA, CERC, and ITAA in their previous comments that allowing
nondominant interexchange carriers to bundle CPE and interstate,
domestic, interexchange services would not benefit consumers, because
the unbundling rule does not preclude interexchange carriers from
offering one-stop shopping and creating service/equipment packages; it
only requires them to charge separately for each component. We also
seek comment on whether the Commission should adopt transition
mechanisms if we were to permit bundling of CPE and interstate,
domestic, interexchange services, and if so, what transition mechanisms
should be adopted.
12. In the Interexchange NPRM, the Commission also sought comment
on the effect that the proposed amendment of Sec. 64.702(e) would have
on the Commission's other policies or rules. We seek comment on whether
the proposal to allow bundling and discounts for packages of CPE with
interstate, domestic, interexchange service is consistent with the
purposes of the Act. In particular, we seek further comment on whether
there are any other provisions of the Act or the Commission's rules and
regulations that are relevant to our analysis. For example, IDCMA and
CERC assert in their prior comments that the Commission's proposal is
inconsistent with the intent of Congress, as demonstrated by section
629 of the Act, which prohibits the bundling of multichannel video
programming service with the equipment used by consumers to access
multichannel video programming service.
13. In addition, we seek comment on whether or under what
conditions bundling of CPE with interstate, domestic, interexchange
services would violate the requirements in sections 201 and 202 of the
Act that rates, practices, and classifications be just, reasonable, and
not unjustly or unreasonably discriminatory. Parties should address
whether, as IDCMA contends, an interexchange carrier that provides
transmission service at a lower price to customers that agree to use
carrier-provided CPE would violate sections 201 and 202. Parties should
also address whether an interexchange carrier that provides CPE at a
discount to customers that agree to use that carrier's interstate,
domestic, interexchange services would violate sections 201 and 202.
Parties should further address IDCMA's assertion that an interexchange
carrier ``could choose to make transmission service available only to
customers that agreed to obtain carrier-provided CPE,'' in violation of
the nondiscrimination requirements found in section 202 of the Act.
14. We also seek further comment on IDCMA's assertion that allowing
interexchange carriers to bundle CPE with interstate, domestic,
interexchange services would cause the Commission to reregulate CPE
because interexchange carriers could offer CPE as a part of their
regulated transmission offering. Parties should address IDCMA's
contention that, because the Commission would have to ensure that a
bundle of CPE and the regulated transmission offering comply with Title
II pricing requirements, the Commission would necessarily need to
impose Title II regulation on CPE. Parties should further address
whether such concerns about reregulation of CPE would apply if the CPE
and the interstate, domestic, interexchange services are priced
separately, but a package discount is given for customers that purchase
both products. U S West, citing the Cellular Bundling Order, 57 FR
28466, June 25, 1992, suggests that the Commission could avoid the
regulation of CPE by permitting packaging of CPE and transmission
services, but continuing to require that CPE and common carrier
services be treated, for regulatory purposes, as different products
subject to different regulatory regimes (i.e. that CPE remain
unregulated). We seek comment on whether such an approach is
appropriate in this instance. We further seek comment on any other
issues that may arise when CPE is packaged with a telecommunications
service that is regulated under Title II of the Act.
15. We further seek comment on the contention raised by IDCMA,
CERC, and ITAA that permitting nondominant interexchange carriers to
bundle CPE and interstate, domestic, interexchange services would allow
such carriers to subsidize the provision of equipment from the charges
for service. In addition, we seek comment on the basis upon which to
allocate revenue between telecommunications services and CPE when
priced as a package for purposes of calculating a carrier's universal
service contribution.
16. Moreover, we seek comment on whether and how the CPE bundling
proposal would affect the Commission's Part 68 rules. Specifically,
although we have not proposed modifications to the Commission's Part 68
registration program in this Further NPRM, we seek comment on whether
the ``demarcation point'' between telephone company communications
facilities and terminal equipment, as defined in section 68.3 of the
Commissions rules, would change if CPE and interexchange carriers
network offerings were bundled or packaged together at a discount, and
what effect, if any, this would have on the Commission's Part 68
program.
17. We further seek comment on whether and how the CPE bundling
proposal would affect a carrier's disclosure obligation under
Sec. 64.702(d)(2), the ``all-carrier rule.'' Section 64.702(d)(2)
requires that all carriers owning basic transmission facilities
disclose to the public all information relating to network design
``insofar as such information affects either intercarrier
interconnection or the manner in which interconnected CPE operates.''
We seek comment on the concern expressed by IDCMA and CERC that
carriers that offer bundled CPE and service packages will not provide
independent or unaffiliated equipment manufacturers with the necessary
technical interface information. In particular, we seek comment on
whether we need to require public disclosure of network interfaces
beyond what is already required in section 64.702(d)(2) of our rules
should we remove the CPE bundling restriction.
18. In the Interexchange NPRM we also asked parties to comment on
whether we should require interexchange carriers offering packages of
CPE and interstate, domestic, interexchange services to continue to
offer separately unbundled, interstate, domestic, interexchange
services. We seek further comment on this issue. In particular, we seek
further comment on whether this ``unbundled option'' requirement would
benefit consumers by ensuring that those consumers that do not wish to
purchase carrier-provided CPE may obtain transmission services only.
For example, as U S West notes, the Commission allows bundling of
cellular CPE and cellular service, provided that the cellular service
is also offered separately. We also seek comment on whether any
additional safeguards are necessary to protect consumers and how any
such safeguards should be structured. We seek further comment on CERC's
proposal that the Commission should require carriers that offer
packages of CPE and interexchange services to state separately the
charges for CPE and
[[Page 56895]]
service in both advertising materials and bills, even when the bundled
service is being sold at a single price. We also seek comment on CERC's
further suggestion that the Commission permit the customer to obtain
the service separately at a price which, when added to the CPE price,
does not exceed the price for obtaining CPE and the telecommunications
service jointly. Parties should address whether adopting this proposal
would undermine the benefits to consumers of allowing package discounts
for bundles of CPE and interstate, domestic, interexchange services.
19. In a related vein, we sought comment in the Interexchange NPRM
on whether the U.S. Government's obligations under the General
Agreement on Trade in Services (GATS) to ensure that ``service
suppliers'' are permitted ``to purchase or lease and attach terminal or
other equipment which interfaces with the [public telecommunications
transport] network and which is necessary to supply [their] services''
implies that interexchange carriers should be required to offer
separately unbundled, interstate, domestic, interexchange services on a
nondiscriminatory basis if they are permitted to bundle CPE with the
provision of such services. We seek further comment on whether amending
the unbundling rule is consistent with U.S. international obligations
under both the GATS and the North American Free Trade Agreement
(NAFTA), and whether such obligations require that interexchange
carriers bundling CPE and interstate, domestic, interexchange services
also continue to offer such services separately and unbundled from CPE.
20. We also seek comment on whether eliminating the prohibition
against bundling CPE with interstate, domestic, interexchange services
offered by nondominant interexchange carriers would adversely affect
competition in the international market. The impact on the
international market may arise because many carriers currently offer
bundled interstate, domestic, interexchange, and international
services. Nondominant interexchange carriers would thus be able to
offer packages that include CPE, international services, and
interstate, domestic, interexchange services. We therefore seek comment
on whether there are any anticompetitive effects of allowing
nondominant interexchange carriers to bundle CPE with interstate,
domestic, interexchange services, when such services, in turn, are
packaged with international services. Parties should address whether
any anticompetitive effects they identify should preclude a nondominant
interexchange carrier from bundling CPE with interstate, domestic,
interexchange services, when such services, in turn, are packaged with
international services. Parties should also address whether there are
any safeguards to prevent anticompetitive conduct that are less
restrictive than prohibiting such bundles.
21. Furthermore, the Interexchange NPRM sought comment on whether
and how the entry of incumbent local exchange carriers (LECs),
including the Bell Operating Companies (BOCs), into the market for
interstate, domestic, interexchange services should affect our
analysis. After the Interexchange NPRM was issued, the Commission, in
the LEC Classification Order, 62 FR 35974, July 3, 1997, classified the
BOCs' section 272 affiliates as nondominant in the provision of in-
region, interstate, interLATA services. The Commission also classified
the BOCs and their affiliates as non-dominant in the provision of out-
of-region interstate, domestic, interexchange services. The Commission
concluded that the requirements established by, and the rules
implemented pursuant to, sections 271 and 272 of the Act, together with
other existing Commission rules, sufficiently limit the ability of a
BOC and its section 272 affiliate to use the BOC's market power in the
local exchange or exchange access markets to raise and sustain prices
of interstate, interLATA services above competitive levels. In
addition, the Commission classified independent incumbent LECs and
their affiliates as nondominant in the provision of interstate,
interexchange services. The Commission further required these
independent LECs to provide in-region, interexchange services through
separate affiliates that satisfy the requirements established in the
Competitive Carrier Fifth Report and Order, 49 FR 34824, September 4,
1984, but did not require such separation in order to be classified as
nondominant in the provision of out-of-region interstate, interexchange
services.
22. Based on the safeguards imposed by the Act and the Commission's
rules thereunder, we tentatively conclude that, to the extent the BOCs
and their section 272 affiliates, as well as independent LECs and their
affiliates, are classified as nondominant in the provision of
interstate, domestic, interexchange services, these carriers may bundle
CPE with such services to the same extent as other nondominant
interexchange carriers. We seek comment on this tentative conclusion.
23. We also seek comment on whether there are any anticompetitive
effects of allowing any nondominant interexchange carrier to bundle CPE
with interstate, domestic, interexchange services, when such services,
in turn, are packaged with local exchange services. Parties should
address whether any anticompetitive effects they identify should
preclude a nondominant interexchange carrier from bundling CPE with
interstate, domestic, interexchange services, when such services, in
turn, are packaged with local exchange services. Parties should also
address whether there are any safeguards to prevent anticompetitive
conduct that are less restrictive than prohibiting such bundles.
24. Furthermore, we seek comment on the broader question raised by
SBC in previous comments in this proceeding of whether to continue the
prohibition on bundling interstate CPE with local exchange or exchange
access services. We recognize that nondominant interexchange carriers
are entering the local exchange and exchange access markets. As they do
so, they may be able to offer local exchange and exchange access
services in conjunction with the bundled offering of CPE and
interstate, domestic, interexchange services. Nondominant interexchange
carriers may thus be able to offer a package that includes CPE, local
exchange services, and interstate, domestic, interexchange services.
SBC argues that local exchange carriers would be at a disadvantage,
because they would be unable to offer packages that included CPE. In
this Further NPRM, we seek comment on the issues raised by SBC as to
whether to allow bundling of CPE with local exchange and exchange
access services.
25. We note that the basis for the Commission's tentative
conclusion in the Interexchange NPRM to allow nondominant interexchange
carriers to bundle CPE with interstate, domestic, interexchange
services is that both the CPE and interstate, domestic, interexchange
markets are substantially competitive and that nondominant
interexchange carriers do not possess market power in the interstate,
interexchange market. Thus, the Commission tentatively concluded in the
Interexchange NPRM that allowing such carriers to bundle CPE with
interstate, domestic, interexchange services is unlikely to lead to the
anticompetitive conduct that led the Commission to prohibit the
bundling of CPE with telecommunications services.
26. We seek comment on whether a similar analysis should be adopted
in assessing whether to allow the bundling of CPE with local exchange
and
[[Page 56896]]
exchange access services. The analysis, as noted, contains two parts.
The first part of the analysis focuses on the nature of the component
markets. We seek comment on whether the differences in the structures
of and the market conditions in the local exchange, exchange access,
and interexchange markets warrant continued applicability of the CPE
bundling restrictions to local exchange and exchange access markets.
The second part of the analysis in the Interexchange NPRM concludes
that allowing nondominant interexchange carriers to bundle CPE and
interstate, domestic, interexchange services would be unlikely to lead
to anticompetitive conduct, because such carriers do not have market
power. We seek comment on whether there are carriers in the local
exchange or exchange access markets that would similarly not raise
anticompetitive concerns if allowed to bundle CPE with local exchange
and exchange access services. In this regard, parties should address
what role market power should play in the analysis and whether carriers
that do not possess market power in the local exchange and exchange
access markets would be able to engage in the anticompetitive conduct
which led the Commission to prohibit such bundling. Parties should also
address whether lifting the CPE bundling restrictions on only certain
categories of carriers in the local exchange and exchange access
markets would promote competition and the provision of innovative
services and packages, thereby benefiting consumers.
27. Finally, we seek comment on the jurisdictional issues that may
arise if we allow bundling of CPE and local exchange services. We note
that, although the Commission has deregulated CPE, the Commission has
the authority, under Title I of the Communications Act, to regulate CPE
that is used for both interstate and intrastate communications and to
preempt inconsistent regulation on the part of the states. States have
the authority to regulate the provision of local exchange services. As
discussed above, an issue regarding the regulation of CPE may arise if
CPE, which was deregulated by the Commission, is bundled or packaged
with a regulated service. Moreover, jurisdictional questions may arise
if CPE is bundled with local exchange services, because states have the
authority to regulate local exchange services, while the Commission has
the authority to regulate CPE. We therefore seek comment on what, if
any, impact allowing the bundling or packaging of CPE with local
exchange service may have on the states' regulation of local exchange
service or on the Commission's regulation of CPE. We note that similar
jurisdictional issues may arise with bundles or packages of
interexchange and local exchange services, although we do not consider
such jurisdictional issues in this proceeding.
B. Enhanced Services
28. In the Computer II proceeding, the Commission adopted a
regulatory scheme that distinguished between the common carrier
offering of basic transmission services and the offering of enhanced
services. The Commission defined a ``basic transmission service'' as
the common carrier offering of ``pure transmission capability'' for the
movement of information ``over a communications path that is virtually
transparent in terms of its interaction with customer-supplied
information.'' The Commission further stated that a basic transmission
service should be limited to the offering of transmission capacity
between two or more points suitable for a user's transmission needs.
The common carrier offering of basic services is regulated under Title
II of the Communications Act. In contrast, the Commission defined
enhanced services as:
services, offered over common carrier transmission facilities used
in interstate communications, which employ computer processing
applications that 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.
Enhanced services are not regulated under Title II of the
Communications Act.
29. We note that the 1996 Act does not utilize the Commission's
basic/enhanced terminology, but instead refers to ``telecommunications
services'' and ``information services.'' We concluded in the Non-
Accounting Safeguards Order, 62 FR 2927, January 21, 1997, that,
although the text of the Commission's definition of ``enhanced
services'' differs from the 1996 Act's definition of ``information
services,'' the two terms should be interpreted to extend to the same
functions. We recently issued a report reviewing the Commission's
interpretation of the terms ``telecommunications services'' and
``information services.'' In that report, we concluded that, in the
1996 Act, Congress intended these terms to refer to distinct categories
of services and that Congress sought ``to maintain the Computer II
framework'' and the basic/enhanced distinction in its definition of
``telecommunications services'' and ``information services.'' To avoid
confusion in this Further NPRM, we will continue to use the terms
``basic services'' and ``enhanced services'' to refer to the
restrictions adopted in the Computer II proceeding.
30. In the Computer II proceeding, the Commission required common
carriers that own transmission facilities and provide enhanced services
to ``acquire transmission capacity pursuant to the same prices, terms,
and conditions reflected in their tariffs when their own facilities are
utilized.'' This requirement has been interpreted in decisions since
Computer II to mean that ``carriers that own common carrier
transmission facilities and provide enhanced services must unbundle
basic from enhanced services and offer transmission capacity to other
enhanced service providers under the same tariffed terms and conditions
under which they provide such services to their own enhanced service
operations.''
31. Although the Commission did not specifically seek comment in
the Interexchange NPRM on the restriction against bundling of enhanced
and basic telecommunications services, AT&T urged the Commission, in
its comments, to issue a further notice of proposed rulemaking on this
issue. Specifically, AT&T proposes that the Commission eliminate the
prohibition on bundled packages of enhanced services and interstate,
interexchange services offered by nondominant interexchange carriers.
The Commission declined in the Interexchange Second Report and Order,
61 FR 59340, November 22, 1996, to determine whether it should
eliminate the CPE unbundling rule because it found, in part, that
AT&T's request presented issues similar to those raised in the
Interexchange NPRM relating to bundling of CPE with interstate,
domestic, interexchange services by nondominant interexchange carriers.
The Commission found in the Interexchange Second Report and Order that
it did not have a sufficient record to address AT&T's proposal to
remove the restriction on bundling enhanced services with interstate,
domestic, interexchange services.
32. We thus seek comment in this Further NPRM on whether we should
remove the restrictions on the bundling of enhanced services with
interstate, domestic, interexchange services offered by nondominant
interexchange carriers. We also seek comment on whether the
restrictions against bundling enhanced services with interstate,
domestic, interexchange services offered by nondominant interexchange
carriers is
[[Page 56897]]
no longer necessary in the public interest.
33. As we noted above, the Commission found that BOC section 272
affiliates would be classified as nondominant interexchange carriers.
We note that, in the Non-Accounting Safeguards Order, the Commission
allowed the BOCs' section 272 affiliates to bundle interLATA
telecommunications service with interLATA information services, as long
as the affiliate provided interLATA telecommunications services on a
resale basis. The Commission noted that if ``a BOC's section 272
affiliate were classified as a facilities-based telecommunications
carrier (i.e., it did not provide interLATA telecommunications services
solely through resale), the affiliate would be subject to a Computer II
obligation to unbundle and tariff the underlying telecommunications
services used to furnish any bundled service offering.'' In its
discussion of this issue in the Non-Accounting Safeguards Order, the
Commission noted that the market for interLATA information services
``is fully competitive'' and the market for interLATA
telecommunications services is ``substantially competitive.'' Because
of these market conditions, the Commission stated that there was ``no
basis for concern that a section 272 affiliate providing an information
service bundled with an interLATA telecommunications service would be
able to exercise market power.'' We seek comment on the effect on this
proceeding of the decision in the Non-Accounting Safeguards Order to
permit BOC section 272 affiliates that provide interLATA
telecommunications services solely on a resale basis to bundle such
telecommunications services and interLATA information services.
Specifically, we seek comment on whether the enhanced services market
and the interstate, domestic, interexchange services market are
sufficiently competitive so that it is unlikely that nondominant
interexchange carriers could engage in anticompetitive behavior should
the Commission eliminate the restrictions on bundling of enhanced
services with interstate, domestic, interexchange services. Commenters
should provide empirical data on the level of competition in the
interexchange and enhanced services markets to support their comments
on these issues. We also seek comment on whether, as claimed by ITAA,
AT&T or any other nondominant interexchange carriers have the ability,
to discriminate in favor of their own enhanced service offerings.
34. Commenters should also address AT&T's assertion that the
rationale underlying the elimination of the CPE bundling restriction
applies with equal force to the enhanced services bundling restriction,
and therefore, that the Commission must lift the restriction on
bundling enhanced services with interexchange services if the CPE
bundling restriction is lifted. Commenters should explain how the
similarities or differences between the CPE and enhanced services
markets should affect our analysis. Commenters should address not only
whether the issues raised in the CPE discussion above apply to the
proposal to remove the enhanced services bundling restriction, but also
whether additional issues are raised. Commenters should also discuss
whether any transition mechanisms or safeguards, such as those
discussed with respect to modifying the CPE unbundling rule, would be
necessary or sufficient to protect against anticompetitive behavior if
the Commission were to permit interexchange carriers to bundle enhanced
services with interstate, domestic, interexchange services.
35. As in the CPE bundling discussion above, we also seek comment
on whether there are any anticompetitive effects of allowing
nondominant interexchange carriers to bundle enhanced services with
interstate, domestic, interexchange services, when such services, in
turn, are packaged with international services.
36. We seek comment on whether there are any anticompetitive
effects of allowing nondominant interexchange carriers to bundle, or
provide discounts on packages of, enhanced services and interstate,
domestic, interexchange services, when such services, in turn, are
packaged with local exchange services. Parties should further address
whether any effects they identify should preclude a nondominant
interexchange carrier from bundling, or offering discounts on packages
of, enhanced services and interstate, domestic, interexchange services,
when such services, in turn, are packaged with local exchange services.
Parties should also address whether there are any safeguards to prevent
anticompetitive conduct that are less restrictive than prohibiting such
bundles.
37. In addition, as in the CPE discussion above, we seek comment on
the broader question of whether to amend the enhanced services bundling
restriction to allow any carrier to bundle enhanced services with local
exchange and exchange access services. Commenters should address not
only whether the issues raised in the CPE discussion above apply to the
elimination of the enhanced services bundling restriction, but also
whether additional issues are raised. We note, as discussed below, that
we consider in this Further NPRM only those services that are within
the scope of the Commission's recognized jurisdiction. We recognize
that states have authority to regulate local exchange services and
enhanced services that are offered purely on an intrastate basis. Thus,
in this Further NPRM, we do not consider the bundling of local exchange
services and purely intrastate enhanced services.
38. As noted above, the basis for the Commission's tentative
conclusion in the Interexchange NPRM to allow nondominant interexchange
carriers to bundle CPE with interstate, domestic, interexchange
services is that both the CPE and interstate, domestic, interexchange
markets are substantially competitive and that nondominant
interexchange carriers do not possess market power in the interstate,
interexchange market. We seek comment on whether a similar analysis
should be adopted in assessing whether to allow the bundling of
enhanced services with local exchange and exchange access services. We
also seek comment on whether the differences in the structures of and
the market conditions in the local exchange, exchange access, and
interexchange markets warrant continued applicability of the enhanced
services bundling restrictions to the local exchange and exchange
access markets. We further seek comment on whether there are carriers
in the local exchange or exchange access markets that would not raise
anticompetitive concerns if allowed to bundle enhanced services with
local exchange and exchange access services. In this regard, parties
should address what role market power should play in the analysis and
whether carriers that do not possess market power in the local exchange
and exchange access markets would be able to engage in the
anticompetitive conduct which led the Commission to prohibit such
bundling. Parties should also address whether lifting the enhanced
services bundling restrictions on only certain categories of carriers
in the local exchange and exchange access markets would promote
competition and the provision of innovative services and packages,
thereby benefitting consumers. In addition, as in the CPE discussion
above, we seek comment on what, if any, impact allowing the bundling of
enhanced services with local exchange service may have on the states'
regulation of local exchange
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service and intrastate enhanced services, or on the Commission's
regulation of enhanced services.
39. We note that the Commission has authority to regulate
interstate enhanced services. We also have authority to regulate
jurisdictionally mixed enhanced services where it is ``not possible to
separate the interstate and intrastate components'' and to preempt
inconsistent regulations on the part of the states for the intrastate
portion of those services where ``state regulations would negate valid
FCC regulatory goals.'' Thus, we tentatively conclude that the
questions upon which we seek comment in this Further NPRM fall within
the scope of our authority.
IV. Procedural Matters
A. Ex Parte Presentations
40. This matter shall be treated as a ``permit-but-disclose''
proceeding in accordance with the Commission's revised ex parte rules,
which became effective June 2, 1997. Persons making oral ex parte
presentations are reminded that memoranda summarizing the presentations
must contain summaries of the substance of the presentations and not
merely a listing of the subjects discussed. More than a one or two
sentence description of the views and arguments presented is generally
required. Other rules pertaining to oral and written presentations are
set forth in Section 1.1206(b) as well.
B. Initial Regulatory Flexibility Act Analysis
41. Pursuant to the Regulatory Flexibility Act (RFA), the
Commission has prepared the following Initial Regulatory Flexibility
Analysis (IRFA) of the possible significant economic impact on small
entities of the policies and rules in this Further NPRM of Proposed
Rulemaking (Further NPRM). Written public comments are requested on the
IRFA. These comments must be filed in accordance with the same filing
deadlines as comments on the rest of the Further NPRM, and should have
a separate and distinct heading designating them as responses to the
IRFA.
42. Need for and Objectives of the Proposed Rules. The Commission
is issuing this Further NPRM to review our regulatory framework for
interstate, domestic, interexchange telecommunications services with
regard to the bundling of customer premises equipment (CPE) and
enhanced services. The Commission seeks comment on amending the
Commission's rules and regulations restricting the bundling of CPE and
enhanced services, respectively, with interexchange services, in our
continuing effort to establish a pro-competitive, de-regulatory
national policy framework. The Commission also seeks comment on the
impact that amending these rules and regulations may have on the local
market and on local exchange carriers, and whether the Commission
should amend these rules and regulations for carriers in the local
exchange or exchange access markets.
43. Legal Basis. The proposed action is authorized under sections
1, 2, 4, 10, 11 201-205, 215, 218, 220, 303 of the Communications Act
of 1934, as amended, 47 U.S.C. 151, 152, 154, 160, 161, 201-205, 215,
218, 220, 303.
44. Description and Estimate of the Number of Small Entities To
Which the Proposed Rules Will Apply. Under the RFA, small entities
include small organizations, small businesses, and small governmental
jurisdictions. 5 U.S.C. 601(6). The RFA generally defines the term
``small business'' as having the same meaning as the term ``small
business concern'' under the Small Business Act, 15 U.S.C. 632. 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 a small business for Standard Industrial
Classification (SIC) category 4813 (Telephone Communications, Except
Radiotelephone) to be a small entity when it has no more than 1,500
employees.
45. In this IRFA, we consider the potential impact of this Further
NPRM on three categories of entities, ``small interexchange carriers,''
``small incumbent LECs,'' and ``small non-incumbent LECs.'' 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
IRFA. Accordingly, our use of the terms ``small entities'' and ``small
businesses'' does not encompass ``small incumbent LECs.'' Out of an
abundance of caution, however, for regulatory flexibility analysis
purposes, we will separately consider small incumbent LECs within this
analysis and use the term ``small incumbent LECs'' to refer to any
incumbent LECs that arguably might be defined by SBA as ``small
business concerns.'' Finally, we note that our analysis below includes
the description of those small entities that might be directly affected
by this Further NPRM. We also recognize, however, that this Further
NPRM may have an indirect effect on small CPE and enhanced services
providers.
46. Interexchange Carriers. The proposals in this Further NPRM
would affect all interexchange carriers that meet the definition of a
``small business concern.'' Neither the Commission nor the SBA has
developed a definition of small entities specifically applicable to
providers of interstate, domestic, interexchange services. The SBA,
however, has defined small businesses for Standard Industrial
Classification (SIC) category 4813 (Telephone Communications, Except
Radiotelephone) to be small entities when they have no more than 1,500
employees. According to our most recent data, 143 companies are engaged
in the provision of interexchange services. Several of these carriers
have more than 1,500 employees, and it seems certain that some of these
carriers are not independently owned and operated. Because we cannot
estimate with greater precision the number of interexchange carriers
that would qualify as small business concerns under the SBA definition,
we estimate that there are fewer than 143 small entity interexchange
carriers that may be affected by the proposed decisions in this Further
NPRM. We seek comment on this estimate.
47. Incumbent LECs. SBA has not developed a definition of small
incumbent 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, 1,371 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 1,371
small incumbent LECs that may be affected by the decisions and
regulations adopted in this Further NPRM. We seek comment on this
estimate.
48. Non-Incumbent LECs. SBA has not developed a definition of small
non-incumbent LECs. For purposes of this Further NPRM, we define the
category of ``small non-incumbent LECs'' to include small entities
providing local
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exchange services which do not fall within the statutory definition in
section 251(h), including potential LECs, LECs which have entered the
market since the 1996 Act was passed, and LECs which were not members
of the exchange carrier association pursuant to Sec. 69.601(b) of the
Commission's regulations. We believe it is impracticable to estimate
the number of small entities in this category. We are unaware of any
data on the number of LECs which have entered the market since the 1996
Act was passed, and we believe it is impossible to estimate the number
of entities which may enter the local exchange market in the near
future. Nonetheless, we will estimate the number of small entities in a
subgroup of the category of ``small non-incumbent LECs.'' According to
our most recent data, 109 companies identify themselves in the category
``Competitive Access Providers (CAPs) & Competitive LECs (CLECs).'' A
CLEC is a provider of local exchange services which does not fall
within the definition of ``incumbent LEC'' in section 251(h). Although
it seems certain that some of the carriers in this category are CAPs,
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 non-incumbent LECs that would qualify as small
business concerns under SBA's definition. We seek comment on this
estimate.
49. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements. The Further NPRM does not place any reporting,
record keeping, or other compliance requirements on small interexchange
carriers or on small local exchange carriers. The Further NPRM does
seek comment on what, if any, safeguards are necessary to guard against
potential competitive abuses by interexchange carriers, or local
exchange carriers, should the Commission amend its rules restricting
bundling of CPE and enhanced services. If any such safeguards are
adopted, they may have an impact on interexchange carriers and local
exchange carriers that qualify as small business concerns.
50. Steps Taken to Minimize Any Significant Economic Impact on
Small Entities, and Significant Alternatives Considered. As mentioned
above, the Commission believes that our proposed rules may have a
significant economic impact on interexchange carriers and local
exchange carriers insofar as they are small businesses. The rules we
propose in this Further NPRM are designed to have a positive impact on
interexchange carriers, including small interexchange carriers, and
local exchange carriers, including small local exchange carriers,
because such rules would remove restrictions from their operations.
Such carriers would then be able to create and offer service and
equipment packages that, under the current rules, cannot be bundled and
offered. We seek comment on these tentative determinations, and on
additional actions we might take in this regard to relieve burdens on
small interexchange and local exchange carriers.
51. Federal Rules That May Duplicate, Overlap, or Conflict With the
Proposed Rules. The Commission is proposing to amend Sec. 64.702(e) of
the Commission's Rules, 47 CFR 64.702(e), as well as the Commission's
rules and regulations that restrict the bundling of CPE and enhanced
services, respectively, with interexchange services. The Commission is
also seeking comment on the impact that amending these rules and
regulations may have on the local market and on local exchange
carriers, and whether the Commission should amend these rules and
regulations for carriers in the local exchange or exchange access
markets. We are aware of no rules that may duplicate, overlap, or
conflict with the proposed rules. We seek comment on this conclusion.
C. Comment Filing Procedures
52. Pursuant to applicable procedures set forth in Secs. 1.415 and
1.419 of the Commission's rules, 47 CFR 1.415, 1.419, interested
parties may file comments on or before November 23, 1998 and reply
comments on or before December 23, 1998. Comments may be filed using
the Commission's Electronic Comment Filing System (ECFS) or by filing
paper copies. See Electronic Filing of Documents in Rulemaking
Proceedings, 63 FR 24121, May 1, 1998. Comments filed through the ECFS
can be sent as an electronic file via the Internet to http://
www.fcc.gov/e-file/ecfs.html>. Generally, only one copy of an
electronic submission must be filed. In completing the transmittal
screen, commenters should include their full name, Postal Service
mailing address, and the applicable docket or rulemaking number, which
in this instance is CC Docket No. 96-61. Parties may also submit an
electronic comment by Internet e-mail. To get filing instructions for
e-mail comments, commenters should send an e-mail to ecfs@fcc.gov, and
should include the following words in the body of the message, ``get
form 