[Federal Register Volume 60, Number 194 (Friday, October 6, 1995)]
[Proposed Rules]
[Pages 52362-52363]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-24882]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 61
[CC Docket No. 94-1; FCC 95-406]
Price Cap Performance Review for Local Exchange Carriers
AGENCY: Federal Communications Commission.
ACTION: Further notice of proposed rulemaking.
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SUMMARY: On March 30, 1995, the Federal Communications Commission
adopted a First Report and Order in this docket, revising its price cap
regulations applicable to local exchange carriers (LECs). In that
Order, the Commission also stated that it would consider adopting
further rule revisions in the near future.
In this Further Notice, the Commission seeks comment on revising
its rules governing calculation of the ``X-Factor'' in the price cap
index (PCI) formula, and revising the rules governing sharing
obligations. The Commission also seeks comment on revising the rules
governing the price cap common line formula, and the rules governing
treatment of exogenous costs. In a previous further notice of proposed
rulemaking, the Commission sought comment on how the price cap rules
should be adjusted as the competition faced by local exchange carriers
(LECs) develops in the future. The intended effect of this action is to
revise the price cap rules to strengthen the existing incentives for
LECs to become efficient and innovative.
DATES: Comments must be submitted on or before November 27, 1995. Reply
Comments must be submitted on or before December 27, 1995.
ADDRESSES: Tariff Division, Common Carrier Bureau, Room 518, 1919 M
Street, NW., Washington, D.C. 20554.
FOR FURTHER INFORMATION CONTACT:
Steven Spaeth or C. Anthony Bush, Tariff Division, Common Carrier
Bureau, (202) 418-1530.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Fourth
Further Notice adopted September 27, 1995, and released September 27,
1995. The full text of this Commission decision is available for
inspection and copying during normal business hours
[[Page 52363]]
in the FCC Public Reference Room (Room 230), 1919 M St., N.W.,
Washington, DC. The complete text of this decision may also be
purchased from the Commission's copy contractor, International
Transcription Service, Suite 140, 2100 M Street, N.W., Washington, D.C.
20037.
Regulatory Flexibility Analysis
We have determined that section 605(b) of the Regulatory
Flexibility Act of 1980, 5 U.S.C. 605(b), does not apply to these rules
because they do not have a significant economic impact on a substantial
number of small entities. The definition of a ``small entity'' in
section 3 of the Small Business Act excludes any business that is
dominant in its field of operation. Local exchange carriers do not
qualify as small entities because they have a nationwide monopoly on
ubiquitous access to the subscribers in their service area. The
Commission also has found all exchange carriers to be dominant in its
competitive carrier proceeding. See 85 FCC 2d 1, 23-24 (1980). To the
extent that small telephone companies will be affected by these rules,
we hereby certify that these rules will not have a significant effect
on a substantial number of ``small entities.''
Summary of Report and Order
In this Further Notice, we seek comment on a number of possible
rule revisions. The first set of rules we consider revising is related
to the calculation of the ``X-Factor.'' The productivity factor, or X-
Factor, was included in the LEC price cap plan adopted in 1990 to
reflect the fact that productivity growth in the telecommunications
industry historically was greater than productivity growth in the
economy as a whole. This Further Notice invites comments on three
alternative X-Factor calculation methods. The first is Total Factor
Productivity (TFP). A TFP method would base the X-Factor on the ratio
of an index of total outputs to an index of total inputs. The output
index would represent the quantities of goods or services produced, and
the input index would represent the quantities of goods or services
consumed. The second X-Factor calculation method under consideration is
the Historical Revenue Method, which would set the X-Factor at the
level necessary to reprice cap LECs' access services so that those LECs
would earn a rate of return of 11.25 percent. The third X-Factor
calculation method under consideration is the Historical Price Method.
This is basically the method used by the Commission to set the X-Factor
when it adopted LEC price cap regulation originally in 1990. It would
set the X-Factor so that the historical difference between
telecommunications price trends and economy-wide price trends will
continue in the future.
The Commission invites comment on a number of other X-Factor
issues, such as whether the X-Factor should include a consumer
productivity dividend. The Commission also seeks comment on the number
of X-Factors that should be established in the price cap plan, to
reflect the fact that each LEC serves regions with different economic
conditions and population densities, and so cannot be reasonably
expected to achieve the same level of productivity growth. In addition,
this Further Notice solicits comment on whether the Commission should
adopt X-Factors that would remain fixed until the next scheduled
performance review, as the Commission did in the initial price cap
plan. Alternatively, the Commission could adopt X-Factors based on a
moving average of past productivity measures, which would be updated on
a periodic basis, such as in the annual access tariff filings.
The Commission also seeks comment on whether the sharing mechanism
can be eliminated. In the First Report and Order in this Docket, 60 FR
19526, Apr. 19, 1995, the Commission found that the sharing requirement
blunts the efficiency incentives otherwise created by the price cap
plan. Therefore, the Commission tentatively concluded that one of the
X-Factors in the long-term price cap plan should have no sharing
obligations, and established a goal in the First Report and Order to
eliminate sharing eventually. Sharing serves three beneficial
functions, however: (1) A ``backstop'' mechanism, in case the X-Factor
was substantially in error, or in case a particular LEC's productivity
varied substantially from the average; (2) a ``flow-through''
mechanism, to flow through to customers gains made by carriers in
reducing their unit costs in excess of specified levels, as measured by
interstate earnings; and (3) a ``matching'' mechanism, to encourage
LECs to choose the X-Factor that most closely matches their actual rate
of productivity growth. This Further Notice seeks comment on the extent
to which the Commission can establish other mechanisms to replace the
functions served by sharing. Specifically, the Commission seeks comment
on whether a moving average X-Factor, together with multiple X-Factors,
could replace the backstop function and the flow-through function of
sharing. To replace the matching function, the Commission could develop
a mechanism to assign an appropriate X-Factor to each LEC.
Alternatively, the Commission could permit additional pricing
flexibility to LECs electing higher X-Factors.
Finally, the Commission seeks comment on a number of related
issues. First, based on the method of calculation of the X-Factor, can
the Commission eliminate the separate price cap formula for the common
line basket? Second, based on the method of calculation of the X-
Factor, would it still be necessary for the Commission to treat some
costs as exogenous?
Ordering Clauses
Accordingly, it is ordered that notice is hereby given of the
rulemaking described above and that comment is sought on these issues.
It is further ordered that pursuant to applicable procedures set
forth in Sec. 1.399 and 1.411 et seq. of the Commission's rules, 47 CFR
1.399, 1.411 et seq., comments shall be filed with the Secretary,
Federal Communications Commission, Washington, D.C. 20554 no later than
November 27, 1995. Reply comments shall be filed no later than December
27, 1995. To file formally in this proceeding, participants must file
an original and four copies of all comments, reply comments, and
supporting comments. If participants want each Commissioner to receive
a personal copy of their comments, an original plus nine copies must be
filed. In addition, parties should file two copies of any such pleading
with the Tariff Division, Common Carrier Bureau, Room 518, 1919 M
Street, NW., Washington, DC 20554, and one copy of any pleadings should
be submitted on computer disk to the Industry Analysis Division, Common
Carrier Bureau, Room 534, 1919 M Street, NW., Washington, DC 20554.
Comments and reply comments will be available for public inspection
during regular business hours in the FCC Reference Center, Room 239,
1919 M Street, NW., Washington, DC 20554.
List of Subjects in 47 CFR Part 61
Communications common carriers, Tariffs.
Federal Communications Commission.
William F. Caton,
Acting Secretary.
[FR Doc. 95-24882 Filed 10-5-95; 8:45 am]
BILLING CODE 6712-01-M
