[Federal Register Volume 64, Number 218 (Friday, November 12, 1999)]
[Rules and Regulations]
[Pages 61527-61532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-29550]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Chapter 1
[CC Docket No. 96-149, FCC 99-242]
Implementation of the Non-Accounting Safeguards of Sections 271
and 272 of the Communications Act of 1934
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: This document declines to reconsider the Commission's Non-
Accounting Safeguards Order. It also clarifies several points
concerning the non-accounting safeguards requirements set forth in
section 272 of the Act, which prescribes the manner in which the Bell
Operating Companies may enter certain markets.
DATES: Effective December 13, 1999.
FOR FURTHER INFORMATION CONTACT: Michelle Carey, Deputy Chief, Policy
and Program Planning Division, Common Carrier Bureau, (202) 418-1580 or
via the Internet at mcarey@fcc.gov. 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 Order
adopted September 8, 1999, and released October 1, 1999. The full text
of this Order is available for inspection and copying during normal
business hours in the FCC Reference Center, 445 12th Street, S.W., Room
CY-A257, Washington, DC. The complete text also may be obtained through
the World Wide Web, at http://www.fcc.gov/Bureaus/Common Carrier/
Orders/fcc99242.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.
Synopsis of Third Order on Reconsideration
I. Introduction
1. On December 24, 1996, the Commission adopted the Non-Accounting
Safeguards Order, 62 FR 2927, (January 21, 1997), in its proceeding
implementing the non-accounting safeguards provisions of the
Communications Act of 1934 (the Act), as amended by the
Telecommunications Act of 1996 (the 1996 Act). On February 2, 1997,
several parties (the Association for Local Telecommunications Services,
AT&T, BellSouth, Cox Communications, MCI, TCG, Time Warner Cable and US
WEST) filed separate petitions to reconsider various aspects of the
Non-Accounting Safeguards Order. For the reasons discussed, we deny all
of the petitions. We also, on our own motion, clarify certain language
in the Non-Accounting Safeguards Order relating to so-called teaming
arrangements.
II. Background
2. Section 272 addresses the safeguards and statutory separate
affiliate requirements necessary for the BOCs' provision of
manufacturing activities, interLATA telecommunications services
originating in their in-region states, and interLATA information
services. Consistent with the statutory framework, the Commission held
in the Non-Accounting Safeguards Order that section 272 allows a BOC to
engage in manufacturing activities, origination of certain interLATA
telecommunications services, and the provision of interLATA information
services, as long as the BOC provides these activities through a
separate affiliate.
3. Parties request reconsideration with respect to the Commission's
interpretation in the Non-Accounting Safeguards Order of various
provisions in section 272. We deny these petitions, and affirm and
clarify the decisions in the underlying Order as follows:
(a) We affirm the prior conclusion that section 272(b)(1)'s
``operate independently'' requirement has no plain or ordinary meaning.
(b) We affirm the conclusion that specific reporting requirements
to implement section 272(e)(1) are unnecessary at this time.
(c) We find unpersuasive BellSouth's argument that a broader
reading of ``marketing'' and ``sale of services'' is consistent with
the language and purpose of section 272, and affirm the view that the
question of whether a section 272 affiliate is operating independently
if a BOC designs and develops its affiliate's services should be
decided on a case-by-case basis.
(d) We affirm the conclusion that section 272(a)(2)(C) does not
exclude out-of-region interLATA information services from the separate
affiliate requirement.
(e) We clarify that the conclusions in the Non-Accounting
Safeguards Order are binding regardless of whether they are codified in
the Code of Federal Regulations and decline to codify further those
conclusions.
(f) We conclude in this Third Order on Reconsideration that section
272 of the Act does not require BOCs to provide video programming
services through a separate affiliate.
(g) We clarify, on our own motion, that the Non-Accounting
Safeguards Order was not intended as an affirmative sanction of teaming
arrangements between a BOC and an unaffiliated entity.
(h) We find that Cox's petition requesting the Commission to
reconcile the Non-Accounting Safeguards with certain other proceedings
is moot.
III. Third Order on Reconsideration
A. Section 272(b)(1)'s ``Operate Independently'' Requirement
1. Inadequate Separation Of Operations
a. Background.
4. Section 272(b)(1) directs that the separate affiliate required
pursuant to section 272(a) ``shall operate independently from the
[BOC].'' In the Non-Accounting Safeguards Order, the Commission
concluded that the ``operate independently'' requirement of section
272(b)(1) imposes certain requirements beyond the structural separation
requirements contained in sections 272(b)(2)-(5), including the
preclusion of joint ownership of transmission and switching facilities
by a BOC and its section 272 affiliate, as well as the joint ownership
of the land and buildings where those facilities are located.
Additionally, we found that the ``operate independently'' requirement
precludes a section 272 affiliate from performing operating,
installation, and maintenance functions associated with the BOC's
facilities, and also prohibits the BOC from performing such functions
associated with the facilities that its section 271 affiliate owns, or
leases from a third party provider. The Order declined, however, to
impose additional restrictions on the sharing of services or on the
joint ownership of other property between the BOC and its section 272
affiliate, concluding that additional structural separation
requirements were unnecessary ``given the nondiscrimination safeguards,
the biennial audit requirement, and other public disclosure
requirements imposed by section 272.'' The Order also concluded that
section 272(b)(3)'s ``separate employee'' requirement does not prohibit
the sharing of services (other than operating, installation and
maintenance services) between a BOC and its section 272 affiliate.
b. Discussion.
5. AT&T and MCI contend that the requirements the Commission
adopted pursuant to section 272(b)(1) inadequately separate the
functions of the BOC from those of its section 272
[[Page 61528]]
affiliate. In contrast, BellSouth contends that the Commission's
interpretation of the ``operate independently'' requirement is too
stringent. The arguments put forth by AT&T, MCI and BellSouth here are
largely the same as those raised, considered, and rejected previously
in this docket. Accordingly, we deny the parties' petitions to
reconsider the interpretation of section 272(b)(1)'s ``operate
independently'' requirement.
6. The Relationship between Sections 274(b) and 272(b)(1). AT&T
asserts that section 271(b)(1)-(9) should be read into the ``operate
independently'' requirement of section 272(b)(1). We affirm the
conclusion in the Non-Accounting Safeguards Order, however, that the
structural differences in the two sections indicate that the term
``operate independently'' in section 272(b)(1) ``should not be
interpreted to impose the same obligations'' as the enumerated
requirements in sections 274(b)(1)-(9). Moreover, construing ``operate
independently'' in section 272(b)(1) to mean the same thing as
``operated independently'' in section 274(b) would render sections
272(b)(2)-(5), 272(c), and 272(e) redundant because the requirements in
those sections and the enumerated requirements in sections 274(b)(1)-
(9) overlap. This would violate the maxim that statutes must be
construed, where possible, so that no provision is rendered inoperative
or superfluous. Thus, we reject this argument.
7. Computer II and the Cellular Separation Rules. We also reject
AT&T's contention that the Commission's interpretation of the ``operate
independently'' requirement is irreconcilable with the prior
interpretation of that same phrase in the Computer II and cellular
structural separation rules. We agree with Ameritech that there is no
``precedent'' in the Commission's rules that defines the term ``operate
independently'' as used in section 272(b). Rather, the Non-Accounting
Safeguards Order interpreted ``operate independently'' to implement a
new statutory provision, relying upon its accumulated expertise and
predictive judgment. Moreover, we note that the Non-Accounting
Safeguards Order determined that the requirements of Computer II would
not necessarily increase an affiliate's operational independence. For
instance, we noted that prohibiting an affiliate from constructing,
owning, or operating its own local exchange facilities, as the
requirements of Computer II would necessitate, could actually increase
the affiliate's reliance on the BOC's facilities.
8. Shared Administrative Services. MCI's contention that the
``operate independently'' requirement of section 272(b)(1) requires
fully separate operations was considered and rejected in the Non-
Accounting Safeguards Order. Consistent with the letter and purposes of
section 272, the term ``operate independently'' does not require total
structural separation. We affirm that the economic benefits to
consumers from allowing a BOC and its section 272 affiliate to derive
the economies of scale and scope inherent in the integration of some
services outweigh any potential for harm to competition created
thereby. We reject as well MCI's argument that the explicit permission
for joint marketing in section 272(g) would not be necessary had
Congress not contemplated fully separate operations. Indeed, contrary
to MCI's assertions, provisions such as the arm's length requirement in
section 272(b)(5), the nondiscrimination requirement in section
272(c)(1), the Commission's accounting principles implemented in
accordance with section 272(c)(2), and the joint marketing provision in
section 272(g), suggest that Congress envisioned the type of sharing
that MCI claims section 272(b)(1) prohibits.
9. We are also unpersuaded by MCI's suggestion that allowing a BOC
to provide administrative services to its section 272 affiliate
undermines the ``separate employees'' requirement of section 272(b)(3).
The Non-Accounting Safeguards Order addressed these contentions, and
the parties provide no new reasons for us to reconsider the
interpretation of section 272(b)(3).
10. Joint Provision of Operating, Installation, and Maintenance
Services. BellSouth argues that the Commission improperly determined
that section 272(b)(1) prohibits a BOC affiliate, other than the
section 272 affiliate, from providing installation and maintenance
services to both the BOC and its section 272 affiliate. The Non-
Accounting Safeguards Order addressed and rejected this argument, and
BellSouth has not offered persuasive reasons to reverse course. The
Order determined that allowing the same personnel to perform operating,
installation, and maintenance services for the BOC and the section 272
affiliate would create a loophole around the separate affiliate
requirement. Furthermore, the Commission determined that such sharing
also would heighten the risk of improper cost allocation with regard to
time spent and equipment utilized. Recognizing the burdensome
regulatory involvement that would be necessary to detect and deter such
cost misallocation, the Commission concluded that an outright
prohibition of shared operating, installation and maintenance functions
is necessary in the context of a section 272 affiliate.
2. Provision Of Local Exchange Service By Section 272 Affiliates
a. Background.
11. The Non-Accounting Safeguards Order concluded that section 272
does not prohibit a section 272 affiliate from providing local exchange
service in addition to interLATA services, provided that the section
272 affiliate does not qualify as an incumbent LEC subject to the
requirements of section 251(c). The Order also concluded that if a BOC
transfers to an affiliated entity ownership of any network elements
that must be provided on an unbundled basis pursuant to section
251(c)(3), the entity would be considered an ``assign'' of the BOC
under section 3(4) of the Act with respect to those network elements.''
As a successor or assign, the affiliate would then be subject to the
requirements of section 272. MCI and TCG petition the Commission to
reconsider the decision to allow section 272 affiliates to provide
local service.
b. Discussion.
12. We reaffirm that section 272 does not, on its face, prohibit a
section 272 affiliate from providing both local exchange and interLATA
services. We reject MCI's and TCG's arguments that allowing a section
272 affiliate to provide local exchange services violates the ``operate
independently'' requirement and the separate affiliate requirement. We
agree with the BOCs that Congress' intent in enacting section 272 was
not to prevent a section 272 affiliate from providing both local
exchange and long distance services. Rather, as concluded in the Non-
Accounting Safeguards Order, the purpose of the ``operate
independently'' requirement is to prevent BOCs from abusing bottleneck
control of local exchange facilities. The BOCs' control over local
exchange facilities does not extend to their section 272 affiliates.
13. In addition to finding that there is no statutory bar to
allowing a section 272 affiliate to provide local service, we agree
with the BOCs that allowing a section 272 affiliate to provide local
services does not pose a competitive risk or violate sound public
policy. TCG offers no new support for its argument, which we reject
once again, that the risks of anticompetitive behavior are greater when
a BOC provides UNEs rather than resold services to its section 272
affiliate. We reiterate that the existing safeguards in sections 251,
252, and 272, as well as antitrust laws,
[[Page 61529]]
possible state regulations, and the Commission's existing cost
allocation and affiliate transaction rules provide protection against
improper cost allocation and discrimination. Finally, we disagree with
TCG and reaffirm that the increased flexibility from being able to
offer ``one-stop shopping'' for both local and interLATA services would
allow section 272 affiliates to create packages of services they would
not be able to offer if confined to the rates and services of the BOCs.
3. BOC Transfer Of Official Service Networks
a. Background.
14. The Non-Accounting Safeguards Order determined that a BOC that
seeks to transfer ownership of its Official Services Network to its
section 272 affiliate in order to provide interLATA services must
ensure that the transfer takes place in a nondiscriminatory manner, in
accordance with section 272(c)(1), and must adhere to the affiliate
transaction rules. MCI petitions the Commission to prohibit a BOC from
transferring or making available its Official Services Networks to its
section 272 affiliate under any conditions. Alternatively, should the
Commission permit the transfer of Official Services Networks, ACTS
urges the Commission to indicate that competitive Lees may bid on any
BOC ownership transfers of those networks.
b. Discussion.
15. We reaffirm that a BOC may transfer its Official Services
Network to its section 272 affiliate, provided that the transfer takes
place in a nondiscriminatory manner, consistent with section 272(c)(1),
and complies with the affiliate transaction rules. The parties dispute
the scope of the restrictions that the MAJ placed on the use of
Official Services Networks, but we need not resolve this dispute
because we have found that a BOC may, under the Act, transfer its
Official Services Network to its section 272 affiliate. Similarly, to
implement the Act, we need not determine whether BOCs have overbuilt
their Official Services Networks, as MCI contends. Rather, pursuant to
the language of section 272(c) and 272(b)(5), we must only ensure that
the terms of the transfer of Official Services Networks are fair and
consistent with our accounting rules.
16. We reaffirm the conclusion in the Non-Accounting Safeguards
Order that the nondiscrimination obligations established pursuant to
section 272, other provisions of the Act, and state statutes and
regulations provide sufficient protection in the event of a transfer of
Official Services Network facilities. We are unpersuaded by MCI's
argument that such a transfer cannot take place at arm's length in
accordance with section 272(b)(5). Transactions between a BOC and its
section 272 affiliate involving the BOC's Official Services Network
would have to comply with our affiliate transactions rules, which
generally satisfy the arm's length requirement of section 272.
Furthermore, our public disclosure requirements help ensure the arm's
length nature of the transaction by subjecting a BOC's transfer of its
Official Services Network to intense scrutiny by both policymakers and
the public.
17. We also reject MCI's unsupported assertion that the BOCs'
transfer of Official Services Networks would inherently discriminate in
favor of their section 272 affiliates. The Commission has explained
that the BOC must ensure that unaffiliated entities are given an equal
opportunity, along with the section 272 affiliate, to obtain ownership
of this network in the event it decides to transfer. We clarify, as
requested by ACTS, that one way in which a BOC may provide such an
equal opportunity to obtain ownership is to allow competing Lees to bid
for ownership of its Official Services Network.
B. Reporting Requirements
1. Background
18. The Non-Accounting Safeguards Order concluded that, with the
exception of section 272(e)(1), none of the reporting requirements of
Computer III/ONA were needed at that time to facilitate the detection
and adjudication of violations of the separate affiliate and
nondiscrimination requirements of section 272. The Order noted,
however, that the Commission would revisit the need for reporting
requirements should future developments warrant. MCI and TRA petition
the Commission to reconsider its decision not to impose reporting
requirements pursuant to section 272(c)(1), arguing that these
requirements are unenforceable absent information about the quality of
services that the BOCs provide to their section 272 affiliates.
2. Discussion
19. We deny the request by MCI and TRA to impose reporting
requirements at this time. Our decision not to adopt specific reporting
requirements was reinforced by the Commission's subsequent adoption of
a Notice of Proposed Rulemaking setting forth a set of model
performance measurements and reporting requirements for Operation
Support Systems (OSS), interconnection and access to operator services
and directory assistance. See Performance Measurements Notice of
Proposed Rulemaking, 63 FR 27012 (May 15, 1998). We determined to
establish model rules, rather than legally binding rules, in order to
allow states that have begun performance measurement and reporting
requirement proceedings to incorporate the model rules as they deem
beneficial, and as an aid to those states that have not yet begun such
proceedings.
20. The model performance measurements and reporting requirements
are designed to help ensure that BOCs meet their nondiscrimination
obligations when providing competing carriers access to critical
support functions. Moreover, the model performance measurements include
certain of the measurements that MCI seeks in its reconsideration
petition. Finally, states, the Department of Justice, and the BOCs
themselves have proposed performance measurements. The specific
measurements that BOCs are proposing, or in some cases have begun to
implement, are in many respects similar to those proposed in the
Performance Measurements Notice. For the foregoing reasons, we deny the
MCI and TRA requests for reconsideration.
C. The Joint Marketing Restrictions Of Sections 271(e)(1) And 272(g)(3)
1. Section 271(e)(1)--Joint Marketing Of Local And Long Distance
Services By Certain Interexchange Carriers
21. We deny US WEST's request that the Commission clarify on
reconsideration its interpretation of section 271(e)(1). This section
provides that, for a period no longer than 36 months after
implementation of the Telecommunications Act, certain interexchange
carriers may not market interLATA services jointly with BOC local
services purchased for resale. Because the 36-month period specified in
this provision expired on February 8, 1999, this provision is no longer
in effect and US WEST's petition for reconsideration on this issue is
moot.
2. Section 272(g)(3)--``Marketing'' And ``Sale Of Service''
a. Background.
22. Section 272(g)(3) of the Act states that ``[t]he joint
marketing and sale of services permitted under this section [272(g)]
shall not be considered to violate the nondiscrimination provisions of
section 272(c). The Non-Accounting Safeguards Order declined to develop
an exhaustive list of specific
[[Page 61530]]
BOC activities covered by section 272(g). The Order did state, however,
that activities such as customer inquiries, sales functions, and
ordering are permitted under section 272(g)(3), because they involve
only the marketing and sales of a section 272 affiliate's services.
BellSouth contends that the Commission construed the terms
``marketing'' and ``sale of services'' too narrowly and urges the
Commission to include planning, design, and development within the
meaning of those terms.
b. Discussion.
23. We affirm that the reading of the section 272(g)(3) exemption
from the nondiscrimination requirements of section 272(c) for ``joint
marketing and sale of services'' is consistent with the language and
purpose of section 272. We further conclude that the broad
interpretation of the ``joint marketing and sale of services''
exception BellSouth advocates would create a loophole that would allow
potential BOC discrimination in countless activities. We disagree with
BellSouth that the reading that we adopt imposes an unqualified
obligation on the BOCs to develop and design their competitors'
interLATA services. As noted in the Non-Accounting Safeguards Order, a
BOC must develop these services on a nondiscriminatory basis for or
with other entities only if the BOC develops such services for or with
its section 272 affiliate. Finally, as to MCI's contention that a BOC
that designs and develops its affiliate's services will not be
operating independently, as required by section 272(b)(1), we affirm
the view in the Non-Accounting Safeguards Order that such
determinations should be made on a case-by-case basis.
D. InterLATA Information Services
1. Out-of-Region InterLATA Information Services. Out-of-Region
InterLATA Information Services
a. Background.
24. The Non-Accounting Safeguards Order concluded that section
272(a)(2) of the Act requires the BOCs to provide out-of-region
interLATA information services through a section 272 separate
affiliate. Section 272(a)(2)(B)(ii) requires a separate affiliate for
the ``origination of telecommunication services,'' other than ``out-of-
region services described in section 271(b)(2).'' The Order concluded
that the section 272(a)(2)(B)(ii) exception extends only to out-of-
region interLATA services that are telecommunications services and does
not extend to out-of-region interLATA information services. The Order
also found that section 272(a)(2)(C) requires a separate affiliate for
``interLATA information services,'' and exempts electronic publishing
and alarm monitoring services from that requirement. The Order
concluded that the explicit exclusion of out-of-region interLATA
telecommunications services in one subsection of the statute, and the
lack of such an express exclusion of out-of-region interLATA
information services in another subsection of the same provision,
suggests that Congress did not intend to exclude out-of-region
interLATA information services from the separate affiliate requirement.
BellSouth and US WEST petition us to allow BOCs to provide out-of-
region information services on an integrated basis.
b. Discussion.
25. We affirm the determination that the statute does not exclude
out-of-region interLATA information services from the separate
affiliate requirement. Accordingly, we reject US WEST's contention that
the exception to the separate affiliate requirement in section
272(a)(2)(B)(ii) for ``out-of-region services'' applies to both
interLATA telecommunications services and interLATA information
services, in the same way that the reference to ``incidental interLATA
services'' in section 272(a)(2)(B)(i) applies to both
telecommunications services and information services. We note,
moreover, in response to US WEST's assertion, the conclusion in the
Non-Accounting Safeguards Order that the incidental interLATA services
exception contained in section 272(a)(2)(B)(i) ``applies, by its terms,
to the origination of incidental interLATA services that are
telecommunications services.'' Although services such as video and
audio programming services, which do not appear to be solely
telecommunications services, are listed within the exception, the Order
stated that the limitation in section 271(h) ``specifies that these
incidental interLATA services `are limited to those interLATA
transmissions incidental to the provision' '' of those services.
Therefore, US WEST's argument that the incidental interLATA exception
encompasses both telecommunications and information services is not
persuasive.
26. Instead, we agree with MCI and TRA that the only exceptions to
the separate affiliate requirement for interLATA information services
are the two specifically identified in section 272(a)(2)(C), i.e.,
electronic publishing and alarm monitoring. Thus, we likewise reject
BellSouth's argument that interLATA information services must fall
within the scope of exempted out-of region ``interLATA services''
because, by definition, interLATA information services are provided via
telecommunications that cross LATA boundaries. We instead agree with
MCI that if Congress had intended to exclude out-of-region interLATA
information services from the separate affiliate requirement, it would
have done so explicitly. We further reject US WEST's and BellSouth's
contention that it is incongruous as a policy matter to exclude out-of-
region interLATA telecommunications services from the separate
affiliate requirement, but to require a separate affiliate for out-of-
region interLATA information services. This policy argument is
foreclosed given that the statute requires that BOC out-of-region
interLATA information services be offered through a separate section
272 affiliate. We, therefore, deny US WEST's and BellSouth's petitions
for reconsideration on these grounds.
2. Codification Of Non-Accounting Safeguards Order Requirements
a. Background.
27. Several new rules, enumerated in Appendix B of the Non-
Accounting Safeguards Order, were promulgated upon adoption of that
order. The Order also imposed numerous other requirements that were not
codified in our rules. ACTS submits that we should codify the
conclusion in the Non-Accounting Safeguards Order that ``BOCs may not
provide interLATA information services, except for information services
covered by section 271(g)(4), in any of their in-region states prior to
obtaining section 271 authorization.'' ACTS claims that codifying this
requirement would reduce the potential for non-compliance and
litigation by the BOCs.
b. Discussion.
28. We note that the requirement addressed by ACTS in its petition
has been modified by subsequent Commission action. In the First Order
on Reconsideration 62 FR 02927 (January 21, 1997) in this proceeding,
we clarified that, prior to obtaining section 271 authorization, BOCs
may provide any interLATA information service designated as an
incidental interLATA service under section 271(g), not just those
enumerated in sub-section 271(g)(4), as suggested in the Non-Accounting
Safeguards Order. Like other conclusions in the Non-Accounting
Safeguards Order and in the First Order on Reconsideration, this
requirement is binding regardless of whether it is codified in the CFR.
We decline to single out this particular requirement for codification
because, as ACTS recognizes, ``there can be no
[[Page 61531]]
possible confusion about this requirement.'' We therefore deny the ACTS
petition for reconsideration on this issue.
E. Other Issues
1. Applicability Of Section 272 To Video Programming Services
a. Background.
29. The Non-Accounting Safeguards Order concluded that, ``pursuant
to section 272(a)(2)(B)(i), BOCs are not required to provide the
interLATA telecommunications transmission incidental to the provision
of programming services listed in sections 271(g)(1)(A), (B), and (C)
through a section 272 affiliate.'' We found this conclusion to be
consistent with the determination in the OVS Second Report and Order,
61 FR 28698 (June 5, 1996). Time Warner asks us to clarify on
reconsideration that section 272 requires a BOC to establish a separate
affiliate to provide video programming services to end users, while it
exempts the underlying transmission service or the OVS platform, which
may be provided by a BOC's local telephone company. Several BOCs
maintain, other hand, that video programming services are not
information services and therefore are not subject to section
272(a)(2)(C).
b. Discussion.
30. We agree with the BOCs that section 272 of the Act does not
require BOCs to provide video programming services through a separate
affiliate. We conclude that interLATA transmissions incidental to the
provision by a BOC or its affiliate of video, audio, and other
programming services are considered ``incidental'' interLATA services
under the Act. Section 272(a)(2)(B)(i) exempts such incidental
interLATA services from the section 272 separate affiliate requirement.
Moreover, as Ameritech and SBC recognize, it defies logic to suggest
that transmission component that itself is expressly exempt from the
separate affiliate requirements would render the video programming
component (which is neither intraLATA nor interLATA) subject to these
same requirements. There is no indication that Congress intended
section 271(h) to cancel out the exemption for audio, video and other
programming services in this manner.
31. In reaching this conclusion, we need not determine whether
programming services are, in some instances, ``information services,''
as defined by section 3(20) of the Communications Act. Even if a video
programming service were found to be an ``information service,'' it
would not be considered ``interLATA'' (and, thus, subject to the
separate affiliate requirement of section 272(a)(2)(C)) if it is
bundled with an incidental interLATA transmission component that is
exempt from section 272(a)(2)(C), for the reasons set forth.
Furthermore, there is no question that a BOC would be permitted to
offer a video programming service directly to the public that is not
bundled with an interLATA transmission component. Finally, we reject
Time Warner's contention that BOCs may provide the video programming
component of an open video service only through a section 272 separate
affiliate. As we have explained previously, ``Congress expressly
directed that Title II requirements not be applied to the
`establishment and operation of an open video system.' ''
2. Teaming Arrangements
32. Section 271(g)(2) states that a BOC ``may not market or sell
interLATA service provided by an affiliate required by this section
within any of its in-region States until such company is authorized to
provide interLATA services in such State under section 271(d).'' The
Commission concluded that ``section 272(g) is silent with respect to
the question of whether a BOC may align [or `team'] itself with an
unaffiliated entity to provide interLATA services prior until the BOC
receives section 271 authorization * * * to the extent that BOCs align
themselves with non-affiliates, they must do so on a nondiscriminatory
basis.''
33. We clarify, on our own motion, that the language concerning so-
called teaming arrangements contained in the Non-Accounting Safeguards
Order was not intended as an affirmative sanction of all teaming
arrangements between a BOC and an unaffiliated entity. In particular,
that language did not address the issue of whether, by entering into a
business arrangement that involves the marketing of an unaffiliated
entity's long distance services, a BOC may be providing interLATA
service in violation of section 271(a). That question was addressed in
the Qwest Order, where the Commission concluded that, although certain
marketing arrangements are permissible under the Act, business
arrangements between a BOC and an unaffiliated long distance carrier
may, nevertheless, violate section 271(a) if the BOC's involvement in
the long distance market enables it to obtain competitive advantages,
thereby reducing its incentive to cooperate in opening its local market
to competition. See In the Matter of AT&T Corporation et al., File Nos.
E-98-41, -42 and -43, Memorandum Opinion and Order.
3. Effect On Other Commission Proceedings
34. Cox petitions us to reconcile the Non-Accounting Safeguards
Order, which found that existing safeguards for BOC provision of
incidental interLATA services are sufficient to protect telephone
exchange ratepayers and competition in telecommunications markets, with
the CMRS Safeguards Notice and the Video Cost Allocation Notice, which
seek comment on what additional safeguards, if any, are necessary to
protect ratepayers and competition. Since Cox filed its petition, we
released the CMRS Safeguards Order, 62 FR 63864 (December 3, 1997). We
concluded in that order that all incumbent LECs (except rural telephone
companies) must provide in-region broadband CMRS, including cellular
services, through a CMRS affiliate, subject to the accounting and
affiliate transactions rules in parts 32 and 64 of our rules. Cox's
concerns with regard to the CMRS Safeguards proceeding, therefore, are
now moot. Furthermore, any concerns that Cox has with regard to the
Video Cost Allocation proceeding are more properly addressed in that
proceeding.
IV. Regulatory Flexibility Act
35. In the Non-Accounting Safeguards Order, the Commission
concluded and certified that the rules adopted in that Order would not,
under the Regulatory Flexibility Act of 1980, as amended (RFA), have
``a significant economic impact on a substantial number of small
entities.'' The rules then adopted pertained only to BOCs, which,
because of their size, do not qualify as small entities. We received no
petitions for reconsideration of that Final Regulatory Flexibility
Certification. In this present Third Order on Reconsideration, the
Commission promulgates no additional final rules, and our action does
not affect that previous final certification.
V. Ordering Clauses
36. Accordingly, it is ordered that, pursuant to sections 1-4, 201-
205, 214, 251, 252, 271, 272, and 303(r) of the Communications Act of
1934, as amended, 47 U.S.C. 151-154, 201-205, 214, 251, 252, 271, 272,
303(r), the Third Order on Reconsideration in CC Docket No. 96-149 is
adopted.
37. It is further ordered that the Petitions for Reconsideration
filed by AT&T, MCI, TCG, Cox, ACTS, US WEST and Time Warner are denied,
as described herein.
[[Page 61532]]
Federal Communications Commission.
Magalie Roman Salas,
Secretary.
[FR Doc. 99-29550 Filed 11-10-99; 8:45 am]
BILLING CODE 6712-01-P
